The Federal Reserve Has Created An Unprecedented Disaster For Pension Funds

Tyler Durden's picture

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

When it comes to the Fed, Congress is mired in hypocrisy. The anti-regulation, de-regulation crowd on Capitol Hill shuts its mouth when it comes to the most powerful regulators of all – you and the Federal Reserve. Meanwhile, Congress goes along with the out-of-control, private government of the Fed—unaccountable to the national legislature. Moreover, your massive monetary injections scarcely led to any jobs on the ground, other than stock and bond processors.

 

– From the post: Ralph Nader Destroys the Federal Reserve in Open Letter – Calls it “Out of Control, Private Government”

If I had to choose one single institution and one single individual most responsible for the weak, putrid and unbelievably corrupt oligarch-controlled U.S. economy, I would choose the Federal Reserve and Ben Bernanke.

The central planners at the Fed have systematically funneled trillions of dollars into the pockets of those who least needed and deserved it least, and in the process served to further enrich and entrench a criminal oligarchy while pounding the middle class into oblivion. What’s worse, the financial armageddon faced thus far by the 99.99% is just getting started.

Thanks to the 0% rate targeted by the Federal Reserve, pensions simply can’t get a decent return without moving further and further out on the asset management risk spectrum, and even then, it’s still not sufficient.

Today’s Wall Street Journal article on the topic shines a much needed light on just how dangerous this whole charade has become. Here are a few excerpts:

What it means to be a successful investor in 2016 can be summed up in four words: bigger gambles, lower returns.

 

Thanks to rock-bottom interest rates in the U.S., negative rates in other parts of the world, and lackluster growth, investors are becoming increasingly creative—and embracing increasing risk—to bolster their performances.

 

To even come close these days to what is considered a reasonably strong return of 7.5%, pension funds and other large endowments are reaching ever further into riskier investments: adding big dollops of global stocks, real estate and private-equity investments to the once-standard investment of high-grade bonds. Two decades ago, it was possible to make that kind of return just by buying and holding investment-grade bonds, according to new research.

Thank you, Ben Bernanke.

The amplified bets carry potential pitfalls and heftier management fees. Global stocks and private equity represent among the riskiest bets investors can make today, Mr. Kloepfer said.

Not to mention what often amounts to investing in criminal schemes. Recall: SEC Official Claims Over 50% of Private Equity Audits Reveal Criminal Behavior.

Bonds historically produced a source of safe, good-enough streams of profit that allowed long-term, risk-averse investors to hit annual targets. The era of low rates has all but erased that buffer. The absence of a few extra percentage points of yield means investors must now compensate by embracing unsafe bets that could strike big—or flop. The Callan report highlights how risky an endeavor that is.

 

Many large investors aren’t gambling that big—and their returns are lagging well behind internal targets. The nation’s largest public pension fund, the California Public Employees’ Retirement System, has one-fifth of its assets in bonds and is down 1.3% since July 1, according to public documents. The system, known by its abbreviation Calpers, also has 53.1% of its assets in stocks, 9% in real estate and 9.4% in private equity. In 2015, Calpers posted a return of 2.4%, below its target rate of 7.5%.

As you can see, they still aren’t getting a decent return despite moving outward on the risk spectrum. On the bright side, at least hedge managers and private equity partners are making a fortune from the exorbitant fees they charge pension funds for poor performance. For example, see:

Additional Details Emerge on How Hedge Funds and Private Equity Firms Loot Public Pensions

“Let Them Sell Their Summer Homes” – NYC’s Largest Public Pension to Ditch Hedge Funds

Pensions and Private Equity – A Letter to the New York Times Editor

The risk dilemma for investors has real-life consequences. Retirement plans, including Calpers and the New York State Common Retirement Fund, are lowering what they predict they can earn on their investments, a move that means workers and cities likely face higher contributions and taxes.

 

For insurers, lower bond returns mean life-insurance policyholders pay more for coverage.

Guess who ultimately gets shafted because of all this? Yep, you guessed it. The average American citizen.

Cheaper borrowing costs generally spur new investments from companies or consumers. But instead, global production is flat or declining, and consumers face stagnant wages that crimp their ability to spend.

Mission accomplished. Thanks for playin’ suckers:

Screen Shot 2016-05-31 at 4.15.26 PM

For more on the Creature from Jekyll Island, see:

Ralph Nader Destroys the Federal Reserve in Open Letter – Calls it “Out of Control, Private Government”

A Brief History on How the Federal Reserve Became the Undemocratic, Corrupt and Destructive Force it is Today

The Federal Reserve Refuses to Provide Names Requested by Congress in Probe

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HedgeAccordingly's picture

Moar liquidity is needed. Soon. And DoddFrank is only 1/3 implemented. awaiting the next black swan

Canadian Dirtlump's picture

For years I've talked to average joes about the perfect storm of:

1) pensions that were too sweet

2) crooked corporate managers who would sell off to a nebulous private company or mismanage the pensions

3) bogus interest rates which would force grandma and pensions to play in the casino or eat cat food then both

 

And I've gotten the same thing every time. A reaction between a blank stare or a look of disgust like "where is your straight jacket."

Bay of Pigs's picture

Average Joes have been dumbed down to the point of no return. They can't even think anymore.

They are modern day zombies.

MalteseFalcon's picture

That's why in addition to the printing press, politicians will give the zombies the "old razzle dazzle".

That is their real job after all.

And in a democracy where half the people have an IQ under 100, the "old razzle dazzle" gets them every time.

The zombies have more votes.

Don't look to the political system for all the answers.

TBT or not TBT's picture

Government employee pensions are in far worse shape.   Guess who regulates them?   Unionized unfireable card-carrrying Government Party-voting government workers themselves.   The free porn easy pension Deep State in its millions.    

mary mary's picture

Long as I keep my job, what do I care about the future?  And as long as I suck up to my boss, I keep my job.  :0)

dizzyfingers's picture

...can only lead the horse to the water.

Tarzan's picture

The scam is at an impasse!

rosy predictions of gains on pension funds, and perpetual low low interest rates on 19 trillion in debt, are at loggerheads.

The bullshit required to cover their lack of brilliance is pilling up... 

Soon, even the ignorant are going to be asking "dumb" questions, like who do we owe $19 trillion to, and where did they get $19 trillion to loan us, at interest?

 

 

sm0k4's picture

You can lead a jackass to the water hole, but can't make it drink....

Mind the GAAP's picture

Anyone actually depending on their pension benefits to fund their retirement is deeply and unequivocally fucked. 

WayPastCaring's picture

Yup - and what about people who for one reason or another bought annuities and those companies can't make a sufficient rate of return to pay out? The drop in living standards for a lot of people hit by the pension and annuity tsunami is going to amaze a lot of ignorant people.

MalteseFalcon's picture

Will these insurance companies get bailed out?

dusty88's picture

Yes, I keep trying to convince some of my friends to consider some hard assets.

 

Then I give up.  The advice isn't welcome, and I tried. 

StackShinyStuff's picture

I gave up a long time ago.

B-Bond's picture

Need a new deck of cards.

ft65's picture

Pensions are part of the exponential growth Ponzi. They worked quite well while the baby boomers were paying in. Now they are starting to collect! Ponzi's don't taper very well.

MalteseFalcon's picture

Then there's the new golden rule:  If it helps the ponzi = good.  If it hurts the ponzi = bad.

Pensions = bad.

youngman's picture

They will try to get the masses to make up their shortfall..before it all collapses....it will soon be a dollar in..goes out right away...their will be no fund....they will start selling their assets to cover payments and that will reduce the prices of those assets...be it Apple stock or whatever....and you will see the insiders cashing out their pension to get it while they can..a present value so to say....when the politicians say they have to raise taxes 30% to cover the pensions....people wll just go underground if they can..or just lie on the tax form...they will not pay that much...

MalteseFalcon's picture

This is where the helicopter drop and hyperinflation and end of $ come in.

Get hard assets soon.

conraddobler's picture

Can't we all just get along?

LoneStarHog's picture

Got a six-pack in your hand?...If not, then NO!

SomethingSomethingDarkSide's picture

"Honey, do you like what I have done with the Dining Room?"
"Why, DEAR, you have OUTDONE yourself!"

"I know, all I had to do was paint the wall with the back of Bernanke's balding bobble top"

"Ohh.. sweetie.. I love you.."
"I Love you too.."

 

BROUGHT TO YOU BY LOWES HOME IMPROVEMENT STORE

aztrader's picture

The elites don't have pensions or need them.........So why care if they destroy them.  All that matters is all the leverage paper crap continues to rise.

Mr. Universe's picture

America,  you can't spend your whole life worrying about your mistakes! You fucked up... you trusted us! Hey, make the best of it! Maybe we can help.

StackShinyStuff's picture

...and your brother's insurance company buys him a new car!

JailBanksters's picture

NO. You mean people that put money into a Pension Fund all their life, and can never withdraw it until their nearly dead, and when then withdraw it all they get is nickle.

It's as if everybody benefits from pension funds except the very people that put the money into the pension funds, like Governments, Bankers.

 

MalteseFalcon's picture

That pension money, like your wages, like your house, like your body are not yours.

Stop being selfish.

TBT or not TBT's picture

We are the all singing, all dancing crap of the world now.   It's just like the movie.

MalteseFalcon's picture

"Fight Club" was my wake up call.

Dodged a lot of bullets in 16 years, but not out of the woods, yet.

Ever?

MalteseFalcon's picture

To my lone dissenter:

"you didn't make that."

Antifaschistische's picture

Did anyone really believe all the "money managers" on Manhattan buying $20 million dollar "apartments" were earning that because they were creating "wealth" for all the commoners?  Not a chance in hell.  As the stock market ratcheted upward, the skimmers kept scalping the savings of the masses.  Congratulations to the Manhattan Party Machine.   401k plans that don't even allow 'cash' as a savings mechanism...you must feed the parasites.  Do you think the army of people working at Invesco, Fidelity, etc...add value to anything?  They are all part of a marketing scheme to separate YOU from YOUR money.  You lose.

dizzyfingers's picture

Of course they didn't believe that. After all, where are the customers' yachts?

Omen IV's picture

same logic applies to casualty cos. for myriad of liability insurance premiums - the next cash flow disaster to compliment increasing property taxes is coming

wstrub's picture

We need to go back to taking delivery of our certificates!

sun tzu's picture

Wait until social security goes bankrupt due to 8 years of almost zero returns

bob_bichen's picture

Mr Tzu:

YOU are FAR too grounded by (What Passes For) Reality! 

TAKE this handy advice:

Drink alcohol.
Watch and believe your television.
Give generously to your TV preacher.
Take your medication as directed by your TV.
Pay your taxes as directed by your TV
but most importantly...

HAVE Faith and CONFIDENCE in The System!

We are in the midst of the Disillusion and Heartbreak Season so....

https://www.youtube.com/watch?v=VDqk8o6y13Y

MalteseFalcon's picture

The disability fund was absolutely, positively going BK in 2016.

Check the calender.

The check is in the mail.

How?

Printing press.

Same for all SS funds.

Nothing stops until the $ stops.

When the old and infirm get screwed, every $ holder gets screwed.

sun tzu's picture

Wait until social security goes bankrupt due to 8 years of almost zero returns

Boris Badenov's picture

For more on the Creature from Jekyll Island, see:

The Creature from Jekyll Island, by G. Edward Griffin.

For more on the deformation caused by easy Fed money see:

The Great Deformation, by David Stockman.

 

Professor Fate's picture

Stockman knows all about the collateral damage caused by the Fed and ZIRP.  Clearly the "Bernank" felt a year or so of low rates would right the ship.  As usual, he was wrong.  You are now locked into low rates that will bankrupt every pension fund in the country.  But, what the hell, the Bernank saved Wall Street and the banks.
And Obozo hasn't had to admit complete econimc failure during his administration...YET!!

Fate the Magnificent
"Push the Button, Max" 

NMA's picture

Like an earlier post today...... maybe this guy will in 25 years come and say it was obvious 25 years ago and nobody planned for..... when hes comfortably retired and just doing the speaker circuit with buddy shillary......

jamochavez's picture

pensions will be taken over by govt next crash--will be deemed to risky and they will guratee a rate of return-more govt less liberty--tis the mantra

Ghordius's picture

"If I had to choose one single institution and one single individual most responsible for the weak, putrid and unbelievably corrupt oligarch-controlled U.S. economy, I would choose the Federal Reserve and Ben Bernanke."

Which just shows the usual lack of perspective, both historic and of world affairs
By putting the blame on the FED and Bernanke, instead of those who
1. cut the link between the dollar and gold
2. explained to the US public that "deficits don't matter". ever
3. explained to the US public that banks ought to be deregulated
4. still explain to the US public that the current military spending is "ok"

It's like producing humungous amounts of garbage first and later complain about the dirty rascal that takes out the trash, who is too noisy and covered with filth

overmedicatedundersexed's picture

Ghordius view is it's who's fault ?? the pols? the voters? never the establishment fed , the jews of mega banks and mega corps. raping the planet, with bribes and legal criminal elite's

I guess by your standards..corzine is a victim.

Ghordius's picture

only because my opinion is not popular it does not mean I am putting the world upside down. a quote:
"Well, Doctor, what have we got—a Republic or a Monarchy?”
“A Republic, if you can keep it.”
CENTRAL BANKING WAS NOT INVENTED IN THE US
a damn central bank is nothing else then a damn humungous credit card for war (or peace)
meanwhile, there are lots of people that are at fault. yes, that damn Corzine, WHY IS HE STILL OUT OF PRISON?
of course the FED, and in particular the private banks that for all purposes steer it are at fault
AFTER THE DAMAGE, though
and that damage is deficit spending, first
followed by an electoral system that puts megacorps cronies in Congress
followed by an electoral funding system that makes money, particularly secret money, the real elector
and so on. at the end, the filthy FED taking out the garbage
but hey, IT'S YOUR REPUBLIC
go on and believe this never-ending story of the FED being at the start of the misery instead of being an after-the-crime business
like the "END THE FED" stuff. fine. you want to do it? you have to frigging balance the budget, first !!!
rant end

overmedicatedundersexed's picture

Ghordius, can't agree more..but somebody has got to go to jail. for me the root of all this is the legal system of the west for the elite criminal is a creation of Al Gore's & the clinton's deflections of justice .."No controlling legal authority"

until the judges lawyers police and security agencies start working to hold the  the TBTP accountable we are all living in Lawless limbo ..we need blind justice.

MalteseFalcon's picture

Don't quibble. Put them all in the boat.