Wall Street's War On Americans: First Scapegoat, Then Rob

Richard Wolff explains how scapegoat economics works here. The economic dissolution of the West is the story I document in The Failure of Laissez Faire Capitalism.

In an article earlier this year, Michael Hudson explains that having looted everything else, Wall Street is now eating our pension funds with Social Security also on the menu. Wall Street has the US government under its control and is using the federal government to subsidize Wall Street profits at the expense of Americans' old age security. Read it below...

The Coming War on Pensions
by MICHAEL HUDSON

On the Senate's last day in session in December [2014], it approved the government's $1.1 trillion budget for coming fiscal year.

Few people realize how radical the new U.S. budget law was. Budget laws are supposed to decide simply what to fund and what to cut. A budget is not supposed to make new law, or to rewrite the law. But that is what happened, and it was radical.

Wall Street's representatives in Congress -- the Democratic leadership as well as Republicans -- took the opportunity to create an artificial crisis. The press called this "holding the government hostage." The House -- backed by the Senate -- said that it would shut the government down at some future date if two basic laws were not changed.

Most of the attention has been paid to Elizabeth Warren's eloquent attack on the government guaranteeing bank trades in derivatives. Written by Citigroup lobbyists, this puts taxpayer funds behind future bank bailouts if banks make more bad bets on complex financial derivatives, such as packaged junk mortgage loans.

Critics have focused on how there must be a loser for every winner in a derivatives contract. The problem is that if banks lose, the government will bail them out just as it did in 2008. Less attention has been paid to what happens if banks win. They will win largely in making bets against pension funds. Indeed, pension funds have not been treated well by Wall Street in recent years.

They are in a bind. Pension funds will fall further and further behind what they need to pay retirees if they do not make the impossibly high returns of 8.5%. The guiding philosophy of pension funds has been that instead of making employers pay enough to cover the pensions they have promised, funds can make money purely financially -- by Wall Street sharpies.

The problem is that safe interest rates today are less than 1% for Treasury bonds. Everyithing else -- stocks, corporate bonds, and hedge fund derivatives -- are much more risky. And when Goldman Sachs, or JPMorgan Chase draw up a derivative for a client, their aim is to make money for themselves, not for the client.

So pension funds have been at the losing end. Most funds would have done better simply to turn their money over to Vanguard in an indexed fund, and saved management fees.

At the state and local levels, pension funds in New Jersey and other states threaten to go the way of Detroit pension funds -- to be cut back so that bondholders can be paid.

Many corporate pension funds also are behind, because companies are using their record profits to pay higher dividends and to buy back their stocks to create price gains for speculators.

But the funds most under attack are union pension funds. These are the funds that Congress has gone after. The fight is not merely to scale back pension funds -- and avoid the government's Pension Benefit Guarantee Corp (PBGC) being bailed out -- but to break the power of unions to attract members or to defend them.

The Congressional budget act states that pension funds with more than one employer -- such as construction industry funds, teamster funds for truckers and public service workers funds -- can be scaled back in order to pay Wall Street creditors.