TheAgitator.com
Scariest Thing You’ll Read Today
Monday, January 26th, 2009It’s the cover story from the current issue of Reason, detailing the next financial calamity: the crash of pension funds.
To make it more aggravating, the funds are going to go down especially hard thanks to “socially conscious” investing, which generally means fund assets have been put into investments that match the politics of fund managers, instead of the investments most likely to yield the best returns.
When the funds fail, then, Congress is going to force you and I to bail them out. Watch, then, as fund manager and do-gooder politicians then see the federal bailout money as a golden opportunity to . . . engage in some socially-conscious investing.
When I was discussing all of this with a friend the other night, he asked if there’s any way to make some money shorting, for example, the California Public Employees’ Retirement System. I have no idea. Anyone know?
I’m not convinced that this is a calamity in and of itself. This is a situation where the state can borrow money now to pay current obligations, knowing that over a long time horizon stocks pretty much always go up. (This isn’t like lenders and borrowers saying “housing prices will always go up” because they were dealing with shorter time horizons.)
Now the weight of the pension obligations generated by temporary price losses combined with a current-account deficit that’s already there? That’s the problem. I don’t think this is a mess for states and cities that were well-managed in the run-up to this recession.
OK, I don’t know everything of which I speak, but no, I don’t think you can short sell CALPERS because it is not a publically traded company with shares of stock available. It is a fund manager, so has a portfolio of stocks, bonds and mutual funds they invest in. You can’t buy or sell shares.
And generally, like with most retirement plans that give the employee access to a variety of mutual funds and investment strategies, if you allocated a big chunk of your retirement account to socially conscious funds, you run those risks, while another employee that specifically avoided those funds does not.
The individual funds themselves provide a prospectus that sets the rules for what type of investing the fund will engage and that given fund is required to follow those guidelines. So they cannot, on the sly, take your money and start investing heavily in socially conscious stocks if they did not line out in their prospectus that this fund will be doing so. Not without altering the prospectus and giving everyone a chance to exit if they choose.
Anyone feel free to correct me if I am wrong.
I read that. I don’t think there’s a problem. I think the government will simply guaranty retirement funds like they’ve been doing with every other kind of investment (especially the risky ones). They’ve had a lot of practice lately, so they’re getting good at it. In the end everyone wins. Well, almost everyone. It’s kinda sucks if you plan on being a taxpayer for the next few decades….
No way to short CALPERS. In addition, CALPERS, like most pension funds, farms out most of it’s money to third party investment managers working under a wide variety of investment mandates. It’s difficult, but not impossible, to determine what positions are for the benefit of CALPERS.
Quick anecdote regarding PERS stuff – I was part-time teacher in Oregon, no plans to do so for long/till retirement or anything. After a certain amount of time on the job, I was informed I had a new, mandatory payroll deduction, for my retirement. After leaving the system, I wanted to (I think I was told I had to, but I don’t remember) withdraw my balance, since it was a small enough amount to not worry about rolling it over or whatnot. This process took 6 months, during which I saw a similar loss in value to the CalPERS 20% drop mentioned in the article. So injury got added to insult by gov’t inefficiency. Thanks, Government!
While I disagree with the socially conscious investing, I will say that CapPERS is at least looks correctly at corporate governance and the fleecing of shareholders by executives.
Public pension funds are not only stupid, you need to add a bit of corruption in as well. They pay inflated fees to politically allied managers. It’s going to be war when the public, who are sitting on crushed 401k portfolios, are required to fully fund these public pensions.
what’s with all of the fear mongering lately? you’re still alive and there’s still food at the grocery store for you. Nation of whiners indeed, complaining about 401k’s and pensions when there are other countries like Zimbabwe where their citizens are literally eating cow shit to stay alive.
The idea that pension funds are in trouble because of SRI is absurd – as is the notion that if CalPERS had just gotten a few extra points over the past few years, we’d all be fine and dandy. (Altria, for example, is down over 31% for the year, leaving aside arguments about whether or not SRI is a valid investment philosophy.)
I realize that this is a handy time to grind ideological axes, but let’s maintain some perspective here.
I’d start investing in gold-backed foreign currencies, like the Aussie Dollar or the Swiss Franc, as when the eedjits start making noise about printing yet more Fed Reserve Notes to ‘bail out’ the pension funds, I expect the currency markets to start dumping greenbacks like they’re radioactive.
“Socially conscious” investing might be the biggest oxymoron ever. How more irresponsible can you get with people’s money? Pension managers like this need to be locked up with Madoff.
Given how poorly funded even the PBGC is, just short long term US debt.
Buying gold isn’t a bad idea.
Interesting how few comments on this thread.
Imagine: every American having their pension go broke. All funds (such as 401K) go to about 10% of CURRENT value (not pie-in-sky 2007 value). A flood of currency that brings about inflation of over 100%. Corporate earnings cut in half and then half again with only a downward trend. For every person you know with a job you know 2 without.
So…all savings and retirements approaching ZERO…no jobs…the dollar worthless via massive inflation…and MASSIVE debt cutting off many options to get country out of the mess.
As another poster said…the bailouts are not rescues. They are another bubble of opportunity for them to get THEIR money and run to safety. You’ll see this theme repeat over and over as it is the latest scheme to part you from your money.
Good luck, folks. Seriously look into gold (if you don’t know where to start, try Proshares Ultra ETFs (ticker: UGL).