Aaand It's Gone

Last week's South Park episode "Margaritaville" turned its harshly satirical light on the current global financial crisis as only Trey Parker and Matt Stone can. In a scene which speaks volumes, Stan goes to the bank to deposit $100 only to have the bank lose it within a few seconds:

Bank teller: We can put that check in a money market mutual fund, then we'll reinvest the earnings into foreign currency accounts with compounding interest aaand it's gone.
(long pause)
Stan: Uh, what?
Bank teller: It's gone. It's all gone.
Stan: What's all gone?
Bank teller: The money in your account - it didn't do too well, it's gone.
Stan: What do you mean? I have a hundred dollars.
Bank teller: Not anymore you don't. Poof.

And so on. In a case of life imitating art imitating life, we now have a story which should get anyone's blood boiling. When most American companies moved away from traditional pension plans, they set up 401(k) retirement plans instead and invested the money in the stock markets. 401(k) holders have thus been particularly savaged by the Wall Street plunge, but if you have an old-fashioned pension, your retirement fund is safe, guaranteed by the federal government - right?

Wrong. The Boston Globe reported yesterday that the Pension Benefit Guaranty Corporation, a federal agency tasked with insuring pension plans, made some rather unorthodox investment decisions. The PBGC has traditionally invested very conservatively in bonds, with an emphasis on long-term stability and security rather than short-term gains.

But in early 2008, as economists the world over were shouting warnings that the housing bubble was popping and that Wall Street was about to crater, the PBGC board signed off on a plan to change its investment model. The agency thus moved more than half of its $64 billion fund to more speculative ventures, including emerging foreign markets, real estate, and private equity funds.

Aaand it's gone.

The PBGC won't say just how much of the fund has vanished, but they admit that at the end of its last fiscal year, the fund was down by 6.5% and its stock investments were down by 23%. But the last fiscal year ended in September 2008, before the worst of the market carnage, and the agency has so far refused to give figures for this year. That doesn't sound good.

So who's responsible for what sure looks like a case of outright criminal negligence? Charles E.F. Millard, who headed the agency until the Obama Administration took over in January, just happens to be a former managing director of Lehman Brothers - which invested heavily in subprime mortgages and then went under last fall when the subprime market collapsed. At the time the strategy was changed, he claimed that "the new investment policy is not riskier than the old one."

Uh huh.

After the market collapsed, Millard was asked whether his strategy might have been, well, stupid. "Ask me in twenty years," he replied dismissively. "The question is whether policymakers will have the fortitude to stick with it."

Um, Chuckie, the retirees who are now broke because of your greed-fueled shortsightedness don't have twenty years. They're too busy trying to survive to "stick with it."

If there's anyone who deserves to go to jail in this whole miserable economic crisis, it's Millard and whoever else is responsible for this.