Government
Worker Pensions ARE Wall Street
By
Editor, on November 21st, 2011
http://unionwatch.org/unionized-government-worker-pensions-are-wall-street/
In an editorial posted in January
2011 entitled “Wall
Street & Public Sector Unions,” we identified an irony still
lost on the occupy movement’s rank and file – Wall Street is financed by the
pension funds of unionized government workers. Every year, taxpayer funded
government agencies pour hundreds of billions of dollars into Wall Street
investment funds.
Occupy Wall Street? Why not “occupy”
Wall Street’s union paymasters, the government employee pension funds?
Here’s a summary of the dynamics
between Wall Street, unionized government workers, and the taxpayer:
(1) The government workers provide
services vital to the taxpayer, and charge the taxpayer, on average, about 40%
of their income (middle class worker, all taxes – state, federal, social
security, medicare, property,
sales) to receive these services.
(2) The government workers receive,
in addition to their normal pay, funded by these taxes, pensions that are, on
average, five times better than what taxpayers get from social security (the
average government pension is $60K per year with an average retirement age of
55, the average social security benefit is $15K per year with an average retirement
age of 65).
(3) The government workers tell the
taxpayers – don’t worry – you don’t have to pay additional taxes for us to get
these generous pensions, because we’ll invest the money on Wall Street, and
Wall Street will earn 7.75% per year on these investments.
(4) Wall Street invests the
taxpayer’s money, funneled through the government worker pension funds,
demanding a return of 7.75%. To achieve this return, they invest in hedge funds
and other manipulative, highly speculative investments. This increases the
volatility of the markets, crowds out small investors, and drives down returns
for small investors.
To fund government worker pensions,
what has happened is the government workers have taken the taxpayer’s money,
and essentially lent it back to the taxpayers at a rate of 7.75% – at a time
when 30 year mortgages are below 4.0%, the 10 year treasury hovers at around
2.0%, and the rate of GDP growth is at or below 3.0%, which is roughly the rate
of inflation.
Taxpayers provide the seed money for
pension fund investments, these investments are aggressively managed which
undermines the individual retirement investments the taxpayers make for
themselves, then when the pension funds ultimately fail to meet their 7.75%
targets, the taxpayers are assessed to cover the losses. Triple jeopardy.
Every time another public sector
union or government pension fund spokesperson claims that taxpayers do not bear
the brunt of funding public sector pensions, read between the lines, and this
is the rest of the story.
The truth is contagious.
On November 18th a prominent Southern
California blogger of indeterminate political
leanings (certainly no rock-ribbed conservative), Will Swaim,
published an expose of his own entitled “How the revolutionary California labor movement became Wall
Street’s biggest gambler.” Here are some excerpts from Swaim’s inimitable prose:
“CalPERS is to
Wall Street what a whale is to a Vegas Casino. A high roller.
A player. The biggest swinging male
appendage in the room. With $235.8 billion in assets, it is the nation’s
largest pension fund, and among the biggest investors in the world. And it’s
largely on the expected gains in its Wall Street investments that CalPERS has been able to persuade officials in many California cities and
counties that they could pay rising pension benefits to their public
employees…”
“It wasn’t always this way. For decades after its 1931 founding as
a pension program for state workers, CalPERS—then
called the State Employees Retirement System (SERS)—made stodgy, sure-thing
bond investments. That changed in 1953 when the legislature allowed SERS to
invest in real estate. Thirteen years later, there was another loosening of the
restraints on the agency’s investments when state voters passed a union-backed
proposition allowing CalPERS to invest a quarter of
its portfolio in stocks. In 1984, high on the fumes of the Reagan Revolution,
labor pushed Prop. 21, allowing CalPERS
to invest anything/everything in Wall Street. CalPERS
had become a whale…”
“You can begin to see the confluence of forces that would generate
a pension problem when you also consider that, with life-expectancy rising and
retirement-age falling, California
offered public workers more generous pension benefits. In 1932, that benefit
was 1.4 percent per year of service; the percentage increased to 1.6 percent
under Gov. Warren, and to 2 percent when Gov. Ronald
Reagan took over the Governor’s Mansion in Sacramento. It’s between 2 percent and 3
percent today…”
“CalPERS has a
reputation as an activist investor. The organization has insisted on quid pro
quos: in exchange for investment cash, it has pushed for caps on executive pay
and transparency; has led the way for human rights, environmental and labor
standards in emerging markets; and participated in class-action lawsuits against
major health insurance companies, including UnitedHealth
Group…”
“Leveraging that tradition, the city’s workers could reform their
union and its bloated pensions. They could start by demanding that CalPERS invest their pensions in solid/stolid/boring U.S.
bonds rather than in the speculative junk that fueled Wall Street’s rapid,
unprecedented rise through the 1990s and its post-scriptural crash in 2008.
That might—might—mean more modest retirements, of course, but it would
certainly end union members’ hypocritical reliance on Wall Street—their
affection for gambling when Wall Street inflates their pensions, their hatred
of the market when it shapes the contours of their daily work…”
Nonpartisan
Union Reform, Retirement
Benefits, Union
Corruption How the revolutionary California labor movement became Wall
Street’s biggest gambler, Wall Street and public sector unions