Washington is talking about balancing the budget on the backs of the elderly, but the economic security they enjoyed at one time is already imperiled.
By **Les Lepold**
By arrangement with Alternet.Org.
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.
There would be no public pension crisis were it not for Wall Street’s greedy recklessness that took down our economy.
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.
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.
But this is just tip of this toxic iceberg. For every equity tranche there were dozens of “rated” slices that were pedaled by Wall Street to state and local pension funds as well. Even those with AAA ratings have gone under. This means that even the most cautious pension funds that held to strict rules prohibiting investments in risky, unrated securities got totally screwed by Wall Street and the bogus AAA ratings.
To my knowledge, no one yet has totaled up the amount of toxic crap sold to public pensions. That’s because pension fund managers don’t want to admit how stupid they were to trust Wall Street banks and the rating agencies. But the truth is starting to leak out as many states are suing Wall Street to recover some of these losses.
I’m personally familiar with one case concerning five Wisconsin school districts that invested $200 million in synthetic CDOs to help cover retiree costs. They were told by their trusted local broker that these securities were rated AAA and AA. The school districts lost their entire investment in a matter of months. The case is now moving through court.
Not only did Wall Street deliberately push their crap onto public pension funds, but when their “innovative” securities exploded, the entire economy imploded leaving state and local government finances in shambles. Forty-two of the 50 states face fiscal crises because eight million jobs disappeared in a matter of months. Tax revenues went into free-fall and public expenditures, like unemployment insurance, skyrocketed. Also, the pain of the bursting housing bubble was felt most acutely at the local level. Housing values collapsed as did property tax revenues.
The Move to Eviscerate Public Pensions
To the delight of right-wing demagogues, public sector unions and their pension funds are now extremely vulnerable. States are under such fiscal distress that they find it difficult to pay what is owed to the public pension funds, which have lost value due to the poisonous assets and the Great Recession. The stock market crash alone caused state pension funds to lose more than $850 billion in three years since 2007, according to economist Dean Baker. There would be no public pension crisis were it not for Wall Street’s greedy recklessness that took down our economy.
[T]he world is made up of a few virile, virtuous “producers” and the many parasites who feed off their labors.
But, if you hate unions and their pension funds, and have no problem lying a bit, this is the ideal time to launch a full scale attack. It’s easy to whip up public resentment against these so-called “privileged” workers and their “lavish” benefits even if the facts show otherwise. Governors just love saying: “Why should you pay higher taxes for benefits for public employees that you don’t have.”
Of course, the real answer is not to cut pensions. Rather, Wall Street should pay for the damage it created. The banks we bailed out should make the states whole and replenish the pension funds that they poisoned.
Social Security in the Crosshairs
The financial crash and the ensuing bailouts also set the stage for another assault on Social Security, the most enduring legacy of the New Deal. With unemployment still unconscionably high, federal revenues are down, leading to growing concern about deficits. Of course, the sane solution would be to put America back to work and pay for job creation with taxes on Wall Street’s renewed profits. But sanity is not Washington’s strong suit. Instead, deficit hawks want the richest country in history to take an axe to “entitlements” that supposedly are unsustainable.
Congressman Paul Ryan, a devout follower of the late Ayn Rand, is resurrecting the failed Bush-era scam to turn Social Security into private investment accounts so that everyone can play in the Wall Street casino. You would think that the recent crash would have killed that idea. But Ryan feels a moral obligation to unshackle the super rich and eliminate government support for the aged. It’s pure Ayn Rand. Here’s Joshua Holland’s chilling description of her mean-spirited worldview:
[T]he world is made up of a few virile, virtuous “producers” and the many parasites who
feed off their labors. It’s the producers who create wealth and make a better world, and they
do so by pursuing their own dreams of success. In Rand’s books, though, moochers and petty,
visionless bureaucrats persistently bite at the ankles of her capitalist “supermen,” which has
the effect of harming all of society. Therefore, freeing the wealthy from their social contract
with the rest of us is in fact the apex of morality.
But Ayn Rand doesn’t mean diddly to Wall Street. Money talks, not philosophy.
Our financial barons are on the prowl for the billions of dollars in fat fees that would come from “helping” 130 million Americans manage their privatized Social Security accounts. The big banks are lusting for something big to replace the goldmine that was the housing bubble. Social Security may be it.
Ka ching for them: Cat food for us old folks.
Copyright 2011 Les Leopold
By arrangement with Alternet.Org.
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York.