Bush Official Put Retirement Funds In Speculative Investments Months Before Market Crash
Bill Lindner
April 01, 2009
Charles E.F. Millard, the former Bush administration Pension Benefit Guaranty Corporation (PBGC) -- the federal agency that insures the retirement funds of 44 million Americans -- director who was the former managing director of Lehman Brothers before joining the Bush cabal, reportedly put much of PBGC's $64 billion insurance funds into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds just months before the start of last year's stock market meltdown.
The PBGC refused to say how the funds fared during the downturn, only saying that all of its stock-related investments were down 23 percent as of last September 30 -- the end of its fiscal year -- which was before most of the recent stock market decline began. No information has been released since then.
There is concern that large portions of the trust fund may have been lost at a time when private pension plans are suffering major losses. According to the Boston Globe, the guarantee fund would be the only way to cover the plans if their companies go into bankruptcy. The losses could potentially be huge, possibly several hundred billion dollars.
Peter Orszag, head of the White House Office of Management and Budget (OMB) has serious concerns about the PBGC. Last year, when Orszag was the director of the Congressional Budget Office, he expressed alarm that the agency invested a greater share of its assets in risky securities, which he said would make it "more likely to experience a decline in the value of its portfolio during an economic downturn the point at which it is most likely to have to assume responsibility for a larger number of underfunded pension plans."
Millard Moved The Money From Bonds To Stocks
Millard dismissed Orszag's concerns, flatly stating that the new investment policy he concocted was not riskier than the old one. Instead of putting the money in bonds, Millard put the money in stocks.
Zvi Bodie, a Boston University finance professor who advised the agency to rely mostly on bonds in 2002, questioned why a government entity that is supposed to insure pension funds should be investing in stocks and Real Estate at all.
Bodie likened that strategy of investing in stocks to a company that insures against hurricane damage, then invests the premiums in beachfront property. Since issuing that warning, Bodie says the agency has gone 'totally crazy,' investing more aggressively in stocks.
The Government Accountability Office (GAO) has also questioned the move, concluding that the strategy will likely carry more risk than projected by the PBGC.
As more companies go bankrupt and pass their pension responsibilities onto the PBGC, the agency may inevitably face significantly increased liabilities in coming months.
1.3 Million Receive Checks and 44 Million Others Plans Backed By PBGC
The PBGC serves 1.3 million people who receive retirement checks from it and 44 million others whose plans are backed by it. It was set up in 1974 when concern arose that workers with pensions at financially troubled or bankrupt companies would lose their retirement funds. It operates by assessing premiums on the private pension plans it insures.
PBGC insures up to $54,000 annually for individuals who retire at age 65. Despite its name, the agency does not necessarily guarantee the full value of a person's pension and isn't backed by the full faith and credit of the Government according to the Boston Globe.
If the agency can't meet its obligations, taxpayers -- including those who don't receive pensions -- could be asked to bail them out if and when the Government steps in. As of September 30, 2008, the PBGC had an $11 billion shortfall.
Millard concocted a strategy that directed the PBGC to invest 55 percent of its funds in stocks and real estate. That included 20 percent in U.S. stocks, 19 percent in foreign stocks, 6 percent in 'emerging market' stocks, 5 percent in private Real Estate and 5 percent in private equity firms.
At one point during his presidency, Bush wanted to invest everyone's Social Security in the stock market. Bush succeeded in doing for the PBGC what he tried and fortunately failed to do for Social Security.
As noted by The Raw Story, one of the drives behind Bush's Social Security privatization idea was the desire to find more money to keep the fires burning on Wall Street. Bush may have left us with another gratuitous loss of hundreds of billions of dollars. Until "we the people" realize the depths of political corruption in Washington and do something about it, nothing is going to change. How much more do we need to know until Bush is held accountable?
The PBGC refused to say how the funds fared during the downturn, only saying that all of its stock-related investments were down 23 percent as of last September 30 -- the end of its fiscal year -- which was before most of the recent stock market decline began. No information has been released since then.
There is concern that large portions of the trust fund may have been lost at a time when private pension plans are suffering major losses. According to the Boston Globe, the guarantee fund would be the only way to cover the plans if their companies go into bankruptcy. The losses could potentially be huge, possibly several hundred billion dollars.
Peter Orszag, head of the White House Office of Management and Budget (OMB) has serious concerns about the PBGC. Last year, when Orszag was the director of the Congressional Budget Office, he expressed alarm that the agency invested a greater share of its assets in risky securities, which he said would make it "more likely to experience a decline in the value of its portfolio during an economic downturn the point at which it is most likely to have to assume responsibility for a larger number of underfunded pension plans."
Millard Moved The Money From Bonds To Stocks
Millard dismissed Orszag's concerns, flatly stating that the new investment policy he concocted was not riskier than the old one. Instead of putting the money in bonds, Millard put the money in stocks.
Zvi Bodie, a Boston University finance professor who advised the agency to rely mostly on bonds in 2002, questioned why a government entity that is supposed to insure pension funds should be investing in stocks and Real Estate at all.
Bodie likened that strategy of investing in stocks to a company that insures against hurricane damage, then invests the premiums in beachfront property. Since issuing that warning, Bodie says the agency has gone 'totally crazy,' investing more aggressively in stocks.
The Government Accountability Office (GAO) has also questioned the move, concluding that the strategy will likely carry more risk than projected by the PBGC.
As more companies go bankrupt and pass their pension responsibilities onto the PBGC, the agency may inevitably face significantly increased liabilities in coming months.
1.3 Million Receive Checks and 44 Million Others Plans Backed By PBGC
The PBGC serves 1.3 million people who receive retirement checks from it and 44 million others whose plans are backed by it. It was set up in 1974 when concern arose that workers with pensions at financially troubled or bankrupt companies would lose their retirement funds. It operates by assessing premiums on the private pension plans it insures.
PBGC insures up to $54,000 annually for individuals who retire at age 65. Despite its name, the agency does not necessarily guarantee the full value of a person's pension and isn't backed by the full faith and credit of the Government according to the Boston Globe.
If the agency can't meet its obligations, taxpayers -- including those who don't receive pensions -- could be asked to bail them out if and when the Government steps in. As of September 30, 2008, the PBGC had an $11 billion shortfall.
Millard concocted a strategy that directed the PBGC to invest 55 percent of its funds in stocks and real estate. That included 20 percent in U.S. stocks, 19 percent in foreign stocks, 6 percent in 'emerging market' stocks, 5 percent in private Real Estate and 5 percent in private equity firms.
At one point during his presidency, Bush wanted to invest everyone's Social Security in the stock market. Bush succeeded in doing for the PBGC what he tried and fortunately failed to do for Social Security.
As noted by The Raw Story, one of the drives behind Bush's Social Security privatization idea was the desire to find more money to keep the fires burning on Wall Street. Bush may have left us with another gratuitous loss of hundreds of billions of dollars. Until "we the people" realize the depths of political corruption in Washington and do something about it, nothing is going to change. How much more do we need to know until Bush is held accountable?
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