The problem with this approach is that "managing our own money" turns out to be deciding which Wall Street firm is going to manage it -- and of course, they manage it in their own interest first and foremost. They do this by raking high management fees that keep most of the returns for their own salaries and bonuses. In the end, the place their clients funds in bad bets.
The great argument for having Wall Street manage pension funds instead of labor union economists or their own people is that the mafia is strong in many unions. That's indeed the case. In 1982 a federal consent degree stripped the Teamsters of its power to control its investments. The assumption was that if labor unions are crooked, then Wall Street must be more honest, is absurd. It's basically one set of financial predators against another set.
Here's how Prudential Insurance became notorious for ripping off the funds of clients it managed, for instance. It might make two bets on a given day: one, that a stock or bond would go up, and two that it would go down. At the end of the day it would put the winning bet in its own account, and the losing bet in the account of its clients.
This is how crooked commodity traders have worked for many decades. In Ghana, for instance, the cocoa commission traders would place two bets: one, that cocoa prices would rise, and two, that they would fall. They kept the winning bet for themselves or their family members; the losing bet would be placed on the government's balance sheet.
In a nutshell, this is how Wall Street has been treating pension funds. This is why Orange County, California, sued Wall Street, and why other cities have sued Wall Street firms over mismanagement that have led to huge losses for their funds -- and super gains for Wall Street at the other end of these trades. The idea of "fiduciary responsibility" is no longer enforced, now that Obama' Justice Department has made it clear that it is not going to charge large Wall Street banks and their brokerage arms with criminal fraud. The gates are now wide open for such fraud.
With this in mind, now let's go back to the new Congressional budget law. It gives priority to debts owed to Wall Street; debts to labor now will go to the back of the line, and be scaled down so as to pay corporate raiders and banks.
The first great test case is expected to be the Teamsters' Central States Fund. The rationale for cutting back pensions for drivers is that in 1980 it had four employees for every retiree. Today, it has just one driver for every five retirees. How can such a plan succeed? The normal answer would be, by turning to the PBGC.
But let's look more closely at the alleged source of the problem. It's not just that there are so many fewer employees per retiree. The Teamsters Central States Fund is a prime example of Wall Street mismanagement. Goldman Sachs, Northern Trust and other firms make the decisions, not the Fund's own board. A recent report has found that "Roughly a third of the pension system's shortfalls -- or almost $9 billion -- can be traced to investment losses accrued during the financial industry's 2008 collapse. These losses were in addition to more than $250 million in fees paid by the plan to financial firms in just the last 5 years."
Obviously there is as much conflict of interest at work in letting Wall Street sharpies manage pension funds as there is in letting Mafiosi rip them off.
The important thing is that the PBGC has been as lax in oversight as the Federal Reserve has been lax in overseeing the banking system. But whereas the Fed then bailed out the banks in 2008 on the ground that they were systemically necessary for the economy to function, no such assumption is being made with regard to labor's pensions.
It seems part of a long-term strategy to cut back pensions, privatize them into individual accounts managed by Wall Street investment banks and insurance companies, and then to privatize Social Security.
This is part of the strategy to use the demand for budgetary balance to privatize the nations' infrastructure too as it falls apart -- on the ground that the government is broke, and cannot raise taxes on the rich or simply print the money itself to fuel economic growth. It looks like Greece may be the test case for where the American economy is heading.
The Coming War On Pensions was originally published in CounterPunch.
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