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The Neocon Foreign Policy Walmart

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By Daniel McAdams | Ron Paul Institute | August 30, 2015

One of the most depressing things about watching — even from a distance — the quadrennial race for the White House is seeing what passes for debate on the one area where the president does have some Constitutional authority: foreign policy.

Candidates who have spent little or no time studying or traveling to the rest of the world, and, in the fashion of many Americans in the age of Empire, see the rest of the world as just a series of US colonial outposts, apparently consider foreign policy unworthy of serious consideration.

So little do Republican candidates care about foreign policy that most of them have “outsourced” their foreign policy to a single neocon-dominated foreign policy shop called the “John Hay Initiative.”  If you wonder why most Republican candidates sound exactly the same on foreign policy, it’s because they are nearly all getting their advice from the same people.

When nearly all candidates look to someone like Eliot Cohen, a founding member of the Project for a New American Century (PNAC), to provide an off-the-shelf foreign policy, it should be no surprise that the “debate” in the Republican party is only over which country to attack first.

Any candidate who thinks so little about something so important as America’s place in the world should be automatically disqualified.

But the neocons love it! The “experts” who brought us the 2003 Iraq war and the Libya “liberation” are still in the driver’s seat when it comes to foreign policy.

“Jeb!” has John Hay Initiative members Michael Chertoff and Michael Hayden (remember those crooks?) on board as his advisors.

Marco Rubio reportedly draws from Hay Project member Roger Zakheim, the son of GW Bush administration “vulcan,” Dov Zakheim. Zakheim père, we remember, joined with his fellow neocons to lie the US into war with Iraq, enriching the military-industrial complex, before absconding to the “private sector” to make his millions from the same military-industrial complex. Zakheim quickly and quietly left his position as the Pentagon’s chief financial officer after a trillion dollars went missing and the Government Accountability Office was critical of his handling of matters.

Scott Walker, a soporific candidate who nevertheless still gives neocons like Bill Kristol the vapors, also shops the neocon Walmart of foreign policy, the John Hay Initiative. It should be no surprise, then, that at his big foreign policy coming out speech at the Citadel military college Friday, he unveiled an “aggressive” foreign policy — crying out “America will not be intimidated. And neither will I” — as he promised more war and vowed that “the retreat is over!”

Is this the retreat he is talking about?

Walker reportedly taps into the McCain Institute’s David Kramer, a John Hay member, for his foreign policy wisdom. Kramer is another PNAC alumni, also putting in time at the CIA-affiliated Freedom House and as director of the Bush State Department’s Office of Policy Planning. This must explain Walker’s obsession with taking out Iran. He vowed to “roll back the theocrats in Tehran,” but in fact unlike the US, Tehran has not invaded another country in hundreds of years. What’s to “roll back?”

If Walker actually paid any attention to the quality of advice he gets from his PNAC/John Hay gang he might call for his money back. Walker’s speech was peppered with macho language about “defeat[ing] the barbarians of ISIS,” while also vowing to destroy the two forces actually fighting ISIS — Syria and Iran! In fact, his vow to use the US military to overthrow the Syrian government would without question result in the greatest ISIS victory to date — control of Syria. One need not sympathize with Assad to recognize that he is literally the only thing keeping the whole of Syria out of the hands of ISIS.

John Hay Initiative “experts” also wrote the foreign policy speeches of candidates Carly Fiorina and Chris Christie. No doubt they were behind Fiorina’s astonishingly ignorant vow to make her first call as president to Israeli Prime Minister Netanyahu to “to reassure him that we stand with the state of Israel” and to make her second call to Iran to “to tell him that whatever the deal is that he signed with Obama, there’s a new deal and the new deal is this: Until you submit every facility [where] you have nuclear uranium enrichment to a full set of inspections, we’re going to make it as hard as possible for you to move money around the global financial system.”

Pure PNAC.

These neocons should be in jail, not still deeply ensconced in the Beltway foreign policy halls of power, dining in sumptuous splendor while the rest of America is impoverished by the destructive wars they push. Their lies have cost millions of innocent lives overseas as well. They are a cancer on the country. Any candidate who cares so little about the issues as to accept a “virtual staff” of foreign policy “experts” from those who have gotten every single major foreign policy issue of our time totally and catastrophically wrong has no business holding any elected office.

John Hay? I’d rather shop for a foreign policy expert at Walmart.

September 4, 2015 Posted by | Corruption, Ethnic Cleansing, Racism, Zionism, Full Spectrum Dominance, Militarism, Timeless or most popular, Wars for Israel | , , , , , , , , , | Leave a comment

Sheldon Adelson: Wild card

By KENNETH P. VOGEL | POLITICO | April 31, 2015

LAS VEGAS — Luxury buses pulled up to the front entrance of the private hangar here where Sheldon Adelson keeps his corporate jets, dropping off Republican donors to hear Jeb Bush speak.

But Adelson arrived late — and in more extravagant style, pulling right into the massive structure in his Maybach limousine with dark tinted windows trailed by a second Maybach carrying glaring bodyguards.

The grand entrance was vintage Adelson. And it kicked off a Republican Jewish Conference four-day retreat this past weekend in which the 80-year-old casino mogul wowed his guests with a distinct blend of megawatt GOP politics and Vegas opulence, keeping them — and the political class, as a whole — waiting and wondering about what would come next.

The guessing game is creating anxiety among Republican Party elites eager to avoid a repeat of 2012, when Adelson and his family dumped more than $20 million into a super PAC supporting Newt Gingrich’s long-shot GOP presidential campaign. The Adelsons went on to give even more money to help Mitt Romney, but by the time he was the party’s nominee, the damage was done. The infusion to boost Gingrich roiled and prolonged the primary and hurt the party’s chances of winning the White House.

When Adelson summoned Bush and Govs. Chris Christie of New Jersey, John Kasich of Ohio and Scott Walker of Wisconsin to Las Vegas for the annual spring RJC meeting, GOP stalwarts hoped it might mean the megadonor was committing to get behind one of the establishment favorites for 2016, and not going rogue again.

But interviews with Adelson intimates, an analysis of his political alliances and reporting from the Las Vegas retreat suggest that the headstrong billionaire isn’t a new man, but the same gambler he has always been: a true wild card.

“If anybody tells you what Sheldon is going to do, or how or why he is going to do it, they don’t know Sheldon. Sheldon makes up his own mind,” said Ari Fleischer, a longtime Adelson confidant. Fleischer, an RJC board member, was scheduled to lead a board discussion about what Republicans are doing to improve on their 2012 effort.

The possibility that Adelson might use his checkbook to upend the 2016 primary “is worrisome,” Fleischer conceded, though he stressed the same could be said of other very wealthy Republicans.

The new big-money political landscape — in which a handful of donors can dramatically alter a campaign with just a check or two — explains both the eagerness of busy governors to make pilgrimages to Las Vegas, and the obsession with divining Adelson’s 2016 leanings.

All manner of national media flocked to Adelson’s Venetian casino and resort hotel, which hosted the RJC meeting. But reporters were kept away from Adelson by coalition staff, as well as casino and personal security, and his team turned down interview requests, including for an appearance on NBC’s “Meet the Press.”

As Adelson whizzed around his Venetian kingdom on a motorized scooter during the retreat, he was often trailed by GOP operatives, politicians and fellow donors eager to assess his state of mind, advise him on what he should do or just lavish him with praise and gratitude.

The son of poor Jewish immigrants, Adelson was raised in a working-class Massachusetts town. He amassed a fortune estimated at $40 billion today by following his gut and bucking conventional wisdom, forging a business- and family-travel industry in Las Vegas and rushing into the uncertain middle-class gambling market in the Macao region of China.

He donates huge sums to Israeli causes and has ramped up his domestic political giving in recent years, culminating in an unprecedented $100 million spending spree in 2012. Despite his paltry success rate, he has said he intends to spend even more in future campaigns.

At a closed-press Saturday night gala, Adelson quipped that he couldn’t oblige a request from the RJC for a $50 million contribution because the group’s executive director, Matt Brooks, didn’t have change for $1 billion.

Neither Adelson’s speech nor his private conversations over the weekend provided those closest to him with any clearer sense of which way his gut was leading him in the 2016 presidential race, leaving all grasping at clues.

“His priority is Israel. So, if you look at his vetting process, I haven’t sat in any of the meetings, but I assure you that the first question is ‘tell me where you are on the safety and security of the state of Israel,’” said GOP bundler Fred Zeidman, a Houston private equity investor who is friendly with Adelson.

All the prospective candidates who turned up in Vegas stressed their support for Israel in speeches and private meetings with Adelson. There were several veiled swipes at GOP politicians and prospective presidential candidates with more noninterventionist foreign policy perspectives, like Sens. Rand Paul of Kentucky and Ted Cruz of Texas, who are considered unlikely candidates for Adelson’s support. Yet most of the governors who were invited to Vegas have fairly limited foreign policy chops.

Walker conceded as much in a Saturday speech, explaining foreign affairs is “not an area that governors typically look at,” though he mentioned that he is commander in chief of the Wisconsin National Guard. He also sought to forge cultural common ground with RJCers by explaining that he lights a menorah at the governor’s mansion during Hannukah and named one of his two sons Matthew — which means “gift from God” in Hebrew.

Christie’s efforts at playing the Israel card backfired when he inadvertently used a term [occupied territories] for disputed Middle East territory during a Saturday speech that offended Adelson and some of his guests. The New Jersey governor apologized in a private meeting in the casino mogul’s Venetian office shortly afterward.

The foreign policy deficit may, in fact, be a side effect of another factor Adelson has identified as important, according to sources close to him — “executive experience.” That could potentially rule out prospective candidates with more hawkish foreign policy attitudes, like Sen. Marco Rubio of Florida.

Kasich of Ohio played straight to Adelson.

“Hey, listen, Sheldon, thanks for inviting me,” Kasich told Adelson during a Saturday luncheon speech.

“Sheldon and I were kind of talking about his background. I come from a little town outside of Pittsburgh called McKees Rocks — it was very blue collar,” Kasich said, in one of several Adelson-related non sequiturs.

Even when he discussed his effort to clamp down on prescription drug dissemination, he said Adelson — who took as many as 25 medications in a day in 2001 to manage pain from a neurological condition, and whose wife, Miriam Adelson, is a physician who specializes in treating drug addiction — “is someone who knows about this.”

Some possible candidates who seem to meet Adelson’s criteria either weren’t invited or didn’t come to Las Vegas, including former Arkansas Gov. Mike Huckabee. He has both executive experience and a track record of supporting Israel, but seems to face electability hurdles similar to those that hamstrung Gingrich.

Yet late last year, when Adelson at a Zionist Organization of America dinner presented the Adelson Defender of Israel award to Huckabee, he called the ordained Southern Baptist minister “a great politician,” as well as “a great person, a great American and a great Zionist.” Since then, the two have met privately twice — once with their spouses — and are “very good friends [who] share a deep commitment to Israel,” according to a source close to Huckabee.

Mel Sembler — a Florida mall developer, former U.S. ambassador to Italy and major GOP rainmaker — in 2012 urged Adelson to halt his Gingrich super PAC funding stream for the good of the party, as did fellow RJC board member Zeidman. As Sembler boarded a bus taking donors from Adelson’s Palazzo hotel to the Bush speech at the private hangar Thursday night, he suggested that Adelson may have recalibrated his approach based on the 2012 failure. “Sheldon has his own mind, but he’s learned. He’s learned a lot. He’s matured.”

Plus, Zeidman suggested that Adelson’s personal feelings on the various 2016 possibilities won’t factor into his decision as they did in 2012. “None of them have a 20-year history like Newt Gingrich did,” Zeidman said of the former House speaker’s relationship with Adelson.

The goal of hearing from the candidates was to start a vetting process that will produce a consensus — one that includes Adelson — of the best candidate, according to Sembler.

“We’re going to talk about that one,” he said. “We’re going to support the best candidate we can possibly get. That’s who we’re going to support.”

Adelson may have done that in his closed-door meetings with the candidates (he also met privately with House Speaker John Boehner, who was in town for other business). But when it came to the official RJC sessions, the mogul was often late and frequently seemed more interested in kibitzing than in official business. “He mingles pretty good,” remarked Rep. Billy Long of Missouri, as he left a Friday evening Shabbat dinner at which the Israeli ambassador to the U.S. spoke.

Adelson — who is not known as a morning person and also was nursing a cold — skipped Saturday morning speeches from Walker and former Ambassador to the U.N. John Bolton. He entered the hall midway through Christie’s address, walking with the help of a bodyguard to a reserved seat in the front row as Christie talked about his governing style.

He showed up 20 minutes late to a Friday morning RJC board meeting, zipping up to the entrance on his scooter flanked by two Hebrew-speaking bodyguards, one of whom helped him to his feet to walk into the meeting. As other board members queued up to greet him, Adelson perused the breakfast buffet of bagels, lox, pastries and eggs, using his fingers to sample a pinch of shredded cheddar cheese in a serving bowl. The spread was certified kosher by Rabbi Tzvi Braunstein and the Chabad of Southern Nevada, according to an agenda.

“Who let you in here?” he demanded when POLITICO approached. “You can’t come in. This is a private meeting,” he said, rejecting a question about whether he’d try to avoid a costly and protracted primary this time around. “You can ask anything you want, but you’ll have to talk to the wall, because I’m not talking to you,” he said, as one of his bodyguards stepped in, ushered POLITICO from the room, and later called hotel security to bar the reporter from the adjacent hallways.

At the meeting, board members got a briefing on Senate races and were informed of efforts by the group to assist hawkish allies including Sens. Mitch McConnell of Kentucky and Lindsey Graham of South Carolina, and GOP Senate nominee Bill Cassidy of Louisiana in their 2014 Senate primaries. The weekend’s private events drew appearances by Reps. James Lankford of Oklahoma and Cory Gardner of Colorado, both running for Senate, as well as Rep. Sean Duffy of Wisconsin.

Other closed-press sessions included a scotch tasting, a poker tournament and a panel on “the lessons of 2012 and the current path forward for the GOP.” Then there were VIP discussions and photo ops with former Vice President Dick Cheney, Walker and Kasich, four Jewish prayer services for the more devout, and a Saturday night gala featuring a speech by Cheney. He warned against “what I sense to be an increasing strain of isolationism, if I could put it in those terms, in our own party. It’s not taking over, by any means, but there is without question a body of thought now that’s supported by many Republicans and some candidates that the United States can afford to turn its back on that part of the world.”

Cheney said “it’s crucial” to have candidates with muscular foreign policies and for Republicans to “take back the Senate and take back the White House so we can deal with what has been developing” around the world.

Regardless of any shared ideology on foreign policy or other issues, an adviser to former Pennsylvania Sen. Rick Santorum suggested it’s distasteful for the party’s prospective candidates to be flocking to court Adelson.

“It sets a bad precedent for a billionaire to say ‘come hither’ this early on, and some people actually do,” said John Brabender, who was a leading strategist on Santorum’s 2012 presidential campaign and is helping him build a political foundation that could serve as a springboard to a 2016 campaign. Santorum, who is an ardent defender of Israel, didn’t attend the RJC meeting, and Brabender questioned the optics for the possible 2016 rivals who did. “I don’t know why any prospective candidate wants to be seen as the mainstream Republican, because that’s got negative connotations among most Republican primary voters.”

The narrative that holds Adelson went rogue in 2012 and now is realigning himself with the GOP mainstream is flawed, asserted RJC president Matt Brooks, who works closely with Adelson. “The notion that somehow he was a rube and got duped and made awful investments in 2012, and has all these lessons to learn, is misreading what happened,” said Brooks. “The fact is, Republicans got wiped out all across the board. So it’s not like everybody else won and he was the outlier who put his money into losing causes.”

Except that Adelson is distinct from other conservative megadonors in his willingness to choose sides in primaries, then go it alone, seemingly immune from peer pressure. The only conservative donors who rival his spending power, Charles and David Koch, mostly avoid major involvement in primary fights and focus instead on building consensus among a wide network of donors. Plus, they try — increasingly unsuccessfully — to keep a lower profile.

Still, there is growing overlap between Koch world and the Adelson-RJC crew, with Adelson attending a 2012 Koch donor seminar and Tim Phillips, president of the Kochs’ Americans for Prosperity group, attending his first RJC meeting last weekend.

Democrats have mostly kept their deepest pockets in line, thanks to a smaller universe of super PACs and megadonors, and greater ideological unity — not to mention the rallying of deep pockets behind early presumed front-runner Hillary Clinton.

“The parties have to some degree switched procedures,” said Fleischer. “Republicans used to be the hierarchical, organized party.” Now, though, “Democrats, because they have the White House, and because so many of them are lined up behind Hillary, if she runs, are the hierarchical party, at least for the moment.”

Still, he said, all it takes is one headstrong billionaire to throw everything into chaos, and nobody can stop it.

“If you think that people like Sheldon or George Soros or Tom Steyer are going to be influenced by the thinking of others, you don’t know the mindset of highly successful, entrepreneurial individuals who have made it their own way their whole lives,” said Fleischer. “At the end of the day, these individuals are going to do what they think is the best right thing to do, and it may not necessarily be reflective of the good of the greater party.”

Also on POLITICO:

2016ers woo Vegas donor crowd

Christie apologizes for ‘occupied territories’

Kasich bonds with Adelson in Vegas

May 5, 2015 Posted by | Ethnic Cleansing, Racism, Zionism, Militarism, Wars for Israel | , , , , , , , , , | Leave a comment

City and State Pension Funds Pay Billions in Undisclosed Fees to Private Equity Companies

By Steve Straehley | AllGov | April 26, 2015

A good portion of the money that is supposed to be going to government retirees is being skimmed off by Wall Street as fees, much of them undisclosed, charged by private equity companies.

CEM Benchmarking, which compares costs for various public and private equity funds, says in a report (pdf) that “Less than one‐half of the very substantial [private equity] costs incurred by U.S. pension funds are currently being disclosed.” The difference can be as much as $60 million on a portfolio valued at $3 billion, CEM reported.

Private equity funds say they’re worth the fees they charge because they bring in better returns on investments. However, it’s difficult to verify this claim because long-term returns are mostly self-reported by the equity firms.

Of this country’s $3 trillion in public pension fund assets, roughly 9% ($270 billion) gets invested in private equity firms. The industry’s 2% management fee therefore pays the equity industry about $5.4 billion a year. But if CEM’s calculations apply uniformly, that could mean that in fact more than $10 billion a year, half of that in hidden fees, are being taken from retirees at the same time that governments are trying to cut benefits, according to the International Business Times.

One recent example of this is in New Jersey, where big fees for handling government pensions have gone to fund managers who supported Republican Governor Chris Christie’s election campaigns. In the five years since Christie took office, the International Business Times reported, fees have quadrupled at the same time Christie has said the funds don’t have enough money to pay all the benefits to which retirees are entitled. New Jersey pension trustees have announced an investigation of the funds.

“With billions of public worker and taxpayer dollars put at risk in the highest-cost, most opaque investment schemes ever devised by Wall Street for a decade now, investigations that hold Wall Street profiteers accountable are long, long overdue,” former Securities and Exchange Commission attorney Ted Siedle wrote in Forbes.

Other governments aren’t waiting around. Montgomery County, Pennsylvania, in the Philadelphia suburbs, has switched most of its retirement funds from private equity to low-fee stock index funds. California’s massive retirement system, CalPERS, announced last year that it would be divesting itself of hedge funds because of their high costs.

To Learn More:

Cities and States Paying Massive Secret Fees to Wall Street: Report (International Business Times )

Public Pension Fund Analysis (Private Equity Growth Capital Council) (pdf)

The Time Has Come for Standardized Total Cost for Private Equity (CEM Benchmarking) (pdf)

State Government Revenues Tops Expenditures Thanks to Pension Fund Investments (by Noel Brinkerhoff, AllGov )

California Pensions to Dump $4-Billion Hedge Fund Investments (by Noel Brinkerhoff, Steve Straehley and Ken Broder, AllGov California )

“Vulture” Capitalists Strike Vulnerable Cities and Counties (by Matt Bewig, AllGov )

April 26, 2015 Posted by | Corruption, Economics | , , | Leave a comment

The Real Causes—and Real Solutions— to the U.S. Pensions Crisis

By Jack Rasmus | Talking Union | July 3, 2012

A pension crisis of major dimensions is growing in the US across all three forms of defined benefit plans (DBPs)—public, private single employer, and private multi-employer plans.

Corporate America and its political friends have begun to use the economic crisis that commenced in 2007 as an opportunity to initiate and expand yet another offensive aimed at further undermining defined benefit pensions in the U.S. Having already begun in 2009-10 with a new attack by governors on public employees’ pension plans, the Corporate Offensive over the subsequent eighteen months has expanded to include new coordinated attacks on private sector multi-employer and single employer DBPs as well.

Contrary to corporate, press and politicians’ claims, the crisis in pensions has had nothing to do with pension benefit increases for the workers. In many cases pension benefits have been frozen or actually reduced over the past decade and especially so since 2008.

Rather the crisis is directly attributable to government and corporate policies that have been implemented over the past thirty years—including, but not limited to, two decades of government encouraged management practices reducing pension funding, stagnant jobs and wage growth since 2001, massive speculative investment losses by pension funds, the collapse of the economy, jobs, and pension contributions after 2007, and the failure of the US economic recovery to restore jobs and wages the past three years, 2009-12.

Brief Overview of the Pensions Funding Gap

Multi-employer defined benefit pensions in the 1990s averaged shortfalls in funding (i.e. ratio of assets to liabilities) of only a very manageable $30 billion throughout the decade.

A 2009 Report by the Pension Benefit Guarantee Corporation, the quasi-government agency responsible for ensuring pension funds stability and solvency in the private sector, had a funding shortfall of $355 billion. A similar scenario applies to ratios and shortfalls in funding for single employer pensions, with funding shortfalls of approximately $407 billion. The highly respected Pew Center’s 2008 estimated public sector pensions gap for 2008 of $452 billion.

But the shortfalls in all the defined benefit pensions are overwhelming the result of economic conditions, government policies, and corporate practices over the past 12 years. In 1999, state public employee pensions were 103% funded, according to the Pew Center. Similarly, private pensions—multi-employer as well as single employer—were in good shape at the beginning of 2000. Whatever has happened is therefore clearly a consequence of events and policies since 2000.

Employers sense an opportunity today to falsify the facts regarding the causes of defined benefit pension shortfalls, and to use that falsification to attack and dismantle what’s left of defined benefit pensions that now cover barely 18% of the workforce compared to three decades ago when the percentage of coverage was two thirds or more. What facts are being conveniently ignored in this new corporate offensive?

Corporate Manipulation of the Pension Funding Gap

Corporations have not hesitated to take advantage of the funding gap that they themselves have largely created, with the help of compliant politicians.

On the multi-employer side, the employer new offensive is evident in a series of banks’ reports claiming the funding gap is even greater than it is. By making extreme low-ball assumptions on returns, banks’ research departments and corporations argue the gap for multi-employer plans is significantly higher than even the PBGC has estimated. Their conclusion is major reductions in pension benefits are therefore required, even though pension benefit payments are not the source of the problem.

This strategy of overestimation of the funding gap, cherry-picking the worst assumptions and then extrapolating the losses in a straight line out for decades, has been adopted as well by governors and state politicians intent on cutting pension benefit payments to resolve a crisis workers did not create.

A typical, extreme case is New Jersey governor, Chris Christie, who over-exaggerates an estimated $2.5 trillion funding gap in 2010—i.e. six times greater than that estimated by the respected Pew Center. Christie’s answer to the shortfall in New Jersey is a massive gutting of public employee pension benefits. However, Christie conveniently hides the fact that his state, New Jersey, only made 31% of the required contributions to its employee pension fund in 2009, thus contributing significantly to its relatively low funding ratio of 66%. Like Christie, governors complaining the most about State pension funding gaps are typically those who created those gaps by refusing repeatedly to make the required contributions to their pension funds in the first place.

Single Employer Pension funds are also under a similar direct attack, exemplified by the latest efforts of American Airlines to project massive losses in its fund as a way to justify dumping it on the PBGC and thereby shedding $9 billion in contributions it should have made, but didn’t, for decades. American Airlines for decades has been one of the most egregious practicers of ‘pension contribution holidays’, refusing year after year to make legally required contributions to its fund, and thereby ensuring it would be under-funded.

Fundamental Causes of the Pension Funding Crisis

The deterioration in defined benefit pensions over the past decade has had virtually nothing to do with providing more generous benefits for workers. Nor is it the case that workers are retiring in greater numbers all at once. The causes of the pension shortfalls are due to reductions in employer contributions to the pension funds for multiple reasons, to speculative investments gone bad and massive losses in pension funds over the preceding decade, a major collapse in jobs since 2000 due to repeated and protracted recessions, jobless recoveries, and shifting of jobs offshore that have further undermined total pension fund contributions, and government policies since 2008 that have ensured pension fund returns on investment are reduced to below-normal historical rates of return..

The following is a partial summary short list of a dozen true causes of shortfalls in defined benefit pension funding.

  1. Two recessions since 2000 and two bouts of ‘jobless recoveries’ (2002-05 and 2009-12) resulting in sharp reductions in contributions to the funds
  1. Structural unemployment due to offshoring and free trade that has in addition to #1 progressively reduced jobs and therefore contributions, especially in tech and manufacturing industries
  1. Government allowed ‘pension contribution holidays’ that permitted suspension of employer contributions for decades, thus further lowering the contributions base of the funds
  1. Employer manipulation of actuarial assumptions, like phony overstated rates of return and projected hirings that never happen, that covered up the shortfalls
  1. Government rules that allow the diversion of pension funds to cover 20% of rising employer health care insurance costs
  1. De-unionization of the workforce, resulting in employers suspending private pension plan participation for new workers, thus further reducing contributions.
  1. Shift in U.S. job markets to part time and temp ‘contingency’ jobs and workers by tens of millions, who are excluded from participating (and thus contributing) to DBPs
  1. Legislation and court decisions over the past decade that have promoted 401k plans and conversion to ‘Cash Balance Plans’, diverting contributions to what would have been to defined benefit pension funds.
  1. Phony business bankruptcy policies that have permitted easy dumping of pensions on the PBGC, the Pension Benefit Guaranty Corporation that ensures DBPs, encouraging employers to underfund the pensions to create justifications for dumping the pensions.
  1. Easing of restrictions allowing companies to leave multi-employer plans and for single employers exiting the PBGC
  1. Pension Protection Act of 2006 that allowed pension funds to partner with high-risk speculators like hedge funds, resulting in pension funds’ headlong rush into speculative investing in subprime mortgages and other high risk real estate and financial markets, the consequence of which was massive fund losses in 2000-02 and again in 2008-12.
  1. Low rates of return in general over the last decade on investments by pension funds, attributable largely to the protracted recession since 2008 and, even more so, to the Federal Reserve Bank’s still continuing policy of zero interest rates for four consecutive years.

Fundamental Solutions to the Pension Crisis

Pension funds are financial institutions. They perform much like commercial banks by lending to other non-financial institutions.

In 2008-09, the Federal Reserve bailed out the banks to the tune of $9 trillion by providing zero interest loans to banks for the past four years. The Fed also bought up bonds, especially mortgage notes, from the banks at their full value instead of their real depressed market values, thus further directly subsidizing the banks. The Fed in this manner not only bailed out banks and investment banks, but big conglomerates like GE and GM and their credit arms. So why shouldn’t it similarly provide assistance to financial institutions like the pension funds?

Given that the real causes of current pension fund shortfalls are: insufficient contributions by employers, bad investments by fund managers as a result of high risk speculation and losses, government rules allowing the undermining of pensions, and poor rates of return on investments by funds due to government economic policies since 2000—real solutions to the crisis should tackle the real causes.

Therefore, Congress, the President, and the Federal Reserve should:

  • Provide short term 2 to 5 year bridge loans as needed to pension funds temporarily whose funding falls below 70%–i.e. funding provided at the same rate the Federal Reserve has been bailing out banks for the past four years, at a rate of 0.25% interest.
  • Allow pension funds to issue their own bonds, much like corporations now issue bonds, and the Fed purchase those bonds long term, 10 and 30 years, to provide additional funding as necessary to pension funds.
  • Prohibit pension funds from partnering in investments with hedge funds and other high risk financial institutions and financial instruments.
  • Cities and local municipalities should be reimbursed for losses due to banks’ fraudulent and false promotion of derivatives and interest rate swap deals of the last decade, just as other institutional investors have been reimbursed for fraudulent subprime mortgages deals of recent years.
  • Pension funding contribution holidays should be legally banned. Diversion of pension funds’ resources to subsidize employer health plans should be further prohibited.
  • Corporate bankruptcy laws should be amended to prevent dumping of single employer plans. All non-pension assets in bankruptcy should be ruled subordinate to pension assets, requiring all other assets disposed of before pension funds are considered.
  • Restrictions on employers exiting from multi-employer plans and from the PBGC should be strengthened.
  • Public employee plans’ spending on consultants should be limited by law to no more than 1% of annual contribution levels.
  • Employers should be prohibited from exempting ‘contingent’ workers from participation in plans, and should be required make pension fund contributions for all part time and temporary workers proportional to their total hours worked.
  • Restore jobs and wage growth. The most important long run source of restoration of pension fund solvency is the creation of jobs at an historically acceptable rate.
  • A sustained economic recovery—not the current ‘stop-go’ economy—that would raise rates of return on normal pension fund investments to restore losses of recent years

The crisis in Defined Benefit Plans is a crisis that has been brewing for decades, but that has appreciably worsened since 2000 and significantly further deteriorated after 2007. It is a crisis of falling and insufficient contributions fundamentally and not a crisis of excess liabilities or benefit payments to workers. Employers, both private and public, are now using the crisis they created that reduced contributions for decades to attack benefits. Fundamental solutions to the pension funding problems in DBPs must rectify the source problems on the contributions side of the fund ledger.

 Jack Rasmus is the author of the April 2012 book, “Obama’s Economy: Recovery for the Few”, published by Pluto Books and Palgrave-Macmillan, which includes a final chapter on ‘An Alternative Program for Economic Recovery’.

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July 13, 2012 Posted by | Economics, Timeless or most popular | , , , , , , | Comments Off on The Real Causes—and Real Solutions— to the U.S. Pensions Crisis