Taibbi's Latest Expose: How Teachers, Cops and Firemen Are Getting Their Pensions Fleeced at Lightning Speed
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In his latest article for Rolling Stone, Matt Taibbi reports that Wall Street firms are now making millions in profits off of public pension funds nationwide. "Essentially it is a wealth transfer from teachers, cops and firemen to billionaire hedge funders," Taibbi says. "Pension funds are one of the last great, unguarded piles of money in this country and there are going to be all sort of operators that are trying to get their hands on that money."
Full transcript below the video:
JUAN GONZALEZ: We turn now to major new piece by Rolling Stone Contributing Editor Matt Taibbi called, "Looting the Pension Funds: Five years after the financial crisis, Wall Street is picking at the carcass of flat-broke city and state governments, blaming public workers and making millions to 'rescue' them.”
AMY GOODMAN: Matt Taibbi joins us here in our studio. Explain how the pension funds are being looted.
MATT TAIBBI: The primary focus of my piece, there were a couple of things. Number one, how did these funds come to be broke the first place? I think everyone realizes that states are in fiscal crises or having trouble paying out their obligations to workers. One of the reasons is that at least 14 states have not been making their annual required contributions to the pension fund for years and years and years. So essentially, they have been illegally borrowing from these pension funds, sometimes going back decades. Another focus of the piece was the solution that a lot of sort of Wall Street funded think tanks are coming up with now is to get higher returns by putting these funds into alternative investments like hedge funds. In a lot of cases what I’m finding is that the fees that states are paying for these new hedge funds and these new types of alternatives investments are actually roughly equal to the cuts that they are taking from workers. Like in the state of Rhode Island, for instance, they have frozen the cost of living adjustment and the frozen cola roughly equals the fees that they’re paying to hedge funds in that state. So essentially it is a wealth transfer from teachers, cops, and firemen to billionaire hedge-funders.
JUAN GONZALEZ: You know, decades ago, pension funds used to invest conservatively, basically in bonds, because they knew that this was retirement money of workers that they couldn’t risk. But increasingly then over the last 20 to 30 years, they have shifted more of their money into the stock markets, to the gambling of the stock market, so when the market went down then suddenly the investment returns of these pension funds went down and they were stuck then because they were projecting continued increases on those returns.
MATT TAIBBI: Sure, and among the problems here is that state and municipal pension funds are actually not covered ERISA which is the federal law governing pensions. So if there is no prudent man rule that requires a certain level of reasonability or prudence in investment, hedge funds probably would not have been a typical public or municipal investment a long time ago, but now they are being used in some cases 10%, 15 to 20% of these state funds are being put into these alternative investments. If you look on the prospectuses of a lot of these investments, they say right in the front, in huge letters, these are high risk investments, you may lose everything. It is exactly the opposite of what you want to put public money into.
AMY GOODMAN: Matt Taibbi, talk about John Arnold.
MATT TAIBBI: John Arnold is a former Enron energy commodities trader who became a billionaire, one of the world’s most successful commodity traders after the collapse of Enron and he is sort of the new Koch Brothers figure. He is on a crusade. He has created something called the Arnold Foundation which is funding pension reform efforts in multiple states all across the country from Montana to Kentucky to Florida to Rhode Island where I spend a lot of time. In Rhode Island Arnold donated a lot of money to a 501(c)4 organization called Engage Rhode Island which helped promote the pension reform policies of the sort of Wall Street friendly treasurer they have in that state. And this is sort of the new formula, you have in the Citizen’s United age you have some person, a hedge fund guy like John Arnold, who gives a whole bunch of money to some shadowing organization which advertises this crisis that we can’t afford to pay workers any more so we have to do things differently. We gotta make cuts and then we gotta put all the money in Wall Street managed funds. That is sort of his playbook.