The Financialization of Education and Sonoma State University Part II.

by Adam
Published: Updated:

By Danny Weil,

This is a four part series; read part I here, read part III here and read part IV here.

This section, part two, of a four part series on Sonoma State University (SSU or “the college”) is more abstract, a bit more theoretical.  It has to be; in order to understand the financialization of the university, its corporatization and the dire consequences all of this poses to campus life we must critically understand the conceptual dimensions of financialization itself.

As I mentioned in the first part of this series, SSU has been quite literally turned over to the exigencies of the private capital market and Wall Street bond underwriters with reckless abandonment.  In this scenario, the campus can be understood as a ‘borrower’.  SSU has also made a number of questionable loans and investments with its monies, lending more support to the conclusion that SSU is more investment bank than academic institution.  In this case, the university has operated as a ‘lender’.  Operating as a lender, SSU has gambled with both private endowment and public funds and lost pitifully.  Couple this with the fact that more and more students borrow to attend SSU and we can see that debt plays a prominent if not central role in the life of the university and its stakeholders.  It also, as we will see, plays a dominant role in the financial machinations of Wall Street, real estate hucksters and equity firms.

To understand the growing financialization of education, it is crucial to examine ‘financialization’ as a concept and thoroughly define it.  In this case, SSU is a part of the growing financialization of the entire global capitalist economy and although this is no place to engage in an in-depth discussion of capitalism, education, like all institutions, cannot be understood divorced from the economic system that underlies it and which it reflects.

With this in mind, I can only hope the reader will persevere in attempting to develop a more nurtured and systematic approach to an understanding of what has and is transpiring at public institutions of higher education, in this case SSU and the California State University (CSU) system.  Rather than using politics as the lens for critical understanding, we must use economics for as Woodward and Bernstein, the two famous Washington Post reporters once counseled: “Follow the money.”

Defining terminology

The term ‘financialization’ simply speaks to the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies.  For further elaboration see: (

Specific examples of financialization under capitalism would be worker/citizens who, through a financial contract and instrument such as a mortgage, are able to trade their promise of future work/wages for a home financed by debt.  Similarly, financialization of risk sharing makes the issuance of all kinds of insurance possible, like home, life, automobile and yes, health insurance.  The financialization of the U.S. Government’s promise to pay debt (bonds), make all federal and state deficit spending (debt/deficits) possible, as in the case of SSU.  For the rentier class (those who lend money like banks and Wall Street investment firms), financialization makes profits derived from economic rents a reality.

When we speak specifically about the ‘financialization of education’, we are addressing how financial motives, markets, specific powerful individuals, corporations and financial institutions impact all of public education.  In grades K-12 we can see the financialization of education through the power of private textbook companies, publicly traded companies like K12 Inc., Educational Management Corporations that manage charter schools and that trade on the NY Stock Exchange, testing corporations that also trade on Wall Street, charter schools, charter school construction fueled by venture capital, for-profit services for such thing as school lunch programs and the corporate financial management of public pension funds, to name just a few financial activities.

At the college and university level, we see it in the issuance of debt by Wall Street in the form of bonds to finance massive deficits for capital construction projects.   In the case of SSU, we also see financialization employing university funds to loan millions of dollars to unsavory real estate moguls for questionable land deals in an effort to seek high-yield returns to pay down debt.  SSU also chased high-yield returns and invested in stock that plummeted with the Great Financial Crisis of 2008.  The problem, of course, is that the administration used Endowment funds to chase risky investments.


Some history of financialization

The wave of financialization began in earnest in the 1980s and was permitted through governmental deregulation and when necessary, re-regulation (neo-liberalism).  Deregulation under neo-liberalism has had the effect of transforming the financial system into one of the most central and powerful sectors of redistributive economic activity in the world.

Here in the United States the repeal of the Glass-Steagal Act that permitted Wall Street investment banking firms like Goldman Sachs to gamble with their depositors’ money held in affiliated commercial banks is the most widely known example of financialization, but hardly a solitary one.  As we will see, SSU, even though it is a public institution in name, much like Goldman Sachs it also used money that did not belong to it (taxpayer and private endowments) to gamble on risky investments.

In fact, the entire span of the last 35 years has seen the wholesale deregulation of the entire American economy and the rise of financialization of the economy or what is also known as a Casino economy.  The result has been the growth and rupture of wave after wave of financial asset bubbles washing ashore more and more innocent bodies under the massive weight of its brute force.

Why financialization?

In 2007, John Bellamy Foster, an internationally recognized economist of some repute developed a critical understanding of the concept of financialization as it pertains to the evolution of the capitalist system over the past three decades:

“Changes in capitalism over the last three decades have been commonly characterized using a trio of terms: neo-liberalism, globalization, and financialization. Although a lot has been written on the first two of these, much less attention has been given to the third. Yet, financialization is now increasingly seen as the dominant force in this triad. The financialization of capitalism—the shift in gravity of economic activity from production (and even from much of the growing service sector) to finance—is thus one of the key issues of our time. More than any other phenomenon it raises the question: has capitalism entered a new stage?” (

We now live in a monopolistic capitalist economy questionably in global descendency, but surely, an economy based more and more on financialization.  The monopoly capitalist economy can be identified as an exclusive system of private production that generates huge surpluses (profits) for a tiny minority of monopolists/oligopolists (the one percent) who are the owners and the chief beneficiaries of the capitalist economic system.  They are aided and abetted by the neo-liberal state (the corporate boardroom) and a coordinating class of politicians who manage the state.  The giant firms strive to achieve the lowest possible costs and this means using the cheapest materials possible and employing cheap labor with little or no environmental regulations. It also means automating entire factories to reduce labor costs.

The crisis of capitalism: stagnation and overproduction

As John Bellamy noted, any understanding of financialization involves comprehending historical capitalist relations of production.  In order to realize and maximize profits, capitalists must invest their surplus/profits into activities that ensure the ever-greater accumulation of more and more surplus (profits) – this means seeking out profit generating and maximizing opportunities.  And this is where the dilemma inherent in the nature of the capitalist system shows itself to be contradictory.

The dilemma the system faces is precisely that capitalist economic conditions of production tend toward increasing stagnation (a slowing down or cessation of economic activity) and overproduction (production in excess of need).  This creates a quandary for the capitalist economic system as a whole; for the same material conditions that give rise to surplus/profits simultaneously create barriers that limit profitable investment due to the dual twins of stagnation and overproduction.

In an effort to understand financialization better, take the following example: presently, corporations are barely able to sell the existing levels of goods they produce to US consumers at prices designed to yield the going rate of profit.  The reason: a fall in consumption due to a fall in consumer demand results in cutbacks in the corporate utilization of productive capacity.  As capitalist/corporations scurry to avoid overproduction and a fall in prices that would threaten their profits, the result is a build-up of excess productive capacity and eventually investment in new capacity must inevitably shrink.  It simply is not profitable for the capitalist to continue to invest in production due to “a crisis of overproduction”.

Currently, 75% of productive capacity (maximum possible output of the economy) is being used in the US while 25% of this capacity lies dormant.  The irrationality of the system means that millions of workers languish with no jobs while one quarter of productive capacity lies quiescent because it is not profitable for the capitalist to invest.

The corporatist’s main solution to the problem of stagnation and overproduction has been, from the 1970s on, to shift and expand the demand for financial products, as opposed to actual productive capacity or real products, as a means of investing capital and maintaining and expanding it.  In other words, capital has looked for more profitable investments in finance than it can find in goods or services production as demand falls, production forced to decrease and personal and public debt rises.  Financialization now represents 40% of the capitalist economy in the U.S. as jobs have been outsourced.  The majority of US citizens are now basically broke and in debt; the domestic production of manufacturing goods and many services have dried up or have been shipped overseas.

On the supply side of this process, financial institutions have stepped forward with a vast array of new monetary instruments for the capitalists to invest in: there are now financial products like futures, mortgages, options, derivatives, hedge funds, student loans, bonds, debt, and the list could go on. The result of these new financial instruments has been skyrocketing financial speculation that has persisted now for decades with frequent bubbles, accompanied by a parallel meteoric rise in private and public debt and eventual collapse.

As public funds continue to dry up for colleges and universities with hardly a trickle remaining, there is now big money to be made by Wall Street through crisis-debt issuance, bond underwriting, debt financing, debt management and the like. The revenue from higher education alone in the US is worth over $400 billion or more ( making the educational sector extremely attractive to financial hucksters looking to make a profit off the public dole.  The best way to do this is through the issuance of debt.

The growth of debt and the financialization of education

Economist Paul Magdoff, writing in the economic journal Monthly Review, in 2006, made this salient point:

“The divergence between the growth in outstanding debt in the economy and the underlying economic growth is truly astounding. In the 1970s, outstanding debt was about one and a half times the size of the country’s annual economic activity (GDP). By 1985, about the time that they were increasingly focused on the subject, it was twice as large as the GDP. By 2005 total U.S. debt was almost three and a half times the nation’s GDP (see chart 2), and not far from the $44 trillion GDP for the entire world” (

That’s just public debt.  Private debt is also skyrocketing with student loan/debt now surpassing $1 trillion dollars, not to mention credit card debt of close to one trillion.  All of this is related to the skyrocketing tuition and fee costs.  We spoke about tuition at SSU in the first part of this article. Tuition in the CSU system has tripled since 2002-03 ( bin/article.cgi?f=/c/a/2011/11/16/BA2L1M001V.DTL#ixzz1tA1BeJ9o).   Nationally, it is up 45% from August 2009-2010 (

Student loans are a prime example of financialization through debt.  With no jobs awaiting them when they graduate college, student loan debt is not even serviceable, let alone payable (The Bureau of Labor recently reported that only 54.3 percent of adults 18-24 are employed, making it the lowest level of employment since the government began tracking data in 1948).

The financialization of the student loan debt occurs when student loan debt is transformed into asset-backed securities (ABS).  The value and income payments from the ABS’s are ‘collateralized’ (“backed”) by a specified pool of underlying assets.  None of the ABS can be sold individually.  This is why they are sold to large institutional investors.  By ‘pooling’ the assets into ABS, this allows them to be sold to general institutional investors.  This process is called securitization.

Securitization allows the risk of investing in the underlying assets (ABS) to be diversified because each security will represent only a fraction of the total value of the diverse pool of underlying assets.  Asset Backed Securities can include payments from credit cards, auto loans, mortgage loans, royalty payments and even movie revenues (everything is financialized).  As the reader can see, ABS’s are the origin of the sub-prime mortgage fiasco. Like the sub-prime mortgage loans, there is nothing backing the ABS’s except promises to pay.  When the bridge goes down as it did with the sub-prime mortgages, all the ABS that reflect sub-prime mortgages go down as well.  The same will happen with student loan debt.

Student Loan Asset Backed Securities (SLABS) are a major sector of the ABS market. There are more than $400 billion in assets backing various student loan deals that are issued in the market.  SLABS, like the sub-prime loans, are traditionally a favorite for fixed income investors.  This is owed to their high credit quality (as stamped by the crediting agencies like Moodys) and low volatility.  SLABS are now institutionalized as well; they form a regular fixture in all the major institutional investors’ portfolios.

Now that student loan debt has reached a milestone — $1 trillion on April 25, 2012, many investors realize there are many other variables, which affect the timing and realization of cash flows of student loan securities.  One such factor that was not accounted for when investors originally invested in SLABS is the massive student default rates that are sweeping the country.  This coupled with bleak employment opportunities have forecasters already talking about the next financial bubble to burst.  Many financial investment firms boast investment tools for determining the risk of a SLAB and managing them as investments (  Like capital construction debt, the whole sordid affair is big business.

At the same time massive debt and high levels of unemployment constitute the landscape of student lives advertising, selling, buying and managing this debt continues to hold out great promise and profits for the financial institutions involved in dicing them up into little pieces, scattering them with SLABS and selling them.  For example, on July 1, 2012 student loan rates are due to double, from 3.4 to 6.8 percent, all good news for the banks that hold the paper (

The beauty of the SLABS for investors is that since the debt is non-dischargeable in bankruptcy court, the financial institutions and holders of the SLAB have nothing to worry about; they get paid by taxpayers if students default — a form of direct subsidy or what is referred to as “socialism for the rich”.

A simple Public Records Act Request to SSU should reveal how many students at Sonoma State University are taking out student loans.  Public Record Act Requests take time though, and for the purposes of this article there is no time; one can suspect that many, many SSU students must avail themselves of debt in order to receive an education.  This then leads to another realization: at SSU and at most colleges and universities faculty is paid through student debt; students never tender tuition and fees at one time.  Unless their parents, some loved or benefactor is able to proffer the ‘cash’ up front, many if not most students rely on some form of student debt – Stafford Loans and the like – to pay for tuition which partially constitutes revenue used to pay faculty.

Boiling higher education down into a sickening monetary roux

The notion of college itself is pitched, hocked and marketed just as SLABS, as a mere commodity — ‘an investment in the future’ with a ‘high yield return’ for meager employment purposes.  The stale rhetoric of business permeates the entire enterprise.  Under the neo-liberal regime of financialized capitalism, students are now forced to spend an exorbitant amount of time on their own personal finances — things like applying for grants and student loans; or waiting for notice if a loan has been approved; asking their parents for financial support; arranging promissory notes with financial aid officers or bankers; finding work or looking for a part-time job to ease their debt.  All of this when students are supposed to be engaged in study and attending classes.  The relationship between the institution and the student is now simply an ‘exchange relationship’ and one of unquestionable waste, since nothing is produced but debt for the majority and wealth for a select few.

On the supply side faculty are told that that they need to think about ‘instrumental rationality’.  This would include ‘efficiency savings’ (‘salary savings’) or the need to be concerned with how to best ‘invest in the future growth’ of the school (acceding to privatization).  ‘Knowledge’ is now also viewed as a commodity to be produced for future ‘revenue sources’ (research for private companies).  Then, of course there is the rancid language of competition, which clearly expresses the immoral underpinnings of the entire enterprise like, ‘competing with China’, or ‘competing with other countries in the world’.

All this sophistry revolves around finance and profits for a select few, not opportunities for human development for the majority of citizen/workers.  So at SSU, one will find little discussion from the president or his administrative cohorts on issues such as academic excellence, comprehensive teaching, critical learning or the contemplative life and educating a public citizenry.*

In the summer of 2009, speaking about how “universities are doing in this highly uncertain, fiscally-brutal environment”, GlobalHigherEd, an online journal, quoted Moody’s, one of the two big global financial rating agencies.  Moody’s chose the following language to speak about what have now become investment opportunities in public education for private capital:

“…universities are proving to be appealing investments for government stimulus efforts due to the sector’s stabilizing, countercyclical nature in the short term as well as its potential to stimulate long term economic growth” (

Moody’s argument: as the economy plummets for the 99% an increasing amount of people are more likely to consider “investing” in higher education.  From Moody’s point of view they do so not necessarily to become educated, but as a means of waiting out recession, positioning themselves for the capitalist employment market if, and when, it revives.  In other words:

“For Moody’s this all means a possible ‘tail-wind’ for universities as student demand increases — particularly those who have an access oriented agenda” (ibid).

Moody’s even states in their 2009 report, Global Recession and Universities: Funding Strains to Keep Up with Rising Demand  that:

“the global public university’s’ ‘credit quality’ is “steadier” than that of private universities” (ibid).

All of this is paradoxical and dialectical for Moody’s also noted in their report that in order to weather the storm, public universities throughout the world were going to have to become more ‘private’.  This is because, in Moody’s judgment, they will face government disinvestment due to austerity or budget cuts and thus the public universities will have to augment their budgets by wooing private funds.  Moody’s couldn’t be closer to the truth.

When we look at institutions of higher education we can find financialization in almost every corner of their budgets.  For the purposes of this article we will limit our discussion to the most salient and look at three prominent financialization issues that are now ravaging the SSU campus.

I.      The issuance and service of debt in the form of bonds, specifically related to unfunded massive capital construction projects;

II.    The corporatization of SSU’s governing process and the financialization of accounting;

III.   Poor, unwise and irresponsible, if not illegal, investments in real estate and the stock market.

We start with the service of debt: last year’s 2011A bonds issued as debt by the California State Treasurer on behalf of the entire CSU system.


I. Sonoma State University Debt: how CSU debt pays big time for Wall Street

The fourteenth issue of The Chronicle (see part one for a full explanation of the origins of the Chronicle), dated December 2009, addresses the increasing financialization of SSU with the resultant wholesale abandonment of its academic mission.  The issue is debt:

“Even considering General Fund and enrollment cuts, student fees increases [sic], and employee compensation decreases, we believe the administration’s management of our burgeoning debt is the single most pressing problem facing SSU” (Chronicle XIV: Debt 101 Revisited, December 2009).

The report continues on observing:

“Since 2002, SSU has taken on over $318M in debt (including interest) in the name of its auxiliaries.  Debt payments total $11M a year for the next 20 to 34 years. And, if all goes well for the administration’s plans, they will take on an additional $122M in debt principal, not including interest, over the next five years (ibid).

Explaining recent figures of SSU debt is the following from Robert Karlsrud:

“SSU’s long term debt was $159,236,392.  Now you have to add the $60,570,000 for the Student Center for a total of $219,806,392. Principal plus interest 2012 through 2040 is $286,248,500 plus $126,828,240 for the Student Center for a grand total of $413,076,740.

Last year the interest payment came to a little over $7M while the principal payment was $4M.  So that is $11M before the Student Center is figured in.


The debt is held in System-wide Revenue Bonds so that means (as far as we can tell) that the public owns the debt” (private e-mail from Robert Karlsrud, 3/26/2012 9:40:26 A.M. Pacific Daylight Time).


Add in the tens of millions of debt for the new Student Center due to be open in late 2012  and SSU’s debt payments will have nearly tripled since 2007.  Servicing the debt is now the mission of the college, not education.


In 2008, arguing that the ‘crisis’ at SSU is self-imposed and not result of the state budget, the Chronicle noted that the Chief Financial Officer (CFO) of SSU admitted to gross levels of debt:


“The CFO recently confessed that from a “debt perspective,” SSU is “highly leveraged for a campus of our size”. One can only wish that the CFO had followed the sage advice given by Mr. Micawber to young David Copperfield: “Annual income twenty pounds, annual expenditure nineteen, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, – and in short you are forever floored” (Chronicle IX: Debt 101, April 3, 2008).


The debt crisis facing the college has no grown to arguably unmitigated levels.  The current state of the budget can be seen in the machinations of persistent tuition and fee hikes that have permeated the crisis.  Yet student fee increases and auxiliary revenues do not go to teaching and learning, instead they are pledged to debt service and debt reserve. **


Rubber stamping decades of capital construction projects and hurling the university into debt is now having the unintended consequences, or blowback, of forcing the university to scale back its academic mission to educate students.  As we will see in part three of this series, students cannot get in the institution (admissions) and they cannot get out (graduation) due to unbearable costs and lack of accessible classes.***


California issues bonds for the CSU system


On November 1, 2011 the amount offered in public bond purchases by the State of California for the CSU system was $429,855,000. The proceeds of the Series 2011A Bonds that were floated as debt were designed to be used solely for the purpose of financing and refinancing the acquisition, construction, improvement and renovation of certain facilities of CSU.


Specifically, the 2011A Bonds were issued to be used for campus student housing, student unions, parking, student health facilities, continued education facilities, and facilities of certain auxiliary organizations and other entities throughout the CSU system.  The 2011A bond issuance amount was problematic for it was above and beyond the already $3,179,768,000 aggregate principal amount of revenue bonds that were then currently outstanding (

To pay the cost of interest (the bonds are 25 year and 30 years in maturity and pay 4.52% and 4.60% respectively) the CSU trustees indicated that:

“….revenues pledged under the System Wide Financing Program generally include student housing fees, student union fees, parking fees, health center facility fees and continuing education fees derived from substantially all of the housing, parking, student union, student center, student health center and continuing education facilities owned or operated by the Board and other projects and revenues designated by the Board for inclusion in the Systemwide Financing Program” (ibid).


The debt service for the bond issuances must be paid for at SSU by filling the dormitories and raising revenues from meal plans.  Dormitory revenue has been pledged to bond issuance.  The campus wants freshmen who are then also required to purchase a full-meal plan when the rent dorms. As Chronicle authors noted:


“Full dorms and meal plans generate revenue. No one should doubt that at SSU debt drives curriculum” (The Chronicle, Chronicle XXII: State of the University, 2012, March 19, 2012).


Here is the way the bond process works.  Once the Series 2011A Bonds were issued in November of 2011, they were purchased by an underwriting group represented by Barclays Capital Inc. The bonds were subsequently purchased directly from the California State Treasurer who was authorized by the Board of Trustees for CSU to issue and sell the bonds to investors.  The underwriters purchased the Series 2011A Bonds at a price of $473,980,541.72.  The price represents the principal amount of the Series 2011A Bonds, plus a net original issue premium of $46,206,768.55, less an Underwriters’ discount of $2,081,226.83.


As the underwriters and sellers of the bonds, the usual suspect Wall Street firms such as Merrill Lynch, J.P. Morgan, Barclay Bank, and others have entered into selling agreements with still other corporate interests to sell the bonds to institutions and the general public.  Financialization occurs each time the firms sell a bond and take a commission or fee. **


Pledging future projected revenues as collateral for debt is how the CSU system plans to pay investors for the cost of the bonds.  The problem arises when the projected revenues are based on unexamined and erroneous assumptions.  In this case, the bonds would not be able to be paid and the system would go bankrupt.  This is precisely the crisis that SSU faces today with unreasonable projected revenues.


Buying and selling financial instruments, such as government bonds, while skimming off fees is big business for the ‘one percent’.  Municipal bond scams are also one of the great sources of big business by the one percent (  Investigative journalist, Matt Taibbi recently related the story of how Bank of America rigged municipal bond bids (




All SSU requests for approval for construction projects must go through the CSU Chancellor.  The Chancellor has never turned down a request from SSU, even though the 2012 debt service alone ($12 million) will be over one-third of the 2010-11 Academic Affairs fiscal budget for ($34 million) (The Chronicles, XXII, March 19, 2012).


It seems that at SSU, a coordinating-class of highly paid administrators, under the medieval mindset of SSU shot-caller, President Ruben Armiñana and with the collusion of the CSU system, has gambled recklessly and shamelessly with the finances of Sonoma State University.  They appear to have lost. SSU’s income and assets are insufficient to cover the debt. The result could be disastrous for SSU and the CSU system at large.  It is already proving, as we will see, to be catastrophic for students, faculty and workers.


II. The Corporatization of Sonoma State University

When Ruben Armiñana became president of Sonoma State University in 1992, the road to corporatize the university was already being well paved.  What Armiñana was able to do in his twenty-year tenure, however, was unlike anything his predecessors had envisioned.  Armiñana had a singular vision of the financial development of the campus and this was to hinge on more and more construction.

The rise of a plutocratic coordinating class

For Armiñana to embark on the path of financialization and construction, he realized he would have to employ a supplicant coordinating class of highly paid administrators to set into place the corporate infrastructure. SSU paid 76 administrators over $100,000 in 2010 (

In a sophistic slight-of-hand, Armiñana in an attempt to divert student attention from his unilateral imposition of $150 dollars in student fees for a new Student Center, Armiñana, told students on February 23, 2012 (after construction on the Student Center was already underway) to press Governor Jerry Brown to stop cutting state colleges and to restore funding to the state’s public higher education system (

Certainly public education in the state of California needs revenues and these revenues must be raised through a tax on the one percent.  Armiñana is correct.  But this is a red herring in the context of Armiñana’s actions. For what Armiñana is really attempting to do is place blame on the problems at SSU primarily on the state and this is little more than manipulative propaganda.  Armiñana, in a clever move, is hiding behind both a crisis in public education and a catastrophe he helped create at SSU (

Take for example Armiñana’s own salary.  Armiñana is one of the highest paid CSU presidents in the 23 member system ( Referring to himself as CEO of a public institution, he is also the highest paid government official in Sonoma County — $341,283 a year.  This is nearly twice what Governor Jerry Brown earns ( This is not counting his $60,000 he receives annually as a “housing allowance”, nor the $12,000 annual “car allowance” he receives.  All of this in the face of the fact the SSU faculty is among the lowest paid in the system and the Sword of Damocles is descending on public education.

Privatizing the organizational structure of SSU

The new mini-investment bank campus would need to shuffle monies from actual education to other categories in an effort to support the myriad capital construction projects. Enron accounting strategies would be needed to move money around like a game of Three Card Monty.

Part of this new corporate infrastructure included the internal privatization of certain ‘auxiliaries’, such as the Sonoma State Enterprises (SSE) and the privatization of Sonoma State University Academic Foundation (SSUAF) that serviced the campus for years.  So, for example, the SSUAF was transformed from an academic support center servicing the students, into an arm of the campus as ‘investment branch of Bank of Sonoma State University’.  The Foundation has no employees. It is managed by Administration & Finance (A&F). President Ruben Armiñana serves as Chairman of the Board.  SSU’s VP for Development serves as President and SSU’s CFO as VP and Chief Operating Officer. According to the Chronicle, in recent years, the Foundation has become a pass-through for the new Green Music Center funding (Chronicle XII, March 19, 2012).  It seems now the Student Union Auxiliary seems to be on the block with (A&F) set to colonize the auxiliary and plunder the funds.  All of this will fold into the new Student Center building (private e-mail from SSU professor, April 23, 2012).


In the Chronicle XII of September 30, 2009, the authors argue that ever increasing debt associated with the Green Music Center and other campus construction projects has sunk one academic and student-oriented program after another.  Money, they concur, is consistently moved from one shell organization to another in an attempt to service debt and capital construction (page 78 and 79 of Chronicle IX: Debt 101, April 3, 2008, shows some of the debt and the SSU auxiliaries involved in servicing and paying it.  This all serves to lend credence to the fact that corporatization of the university turned auxiliaries into institutional branches with murky accounting practices). ****


All of these auxiliaries were all diverted from their original mission of assuring academic excellence, corporatized, packed with cronies and redirected towards the development of the Green Music Center and other coveted capital development projects.

From the perspective of the Chronicle, the college has become an oversized construction site equipped with an accounting office that has seen its responsibilities shift from students and education to Wall Street and capital construction projects.


As reported in Chronicle X:


“A faculty SSE Board member has gone so far as to suggest that votes be by secret ballot as everyone is beholden to the President who chairs the Board. Board members include the President, 2 administrators from A&F and 1 from AA, 3 faculty, 2 staff, 3 students, and 2 community members. Both community members are donors to the Green Music Center (GMC) — one in the $200,000-$500,000 range” (Chronicle X, September 3, 2008).


Conglomerating academic departments and throwing faculty on to the ‘computer rack’ of distance learning have all been floated by Armiñana as cost saving measures in this new corporate model of education that seeks to sacrifice education for physical development.


In effect, what the corporate reorganization of the college has managed to accomplish is to assure that there is plenty of ready cash for Armiñana’s pet construction projects; meanwhile students suffer the loss of access to the college and classes, access to academic programs, and remain the objects of rapid and regular fee increases.  Ironically, SSU displays the grotesque features of a Latin American dictatorship, as faculty suffers the humiliation of being reduced to low-cost Wal-mart workers with little say in how their workplace and the college are run.


SSU loans money to land developers: speculative investments that fail using endowment funds, the Carianalli loan scandal and chasing high-yield stock returns on Wall Street 

Another way that financialization works at SSU is through university portfolio stock investments.  Stock investments, of course, are part of the financialization process; so too, in the case of SSU, are real estate loans.


The Carianelli real estate loans


Between 1994 and 2007, the SSU Foundation entered into numerous and scandalous real estate loan agreements with Mr. Lem Carianalli, a well-known Sonoma county real estate developer, now bankrupt. Carianalli conveniently sat on the SSU Foundation Board, and the loans he pocketed from SSU came just two days after he resigned from the SSU Foundation Board of Directors.  There is no direct evidence that Carianalli arranged these loans behind the scenes with perhaps other members of the SSU campus or board.  His sudden resignation coming right on the heels of direct loans of $9.6 million from the same SSU Foundation he sat on.  This smells awful fishy.  If nothing else there’s certainly an appearance of impropriety.


Why did the university loan money to shady real estate developers during the heady days of artificially rising real estate prices and plummeting stock prices?  The answer might be that SSU was searching for the highest returns they could get so they could shovel the money into more capital construction projects, or at least pay off the debt for the projects they had taken on.


In Chronicle XV we learn:


“Carianalli stopped making payments to creditors on his $200 million debt this June (2009), he had two outstanding obligations to the Foundation: a $1.25 million loan on 10-acres of vacant rural land near Windsor and an unsecured $232,500 loan.  Foundation executives, who urged approval of the loans, stated on numerous occasions that the loans were secured, although legal documents showed that one was not” (Chronicle XV).


The local county newspaper, The Press Democrat, reporting on the nebulous loans, challenged the University to “offer a complete public accounting of what transpired” regarding all of the $9.6 million in Carianalli loans (the Press Democrat (11-16-09).  The SSU Foundation had become, in the eyes of the Press Democrat and the faculty and staff at the college, little more than a corporate lending arm of the university, analogous to what GMC Finance was to General Motors.  In the case of GMC Finance, the corporate arm earned more money than General Motors Corporation did by manufacturing and selling automobiles.


Similarly, the SSU Foundation was more interested in floating real estate loans than focusing its attention on academic issues and excellence.  The university, for all intents and purposes, had become a corporation on to itself with its own higher echelon of “corporate decision makers” with big yield targets.


On November 20, 2009 the SSU Foundation Executive Committee issued a statement regarding the chronology of the Carianalli loans:


“Foundation executives provided their chronology for the $232,500 loan, which began as a secured $732,500 agreement in 1997. Carianalli repaid $500,000 in January 2005, requested and received a lower interest rate and extended term in 2007. In June 2009, Carianalli stopped making payments to creditors and the Foundation commissioned a title search that found the loan unsecured. When contacted by the Foundation with this information on July 8, 2009, Carianalli responded that it must be an error in County records and fully repaid the loan the next day. Foundation officials “believed” Mr. Carianalli since they had been “unable to locate any documents indicating that it had authorized the release of all parcels securing the loan” (ibid).


Apparently, the Foundation executives, clubby as they were with Carianalli (they shared a seat on the board) evidently chose to put their blind trust in Carianalli rather than the Official County Records that proved the loan unsecured. Even more troubling, they never mentioned any of this during investigations by The Press Democrat, nor was any of this revealed to the public.  Even more amazing, the university, using the Foundation, chose to service all their mortgages through Sonoma Mortgage & Investment Company, a company owned by Lem Carianalli.   Carianalli was astoundingly also allowed to pick his own appraiser for the $1.25 million Windsor loan the Foundation gave him. To top off the whole seedy scenario, the co-author of the appraisal lost her license for forging documents.


Much like the financialization schemes on Wall Street that resulted in bubble bursts and the Great Financial meltdown, the Foundation-Carianalli connection reeks of illicit white collar behavior, procedural problems and questionable loan deals. The university was either so fatigued by this point they were asleep or alternatively, so up to their necks in cronyism they simply didn’t care.  The Foundation didn’t even undertake the due diligence necessary to notice that the appraisal used figures for land within the Windsor town limits that was zoned commercial and urban residential, while the subject property of the loan was unincorporated, zoned rural residential and agricultural (Press Democrat 11-3-09).


As the Chronicle drives home, all of these financial relationships raise some very important questions that to this date have not been answered.  For example, isn’t the goal of an endowment to make safe and secure investments that provide stable income to programs in good and bad years?  And what about the Foundation losses in the stock market?  Was the university gambling with other people’s money?


Chasing high yield returns


Foundation investments, in both the stock market and the Carianalli loans, may once have yielded decent returns for the university.  However, one can’t say this now looking at the $10 million dollars in losses from various faulty investments.  The $1.5 million in bad Carianalli loans actually “pales in relation to the other Foundation’s $8.2 million investment losses for 2008-09” (The Chronicle XV).


Total funds managed by the Foundation have resulted in a decline of assets of nearly $50 million since 2007. The restricted Endowment funds managed by the Foundation, whose earnings are supposed to pay for scholarships and academic programs, has remained stagnant since 2004 and declined in value, all to the programs’ detriment (ibid).


Meanwhile, in the last few years the Foundation’s pooled investments lost 25% while many students are unable to get in the university due to the high cost of tuition, imposed fees and filled classes, and those attending are unable to get out, or graduate, due to a lack of available classes.


The Chronicle noted that in April 2008 the Foundation revised its Investment Policy to a higher risk strategy that included greater asset allocation to International Equity and Alternatives (e.g., Hedged Equity and Real Estate funds).  This was done to chase high interest yields.  Under the Allocation Planning Model, known to SSU’s investment broker, the Common Fund as the “Monte Carlo Simulation,” only 11% of funds were invested in Fixed Income, with the remainder in Equities (SSUAF minutes, 4-08 as quoted in Chronicle XII: A Closer Look at the SSU Foundation, September 30, 2009).


As in any casino, SSU gambled and lost. Chasing high interest yields is the stuff of investment banks, like Goldman Sachs.  Interestingly one of the members of the Foundation also works for BAMN Advisor Services.  The company pegs itself as “prudent and proven”:


“a turnkey asset management provider, BAM provides support and guidance to a nationwide base of advisor-firm-clients who demonstrate a shared commitment to offering investors superior wealth strategy services (,1).


Their motto: “Leveraging your time to build a super investment advisor firm” (ibid).  this of course all lends credence to the claim that SSU operates more like Goldman Sachs than it does an institution of higher learning.

The minimum long-term total return objective for the Foundation portfolio is inflation plus 5% (SSUAF audit 2008, pg. 15, as quoted in Chronicle XII: A Closer Look at the SSU Foundation, September 30, 2009).  With the low inflation of recent years a five percent return surely was possible and would have provided a safe harbor for investments at the peak of the mortgage crisis. As the authors of the Chronicle opined, one can only wonder if the aggressive investment strategy pursued by the Armiñana administration was designed to increase unrestricted funds (the difference between the 4% distributed and the 10%+ earned), so that this money could then be allocated as discretionary and used to fund the Green Music Center, spiraling debt or other pet projects.




The SSU Foundation has morphed into little more than a mini-investment bank for expensive capital construction projects like the Green Music Center.  Its executives seem to see themselves as flashy CEO investment bankers or vulture venture capitalist chasing high-yield returns in a descendant capitalist system.


Surely all of this financial wheeling and dealing and the Foundation’s and president’s entrepreneurial hustling has detracted from SSU’s stated educational mission.


SSU not alone: the financialization of education is a national phenomenon as performing arts centers spring up throughout the nation

The issuance of debt through for capital construction projects (performing arts and music facilities) is a national trend and not simply limited to Sonoma State University, the Green Music Center or the state of California. Costly art and performing centers are sprouting up at campuses throughout the nation, even in face of the rising costs of tuition and fees.  It’s all good for business as bonds are issued by the neo-liberal government, Wall Street buys and sells them for a fee and the actual construction of the projects are contracted out to corporations. Internally, highly paid college administrators are employed to shepherd along the projects, manage paperwork and supervise accounting systems that hide or bury debt.

Here are just some of the high-end capital construction projects scheduled or completed at campuses throughout the US:

  • The 85,000 square foot Hylton Performing Arts Center, on the Manassas, Virginia, branch campus of George Mason University, opened last fall at a cost of $46-million. Modeled on 19th-century European opera houses, its 1,121-seat theater includes a copper ceiling and three levels of box seats.  The Arts Center was built by Architecture in New York and Hughes Group Architects (HGA) in Sterling, VA; *****
    • Officials of California State University at Northridge spent 10 years planning a $125-million performing-arts center and figuring out how to pay for it—securing more than $60-million in capital-projects money from the state and raising millions more from gifts and grants. They pleaded with donors and local politicians to make up shortfalls and promised anxious students that none of the money would come from their pockets.  The center was also built by HGA Architects and Engineers, Minneapolis;
  • In February of 2011, James Madison University, in Harrisonburg, Virginia, opened its five-venue, $82-million Forbes Center for the Performing Arts. The 175,000 square foot Forbes Center is comprised of the Dorothy Thomasson Estes Center for Theatre and Dance and the Shirley Hanson Roberts Center for Music Performance and houses five state-of-the-art performance venues: the Main stage Theatre (450 seats, the Concert Hall (600 seats), the Recital Hall (196 seats) the Studio Theatre (200 seats) and the Earlynn J. Miller Dance Theatre (200 seats). It also includes classroom, rehearsal and office facilities. Architects for the project were Hanbury Evans Wright Vlattas Co. and the contractor, Nielsen Builders;

Performing Art facilities have opened within the past year or so not just at George Mason University’s branch campus in Manassas, Virginia, but also a $46-million project at Sam Houston State University, Texas, $38.5-million project on Montgomery College’s campus in Silver Spring, Missouri, and a whopping $31-million project has been spent (


The fingers of financialization have managed to reach deeply into SSU’s pockets.  President Ruben Armiñana’s legacy will certainly be up there with that of mysterious Easter Island.  For Easter Island, the theory of the island’s collapse was based on the notion that the minimum number of individuals required to sustain the species was higher than the maximum number of individuals the island could provide for.  At SSU the situation is diabolically the same.  SSU, as an island of debt is unsustainable.  The unfortunate part is that it might have already crossed the Rubicon when it comes to economic recovery.  This could mean a number of things as time goes on from closing the campus to selling seats to the burgeoning Asian upper and middle classes who would like nothing better than to spend some time in beautiful Sonoma county, sipping wine, enjoying the music at the Green Music Center, shaking hands with notable personages like Sanford Weill, former CEO of Citigroup.  One thing is for sure, under the current Sword of Damocles, in the casino economy one can bet that US working class and middle class students will find it harder and harder to get into SSU — unless of course they wish to labor for minimum wage at the Green Music Center under the tutelage of the one percent.  Perhaps it is time to take stock in our peculiar age of descent and begin to think critically before it is too late.

And this brings up one final point: as we will see later in the series, there is also a cultural component to this sordid story of financialization.  The conception and development of these art and performing centers around the nation offer the rich and famous (one percent) unique opportunities to host music, art shows, and wine and dine their friends while students serve figuratively and literally at the Green Music Center as valets and butlers, laboring at minimum wage for the same institution that is driving them into debt — all under the auspices of education.

Part one of this series attempted to look at some of the problems at Sonoma State University with an eye on the capital construction projects that have left the school swaddled in debt.  In this section of the article, I hope the theoretical discussion of financialization and corporatization as they apply to SSU sheds some light on the current predicament the college and its stakeholders find themselves in.  As I write this, faculty at the CSU system will be voting on whether they should authorize a strike.  Decades of productivity increases accompanied by flat salaries and over-crowded classes have left faculty at the entire CSU system with little choice, if they are to protect public education and the students they serve.  The entire public commons is at risk now in the State of California due to the financialization and privatization of education.  From charter schools to the corporatization of education, privatization is a package deal – part of a modern enclosure movement that is cascading over the nation.

In part three of this series, we will look specifically at the ominous consequences of the Ruben Armiñana’s regime of capital construction and corporatization on the SSU faculty, students, classified staff and even more ominously, on the entire fabric of public education in the State of California.  With the Great financial Crisis now in its official fourth year, the chickens have indeed come home to roost for SSU with devastating implications for the college, the CSU system and the nation at large.  The university’s feathered past is no longer sustainable and the dreadful stewardship of Armiñana, along with pawning the college off to Wall Street investors, must come to an end.


*For a good, simple discussion of privatization and financialization readers can go to: The Market Ticker,

** Writing in March of 2012, authors of the Chronicle address the current budget crisis:


“Budget crises are endemic to SSU. And, of course, it just gets worse each year for students and faculty. The 2011-12 State budget cut the CSU by $650 million, of which $146 million was replaced by tuition increases for fall 2011 and an additional $62 million by enrolling fewer students (Armiñana campus email, 5-20-11). Despite protests, the CSU trustees raised tuition another 12% in July 2011, making tuition 23.2% more expensive than the previous fall and twice the cost of 2007 (SF Chronicle, 7-13-11). In November 2011 at another contested meeting, the CSU trustees narrowly approved another 9% tuition increase of $500 per student per year beginning in fall 2012. Due to shortfalls in State revenue, as anticipated, the CSU’s budget was cut another $100 million in December 2011, for a total of $750 million of which $300 million had been replaced by student tuition increases (CSU Employee update, 12-14-11). The CSU system had saved some federal stimulus money and it was used to cover the $100 million mid-year trigger on a one-time basis (The Chronicle, Chronicle XXII: State of the University, 2012, March 19, 2012).


** Until State appropriations rise and allow for an increase in enrollment, SSU will be in a downward spiral—over enrolling large classes of freshmen to fill the dorms, then unable to field sufficient classes to enable 4-year graduation paths, making more students each year with fewer classes (The Chronicle, Chronicle XXII: State of the University, 2012, March 19, 2012).


*** The list of underwriters for the 2011 A Bonds are:


  • Backstrom McCarley Berry & Co., LLC (BMcB), one of the Underwriters, entered into a non-exclusive Master Selling Group Agreement with Mitsubishi UFJ Securities (USA), Inc. and a Broker/Dealer Agreement with Stern Brothers & Co. for the distribution of certain securities offerings, including the Series 2011A Bonds, at the original issue price.  Pursuant to the distribution agreements, Mitsubishi UFJ Securities (USA), Inc. and/or Stern Brothers & Co. will purchase Series 2011A Bonds from BMcB at the original issue price less a negotiated portion of the selling concession applicable to any Series 2011A Bonds that such firm sells.


  • Pershing LLC, a subsidiary of The Bank of New York Mellon Corporation, and Barclays Capital Inc., is also one of the underwriters. They will receive a selling concession from Barclays Capital Inc. in connection with its distribution activities relating to the Series 2011A Bonds. In May of 2009, they established an arrangement which enables Pershing LLC to participate as a selling group member and a retail distributor for all new issue municipal bond offerings underwritten by Barclays Capital Inc. This includes the Series 2011A Bonds offered by the state of California.


  • J.P. Morgan Securities LLC (JPMS), is another one of the Underwriters.  This company entered into negotiated dealer agreements with each of UBS Financial Services Inc. (UBSFS) and Charles Schwab & Co., Inc. (CS&Co.) for the retail distribution of certain securities offerings at the original issue prices. This includes the California 2011A Bonds and UBSFS and CS&Co. will purchase Series 2011A Bonds from JPMS at the original issue price, less a negotiated portion of the selling concession applicable to any Series 2011A Bonds that such firm sells.


  • Prager, Sealy & Co., LLC, one of the other Underwriters, entered into distribution agreements (the Prager Distribution Agreements) with HSBC Securities and HSBC Private Wealth Management Groups for the retail distribution of certain municipal securities offerings.  This includes the California 2011A Bonds and Prager, Sealy & Co., LLC plan to share a portion of its underwriting compensation with respect to the Series 2011A Bonds with HSBC Securities and HSBC Private Wealth Management Groups.


  • Stone & Youngberg LLC, yet another of the Underwriters, entered into agreements (the “Stone Distribution Agreements”) with Stifel, Nicolaus & Company and First Republic Securities Company LLC, Member FINRA/SIPC, a subsidiary of First Republic Bank, for retail distribution of certain municipal securities offerings, at the original issue price. If they participate in the sale of the Series 2011A Bonds, they too will share a portion of its underwriting compensation with respect to the Series 2011A Bonds with Stifel, Nicolaus & Company and First Republic Securities Company LLC (


**** From Chronicle XII: A Closer Look at the SSU Foundation

September 30, 2009:


“In hindsight, it is apparent that the administration moved G&C from the Foundation because this allowed them to implement a creative set of charge-backs that have richly underwritten the 102 President’s wishes. For example, while the Foundation no longer employed G&C workers and had few projects, the G&C program still supplied $507,973 to the Foundation for undisclosed services between 2000 and 2004 (CFO handout: Grants and Contracts Utilization of Indirect Cost Revenue 2000-2001 through 2005-2006). G&C financed Foundation development operations and provided discretionary funds for the President’s use. Meanwhile, G&C distributions to the Schools dwindled, as the G&C program’s returns somehow never met A&F’s “needs” to manage it. In 2003 there were no endowment fund distributions to programs; nevertheless, the Foundation transferred $35,000 to the SSU President and $10,000 to the Provost for “public relations” and an undisclosed sum to A&F for G&C administration (SSUAF minutes, 6-03, pg. 5).”


***** Hughes Group is a major firm that has received contracts to build such college capital construction projects as:

University of Houston Campus Recreation and Wellness Center,
Trinity University – Trinity Center,
University of Virginia – Aquatic & Fitness Center,
University of Illinois at Urbana – Champaign – CRCE,
University of Illinois at Urbana-Champaign – ARC,
George Mason University – Aquatic & Fitness Center,
Georgetown University – Athletic & Recreation Facilities Master Plan,
Georgetown University – Multi-Sport Facility,
University of Texas at Brownsville – Health, Kinesiology and Wellness Center, University of Texas at Arlington – Maverick Center,
Shepherd University – Wellness Center,
Delaware State University – Wellness and Aquatic Center,
Virginia Tech – Additional Recreation, Counseling and Clinical Space,
Young Harris College – Wellness Center,
Coastal Carolina University – Student Recreation and Convocation Center,
University of Delaware Carpenter Sports Building,
Georgetown University Yates Field House,

Kennesaw State University Recreation & Wellness Center