The Looting of the Pension Funds

So much of what’s really criminally wrong with the system is exemplified by the recent treatment of retirement funds. You have the insane exchange of the promise of defined benefit pensions for the sham of 401(k)s dependent on the Wall Street casino. And for those that still have pensions, the looting and under funding of those funds. Matt Taibbi’s Rolling Stone piece “Looting the Pension Funds” details a lot of the problems created by dishonest manipulation of the funds, often under the radar, and the actions of miscreant politicians and hedge fund Ayn Randites.

It’s amazing how similar the stories are to the legions of capitalist titans pushing the charter school privatization agenda. Ambitious financial types with the backing of right wing billionaires manipulating data to achieve an end nobody would be in favor of if these people were completely open about what they were doing. 

  • The underfunding of public pension funds by politicians who promise the moon during elections and then either fail to fund, underfund, or flat out loot the pension funds to pay for their promises.
  • The scandal of underfunding. The Detroit Public Employee Pension Funds that are in mortal danger in bankruptcy, are actually a relatively healthy 77% funded while others around the country are as little as 27% funded! 

Among the worst of these offenders are Massachusetts (made just 27 percent of its payments), New Jersey (33 percent, with the teachers’ pension getting just 10 percent of required payments) and Illinois (68 percent). In Kentucky, the state pension fund, the Kentucky Employee Retirement System (KERS), has paid less than 50 percent of its ARCs over the past 10 years, and is now basically butt-broke… 

 

  • Pension Fund Administrators who are encouraged to make “alternative investments” 

[a]n investigation by the Toledo Blade revealed that the Ohio Bureau of Workers’ Compensation had bought into rare-coin funds run by a GOP fundraiser named Thomas Noe. Through Noe, Ohio put $50 million into coins and “other collectibles” – including Beanie Babies… 

The scandal had repercussions all over the country, but not what you’d expect. James Drew, one of the reporters who broke the story, notes that a consequence of “Coingate” was that states stopped giving out information about where public money is invested. “If they learned anything, it’s not to stop doing it, but to keep it secret,” says Drew.

Of course!! Pension fund administrators under the thrall of rapacious manipulators have discovered what politicians, priests and child rapists have long known – If you are ethically incapable of doing the right thing the best you can do is do it in the dark.

Which brings us to the real manipulation that is the turning over of people’s retirement funds to hedge fund managers that charge ridiculous fees to ultimately under perform the S&P 500. Or the monies paid to placement agents and consultants that charge for the privilege of recommending their own damn funds.   

In Kentucky, Tobe and Siedle found that KRS, the state pension funds, had paid a whopping $14 million to placement agents between 2004 and 2009. In Atlanta, a member of the city pension board complained to the SEC that the city had hired a consultant, Larry Gray, who convinced the city pension fund to invest $28 million in a hedge fund he himself owned.

It’s crony capitalism at it’s absolute worst because it’s all gambling with other people’s hard earned money and privatizing the gains while socializing the losses.

What’s going on with public pensions is a more confusing modern version of that local graft. With public budgets carefully scrutinized by everyone from the press to regulators, the black box of pension funds makes it the only public treasure left that’s easy to steal. Politicians quietly borrow millions from these funds by not paying their ARCs (annual required contributions), and it’s that money, plus the savings from cuts made to worker benefits in the name of “emergency” pension reform, that pays for an apparently endless regime of corporate tax breaks and handouts.

These are the kinds of stories that make me feel real old fashioned gather a crowd with pitch forks blood lust to get the bastards. Lord knows, the justice system will NEVER deal with them and the politicians will NEVER stop them – until we take money out of the election system.

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