Saturday, May 14, 2011

The public pensions' funding gap: three questions/ three solutions

I read an interesting article recently by Jack Rasmus, entitled, “The Truth Behind the Public Pensions’ Funding Gap.”  Rasmus is also the author of Epic Recession: Prelude to Global Depression.  He claims that the pension funding gap is the result of several causes that include the recession and resulting unemployment; escalating healthcare costs; pension “contribution holidays” since the mid-1990s; “the employment of fraudulent actuarial assumptions about rates of returns”; an anticipation of hiring more public employees that did not happen; the Pension Protection Act which “allowed pension funds to make loans to hedge funds and private equity firms,” which also allowed speculation in subprime mortgages, foreign exchange, financial derivatives, and  interest rate swapping.  In summary, banks, pension-funds’ managers, pension-payment holidays, and legislators who allowed it to happen have caused the financial catastrophe.
Given this marauding and predatory state of affairs, Rasmus’ asks three questions: “Why not make those who created the pension funding gap pay—the hedge funds, banks, insurance companies, other financial institutions that were responsible for the massive investment losses, the pension fund managers who negligently risked workers’ pensions and the politicians who let them?”
Moreover, why not make “the Federal Reserve provide direct loans to the pension funds at the same cost of 0.25% that the Fed has provided loans to other financial institutions the past two years? After all, pension funds are also financial institutions, and Fed loans won’t add a cent to the federal or state budget deficits as an added plus.”
Finally, Rasmus states this supposition: “[The] Federal Reserve provided $9 trillion to banks during the recent crisis [CEO bonuses were also paid out of OUR money], of which $1 trillion was loaned to foreign non-US banks!  If the Fed can loan $1 trillion to foreign bankers and their wealthy bondholders and investors, why can’t it do so to protect the retirement of millions of U.S. workers in the public sector—who are the victims, not the criminals responsible for the public pensions crisis?”



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