Matt Taibbi’s latest article- Wall Street Hedge Funds Are Looting the Pension Funds of Public Workers

[SD Transplant]

This isn’t news to the piggs, but interesting take on it.

linky:

http://www.democracynow.org/2013/9/26/matt_taibbi_on_how_wall_street

[The-Shoveler]

Never underestimate the ability of NY-Bankers to turn your 401K into a 50K.

[ucodegen]

What I find annoying is that these same teachers, etc want the pensions instead of having the money go to their own 401Ks.. that they control. (use low fee index funds)

The taxpayers end up paying for this though, because the pensions are a form of ‘defined’ benefit, and the taxpayers have to close the gap.

[CDMA ENG]

[quote=ucodegen]What I find annoying is that these same teachers, etc want the pensions instead of having the money go to their own 401Ks.. that they control. (use low fee index funds)

The taxpayers end up paying for this though, because the pensions are a form of ‘defined’ benefit, and the taxpayers have to close the gap.[/quote]

As much as I hate to sound like a union pension advocate the simple truth is that most major companies can borrow against your 401K as well. I am not sure of all the details but someone always has access to your money.

CE

[CA renter]

[quote=ucodegen]What I find annoying is that these same teachers, etc want the pensions instead of having the money go to their own 401Ks.. that they control. (use low fee index funds)

The taxpayers end up paying for this though, because the pensions are a form of ‘defined’ benefit, and the taxpayers have to close the gap.[/quote]

If you study the history of these public pension funds, you’ll see that they originally invested only in VERY safe Treasuries (typically the largest allocation) and highly-rated bonds. It was the lobbying done by Wall Street that enabled the funds to put more and more of the pension money into riskier and riskier assets. It was the PRIVATE sector (the financial industry) that wrecked the pensions, not teachers, firefighters, cops, etc.

This is what I’ve been trying to explain for all these years.

[edited to add]

As for the bolded part, those employees are smart enough to know that a large, well-managed pension fund will be better able to maximize returns while keeping risks low…and that these large pension funds will be better able to weather the periodic storms because they have a much longer horizon.

And taxpayers would bear very little risk if those funds were managed wisely and well by **in-house,** salaried managers who have rules that strictly prohibit outsiders from influencing where these funds are allocated (no corruption).

Always keep in mind that taxpayers bear many risks in this world…from FEMA incidents to wars to tax cuts for the rich, etc., etc. It’s silly to pick just one type of risk and harp on that. Of all the people we should want to bear risk for (and minimal risk at that, if we keep the privatizers out of it), I’d think that the people who do the work that give us a safe, educated society in which to live would be high on the list.

[jeff303]

[quote=ucodegen]What I find annoying is that these same teachers, etc want the pensions instead of having the money go to their own 401Ks.. that they control. (use low fee index funds)[/quote]

Not all employer plans offer access to such funds. Often times, one’s portfolio options aren’t very good.

[ucodegen]

[quote=CDMA ENG][quote=ucodegen]What I find annoying is that these same teachers, etc want the pensions instead of having the money go to their own 401Ks.. that they control. (use low fee index funds)

The taxpayers end up paying for this though, because the pensions are a form of ‘defined’ benefit, and the taxpayers have to close the gap.[/quote]

As much as I hate to sound like a union pension advocate the simple truth is that most major companies can borrow against your 401K as well. I am not sure of all the details but someone always has access to your money.

CE[/quote]
No they can not. They have a fiduciary requirement. They have absolutely no access to that money. I got one HR person in trouble when they transferred my 401K w/o my permission when I was transferring from one company to another company which was held by a third parent company. My plan was to roll that money out on leaving the first company.. which I legally could.

[quote=CA renter]If you study the history of these public pension funds, you’ll see that they originally invested only in VERY safe Treasuries (typically the largest allocation) and highly-rated bonds. It was the lobbying done by Wall Street that enabled the funds to put more and more of the pension money into riskier and riskier assets. It was the PRIVATE sector (the financial industry) that wrecked the pensions, not teachers, firefighters, cops, etc.[/quote]
The best way to get it out of the hands of those who have a greater impetus to fudge the numbers and contributions than to be up honest.. is to get it immediately out of their hands on every pay period. They really don’t face any consequences to their ‘fudging’.. but the employee does.

[quote=jeff303][quote=ucodegen]What I find annoying is that these same teachers, etc want the pensions instead of having the money go to their own 401Ks.. that they control. (use low fee index funds)[/quote]

Not all employer plans offer access to such funds. Often times, one’s portfolio options aren’t very good.[/quote]
True. One fix is for the employees to become activist in this respect. Some don’t want to rock the boat.. me.. I’ll overturn it if I have to, in order to set it right. This occurred at one company I worked at. Enough employees got ‘activist’ enough to cause the company and the 401K management firm to update their offerings.

The other is to start requiring companies to do direct 401k transfers to investment companies of the employees choice. The ‘real’ cost of transferring the money is insignificant. All of the detail movements are just electronic bookkeeping, with the sum of changes involving actual transfer of money.

[CA renter]

[quote=ucodegen]
[quote=CA renter]If you study the history of these public pension funds, you’ll see that they originally invested only in VERY safe Treasuries (typically the largest allocation) and highly-rated bonds. It was the lobbying done by Wall Street that enabled the funds to put more and more of the pension money into riskier and riskier assets. It was the PRIVATE sector (the financial industry) that wrecked the pensions, not teachers, firefighters, cops, etc.[/quote]
The best way to get it out of the hands of those who have a greater impetus to fudge the numbers and contributions than to be up honest.. is to get it immediately out of their hands on every pay period. They really don’t face any consequences to their ‘fudging’.. but the employee does.

[/quote]

The best way to get it out of the hands of those who have a greater impetus to cause damage to public pensions is to keep Wall Street and other *private sector* influences out of public pension funds.

[Leorocky]

You realize that means jacking up the contributions (both employer and employee) at least 5x, right? Assuming you just want to invest the money in Treasuries. Which means more taxes, which comes from where?

You just wont get the growth that’s needed to make the numbers work.

So yea, the pension, like the rest of the government, is 100% dependent on the private sector.

[EconProf]

Correct, Leorocky, the stock market has historically delivered far better rates of return than the bond market and Treasuries. That’s going back many, many decades to smooth out short term ups and downs.
CA Renter may be referring to the pension funds’ poor timing in entering into the stock market, but that’s due to the managers poor choices. No one forced them to take risks–they had the same information available to them as all other investors (myself included) who lost money in the stock market meltdown.

[CA renter]

[quote=Leorocky]You realize that means jacking up the contributions (both employer and employee) at least 5x, right? Assuming you just want to invest the money in Treasuries. Which means more taxes, which comes from where?

You just wont get the growth that’s needed to make the numbers work.

So yea, the pension, like the rest of the government, is 100% dependent on the private sector.[/quote]

Firstly, the private sector is 100% dependent on the government. Who do you think provides the social, legal, military, and physical infrastructure that private sector depends on? Who funds the vast majority of basic research (the riskiest and most expensive research, which is why the private sector won’t generally go there) from which most of our “innovations” come? The government does all of that.

But, back to the pension topic…yes, contribution rates would be higher, as they should be — but not 5X higher if we would finally address the bubbles, booms, and busts that destroy our economy. There would be far less volatility, and we would not see “pension holidays” where public employers paid NOTHING toward pensions for years, and then deal with the following “pension crisis” because the pensions are underfunded when markets normalize and bubbles pop. We would not get unsustainable pension boosts with the (false) assumption that “the market” will pay for it. We would not see the volatility in funding status, either. Employers and employees would have predictable expenses, making the budgeting process MUCH simpler and more efficient, and less prone to fraud and abuse, as well.

Nothing at all wrong with that.

And this all dovetails nicely with my rant against the Federal Reserve and their destructive manipulations. They are causing tremendous damage to our economy, and it’s not over yet, IMHO.

[CA renter]

[quote=EconProf]Correct, Leorocky, the stock market has historically delivered far better rates of return than the bond market and Treasuries. That’s going back many, many decades to smooth out short term ups and downs.
CA Renter may be referring to the pension funds’ poor timing in entering into the stock market, but that’s due to the managers poor choices. No one forced them to take risks–they had the same information available to them as all other investors (myself included) who lost money in the stock market meltdown.[/quote]

Again, you missed the part about Wall Street’s influence over the pension funds. It’s not just bad timing, it’s bad management that I have a problem with. The professional, conservative managers of yesteryear would not have invested in CDOs, high-risk mortgages, related derivatives, bubble-valued real estate, etc. Years ago, these funds were managed by conservative, salaried, in-house managers who invested most of the funds in Treasuries, and the rest in high-grade bonds. Today, they are managed by outside managers (hedge funds, etc.) and by in-house managers who are being advised and “sold to” by financial charlatans from the private financial sector. It is the corruption of the pension funds by Wall Street and the *private* financial sector that has caused the “pension crisis.”

That’s what Taibbi’s article is about.

[FlyerInHi]

CAr is kinda talking round and round. If it were not for the supposed high returns, contributions would have been much more for the same benefits. Now that the returns turned out to be lower, you either put in more or get less.

It only makes sense to me that people who contributed less should get less. We can change the contracts and the laws to make it happen.

[CA renter]

[quote=FlyerInHi]CAr is kinda talking round and round. If it were not for the supposed high returns, contributions would have been much more for the same benefits. Now that the returns turned out to be lower, you either put in more or get less.

It only makes sense to me that people who contributed less should get less. We can change the contracts and the laws to make it happen.[/quote]

Flyer,

It was the **employers** (a/k/a: taxpayers) who were paying nothing toward pension contributions during the pension holidays.

And as far as your “we can change the laws” assertion. You don’t seem to understand state constitutional law and the protection of vested benefits.

[ucodegen]

[quote=CA renter][quote=ucodegen]
The best way to get it out of the hands of those who have a greater impetus to fudge the numbers and contributions than to be up honest.. is to get it immediately out of their hands on every pay period. They really don’t face any consequences to their ‘fudging’.. but the employee does.

[/quote]

The best way to get it out of the hands of those who have a greater impetus to cause damage to public pensions is to keep Wall Street and other *private sector* influences out of public pension funds.[/quote]Sounds good. Implementation is the problem. How do you expect to have return on invested funds, at least enough to offset inflation. Bonds? gotta go to Wall Street, Stocks.. likewise. Any time you have to ‘invest’, particularly large sums, you have to go to Wall Street. All that you have to do is do it in a way that is both transparent, does not ‘trust’ Wall Street, and prevents them from having control of the account.

[Author]

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