The Pension Fund Mess and the Media's Lousy Reporting

I read this article today in the NY Times. The Little State With a Big Mess

It was another lousy, shallow, baseless bleed heart about a politician having to deal with bankrupt pensions... So I wrote these few words in response to the author and share here.

Hello Ms. Walsh,

I have read quite a number of articles about the financial mess many states, cities and municipalities are in over the past few years. What I have not read until now, with the exception of the occasional town or municipality that engages in outright fraud, is any decent reporting of the mechanisms that have lead to the financial mess they are in.

I never read about the move of states, cities and municipalities to dramatically increase the salaries of officials in government and government funded organizations like education institutions in the late 1990's to "compete" with the "dotcom" induced high flying salaries paid during that era's economic bubble. I have not read about how, unlike industry, when this bubble burst governments did not ratchet down those exuberant salaries and maintain them to this day. I have not read about how governments wasted or spent unwisely the billions of dollars doled out by the Federal Government after 9/11 to "upgrade" police and other emergency services leaving higher long term costs burdens to the local governments after a short term shot in the arm by the Federal Gov. I have not read about the tremendous waste of opportunity by state, city and local governments to bank the exorbitant amount of money they were taking in during the first decade of this century while the real estate bubble was in full steam and how they unwisely spent it, often on frivolous items and higher salaries while allowing their infrastructures to fail and pensions to go unfunded. I have not read about the dramatic shift in public pension funds during this same bubble to feed tens of billions of dollars into the unregulated hedge fund industries as Wall street ran out of suckers and reached out to pension funds and their low salary incompetent managers as easy takers to fuel the casino going on in the global debt markets. I have not read enough about how many of these local governments became little AIG's by being coaxed into short term funding obligations with long term insurance against rising interest rates which not only did not materialize but "cost" money when these government entities had to pony up money to meet calls against their worthless contracts and how this plays into their financial woes.

In essence, I have not read anything anywhere about the reason America's incompetent governments at every level from county, municipality, city and state (and federal) seem to know nothing about basic economics of running a government, how our education system fails to teach anything about our economic system and how this plays into the ignorance of our electorate and governments alike. I have read nothing about how the financial mess so many governments are in got to where it is in the first place and how much of that reason is directly related to their pension funds investment decisions. I have not read how the financial meltdown on Wall Street as a whole has affected the returns on the pension funds and how many of the pension funds were duped into worthless investments during the Wall Street bubble. I have not read anything about how perhaps our Federal government should have been more interested in securing the savings of Americans and the soundness of their pensions instead of bailing out the Casino operators on Wall Street who already banked nearly $3.5 trillion of profits from the debt induced bubble that took place from the early part of the century till the collapse in 2008.

All I read about is what you and others in your industry have written here, politicians speaking to angry pensioners (um, that is American Citizens who have done an honest days work all their lives while living in modest means) about how they are going to have to take the hit from what? Maybe from all of the things I mention above that are NEVER spoken about on these pages or any other pages in any cohesive way that lays out the reality that at the end of the day; the average working Joe is constantly getting reamed in this global, finance driven economy run by people with an 19th century mindset at best; that all money is for the taking, no matter how you do it; that we still live in an barbaric economic reality and all the attempts by all the people over the last century and a half to make sure working people are respected like the decent human beings they are, are moot when casino economics and corrupt national governments are capable of taking it all away inside of a few years.

How about getting a little creative and insightful next time, it is about time!

Open Explanation: Occupy Wall Street

I wrote this letter to Timothy Lavin of Bloomberg after reading this article by Amity Shlaes. It combines two recent ideas of mine in one letter to try and open a dialog on my take of the Occupy Wall Street phenomenon.

Hello Timothy,

As editor of the opinion column at Bloomberg I would like you to think about the Wall Street protesters from a couple angles and perhaps seek understanding of what is going on from these perspectives.

1) From the economic perspective, that the free economic system has at some point over the last 30 years reached a point of diminished returns to the population it "serves". All advanced industrial economies are facing the same "problem" whereas corporate entities have gone through a mass consolidation, using their capital to consolidate verses investment in new productive output. This consolidation has resulted in mega corporate entities that maximize profit by reducing competition and stifling innovation. I would estimate that nearly 70% of consumer dollars are spent on goods and services at companies that operate as oligopolies in their respective industries where two or three (perhaps 4-5 in some areas) companies control any particular industry per geographic area including production, distribution and sales channels. The consolidation of industries has also concentrated wealth in the hands of fewer companies and people and this wealth is not being put to productive use.

The last decade of this wealth concentration played out in the financial industry whereas the money concentrated in the hands of the few was and is being put to "work" in speculative gain through financial instruments. The proliferation of unregulated pools of money like hedge funds and speculative private equity companies provides a real tangible look at what happens when such concentration of wealth proliferates. Unfortunately so much money has flowed into these non productive uses of capital, real investment has all but ceased to exist in mature economies. Unfortunately as well, is the reality that when these speculative uses of capital go haywire in the hands of people who over leveraged their balance sheets, massive amounts of money is "lost" or better put transferred from the "real" savings of the citizens when regulated financial institutions leverage these savings to offer credit to unregulated institutions that imploded due to overly leveraged balanced sheets and speculative practices.

The bail out of regulated financial institutions (and the conversion of speculative financial to regulated financial institutions) so they to could get "bailed out" was nothing short of the largest transfer of "wealth", the savings of the American people (and citizens of other developed nations), to the speculative, unregulated markets, the world has ever seen. The "real" savings that were "lost" were replaced by sovereign debt, basically the people have had their own money "replaced" after the regulated financial institutions had transferred it to the speculative unregulated markets, and been give a big IOU. All people of the advanced industrial world are now paying interest indirectly on their own money that was essentially "stolen" from them through the process of regulated financial institutions lending it to speculators who took pools of capital from the corporate elite and gambled a reckless way by "creating" financial instruments based on real assets and liabilities valued at over 50 times the true underlying assets / liabilities. When this system of reckless gambling failed and the underlying capital that existed was wiped out then replaced on the backs of taxpaying citizens we (the Occupy Wall Street crowd) have the impression, correctly so, that the government is working on behalf of the wealthy and corporations, not it's citizens.

All this evolution in economic activity derives its origins from the premise that "capital" simply found no more productive uses in the advanced nations where it was created and hence it found it's way to speculative uses instead of productive uses. My guess of the point where our vastly unregulated free market system reached a diminished point of returns to the population it "serves" was somewhere in the late 1970's, about the same time that real incomes stagnated in the US and have remained fairly constant or declined since (with the small exception of the latter 1990's when capital was invested in productive use due to the opportunities created by the evolution of the Internet / networks). Any productive use of capital from that point forward was transferred overseas to "developing" economies where production is cheaper and growth in those economies from a basic level of need still attainable, where all basic level of material needs had been satisfied in the advanced economies. (Note: China is currently doing both productive investment and speculation on such an tremendous scale their implosion in the next 12-18 months will rock the globe.)

Europe manages to slow this migration of capital somewhat through stiffer regulation and a later stage of development due to the destruction of WWII. However over that past 15 years or so they have increasingly modeled their economies after the freer economic model of the US and the EU and common currency has escalated that trend. Japan and German and a few island nations are somewhat exceptions in that both nations continued to invest in productive output as they lead in the manufacture of advanced industrial products and machine tools that make production possible elsewhere.

2) The second area is more directly related to the people who are involved in the protest movement. This is the first generation of people to grow up with computers and the Internet in their homes. It only takes 10% of this population of young people, who found the Internet to be an enlightening source of information to create a major national movement. These young people, many of who have completely lost faith in the institutional framework of our political and economic system, have "self educated" via the Internet and have learned to shun the institutional "learning" that is propagated in our public school system, a system that has failed to keep pace with the leaning abilities of our young people and failed to keep pace with the evolution of our economic / political system at hand, instead continuing to focus on the social cohesion aspects of learning that has propagated in our public education since the early to mid 20th Century.

These young people see public education for what it is and seek to acquire "real" knowledge through understanding the world around them as it exist today. They can easily find information on everything from ecology, environment, politics, war, economy, power, industrial processes, history, current events, governments, foreign policy etc. from their home and increasingly share that information with others and through that process develop deeper and more comprehensive understandings of the world around them. Each person is free to focus on the aspects of learning that interest them most and share and communicate with like minded people. All of them ultimately share common goals, though in different areas, that changes need to be made for the common good. You will see issues all over the map, from industrial food process and it's effects on human populations and the lack of regulation and tainted "research" spewed out by universities funded by the companies that exercise such practices to global economic theft and manipulation by pools of capital that seek to turn every resource on the planet into a speculative instrument and exploit these instruments with abandon while answering to no legitimate governmental organization from where these pools of capital originate.

The failure of established institutions to recognize what is going on with these young people is to their detriment. This movement is global. Whether it is 5%, 10% or 15% of the population of young people all over the world that are involved in this movement, have educated themselves and are impassioned to change the world around them is irrelevant. The fact is that this change is coming and failure to recognize it for what it is is dangerous and irresponsible. When one educates themselves, there is a different dynamic that takes place. They feel empowered by their knowledge. This is very different than the indoctrination education received at public schools and higher learning institutions. You have to understand this or you will fail to understand what is going on.

In addition, when one looks at the issues / demands / concerns of these people, they are reasonable, attainable and achievable while protecting a capitalist system of economy and democratic form of government. The establishment will still have it's place and the institutions that exist today will continue to exist. There is no call for their destruction. There is a call for their humanization. This must be recognized. The greed with abandon, reckless capitalistic tendencies of corporations constantly seeking advantage by cheating, deregulation, theft and outright fraud will have to end. Yes, capitalism is ugly, human evolution is ugly, existing on a harsh planet can be ugly, but we humans have not choice, we pick what works best for us and so far capitalism and democracy have served better than any other alternative till now. Yet, in the 21'st century, the practices that have lead to consolidation of power and wealth in the hands of the few by corporate entities that seek to operate irrespective of the well being of the people they serve, the environment they exploit or the policies they extol to their own benefit must change sooner rather than later.

To point a finger at these young people and attempt to understand what they are trying to achieve through any other lens is to fail. The establishment will try to resist change, protect their advantage, protect their profits etc. but until they understand profit is still possible even giving ALL of the demands of these young people, they will fail to get the point and do more harm then good trying to resist them.

Sincerely,