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(Not a NH-based story, but an important one, and one that reaffirmed my ability to be shaken to the core by Bush era malfeasance. - promoted by Dean Barker)
One of the signs that our late, unlamented president was losing his Capitol Hill mojo was when Congress rejected his cockeyed plan in 2005 to privatize Social Security by investing our tax money in Wall Street. Bush argued that those who opposed this plan had no faith in the markets, but ultimately good sense prevailed and he didn't get his way.
Unfortunately, Bush did not lose his personal belief in the magic ability of "the market" to solve all problems. In 2007, he appointed an investment banker from Lehman Brothers who shared his belief named Chuck Millard to run the Pension Benefit Guaranty Corporation along proper free-market principles.
So what is the Pension Benefit Guaranty Corporation? It is one of those uber-important government agencies that nobody knows much about but that do a lot of good for a lot of people. Specifically, it is the insurer-of-last-resort for the pension plans that 40 million private-sector workers depend on for their retirement. If a corporation's pension plan goes belly-up- because of poor investment decisions or management looting- the PBGC steps in and guarantees the continued payment of pension benefits.
Now, a smart person would say that an insurer-of-last-resort must invest in different assets than the companies it is insuring do, in order to provide diversification. Since corporate pension funds invest in stocks, their insurer, who would be called on to bail out the pension funds if the stock strategy didn't exactly work out as planned, should not also invest in stocks. Mr. Millard disagreed.
A reasonable person would say that the insurer-of-last-resort should be extraordinarily careful about where it invests its funds. Until 2007, the PBGC had always invested in ultra-safe bonds. But Mr. Millard, the wunderkind of Lehman Brothers, decided owning bonds was too boring. Any fool off the street could have said that last year was perhaps not a good time to invest in the stock market. Mr. Millard demurred.
So what was the result of Mr. Millard's peculiar faith in US capital stock markets? By last September, our guarantor of corporate pensions had lost about a quarter of it's assets. But that was before the market really tanked. It's down about 50% or so now. We are talking about tens of billions of dollars lost, money that the taxpayers will have to replace, especially now as old-line companies like Chrysler with unfunded pension liabilities face bankruptcy. I can almost hear his old boss saying, "You're doin' a heckuva job, Milly!"
Mr. Millard's last day on the job was the day Barack Obama was inaugurated. But he remains undisturbed by the less-than-stellar results of his investment strategy. When asked if he had made a mistake, he replied: "Ask me in 20 years. The question is whether policymakers will have the fortitude to stick with it." This is the way a certain kind of mind works: if the new guys undo all of his mistakes, it will be their fault.
I wish Mr. Millard a wonderful future. No doubt he does not have to depend on a government guaranteed pension to secure his retirement, so perhaps he'll have one.
