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Video: Doomsday predictions for America’s pensions

  1. Closed captioning of: Doomsday predictions for America’s pensions

    >>> begin today with perhaps the most underreported story of our economic storm that is sweeping through this country. the utter collapse of the pension funds , the millions of americans who are having their futures robbed by free spending politicians, big corporations, and greedy banksters. here is how they're pulling it off. it's a whole lot easier to promise someone more money tomorrow than it is to pay them today. enter your pension fund , your retirement. it's been raided by your politicians, corporations, and banksters. state governments dipping into the piggy bank over and over to cover their free spending ways. corporations promising payouts on money they don't have to boost their bottom line . and banksters preying on desperate pension managers trying to keep up with those free spending politicians. as for you and me, well, they just want to cut your benefits. so how did we get here? simply put, pension fund managers needed a way to get that fast cash to fill that hole. enter wall street . the vultures convincing the pension funds to buy up all these high yielding but so-called aa securities called cdos except the banksters left out a key thing. they weren't real, nor were they really aaa. there was no money there at all in many cases. think about the goldman sachs abacus deal. goldman custom builds it, takes the money from the buyer, and then bets on its implosion and makes out like a bandit when the taxpayer pays off the bets through aig. in the end the american taxpayer and american retiree and the children of this country are left holding a multitrillion dollar bag simply so our politicians and banksters can keep their jobs. and the government, which insures almost all of the pensions, keeps printing money to pretend your future isn't being stolen.

    >> and let's bring in two experts on the pension fund crisis is differing views. josh rawl from northwestern university , recently published a paper on the severity of the situation, and randy defrain. josh, put the size and scope of this problem in context.

    >> i think you were talking about corporate systems versus government systems. with theg-o-v-e-r-n-m-e-n-t-s systems it's much worse. i think it's worth asking how did this happen? government accounting standards allow state and local governments to use accounting that does not fully recognize the economic value of the promises that they're making. this is accounting that would never, ever fly in the private sector but it seems to be fine for governments, and that's how these governments charged up $3.6 trillion on a credit card and that credit card belongs to the u.s. taxpayers and, you know, that's going to have to be paid. that's $30,000 per household that got charged up without their realizing it.

    >> do you agree with that assessment?

    >> i think there are differences between the public sector plans and private sector plans, but clearly there's been a problem as your intro stated it, that we really were all taken to the cleaners by wall street when the derivatives market caught fire and then everything burned in the wake.

    >> what do you suggest, randy, we do to begin the process of healing this knowing the government hasn't reformed the financial system to prevent them from continuing to prey on pension fund managers? is the best bet just to leave the extraction in place and start cutting benefits and hope people don't riot?

    >> actually, i think it's a little simpler than that. we've experienced a change over the past 30 years away from the traditional defined benefit pension plan which gives people a real retirement security. and we've moved to the defined contribution, your typical 401(k). the 401(k) has higher fees, yet you have all of the investment risk shifted to the employee and you also have longevity risk that you have to fund. you don't know if you're going to live to be 90, but you have to fund for it just in case you outlive your money. i think the best thing we can try to do at this point for the remaining people, the 44 million people in the private sector that still have defined benefit plans, is to do something with the rules to allow those plans to continue and provide secure retirement benefits for those people.

    >> i just want to back up --

    >> i'd like to put --

    >> go ahead, josh.

    >> i want to put that in some perspective. who is actually guaranteeing those benefits for the work thaers do haers that have defined benefit plans? it is taxpayers. i think we have to ask whether that's still affordable.

    >> there are ways to structure defined contribution plans --

    >> hold on. one at a time, guys.

    >> i'm sorry.

    >> are you done, josh approximate.

    >> there are ways to structure defined contribution plans that are not that expensive and that we can learn from some of the bad things that happened in 401(k) plans. you know, i think we have to ask, you know, how feasible is it to continue making these unfunded promises to public workers pretending it's not a promise taxpayers have to bear the burden of. it's $3.6 trillion, $30,000 per household, it's growing every day for state and local workers. i just think we need to look at some alternatives.

    >> what about everybody else?

    >> i want to add some context because quite honestly i take issue with the $3.6 trillion number that josh is referencing because as i see it the number is more like $60 trillion that is not there, and i want to refer back to a conversation that i had yesterday afternoon with lynn turner , who is the former chief accountant at the s.e.c. and currently does forensic accounting out of colorado. here is what lynn had to say about what our actual liabilities are which make $3 trillion look like a flea on a dog's behind.

    >> public dead today is in the 11 to $12 trillion number, but the off- balance sheet nonpublic debt is 3 to 4 times that amount. those are real dollars we're going to have to pay out over the next two to three decades. if we aren't able to pay those elements, then we're literally going to have grandmas and grandpas and people on the street, which takes us back to the days of hooverville.

    >> randy, are we kidding ourselves by setting these little marks, a billion here, a tral there, when the truth of the matter is we have committed to a massive group of baby boomers , medicare , social security , public pension, private pension caretaking to the order of magnitude of $50 trillion to $60 trillion and we're sitting here fret being where we're going to come up with $1 trillion or two.

    >> obviously, when you add in the social security and medicare and all of the other entitlements, it's a massive program that we're going to have to be dealing with, and i know congress and the administration have an entitlements commission. they're going to come out with some recommendations, which i believe are going to require across the board cuts in areas we never imagined in december after the election. but the bottom line on it is for those people who do have pensions and i think the number that has been issued by a study by boston college was $6.6 trillion, the shortfall today, including everyone who doesn't have access to a private pension or 401(k), that's the shortfall on the pension side of things. apart from social security and medicare .

    >> yeah. the one thing that seems to get lost in all of this, josh, is why are the pension funds returns as lousy as they are? and we talk about the free spending politicians and the goofy accounting standards which is clearly a major issue, but is it not also a major issue that financial firms use pension funds as the primary mark for selling toxic securities and then when it comes down to a situation like 2008 , the leverage to guarantee the taxpayer-funded bailout is the fact that all of the cops, all of the judges, all of the firemen, all of the teachers' pension funds have been jacked full of these toxic securities so either the government pays out a few trillion or we wipe out the pension funds of the middle class . it gives the guys at goldman sachs a lot of leverage when they go to a meeting at the treasury department i think.

    >> i think that's right. i think tough ask why is it that state and local governments took these investment strategies? the reason is the government accounting encourages them, gives them the incentives to underfund these liabilities and take risk. this is the way that state and local governments have been borrowing. most states have balance budget amendments they're required to present on the books a balanced budget . how have they gotten around that? it's by promising pensioners money in the future, setting aside not nearly enough to cover it, and taking risks with the money. taxpayers bear the down side of that risk. i think that accounting system needs to be take an very careful look at to examine how it has contributed and encouraged state and local governments to take that risk and to create debt, basically hidden borrowing off the balance sheet out of the view of taxpayers.

    >> i'll one up that and say it's not just the accounting standards of our government, it's the accounting standards of our banking system in general. if you look at the entire bet made against the housing market by people like john paulson , the bet was there's accounting fraud at the root of the mortgage and housing market , that there's accounting fraud at the root of the state pension system and guess what? john paulson was right. there is accounting fraud at the root of all ever these things, and instead of dealing with it, investigating it, and reconciling it, our government is printing trillions of u.s. dollars in order to cover it up and in the process spiking the price of food and obviously creating risk for our currency. randy, a pleasure to have some time with you. josh, the same. thank you, gentlemen. coming

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