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The Nation

'Fix The Debt' and Pete Peterson's Long History of Deficit Scaremongering

Fix the Debt financier Peter G. Peterson knows a thing or two about debt: he’s an expert at creating it. Peterson founded the private equity firm Blackstone Group in 1985 with Stephen Schwarzman (who compared raising taxes to “when Hitler invaded Poland”). Private equity firms don’t contribute much to the economy; they don’t make cars or milk the cows. Too frequently, they buy firms to loot them. After a leveraged buyout, they can leave companies so loaded up with debt they are forced to immediately slash their workforce or employees’ retirement security.

In 2006, Blackstone ransacked Travelport, a travel reservation conglomerate, piling on $4.3 billion in new debt, then pocketing $1.7 billion to pay shareholders and itself. Travelport promptly fired 841 workers to meet its new debt obligations. It was a great deal for Blackstone but “a horrible one for Travelport,” according to one investment adviser, who described Blackstone as trading in “poisoned waters.”

Now Peterson wants to loot Social Security. For decades he has warned of a “Pearl Harbor scenario” in which spending on Social Security and Medicare causes an epic economic meltdown. Fix the Debt is only his latest project pushing the message that the deficit poses a “catastrophic threat,” and the media have been content to echo his warnings. But people should know better than to be frightened by this chorus of calamity. Peterson is no master of prediction when it comes to economic crises. When an actual threat to the economy—the $8 trillion housing bubble—loomed ominously overhead, Peterson said nothing, even as credit markets froze, subprime lenders filed for bankruptcy and economists like Dean Baker shouted from the rooftops.

The housing crisis provides a good window into the way Peterson operates. In 2007, Blackstone owned the Financial Guaranty Insurance Company, the world’s fourth-largest insurer, which had branched out from municipal bonds into home-equity securities and subprime mortgage debt. FGIC went belly up in 2010, but by that time Peterson had sold most of his shares in a Blackstone IPO that netted $4 billion. Again, Peterson left others holding the bag. The AFL-CIO had warned the Securities and Exchange Commission that the Blackstone IPO was riddled with problems: the firm was structuring itself to avoid regulation and its real assets and values were unknown. Perhaps Chris Cox, George W. Bush’s man at the SEC, should have listened. A year later, Blackstone’s value had dropped 40 percent. Today, it is trading at $18 a share, showing no signs of the recovery that other Wall Street firms have enjoyed.

Blackstone shareholders may have been miffed, but Peterson walked away with $2 billion (on top of the fortune he already made from the carried interest tax loophole, which allows fund managers to be taxed at 15 percent rather than the standard 35 percent)—and pledged to spend half of that to convince Americans they have to take a harsher route to prosperity. 

Pete Peterson is fond of drawing moral authority from his dad, a Greek immigrant who spent much of his life running a twenty-four-hour diner in Kearney, Nebraska. He says he wants to “preserve the possibilities of the American Dream” for future generations. But this former Nixon man turned Wall Street billionaire is quite comfortable with corporate welfare for the rich, and not at all happy when the 99 percent benefit from the programs they pay into with every paycheck. 

Even before Fix the Debt, Peterson launched a massive effort to prop up the Simpson-Bowles commission and its $4 trillion austerity package, a plan that would “destroy Social Security by stealth,” according to Strengthen Social Security. He bankrolled nineteen “America Speaks” town hall meetings to inform the commission’s deliberations, launched the “Owe No” TV ad campaign weeks before recommendations were released, and bankrolled the Concord Coalition’s “Fiscal Solutions” tour to take the message to the heartland. When the commission blew up, Peterson gave Alan Simpson and Erskine Bowles a new perch at the Committee for a Responsible Federal Budget.

But a funny thing happened on Pete Peterson’s magical misery tour: America spoke back. Even though the educational materials and questions were rigged at the America Speaks town halls, participants rejected Peterson’s austerity message and voted to support progressive policy solutions like a carbon tax and a financial speculation tax instead. 

As John Nichols points out, “Fix the Debt” Peterson is ignoring the biggest poll of all: the 2012 election. In December, Slate declared “The Failure of Peterson-ism.” At this point, many are wondering why Peterson is not being laughed out of the room. 

Perhaps he owns it.

Lisa Graves

Lisa Graves

Lisa Graves is co-director of Documented, a new investigative watchdog group. The former executive director of the Center for Media and Democracy, she served in that role from 2009 to 2017. Previously, Graves was Deputy Assistant Attorney General at the U.S. Department of Justice in the Office of Legal Policy/Policy Development and served as Chief Counsel for Nominations for the U.S. Senate Judiciary Committee for Senator Patrick Leahy. Follow her on Twitter: @thelisagraves

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