Sacrificed to Wall Street’s Gluttony
On the Senate’s last day in session in December, it approved the government’s $1.1 trillion budget for coming fiscal year.
Few people realize how radical the new U.S. budget law was. Budget laws are supposed to decide simply what to fund and what to cut. A budget is not supposed to make new law, or to rewrite the law. But that is what happened, and it was radical.
Wall Street’s representatives in Congress – the Democratic leadership as well as Republicans – took the opportunity to create an artificial crisis. The press called this “holding the government hostage.” The House – backed by the Senate – said that it would shut the government down at some future date if two basic laws were not changed.
Most of the attention has been paid to Elizabeth Warren’s eloquent attack on the government guaranteeing bank trades in derivatives. Written by Citigroup lobbyists, this puts taxpayer funds behind future bank bailouts if banks make more bad bets on complex financial derivatives, such as packaged junk mortgage loans.
Critics have focused on how there must be a loser for every winner in a derivatives contract. The problem is that if banks lose, the government will bail them out just as it did in 2008.
Less attention has been paid to what happens if banks win. They will win largely in making bets against pension funds. Indeed, pension funds have not been treated well by Wall Street in recent years.
They are in a bind. Pension funds will fall further and further behind what they need to pay retirees if they do not make the impossibly high returns of 8.5%. The guiding philosophy of pension funds has been that instead of making employers pay enough to cover the pensions they have promised, funds can make money purely financially – by Wall Street sharpies.
The problem is that safe interest rates today are less than 1% for Treasury bonds. Everyithing else – stocks, corporate bonds, and hedge fund derivatives – are much more risky. And when Goldman Sachs, or JPMorgan Chase draw up a derivative for a client, their aim is to make money for themselves, not for the client.
So pension funds have been at the losing end. Most funds would have done better simply to turn their money over to Vanguard in an indexed fund, and saved management fees.
At the state and local levels, pension funds in New Jersey and other states threaten to go the way of Detroit pension funds – to be cut back so that bondholders can be paid.
Many corporate pension funds also are behind, because companies are using their record profits to pay higher dividends and to buy back their stocks to create price gains for speculators.
But the funds most under attack are union pension funds. These are the funds that Congress has gone after. The fight is not merely to scale back pension funds – and avoid the government’s Pension Benefit Guarantee Corp (PBGC) being bailed out – but to break the power of unions to attract members or to defend them.
The Congressional budget act states that pension funds with more than one employer – such s construction industry funds, teamster funds for truckers and public service workers funds – can be scaled back in order to pay Wall Street creditors.
Labor now is told to go to the back of the line behind Wall Street. If the economy is too debt strapped to pay everyone what is owed, then the new motto is Big Fish Eat Little Fish.
Wall Street is eating the pension funds.
This goes hand in hand with Obama’s fight to scale back Social Security and, ultimately, to privatize it. Now that Republicans are in a majority of both the House and Senate, the Democrats will be able to take an anti-labor position and then try to blame it on Republicans.
Yet Democrats themselves were the leading advocates of the anti-labor, anti-pension fund policy. This special “rider” to the budget bill was known last spring to the House Budget Committee. Yet something tricky happened: While the committee approved the anti-labor pension rule, no record was taken of which members and which party voted for the radical change, and who opposed it.
For instance, Marcy Kaptur, who replaced Dennis Kucinich from Cleveland after the Democrats helped the Republicans gerrymander his district, said that she should remember who voted which way on the House Appropriations Committee she served on.
So this is the problem: the supposedly liberal Democrats are in the lead for scaling back pension funding, Social Security and labor protection in general.
Here’s an indication of how bad the situation is. Pension funds – union pension funds as well as corporate pension funds – are supposed to be backed up by the PBGC. But that agency has been headed by a former Lazard Freres investment banker, Joshua Gotbaum. He’s now at the Democratic Party’s pro-Wall Street think tank to refine their anti-pension policies. He has explained to the press that he wants to “save” pensions – by scaling them back.
This is the new Orwellian anti-labor rhetoric. “Saving” pensions means reducing what workers were promised – back when they negotiated lower wage gains in exchange for greater retirement security. Continue reading . . .