Just when you thought you had seen ennough shoes had dropped, here comes another big one. From boston.com
Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.
The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.
Yes folks, the agency put billions of dollars into stock market before the crash! The agency already has deficits. Now with more companies going bankrupt, it's going to make things worse.
Instead of being conservative, Charles E.F. Millard - the director of strategy during the Bush administration, decided to invest in stock market. These casino players are the once who have ruined America - believing prices just can't go down and everything is a bargain. Why would an insurer be in stocks is beyond my comprehension - let alone at a dangerous time as we have now.
"The truth is, this could be huge," said Zvi Bodie, a Boston University finance professor who in 2002 advised the agency to rely almost entirely on bonds. "This has the potential to be another several hundred billion dollars. If the auto companies go under, they have huge unfunded liabilities" in pension plans that would be passed on to the agency....
However, Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20, dismissed such concerns. Millard, a former managing director of Lehman Brothers, said flatly that "the new investment policy is not riskier than the old one."
I would like to know more about how he thinks stocks are not riskier than bonds.
He said the previous strategy of relying mostly on bonds would never garner enough money to eliminate the agency's deficit. "The prior policy virtually guaranteed that some day a multibillion-dollar bailout would be required from Congress," Millard said.
Sounds like someone sitting at a poker table trying to double down. Either this guy should be admitted to gamblers anonymous or be prosecuted for putting tax payer dollar at risk. But most likely nothing will happen to him. He will walks away the way Angelo "Tan-man" Mozilo and Dick Fuld did. The congress held hearings to show Americans that they were taking action.
....Bodie once likened the agency's strategy to a company that insures against hurricane damage and then invests the premiums in beachfront property.
Since he issued that warning, he said, the agency has gone even more aggressively into stocks, which he called "totally crazy."
...Now, they warn about a "perfect storm" scenario in which the agency's fund plummets in value just as more companies go into bankruptcy and pass their pension responsibilities onto the insurance fund. Many analysts say it is inevitable that the agency will face significantly increased liabilities in coming months.
"The worst case scenario is coming to pass," said Mark Ruloff, a fellow at the Pension Finance Institute, an independent group that monitors pensions. He said the agency leaders "fail to realize that they are an insurer of pension plans and therefore should be investing differently than the risk their participants are taking.
Another gift from the Bush Administration.
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