Like a Rock: If You Thought GM's Stock Sucked, Just Look at Their Pension Fund

You might think our recent economic trouble – whether you call it a recession, a depression, or enforced cannibalism – has hit bottom and is about to start turning around. Recently President Obama saw a glimmer of hope in the economy – mortgage refinancing is up, for instance. And even though it’s a small and subjective measurement, things have been looking up. Alas in the economy, as in many hospitals, a patient in critical condition can perk up right before he rolls over and dies.

Unfortunately the bailouts and potential bankruptcies of General Motors and Chrysler have revealed a long-standing and disturbing truth – their pension funds are short about $49 billion, and our choices, as the responsible corporate socialists that we have become, are both few and painful. We can either spend money bailing out the pension and health plans that the auto companies have underfunded for decades, or we can let retirees work as Wal-Mart greeters and sell their kidneys for spare change.

Reasonable peole might look at the books of major corporations with pension plans and wonder how we arrived at this ugly impasse. After all, the greatest minds of several generations were allegedly focused for decades on making the United States the world’s economic powerhouse, churning out goods faster and cheaper than anywhere else in the world. Turns out that most companies just made big promises and hoped they could keep them years down the road.

When the brilliant people in charge of your corporation’s pension fund didn’t meet their projected growth rate – or, heaven forbid, lost money – they would compensate with what’s popularly known as the gambler’s fallacy. They would put more money on riskier bets in the hopes that they’d strike it big and everything would work out:

On the investment side, pension plans cover over their funding shortfalls first by assuming future returns on equities that, while possible, are not guaranteed. The assumption makes funds look healthier than they are, and drives their investments deeper into the stock market.

Is it comforting to find out that people with years of training and allegedly great financial acuity were acting like drunk vacationing neophytes at a Las Vegas craps table? Then you’ll be thrilled to know that the people who guaranteed that money did the same damn thing.

Maybe the people protesting President Obama’s acquisition of corporate power are rightly afraid that the federal government is a bad manager and not really responsive to the interests of the people. If that’s so, then they’re a few decades late in looking out for the little guy. Right now we’re all the owners of a hundred billion dollars of IOUs for the retirement and health care plans of our friends, families and neighbors. We’re going to have to pony up somehow, and it’s going to be painful and expensive. But at least the worst alternative – which the free marketers keep advocating in spite of the facts – is one we can eliminate quickly. The people who lost all our pension funds in the first place have absolutely no business managing them anymore.

Kill the Patient, Reward the Disease

So President Obama, confronted with the actual sordid behavior of those who pretend to live by the free market, is now going to try to reverse the $165 million in bonuses that AIG managed to pay its worst employees as the country was bailing it out to the tune of $170 billion.

The ironies inherent in this whole fiasco are, of course, delicious – or they would be, if the slathering greed of the principles involved hadn’t cost millions of people their mortgages, jobs and life savings. First, every time there’s a booming market we’re subject to endless paeans to the corporate executive, the stock trader and others who allegedly risk losing everything at the hands of the mighty economy so that they might stand a chance of winning the world.

The truth, however, seems to be a little more complicated – the everything they risk isn’t usually theirs, and if and when they do fail, they go running to Uncle Sugar (whether that’s investors, other corporations or – as a last resort – the government) crying about how they got a boo-boo and need a billion dollars or so. Then – humbled by said experience – they pack themselves off to a spa in Arizona and sit by the pool congratulating themselves for a week. Or they keep giving themselves fat bonuses. After all, a derivatives trader can’t be denied the hookers and blow to which he’s become accustomed, can he?

Even more egregious is who’s getting the bonuses:

The bonuses will be paid to executives at A.I.G.’s financial products division, the unit that wrote trillions of dollars’ worth of credit-default swaps that protected investors from defaults on bonds backed in many cases by subprime mortgages.

In other words, they’re going to the same bunch of commission-happy yahoos whose recklessness brought AIG to its knees in the first place. Oh, and they’re retention bonuses – because you don’t want bright minds like these getting snapped up by the competition. Or maybe becoming more willing to talk to the SEC, for that matter.

Unfortunately the Treasury’s hands might be tied on this one – apparently AIG is contractually obligated to make the payouts and they were already agreed to by the previous administration (who shall remain blameless).

Still, is it too much to hope that some lawyer somewhere can come up with a good justification for not giving more money to people who already proved themselves incapable of handling it carefully? Hell, it would be better spent retaining the services of the thousands of mail clerks, secretaries and other drones who make any organization function and who not only suffer low pay and parsimonious benefits, but also have to show deference to the yellow-tied assholes who have been the reason for so many secondhand toys this Christmas. Especially if, as in the case of AIG’s financial products division, they’re probably still strutting about like Napoleon on St. Helena, demanding to be addressed as "your majesty" and complaining about the food.