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Pensions & BIG BANG

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While I am a supporter of  MATT TAIBBI at the Rolling Stone, his take on the Pension Crisis is really off the mark. Taibbi focuses on the fees being paid to hedge funds as robbing state worker pension funds. What he fails to address is that the taxes are rising on the Middle Class to pay for funds that were outrageously set up to begin with.

I worked without pay back in the 1990s to try to save Social Security by privatizing management. Had we simply invested when the Dow was 3500 back then, we would not be in the dark crisis we now face. What Taibbi fails to appreciate is there are places worse than Wall Street – it is called Pennsylvania Avenue in Washington DC.

In Australia, a major public company called us in to quote on managing the firm’s currency risk. We gave them a quote of a few million a year. They said they would never pay more than what the CEO earned. They hired a 23 year-old to manage the currency risk. He ran out and bought a Porsche assuming he was on top of the world. He was in an accident and spent a week in the hospital. He never bothered to check his positions. The firm lost $80 million that week. Having people monitor and manage a position of size 24 hours a day around the clock takes dealing teams in Europe, Asia, and USA. That does not come cheap.


Private management of pensions at least is far better than some funds with 80%+ in government bonds. With interest rates far below 8%, pensions are going insolvent everywhere. The entire idea of pensions is in serious trouble for as I have said before, politicians could not manage a bubble-gum machine. They would spend whatever came in and would then resort to theft to get a new supply to start over again. Milton Friedman worked intimately with government. We were friends because we agreed on this point. They were hopeless.

Part of BIG BANG is the collapse in pension funds, rise in taxes, civil unrest when people find the bubble-gum machine is empty, and a wave of defaults from Greece spreading like a contagion around the world. They are ALL broke – it’s just a question of when.