California Gov. Newsom wasn’t first to call for sanctions on Russia. But it was the right move
SACRAMENTO — Gov. Gavin Newsom wants California to join other states in piling on Russia for waging war against peaceful neighbor Ukraine.
First, the fact that Newsom is following other governors into action seems strange. He always takes great pride in being first and incessantly boasts about it.
Second, in firing shots at a target as Newsom is asking and other states are already doing, there’s invariably the risk of a ricochet that wounds you.
If we’re hurt, too, is it worth it? And how much will it injure Russia anyway?
As for not being the first, so what? It’s not nearly as important or impressive as Newsom seems to think.
What we’re told from the start in my business is: “Get it first, but first get it right.” Newsom sometimes falls short on the second part.
Concerning the financial blows being thrown at Russia, it’s prudent to ask whether taking a swipe at bully President Vladimir Putin is liable to hurt us as much or more than the target.
We already know that worldwide economic sanctions against Russia are driving prices up at the gas pump.
But in this situation, when Ukrainian women and children are fleeing for their lives, boys are being educated in how to resist the Russian army with Molotov cocktails and grandmothers are wielding AK-47s against tanks, we’re morally obligated to at least use our financial might as a weapon against the enemies of freedom.
“Russia’s brazen and lawless military assault on Ukraine demands our support for the Ukrainian people and exacting an immediate and severe cost upon the Russian government in response to its continuing aggression,” Newsom wrote to California’s three large pension systems Monday in asking them to impose sanctions.
“California has a unique and powerful position of influence given the state’s substantial global investment portfolio.”
Gov. Newsom calls on state pension funds CalPERS and CalSTRS, as well as the UC Retirement System, to divest Russian assets over the war in Ukraine.
Newsom reported that CalPERS — the California Public Employees’ Retirement System — holds roughly $480 billion in assets. It’s the largest public pension fund in the nation. The second largest is CalSTRS — the California State Teachers’ Retirement System. It holds $320 billion. And the University of California Retirement System has $170 billion.
“This combined amount, $970 billion, is equivalent to 60% of Russia’s entire gross domestic product last year,” the governor wrote.
That’s nearly $1 trillion, but I’m not sure how relevant it is.
As of Monday, only $1.5 billion of it was invested in various Russian stocks, real estate and private equity, Newsom said.
But on Wednesday, I was informed by Newsom’s state finance department that those pension investments had plummeted in value by at least 25% in two days.
So, unlike several legislators and some governors, Newsom is advising caution and playing it safe. He’s not asking the pension systems to dump their Russian investments — to divest — at prices far below what they originally paid.
He’s merely asking that they not pour any more pension funds into Russian stuff — and restrain from succumbing to the investor’s temptation to buy low and later sell high. Assuming there ever is a Russian high again after how Putin has sabotaged his country.
“Some buyers will actually see this as an opportunity to buy more Russian stock,” says Laura Tyson, a UC Berkeley business professor, Cabinet member in the Clinton White House and co-chair of Newsom’s Council of Economic Advisors. “They may value profit over principle. But it would be very high risk.”
“We’re not going to be buying,” says California Chief Deputy Finance Director Gayle Miller. “We’re not going to put any more money into Russia at all. That’s what the governor is advising.
“But we’re not saying, ‘Sell what we’ve got at a fire sale to line the pockets of oligarchs.’”
President Biden delivers his first State of the Union speech amid geopolitical and domestic crises that challenge his presidency.
That would hurt the pension funds.
“Their economy is bleeding and we’re helping to prevent a transfusion,” says finance department spokesman H.D. Palmer.
So, the governor isn’t suggesting traditional divestment, as some legislators and other governors have.
Legislators — presumably without thinking very deeply — plan to push a divestment bill. It would require the pension funds to unload their Russian holdings at a big loss.
State Controller Betty Yee opposes that idea.
“Unrealistic calls for immediate divestment will not divorce us from our fiduciary duty to protect the retirement income security of California state employees and teachers,” she said in a statement.
“Divestment is one particular form of sanction,” Tyson says. “The evidence over time suggests it’s not a very effective sanction. It’s more of an expression against a country. But the economic penalty is not as effective as all the things we’re doing” in this nation and many others.
California had one successful experience with divestment in the 1980s, led by Republican Gov. George Deukmejian. Torn by South African apartheid and its violence, he joined Democratic Assembly Speaker Willie Brown in enacting divestiture legislation that helped bring down the bigoted white regime.
“California is signaling to the government of South Africa, and indeed to the world itself, that a great and free people are not going to fall silent to racism and brutal oppression,” Deukmejian said in signing the bill.
Miller was 10 in 1984 when her family left South Africa and settled in Irvine. They were active in the anti-apartheid movement.
“My parents sewed gold coins into their coats to get money out of the country,” she recalls. “There was no other way.”
Newsom wants California — home to the world’s fifth-largest economy — to join President Biden and the rest of the free world in cutting off the flow of money to brute Russia.
He wasn’t the first this time, but he got it right.
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