And no one will retire and need these funds for the next 20 years?

If it's not technically a crime, it should be.

Does legislation place limits on how administration officials (i.e. director of the PBGC) can invest these funds? If so, how so?

No more need to imagine what would have happened to Social Security Funds if W actually got his way.

The first thing they should do is check to see what specific stocks were bought. Then look to see what top executives of those companies did with their stocks. Then look at political donations for the same executives. I would be very surprised if you didn't find a pattern.

And they remain willing to commit the same crime with Social Securit funds.

It will take decades to fix the havoc of the Bush Maladministration. This really is for the history books, Mr. Bush, though not for the reasons he thought he'd become a man of history.

Bush and Cheney - the Laurel & Hardy team from Hell.

Ironically, "just months before the stock market crash" I moved some of my money out of stocks into bonds. Boy, I guess I should be running things.

How hard was it to see that a crash was coming? Well, if you watch MSNBC, pretty hard. Maybe that's what they were doing.

But seriously, what could have possibly be the clue that last year was the time to get more heavily into stocks?

Gambling with public monies.

I would REALLY like to see white-collar crime result in serious jail time, say 10 years for every billion dollars that was wasted/stolen.

The entire Bush Era was all about robbing the till.

How about our foray into Iraq? I'd say that was gambling, and look at the financial return to US taxpayers.

The privatization of SS would have resulted in brazillians of easy cash for the crooks of Wall Street.

When he says "Ask me in 20 years" does he mean when he gets out?

Honest services fraud is the catchall, of course, but we'll probably find that the apparatchiks couldn't help taking some petty graft along the way.

This is sad because in a generalized sense it wouldn't be a bad idea for the PBGC to have some of its money invested in stocks. But doing it in 2008 is a perfect picture of why we shouldn't privatize social security: it's not just that the returns are uncertain, it's that just when you need them most is when they're not going to be there.

I hope the current president gets the message.

The question is not what stocks were invested, but who was paid fees for this movement. The income for specific investment banks would be substantial for a capital transfer of this kind.

In a well-run financial organization, I would assume that these fees would be negotiated in advance down to neglible amounts. In the incompetent kleptocracy that was the hallmark of the Bush administration, I'm assuming they gave the whole fucking store away in terms of fees, and the money all went to friends and political supporters.

In other words, the high fees would come back as kickbacks in the form of political donations unless -- oops -- we lost it all at the track.

The question is not what stocks were invested, but who was paid fees for this movement. The income for specific investment banks would be substantial for a capital transfer of this kind.

Liquidate these firms and use the monies to (as much as possible) make the pensions whole again. The firms themselves need to go to Gitmo for some relaxing "water sports".

Looters like these should be lined up and shot.

Josh doesn't know what he's talking about here.

Since ERISA there's been an ongoing intellectual battle in the pension world as to what's the right way to manage pension assets: 1) allocation only to high grade bonds (as the cash flow comes in you apply it to zero out future liabilities [a process called defeasement], and 2) allocation across all asset classes (cash, stock, bonds) to get a total rate of return, up and down, which presumably will average out over time to some decent gain.

Although I personally think #1 is correct, #2 has been the more widely utilized methodology by a significant margin.

Add to this two facts:

a) Interest rates were so low for so long that #1 became a very difficult strategy to manage (and justify), and

b) By 2007 everyone around the pension biz knew that the PBGC was woefully underfunded for the tsunami of pension problems that were clearly visble on the horizon (Read: Ford, GM, etc, etc).

I think it's pretty fair to assume that Millard was just trying to get higher returns by moving more aggressively to equities and alternatives, and it didn't work out for him. Although it's possible he's lazy, stupid, incompetent, or dishonest, this doesn't prove it -- He was by no means alone in this mistake -- all #2 style pension funds (1000's of funds) got crushed last year.

There's enough bad stuff going on w/o trying to dream up conspiracy theories. Paul (above) is on the right track w/ Social Security: Privatizing it isn't bad because all managers are dishonest; it's bad because even very good managers can get creamed in equities from time to time.

Oh, you guys are reading it all wrong. This good gentleman knew that Obama would get elected president and be good for the economy long-term.

That would be a funnier statement if I hadn't done something like that myself. After the election, when the Dow dropped to 8500, in went my own meager pennies. Should have waited just a little longer....

Millard's a good soldier, doing his part for the GOP, goosing the market for the election.

I think it's pretty fair to assume that Millard was just trying to get higher returns by moving more aggressively to equities and alternatives, and it didn't work out for him

No, he wasn't. If I had known, I'd have thrown him out a window on the third floor of Carlin thirty years ago -- and we'd have to have held a lottery for the privilege even then. He was a second-generation corporate weasel in embryo then...

"I would REALLY like to see white-collar crime result in serious jail time, say 10 years for every billion dollars that was wasted/stolen"

Har-har, Tom. And I'd like to wake up tomorrow without wrinkles and this nagging crick in my neck but that ain't gonna happen either.

as I have said in other venues, wanton destruction of mass amounts of wealth ($64 billion counts as it is 6 times the GDP of Afghanistan) should be considered as much of a crime as wanton destruction of people or property. AND we need a new class of crime to cover it, to point out how this has destroyed lives and cultures.

baxter @5:42 doesn't know what he's talking about here.

He's thinking about the PBGC incorrectly by comparing it to a pension fund in which long-term investments are made for long-term growth.

The PBGC fund is not a pension fund. It's a pension guaranty fund. That is--it's an emergency fund. With emergency funds, the goal isn't growth; the goal is capital preservation.

As others have said, these clowns belong in prison.

I have been non-violent my entire life.
But now, I don't want prison for these criminal's (that is way too mild a word).
I want them disemboweled, drawn and quartered, and their heads put on spikes on Wall Street. And left there for a generation or two to show that We, the People, mean business.
The French peasant's msut have had great satisfaction telling their children that they took the greedy bastards and lopped off their heads.

OK, having written that, I feel better. I'm back to being against violence.
Now, can we arrest this MFer and every other rapacious SOB and put them on trial?
I will beg, BEG, to be on that jury!
This is

Shorter Baxter: the pfgc needed to make up all the shortfalls of pensions invested heavily in stocks by investing in those same stocks. Makes sense to me!

I've been a consultant to pension funds for 20+ years. I know this doesn't make me as knowledgeable as everyone out there with a $10K E-trade account, but I'll try to explain this again.

The PBGC is in fact funded in part by investment gains. The fact that it's an emergency fund is irrelevant; it is in fact JUST like a pension fund in that it has future liabilities that it has to pay off. As of 2007, it was already underwater in terms of the liabilities it knew it had to cover. This was no secret; hell, it was widely reported even in the MSM.

Millard made the same bad decision that most pension fund managers make -- he ran the fund hotter in order to try to make up for future shortfalls. States do this all the time: Christie Whitman looted the NJ state pension funds in order to fund her tax cuts, and subsequent managers ran the fund hotter to make up the losses and now, post-meltdown, NJ is dead meat. This is in part why Corzine is being forced to raise all kinds of taxes. (ps: Like w/ all pension funds, if the mkt had cooperated with Millard or NJ's managers, people'd be hailing them as geniuses. Doesn't make it the right decision, but this is the reality of the investment world. Many of the managers who were geniuses when mkt was going up look like morons when it crashes.)

Most managers don't have any idea how to manage risk and fall back on the "it'll work out in the long run." A whole generation of managers have been taught this -- asset allocation is all that matters, and in the long run things'll work out. It's the equivalent of the buy-and-hold strategy that worked out for so many individual investors for the past 28 years.

It's a terrible (but widely accepted) strategy, but that doesn't make people who practice it conspirators in a vast conspiracy.

Don't forget the political angle to all of this. Propping up the market just long enough to win another election. It's what's motivated them for the last 8 years, why would a national emergency be any different.

baxter: "The fact that it's an emergency fund is irrelevant..."

No sir. This fact determines (or should have determined) how the money is invested.

Again, as a pension fund manager, you're investing primarily for long-term gains (although I assume this fund is partially being drawn upon in the short-run too). As a guaranty fund manager, you shouldn't be investing for growth at all--you should be investing for safety.

The fact that the guaranty fund was intially underfunded was not a reflection of the poor decisions of the guaranty fund managers; it was a reflection of the poor decisions of the managers of the pension funds (among others). The underfunded guaranty fund was no excuse for guaranty fund managers to mimic those bad decisions, and therefore, exacerbate the problem. (Politicians raiding pension funds for other uses is irrelevant to this discussion.)

In addition, your "had things turned out differently, they would have been heroes" argument doesn't fly either. This was the exact debate that took place regarding Republican efforts to privatize Social Security. Republicans wanted to allow beneficiaries to invest for growth. Democrats wanted to maintain the srtategy of investing for safety. Dems understand that risky investment sometimes fall just when you need them.

If you're a pension fund manager, and you can't distinguish between when a fund should be allocated for long-term growth and when a fund should be allocated for short-term preservation, then perhaps you're part of the problem.

Here is Alan Krueger, soon to become an assistant secretary of the Treasury, writing on the PBGC issue last December:

The decision to move a large share of the portfolio out of safe assets like Treasury bonds and into riskier but possibly higher-paying assets like stocks has been controversial.

The decision would have proved catastrophic had it been immediately acted upon because the stock market has fallen so far. Fortunately, P.B.G.C. has been slow to act on its new policy. By my back-of-the-envelope calculation, had the agency fully adopted its new investment policy at the start of last year, it would have lost around 12.2 percent of its assets by September 2008. Instead, it lost �only� 6.5 percent, or $4.2 billion.*

Ohh, how about that - although they talked about shifting, they never quite got around to it. Gee, I missed that in the Globe story, and here.

Krueger also has his doubts about the wisdom of a pension insurance fund increasing its equity exposure:

It may make sense for universities and philanthropies to pursue an aggressive, diversified portfolio strategy that is heavily weighted toward equities and alternative investments. But it is not clear that such a strategy is optimal for an insurer like P.B.G.C. because its liabilities are also linked to market fluctuations.

...The P.B.G.C. director Charles Millard has dismissed such criticisms as �pithy� comments. His defense is: 1) P.B.G.C. is seeking to increase returns by investing in a broad portfolio that is more tilted to equities and alternatives in the hopes of staving off a government bailout; and 2) the agency�s experience has been that most of its liabilities are due to financial stress in a small number of industries � mainly airlines and steel � and not general economic conditions.

The first defense sounds a bit like a gambler doubling down when he is losing. And although the second claim may have been the case in the past -� which is questionable, because in the period I looked at, annual payouts went up when stock-market returns went down (and vice versa) � there is no guarantee that it will continue.

I lean towards Krueger in this debate, but Millard is not exactly foaming, and the issue was addressed in CBO and GAO papers.

It seems this PBGC story is hidden on this board and a few others. While the Globe gets another Pulitzer, where is this story on network tv and in the major newspapers? Are they waiting for indictments?

A conservative portfolio is usually set at 50% bonds and 50% stocks. The reason you include the stocks is to combat inflation over time.

Bonds are currently yielding very little. It's hard to imagine interest rates going down from here. If interest rates go up, bonds would be hurt big time.

If the PBGC allocates more to bonds now, it'd be just like buying stocks at the top of the recent bull market. They would be mis-timing the market yet again.