Sunday, July 31, 2005

How to Retire in Poverty

Mary Williams Walsh has an instructive article in the the Sunday New York Times analyzing How Wall Street Wrecked United's Pension. The short version: Wall Street talked United Airlines into following the pension strategy President Bush would have us all follow with Social Security. Of course there is no danger that the perps of this particular scam will be held to account by the Administration or the Republican Congress.

While the money managers and other pension professionals who ran United's pension plan walked away from the wreck unscathed - indeed, they collected about $125 million in fees over the last five years alone, records show - the ones who will have to pick up the bill for the advisers' collective failure will be the airline's 130,000 employees and pensioners, the federal pension guarantor and probably, someday, the taxpayers.
It's easy to forget that while the stock market is a crucial component of democratic capitalism, there are always many who will try to turn it into a collossal Ponzi scheme. This is only possible if those whose job it is to regulate and maintain transparency avert their eyes and permit it. The federal Pension Guarantee Corporation, and Congress are playing that role now. Our political class has become so dependent on bribes (usually campaign contributions, but the other kind too - see e.g. Rep Cunningham) from the financial community that they fear to even look at how it makes its money.
While the federal agency tries to pinpoint its obligations, apparently no one in an official capacity is pausing to ask who the plans' outside investment professionals were, much less how they made their decisions and how they responded as the airline's fortunes faded.

"It's just a nonstarter," said Richard A. Ippolito, the pension agency's former chief economist, who is now retired. A few years ago, he recalled, a director of the federal pension agency appeared before Congress and suggested that if companies wanted to invest their pension funds in stocks, they should pay more for their pension insurance coverage.

"I could politely say that he was vilified," he said. "They basically accused him of being un-American because he was asking companies to pay for the privilege of investing in stocks. He just dropped that idea."