How Wall Street and the Toxic Philosophy of Ayn Rand Are Destroying Our Retirements

It’s tough growing old. And it’s even tougher growing old in America -- unless you’re rich.  

It used to be that you could count on two pensions – social security and a pension from your employer. But now work-related pensions are an endangered species and Social Security is under assault from a lethal combination of Wall Street’s insatiable greed and the pernicious philosophy of Ayn Rand.  

For much of the post-WWII period, private sector workers could count on decent, defined benefit pension funds that paid a fixed monthly amount for as long as you lived. Most also included options that allowed your spouse to receive benefits for the rest of his or her life after you died. You felt like you could survive into your golden years and provide for your loved ones.    

Defined benefit plans are much more secure than 401(k)s, which end when the money runs out. The odds are that you will quickly outlive your 401(k). In fact, the average 401(k) has a balance of only $45,519, and 46 percent of all 401(k)s are worth less than $10,000.  

Twenty-five years ago, 80 percent of large and medium-sized firms offered defined benefit pension plans. Today only 21 percent have them. And half of all full-time workers (and most part-time workers as well) have no workplace retirement plans at all. 

The Premeditated Murder of Private Pension Funds

The birth and death of private pension funds are directly connected to the rise and decline of unions. In 1955, more than one in three private sector workers belonged to a union and those unions fought hard for pensions and health care benefits. Currently fewer than 7 percent of all private sector workers are in unions so private employers feel little pressure to provide such benefits. Corporate America has stopped offering pensions because it doesn’t have to. 

But corporations do feel enormous pressure to deliver higher profits on a quarterly basis to meet Wall Street expectations. This pressure has led to more movement of facilities overseas, more efforts to keep wages down, more anti-union crusades and more cuts in benefits.  

Public Employee Pensions now on the Block

While unions were being crushed in the private sector, they grew rapidly among public sector workers. Today more than 35 percent of public employees belong to unions and low and behold, 76 percent of these workers still have defined benefit plans.  

So doesn’t that mean that public employees are overpaid and killing our state and local governments? 

NO! Every reputable study shows that public sector workers do not receive more total compensation than their counterparts in the private sector when you compare them by education and experience – the proper way to compare workers across industries and sectors. In fact, public employees earn a little bit less in actual wages than their private sector counterparts, but, they make it up in benefits. (See the excellent report by Jeffery Keefe of the Economic Policy Institute.) 

Public Pensions Poisoned by Wall Street

Unfortunately, public sector pension plans are in trouble and we can thank Wall Street for that as well. Writing for Bloomberg Markets, David Evans describes Wall Street’s systematic efforts to sell toxic assets to public pension funds. They didn’t just peddle risky mortgage-backed securities and CDOs filled to the brim with liars-loans and such. Wall Street firms actually pushed pension funds to buy the bottom slice (the equity tranche) that would be the first one to fail in case the housing market declined (which it did later that year). 

How bad were these securities? They were so bad that even the whorish rating agencies, which doled out high ratings for their Wall Street johns without blushing, refused to rate these equity tranches. Nevertheless, pension funds foolishly trusted their bankers and bought 18 percent of all of these unrated slices. Today these investments are worthless, costing pension tens of billions of dollars in losses.