FacebookTwitterGoogle+RedditEmail

Foxes and Pension Funds

by Alexander Cockburn

Lurking in back of the current uproar about corporate chicanery is an argument about the management and disposition of society’s acccumulated wealth.

Read first some striking remarks about the role of pension funds by the former British Labor minister, Tony Benn, in his 1979 book, Arguments for Socialism. “The financial institutions do not necessarily use the huge sums put at their disposal in a manner compatible with the common interest. This is one area where there will have to be change These savings belong to the workers, they are their own deferred earnings. Workers want them not only as income when they retire, but while they are at work, and so to guarantee that they will retire in a buoyant economy.”

Of course we’ve been listening over the last few months to many tragic stories of workers watching helplessly as their prospective pensions, stored in some 401(k) have shrivelled overnight, while senior management in a company like Enron cashed in their chips while the going was good. As always the apex predators survive, while the small fry perish. At the end of 2000 Enron’s 401(k) had $2.1 billion in assets, but a year later had lost 94 per cent of its value.

Why didn’t Bush try to bail out Enron, just as Clinton and Rubin bailed out Long Term Capital management. Long Term Capital Management, you’ll recall, was a hedge fund that collapsed in 1998, victim of staggering wrong-way bets by its executives. Banks, even central banks, hedging their positions through LTCM stood to lose vast sums.

The Federal Reserve intervened, persuading 14 banks to put up $3.6 billion as part of the bail-out.

Now, when Enron went belly-up, the losses were vast, perhaps as much as $60 billion, but the losses were widely distributed among a lot of different institutions.
The company’s two largest creditors, Citi and JPMorgan/Chase, well aware of the dodgy state of the company, had packaged up their Enron debt as “credit derivatives” and sold them on to pension funds. So Enron’s crash was not going to bring down the big banks, or even damage their profits (which have remained good).

But if the big banks had stood to loose out big time then it would have been a different story. The Senate hearings last week confirmed that the banks knew that there were big problems with both Enron and WorldCom – in fact they helped devise the “prepays” (loans disguised as trades) and other devices which concealed how highly leveraged the companies were. The recent hearings in Congress have yielded some remarkable material. Here’s an internal e-mail exchange at Chase: One executive wrote simply “$5 bn in prepays!!!!!!!!”, the other replied “Shut up and delete this e-mail”, an exchange later variously described as “misstatements by young bankers” or simply as jokes.

These issues won’t go away because the big pension funds are taking the banks to court. Calpers and Calstrs (teachers) and Lacera (Los Angeles County Employees Retirment Association) have taken action against the large banks, including Citi and Chase, which underwrote Enron and WorldCom bonds, even though they knew the dreadful state of their finances.

Which brings us back to those basic arguments about how the accumulation of wealth should properly managed. This summer sees the publication of Robin Blackburn’s remarkable “Banking on Death” (Verso) which sets out in fascinating detail not only the scandalous misapplication of savings by the corporate giants, but also pioneering attempts to “socialize” accumulation by visionaries such as the German-born Rudolf Meidner, in Sweden.

Blackburn reminds us that back in the mid-1970s Peter Drucker, philosopher of management, published The Unseen Revolution, which focussed on the growing weight of pension funds and their role in economic development.

In Drucker’s view, Blackburn writes, “pension fund collectivism offered an alternative to both state socialism and free market individualism.” For as Drucker puts it, “The pension fund movement is not ‘individualism’ a la Herbert Hoover. Pension funds are collectives. And the agents are other collectives, the large employing organizations. But they are ‘non-government’ and, in that sense, ‘private’. They offer one example of the efficacy of using private non ­government institutions of our ‘society of organizations’ for the formulation and achievement of social goals and the satisfaction of human needs.”

Needless to say, pension fund managers tend to be fixated on shareholder value (however meretricious, as with Enron and other book-fixers) with scant regard for social goals. But Drucker’s basic point remains valid.

In the coming months, amid public indignation, there may be a few modest reforms seeking to curb accounting “excesses” and kindred shenanigans. Then, when the dust settles, the foxes on Wall Street will be attacking the chicken coop again, trying to capture all the money going into Social Security.

Now’s the time to outmaneuver the foxes by taking the debate over pensions and pension fund management to a higher level, recognizing that with an aging population this is indeed one of the crucial discussions about this society’s priorities and direction in the new century.

More articles by:

Alexander Cockburn’s Guillotined! and A Colossal Wreck are available from CounterPunch.

Weekend Edition
February 23, 2018
Friday - Sunday
Richard D. Wolff
Capitalism as Obstacle to Equality and Democracy: the US Story
Paul Street
Where’s the Beef Stroganoff? Eight Sacrilegious Reflections on Russiagate
Jeffrey St. Clair
They Came, They Saw, They Tweeted
Andrew Levine
Their Meddlers and Ours
Charles Pierson
Nuclear Nonproliferation, American Style
Joseph Essertier
Why Japan’s Ultranationalists Hate the Olympic Truce
W. T. Whitney
US and Allies Look to Military Intervention in Venezuela
John Laforge
Maybe All Threats of Mass Destruction are “Mentally Deranged”
Matthew Stevenson
Why Vietnam Still Matters: an American Reckoning
David Rosen
For Some Reason, Being White Still Matters
Robert Fantina
Nikki Haley: the U.S. Embarrassment at the United Nations
Joyce Nelson
Why Mueller’s Indictments Are Hugely Important
Joshua Frank
Pearl Jam, Will You Help Stop Sen. Tester From Destroying Montana’s Public Lands?
Dana E. Abizaid
The Attack on Historical Perspective
Conn Hallinan
Immigration and the Italian Elections
George Ochenski
The Great Danger of Anthropocentricity
Pete Dolack
China Can’t Save Capitalism from Environmental Destruction
Joseph Natoli
Broken Lives
Manuel García, Jr.
Why Did Russia Vote For Trump?
Geoff Dutton
One Regime to Rule Them All
Torkil Lauesen – Gabriel Kuhn
Radical Theory and Academia: a Thorny Relationship
Wilfred Burchett
Vietnam Will Win: The Work of Persuasion
Thomas Klikauer
Umberto Eco and Germany’s New Fascism
George Burchett
La Folie Des Grandeurs
Howard Lisnoff
Minister of War
Eileen Appelbaum
Why Trump’s Plan Won’t Solve the Problems of America’s Crumbling Infrastructure
Ramzy Baroud
More Than a Fight over Couscous: Why the Palestinian Narrative Must Be Embraced
Jill Richardson
Mass Shootings Shouldn’t Be the Only Time We Talk About Mental Illness
Jessicah Pierre
Racism is Killing African American Mothers
Steve Horn
Wyoming Now Third State to Propose ALEC Bill Cracking Down on Pipeline Protests
David Griscom
When ‘Fake News’ is Good For Business
Barton Kunstler
Brainwashed Nation
Griffin Bird
I’m an Eagle Scout and I Don’t Want Pipelines in My Wilderness
Edward Curtin
The Coming Wars to End All Wars
Missy Comley Beattie
Message To New Activists
Jonah Raskin
Literary Hubbub in Sonoma: Novel about Mrs. Jack London Roils the Faithful
Binoy Kampmark
Frontiersman of the Internet: John Perry Barlow
Chelli Stanley
The Mirrors of Palestine
James McEnteer
How Brexit Won World War Two
Ralph Nader
Absorbing the Irresistible Consumer Reports Magazine
Cesar Chelala
A Word I Shouldn’t Use
Louis Proyect
Marx at the Movies
Osha Neumann
A White Guy Watches “The Black Panther”
Stephen Cooper
Rebel Talk with Nattali Rize: the Interview
David Yearsley
Market Music
FacebookTwitterGoogle+RedditEmail