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<H2 class=date-header><SPAN><FONT size=4>Friday, February 22,
2013</FONT></SPAN></H2>
<DIV class=date-posts>
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<DIV class="post hentry" itemtype="http://schema.org/BlogPosting"
itemscope="itemscope" itemprop="blogPost"><A name=3758249531540080812></A>
<H3 class="post-title entry-title" itemprop="name">How Wall Street Preys on
Teacher Pensions </H3>
<DIV class=post-header>
<DIV class=post-header-line-1><FONT size=4></FONT></DIV></DIV>
<DIV id=post-body-3758249531540080812 class="post-body entry-content"
itemprop="description articleBody"><A
style="MARGIN-BOTTOM: 1em; FLOAT: left; CLEAR: left; MARGIN-RIGHT: 1em"
href="http://www.dailycensored.com/wp-content/uploads/2013/01/6a00d8341bf7f753ef00e553ea957b8834-800wi.jpg"><FONT
size=4><IMG class="alignright size-medium wp-image-28407"
alt=6a00d8341bf7f753ef00e553ea957b8834-800wi
src="http://www.dailycensored.com/wp-content/uploads/2013/01/6a00d8341bf7f753ef00e553ea957b8834-800wi-300x243.jpg"
width=300></FONT></A><FONT size=4>by Jack Gerson<BR><BR>Ten days ago Danny Weil
published, on dailycensored.com, a scathing analysis of how the biggest
predators on Wall Street have been invited in to plunder teacher pension funds
-- especially in California and Texas, but throughout the country. Teacher
pension trustees now say that there are vast "unfunded liabilities", and
politicians like California Governor Jerry Brown are sharpening their knives
while they provide quotes to the media about how funding for public employee
pension obligations create budget deficits and force the state to impose harsh
austerity cuts to essential public services. This is the prelude to demands for
teachers and other public employees to accept cuts to their retirement income.
Indeed, such proposals are already echoing in state houses and
legislatures.<BR><BR>Investment from employee pension funds helped finance the
boom on Wall Street. But when the crisis hit, Wall Street demanded -- and
continues to demand -- multi-trillion dollar bailouts from the public by cuts in
jobs and services to working and unemployed people. The big banks pretend to be
"risk-takers" who deserve fat returns as compensation for their "risk". But as
the story of teacher pension funds illustrates, it's our livelihoods-- our
savings, our pensions, our essential services -- that are at risk. Not theirs.
They demand and get bailed out over and again. And they admonish us for being so
careless with how we let our money be invested (invested by them, of
course).<BR><BR>One of the important points to take away from this article is
the culpability of the state teacher union leadership in standing idly by while
over the past five years Wall Street hedge funds swooped in to prey on the
pension funds. The story of such financialization isn't unique to teacher
pension funds. Big capital is financializing and privatizing whatever can be
privatized and financialilzed, commodifying or recommodifying much of what has
long been public, in the process, wresting away gains fought for and won by
working people over the past century and a half. These austerity attacks won't
go away until we make them go away. <BR><BR>But enough from me. Here's Danny's
article, as originally published at dailycensored.com:<BR><BR></FONT><A
href="http://www.dailycensored.com/financial-capitalism-and-the-us-teachers-pension-fund-fraud/"
target=_blank><FONT
size=4>http://www.dailycensored.com/financial-capitalism-and-the-us-teachers-pension-fund-fraud/</FONT></A><BR><BR><BR>
<DIV id=pf-print-area>
<H1 style="DIRECTION: ltr" id=pf-title><FONT size=4>Financial Capitalism and the
US teachers’ pension fund fraud</FONT></H1><FONT size=4><SPAN id=pf_author>Danny
Weil</SPAN><BR></FONT>
<DIV style="DIRECTION: ltr" id=pf-content>
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<DIV align=center><FONT size=4></FONT></DIV><SPAN class=text-node><FONT
size=4>An “internal study” of the California Teachers’ Retirement System (Cal
STRS) indicates that the public school pension fund faces a $64 billion deficit,
according to the Sacramento Bee, dated February 4, 2013 (</FONT></SPAN><A
href="http://blogs.sacbee.com/capitolalertlatest/2013/02/california-teachers-pension-fund-faces-64-billion-deficit.html#storylink=cpy"><FONT
size=4>http://blogs.sacbee.com/capitolalertlatest/2013/02/california-teachers-pension-fund-faces-64-billion-deficit.html#storylink=cpy</FONT></A><FONT
size=4><SPAN class=text-node>=).</SPAN><BR>The California State Teachers
Retirement System produced the report in response to a legislative
resolution. The release of the “internal study” followed on the heels of
chiding by the Legislature’s budget analyst, Mac Taylor, who indirectly
admonished neo-liberal Gov. Jerry Brown for ignoring “huge” unfunded liabilities
associated with the teachers’ retirement system and state retiree health
benefits” in his new ‘budget’.<BR>Cal STRS receives money from the state, from
local school districts and from teachers themselves, but the source of the funds
income is also highly dependent on investment earnings. Like most pension
funds throughout through-out the nation, Cal STRS was decimated during the
recent Great Depression that continues unabated. And while the California Public
Employees Retirement System (PERS) has the power take money directly from the
state treasury as it sees fit, STRS cannot; they must receive specific
appropriations from the Legislature in order to fund the state teachers’
pensions.<BR>Fully funding the California teachers’ pension fund, we are told,
would require $4.5 billion more a year — excluding projected investment
earnings. The system in its report stated that the shortfall would
be ‘eased’ by setting lower funding targets and/or stretching out contributions
(ibid). This means less money for current and future retirees. The most
important financial move, Cal STRS fund managers said, is to begin closing the
deficit, rather than allowing it to widen further. Sound like calls for
austerity? Sure does, sure is. But wait, there’s more, and it is
truly nauseating, frightening and painfully keeping with the logic of capitalist
economics.<BR>Pension funds are now dressed up hedge funds with current and
future disastrous consequences<BR></FONT>
<DIV class=added-to-list-1><FONT size=4><SPAN class=text-node>According to a
recent article found at </SPAN><I>Dollarcollapse.com</I><SPAN class=text-node>,
pension funds are now morphing into hedge funds, a virtual back alley crap game
or what </SPAN><I>Dollarcollapse</I><SPAN> calls “rolling the dice in exotic
investments”, for Wall Street and their minions (</SPAN><A
href="http://dollarcollapse.com/investing/pension-funds-become-hedge-funds-roll-the-dice-on-exotic-investments/">http://dollarcollapse.com/investing/pension-funds-become-hedge-funds-roll-the-dice-on-exotic-investments/</A><SPAN
class=text-node>).</SPAN></FONT></DIV><FONT size=4><SPAN class=text-node>In the
report written by author, John Rubino on January 28</SPAN><SUP>th</SUP><SPAN
class=text-node>, 2013, he notes that there was a time when running a pension
fund used to be one of the more facile jobs in finance. Money came in
steadily and predictably from member contributions and the funds were then
invested in AAA grade bonds and blue chip stocks. The target was to meet a
modest, but assured, annual return of 8% interest (ibid). Not anymore. That was
before the financialization of capitalism and the economic
collapse.</SPAN><BR>Now, as the author correctly notes, the pension funds in
effect have two criminally incompetent overlords trying to serve two
contradictory economic demands. On the one hand, at the national and state
level the US borrows too much and lets its banks go on an unregulated ‘wilding’
with dire consequences for working people. This causes and has caused
severe debt crisis’ to which the overseers of capital respond by lowering
interest rates to the point where investment grade bonds, once the heart and
soul of pension funds, yield next to nothing.<BR>At the state and local level,
the corporate owned governors and mayors refuse to raise taxes on their real
constituency, the corporations and the rich, which would have the
beneficial effect of balancing the funds; they instead pressure funds to
continue to make their ‘vig’ of 8%. This, even though not only is this
stupidly optimistic, but it is wildly impossible. So, what are the pension
fund managers doing now? They are doing what financial capital requires:
they are acting like gambling casinos by increasingly turning the whole pension
fund investment strategy into a dangerous explosive landmine, twisting them into
hedge funds, all to the detriment of working people and to the advantage of Wall
Street.<BR>This is how financialization works. It is a particular phase of
capitalism where everything is monetized and commodified. Take the Texas
Teachers’ Retirement system as just one example.<BR>Texas Teachers’ Retirement
system<BR>In his article, Rubino goes on to write about the Texas Teacher
Retirement System. According to Rubino:<BR><SPAN class=text-node>“On the
13</SPAN><SUP>th</SUP><SPAN class=text-node> floor of a sleek downtown office
building here, the trading desks are manned overnight. The chief
investment officer favors cowboy boots made of elephant skin. And when a
bet pays off, even the secretaries can be entitled to bonuses”
(ibid).</SPAN><BR>We are not talking about a high flying private hedge fund but
instead, these desks are manned for the Teacher Retirement System of Texas,
similar to Cal STRS. The public pension fund has 1.3 million members that
include school teachers, bus drivers and cafeteria workers throughout the
state. They all labor under the assumption they will have retirement
benefits they worked their entire lives for.<BR>Yet rather than reduce risk
in the wake of declines in interest rates, the pension fund manikins are now
getting hostily aggressive, loading up on private equity investments and other
non-traditional investments that they say promise to return pension funds to the
halcyon days of steady and safe returns.<BR>The Texas Teacher Retirement System
fund has $114 billion dollars and now boasts some of the riskiest bets in its
history with $30 billion dollars committed to private equity, real estate and
other ‘so-called ‘alternative investments’ since early 2008, as the economic
crash washed ashore like a Tsunami. Amongst the ten largest U.S public
pensions, this makes it the biggest such investor in Wall Street backed equity
investments. The funds currently have an average alternatives allocation
of a whopping 21%! Don’t let them fool you again.<BR>According to tracker,
Wilshire Trust Universe Comparison Service, the Texas Teacher Retirement System
brought in an annual return of 3.1% between December 31, 2007 and December 31,
2012. This was more than the average media return of 2.6% for similar
years (ibid).<BR>The argument made by the pension investment officials for their
investment in Wall Street is that investment in private equity is necessary to
help offset declines in other investments it is embedded in. So, we are
told that investment in Wall Street is necessary to assure adequate pay-outs to
current and future retirees. Sound familiar? The Chief Investment
Officer for the workers’ pension moneys, Britt Harris, says he can perform
miracles in light of the deteriorating state of US financial capitalism and
“smash” the reality that government pension funds area on the short end of most
investments — another one of those economic genies of trading.<BR>So, with this
particular shortsightedness and love for free markets, in November 2011 the
Texas fund made one of the largest single commitments in the private equity
system’s history: they invested $3 billion dollars in KKR and another Wall
Street parasite, the Apollo Global management group (APO). Three months
later, unbeknownst to the vast majority of fund members, they bought $250
million dollars of the world’s largest hedge fund firm with member monies –
Bridgewater Associates out of Connecticut. This marked the first time time
in history that a U.S public pension fund has purchased such a large stake in
private equities, betting member dollars as if they were players in a
casino roulette game.<BR>The result was a return for the fiscal year ending on
August 31, 2011 that was 7.6%. Now pension ‘managers’ say they can help
the fund reach its goal of 8% annually over the long haul and they are
proceeding full speed ahead. In a ten year period ending in August of 31,
2012 the Texas Teacher Retirement System had an annual return of 7.4%
(ibid).<BR>Of course none of the investments had the approval of working people
who fund the retirement system. This is partly due to the enormous task of
investing but mainly due to lack of democratic decision making and oversight
which is the nasty business that pension fund managers, in cahoots with Wall
Street, loathe. Nothing could be worse than having the wolves of capital
in their elephant skin boots subjected to transparency and member
oversight.<BR>And just where were the teacher unions and bus driver unions and
cafeteria worker unions when all this was happening? They were nowhere in
sight. Their ‘bosses’ either didn’t know, care or understand the haughty
risk the pension weasels were making on behalf of their members. The fat
cat union bosses have shown a penchant for Wall Street and neo-liberalism in
general, favoring begging over bargaining and fancy luncheons with powerful paid
for politicians and wealth managers over their fiduciary duty of member
oversight. They prefer to be team members rather than looking out for
their real members, working people who are drastically declining in numbers as
privatization clouds the horizon and economic decimation provides the meat for
the noxious roux.<BR>The average teacher, bus driver and cafeteria worker simply
wants to do their job and to make a living, feed their children and provide for
retirement, a chore that is not possible under the current regime of
capital. Mis-education and a lack of critical thinking skills have left
workers prey for the wolves of high-finance while the pension managers ski in
Aspen, buy fancy boots and otherwise screw over workers by investing in a system
of mendacity and despair that has proven time and time again to be a time bomb.
All this while Wall Street gets fatter, bonuses are given out with
impunity and privatization squeezes the life out of civil society.<BR>Leveraging
workers’ pension through debt<BR>This grand charade is all about leveraging
debt, which is the specialty of Wall Street and their cronies. “Leverage’
relies on borrowing more and more sums of cash and then using derivatives (phony
insurance) to make large investments in Wall Street. In this way the funds
don’t have to put up as much cash – money they don’t have anyway. It is
like borrowing on credit cards to buy stocks and bonds but it is much worse, for
it is not an individual problem, it is a socio-economic one that promises to
drive the funds right down the same path as the banking crisis and housing
“bubble” that brought down whole countries and economies, like Greece. All
of this is great for Wall Street and death for workers.<BR><SPAN
class=text-node>But never mind: for the money changers, such as the
world’s largest hedge fund firm, Bridgewater Associates and a numerically
growing number of hedge fund bosses state, this type of leveraging is
</SPAN><I>not like</I><SPAN class=text-node> that which crashed banks, devasted
lives, washed worker bodies onto the shoreline of despair and economic ruin and
left them in peonage; it, they say, is “different. Not to worry this time,
these deacons of depravity and greed say they are firmly and safely in control
of the financialization scheme which of course is tantamount to saying that an
alcoholic is in control of his or her own addiction or the military industrial
complex has a firm hand on the tiller of cost control.</SPAN><BR>They have even
bent the language to their own self-serving advantage, a sophist’s tool, and
they now call this ‘financial strategy’ “risk parity” (ibid). There are
many such criminal firms such as AQR Capital Management and the Clifton Group
out of Minneapolis who are greedily sucking their fingers in anticipation of
their own bonuses, capital gains and primitive accumulation strategies which
promise to make them even more super-rich than they currently are and allow
managers and executives to reap heady bonuses.<BR>When questioned, the minions
of Wall Street who serve as the real shadow managers of the funds say that they
are using a modest amount of leveraging and assure workers and you, the reader,
that this is what makes their strategy brilliant and different from those
employed by investment banks. Do not be beguiled, this is the same
strategy that created the largest transfer of wealth into the pockets of the one
percent in the history of the world.<BR>Of course it is not only a self-serving
lie and unthinkable ruse, but it is unsustainable. The chickens will come
home to roost just as they did in the bankster fraud and housing debacle.
Cannibal financial groups like Bridgewater and their founder Ray Dalio, like the
matchstick men they are, have pitched the idea to other pension fund ‘trustees’
and have even made a documentary style online video about the Ponzi
scheme.<BR>They all employ the same rapacious rap. According to an
interview with Bridgewater con-man, Ray Dalio:<BR>“Ironically, by increasing
your risk in the bonds you are going to lower your risk in the overall
portfolio” (ibid).<BR><SPAN class=text-node>This is the voice of American greed
and it resounds well within the halls of depravity that is Wall Street which
profits off of economic demolition and looks to take stumbling pensions down the
road of economic purgatory.</SPAN><BR>The California State Teacher Retirement
System<BR>And of course this leads us back to Cal STRS. With a shortfall
such as that borne by the California pension fund, one can imagine this Nigerian
web scam to be swallowed by the pension bosses here in California and elsewhere,
who manage workers’ money for a profit, but do so with disdain for the workers’
themselves and a penchant for tying themselves to the crap game of casino
capitalism. These con artists avoid having to answer questions about such
“innovations” such as day trading during the high tech stock bubble and house
flipping during the housing boom, practices that are hardly innovative but more
about yawing financial appetites and greed. Remember these hideous
practices were also sold under the auspices of ingenuity at the time they were
fathomed but soon became to be known as criminal practices and investment ruses
that were devastating for working people.<BR>My wife is currently receiving
disability retirement benefits from the California State Teacher Retirement
System. In this year, her check payment for February was lower than that
paid in January. She has written Cal STRS to find out why and is awaiting
a reply Cal STRS says they will have put in her “in-box” online at their website
in 20 days. But as the clock runs out on her health and her funds quickly
deliquesce, one can only view the financialization con with disgust and wonder
how many other retired teachers who have devoted their lives to children will be
affected.<BR>This is all part of the privatization plot favored by Jerry Brown,
enemy of the working class and cozy operator for the ruling class. To
avoid having to raise taxes on corporations and the rich who invest in him,
Brown and the pension fund managers have created low hanging fruit for
Bridgewater and other such criminal enterprises. Remember, we are talking
about billions of dollars here, even trillions of dollars in public pension
funds.<BR>So now you know the sordid tale of pension funds and pension
leveraging, a seat at the black jack table for workers and a prime example of
rapture capital accumulation for the rich. If the practices are allowed to
continue should you be a public school teacher, much like a worker who pays into
Social Security, you will eventually find there is no security, that the system
is rigged and the hefty bubble subject to burst.<BR>Meanwhile, Wall Street fat
cats get fatter, receive hefty bonuses for wrangling the funds into Wall
Street, and get larger all while more elephants are slayed and
workers’ lives for the bootlicking fund managers drown in unpayable
debt as worker retirement becomes merely a sultry dream to be replaced by
homelessness, financial ruin, suicide, sorrow and decimation.<BR>If you thought
such heady political gimmicks like proposition 30 would help stave off economic
devastation for underfunded schools or even staunch the bleeding inherent in the
mendacious system of financial capitalism, you were wrong. The only thing
that can bring about security and equality for those who work and the public
educational sector is class consciousness, education, organization and
mobilization. Anything less is a fool’s game. It is time working
people in conjunction with the students and communities they serve go on the
offensive and not be forced to crouch into the corner of defensiveness.
But this will largely have something to do with how we see the world and how our
perceptions are managed by a ruling class that understands very well this moment
in history; a ruling class that like other monarchies of old, is more class
conscious than its labor counterparts.<BR>Meanwhile, my wife waits for an answer
in her on-line ‘inbox’ from the unaccountable Cal STRS fund managers who don’t
give a damn about how much she contributed to society, her growing physical
disability or her future. We will let you know if and when we get their
reply. In the meantime, organize, educate and mobilize: this is the only
hope we
have.</FONT></DIV></DIV></DIV></DIV></DIV></DIV></DIV></FONT></DIV></BODY></HTML>