Walter Russell Mead writes: The biggest scam going in American financial
life may be the collusive effort by Wall Street, the political class, and
public sector unions to use union retirement money to prop up Wall Street
speculation.
Step One: state politicians promise big pension and health
care benefits to their unionized work forces, but don’t set aside enough money
to fund those benefits when the bill comes due. This makes union leaders and
unions look good, because they can point to the shiny new benefits they have
negotiated with the politicians. Meanwhile, it makes the politicians happy
because the unions support them with contributions and volunteers at election
time, but because the unions don’t insist on full funding for the benefits, the
politicians don’t have to raise costs or otherwise disturb the big majority of
voters who don’t work for the government.
Step Two: Make aggressive assumptions about the rate of
return on pension investment funds. This has two consequences: it covers the
gap between promise and reality (for a while), thereby postponing the day when
the politicians have to face the voters and the union leaders have to tell
their members that those beautiful benefits were bogus from the start....
But whether or not the investments work for retirees, they
work very, very well for Wall Street. Fees from giant public sector pension
funds played a significant role in creating Wall Street’s buccaneer culture and
speculative frenzy that the left hates….
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