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Massachusetts Liberal

Observations on politics, the media and life in Massachusetts and beyond from the left side of the road.

Monday, March 30, 2009

Inmates running the asylum

Just when you think the Bush administration can't cause any more problems, a new one crops up: the agency that is supposed to insure the pensions of companies that no longer can may need an agency to bail it out.

Well, actually it will need even more of our taxpayer "resources." And the reason? A former managing director of Lehman Brothers -- the company our Wall Street "managers" managed right into bankruptcy -- decided to invest in stocks rather than bonds.

Full disclosure: a company I once worked for went belly up and the Pension Benefit Guaranty Corp. was allegedly going to be writing me checks in my dotage. Thanks to the whiz bang efforts of the Wall Street types and the impact on my 401 (k), that should be sometime north of my 85th birthday.

The PBGC is supposed to be something akin to the Federal Deposit Insurance Corp., there to protect people against a financial vicissitudes over which they have no control -- or blame. In its own words:
PBGC is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of nearly 44 million American workers and retirees in more than 29,000 private single-employer and multiemployer defined benefit pension plans. PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans.
Those funds were principally invested in bonds -- far less risky than stocks, as any amateur investor thinking about retirement knows. But the former director, Charles E.F. Millard, he of Lehman Brothers, thought better of the strategy, despite some sound advice of people who did not make their living on Wall Street.

So he threw gasoline on the fire and shifted to the kind of portfolio a junior investor with 30 years to retirement might consider. Only he did it as the palpitations from the subprime mortgage fiasco were starting to get stronger, Bear Stearns and Lehman were starting to get weaker and signs of the impending crash should have been visible to anyone who claims to be a Wall Street expert.

Except of course, if your background was Lehman Brothers.

So here's the deal:
Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.

No statistics on the fund's subsequent performance were released.
I wonder why?

I know I won't be sleeping better at night. At least I never really think about that pension as much protection. But I did get fond of the cash I was trying to hang on to to get through the next few years.

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