The CalPERS disaster: A housewife tries to make sense of it

25 Sep

 

I’m still reading about how we ended up in this pension mess. This time I found a more recent article that confirmed suspicions I’ve had since I read that last article  from 2003.  The essential problem is, the California Public Employees Retirement System gambled pension money on the stock market, and got eaten alive by their own handlers.

CalPERS has to achieve stock market earnings of at least 7.75 in order to ” to keep its funding levels high enough to avoid further forced taxpayer contributions.”  For awhile last year, during a “volatile” market, they managed to achieve an outrageous 20 percent gain.  Of course  they did a little end-zone dance – “This is a great one-year achievement that powerfully affirms our strategy and the skills of our investment team,” said Chief Investment Officer Joseph Dear. “While we can’t assume that we’ll sustain this high level of earnings, we have averaged a net return on investments of 8.4 percent for 20 years.”

But you  know how that works. They just ripped off a bunch of people, triggering the “Karma Factor.” See, that’s how the stock market works, your gain is somebody else’s tragedy. I met a lady once who had got a handsome retirement payoff, and she wanted to turn it into a college education for her grandkids, so she bought Disney stock. Wow, who woulda thunk it – Disney lost their ass that year, and so did my old lady friend.

When that happened to some stocks my cousins and I inherited – mutual funds that had performed well for my family for a couple of generations – we read months later that the agents had ripped us off. It was a huge scandal, you know, that big pre-911 market melt down. It was found that agents were trading their clients’ mutual funds, without their clients’ (one of whom was me!) knowledge.   They were using their clients’ funds  as their own  – a scam know as “late trading”  – and raking in big amounts of money. That can only last so long, before the stock starts to be devalued, as were mine. I lost thousands of dollars over the span of a week, before I was able to get my agent on the phone ( he just wouldn’t return my call) and dump those funds. I got out of the stock market with what was left, but those people were never investigated or charged with anything, even though the whole scam quickly became common knowledge. They nailed Martha Stewart to the cross, she paid for their sins, and everybody went home and forgot about it.

I learned my lesson, but you can’t teach greedy people, they think with a part of their body that resembles an eyeless fish.  There was CalPERS, sitting pretty on a 20 percent gain like there’s no Tomorrow! And then Tomorrow came, and they too lost their (well, our, really) asses.   According to Cal Watchdog, the  fund lost over $17 billion dollars in just five weeks last August. But don’t worry, our loss was most certainly somebody else’s gain.

With my mutual funds, I was helpless. Like Barack Obama, I inherited a mess. I acted quickly, at first on just “women’s intuition”, then I heard the news. I told my agent what I knew, and he was all helpful all the sudden!  I was able to save over 80 percent of my fund.  But CalPERS walked right into that market and laid all their dough on that table. “These strong returns are a testament to our commitment to our long-term investing principles,” said Anne Stausboll, CalPERS Chief Executive Officer. “Our members, employers and California taxpayers all benefit from our disciplined approach to investing.”

They lost over half the fund, in a system that seems to me not much more sophisticated than a dice game. Former Orange County treasurer/tax collector and current county supe John Moorlach calls it the “’Peter Pan Portfolio’ that led to Orange County’s bankruptcy in 1994. The meaning: If you just believe, the fund will be all right.”

That’s what I’d call Dave Burkland and Jennifer Hennessy’s accounting style –  Jennifer Hennessy keeps “predicting” that sales and homeowners’ tax revenues will go up – when one call to a local retailer or real estate agent would set her straight, she’d rather believe she’s Tinker Bell.  She doesn’t “predict” she “wishes”. Like I’ve said before, if wishes were horses around here, we’d all be hip-deep in horseshit. 

The city of Orange rode their wish horse right into bankruptcy – geez, way back in 1994!  They were surfing interest rates, and a pack of sharks ate them.  

CalPERS can’t go bankrupt. We have guaranteed them with our taxes. In the event that they can’t pay, we are on the hook for billions in pension payments, many of those payments going to people like Tom Lando – who makes over $140,000 a year in pension, plus health benefits. There’s also a yearly cost of living increase. 

All because of the outrageous pension packages promised by elected leaders like our Mayor Ann Schwab and her council – who just signed off a new cop contract through which we continue to pay all their pension premiums, including “the employees’ share”.  And, they still get 90 percent of their highest years’ salary, including overtime, in pension, at 50 years old. That is how a cop who agrees to $65,000 a year salary ends up retiring at over $100,000 a year.  And, ex-police chiefs Mike Efford and Mike Maloney have both gone on to public salaries at Butte College, in addition to their pensions. All agreed upon and signed by Ann Schwab and council. 

Reform is coming, slowly, but the public pensioners fight tooth and nail. All we ask is that they pay more of their own pension premiums, and that CalPERS stop gambling on the stock market. Here’s what Steve Maviglio, spokesman for the union-backed Californians for Retirement Security, says to that – “My point was that the pension-bashing crowd used the depths of the recession as the reference point to sound an alarm about pensions instead of the long term returns actuaries use. And given the last two days on the market [August 5 and 8], the alternative that reformers are pushing — 401(k)s — are looking even worse than before.”

Maviglio accuses “pension bashers” of poor logic – he bases his claims on one short period of volatility on the market – any idiot knows, when you get a 20 percent gain, you are riding a short-lived high, and you better be ready for the come-down. CalPERS was apparently asleep at the wheel.

But, their handlers were there, like prowling sharks. Handlers they didn’t even need. According to CalWatchdog reporter Wayne Lusvardi, “An index fund is a passively managed fund designed to match the performance of the whole market or mix of funds.  So whatever commissions CalPERS paid all its external fund managers to invest in public stocks apparently could have been saved just by passively investing in the S&P 500 Index.”

That’s what I said last time – there was a little pack of sharks that fed off this whole mess, the “fund managers.” And the folks at CalPERS, confident that they’d continue to get their five and six-figure salaries and their 70 percent at 55 retirement packages, went right along with the scam – you scratch my back, and I’ll scratch yours! 

But the real villains here are your publicly elected leaders, at the city, county and state level. They’ve approved the contracts, the salaries, the pensions and the pension payments, every damned one of them. In Chico, most of our council members – with the exception of Jim Walker, somehow – are on the public dole. They all get public pensions, and you know, that doesn’t exactly put them on  very good footing to demand pension reform of their, our, employees. That’s exactly why we need more “regular” citizens on council – a small business owner like Toby Schindelbeck would at least be different. Schwab calls herself a small business owner, and she’s done everything she could during her tenure to promote that business – a bike shop. She’s used her position to promote her private business while making decisions that hurt businesses all over town. I’d like to see a person in there who has everybody’s business interests at heart, and I think that’s Toby Schindelbeck. 

I must say, I don’t like being in bed with Chico Firefighters, who have also endorsed  Schindelbeck.  But, Schindelbeck has told Chico Taxpayers Association that he would like to see the  “public safety” workers  PAY MORE OF THEIR OWN PENSION. We haven’t heard that from Bob Evans or any of the others, including Sean Morgan, who is also expected to get the public safety endorsement.  We’ll be holding Toby Schindelbeck to his word, and I think he will make some welcome changes on council.

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