Pension Benefit Guaranty Corporation gambles... and taxpayers lose (yet again)

Another day. Another looming tens-of-billions-of-dollars taxpayer bailout.

This time, taxpayers were screwed by the Bush Administration’s decision to shift “much of [the Pension Benefit Guaranty Corporation’s] $64 billion insurance fund into stocks.”

Anyone who has ever read two pages of a book on pensions knows “Pensions invest in safe assets.” Putting most of a pension’s funds into stocks is like gambling with your life savings. You just don’t.

But the Bush Administration did. And their timing could not have been worse… right before stock markets around the world crashed.

I can think of only three possible explanations:

1) Out of blind stupidity, free market fanatics ignored every rule of pension fund investing

2) Heading into the 2008 election, the Bush Administration hoped to make the economy look stronger than it was by pumping government pension money into stocks

3) Having failed in its plans to enrich its Wall Street friends by pushing Social Security funds into the stock market, the Bush Administration did the “best” it could for its friends — by pumping government pension money into stocks

There is no justification for this extremely costly (perhaps $30 billion) error. The error was immediately obvious last year:

Peter Orszag, head of the White House Office of Management and Budget, has “serious concerns” about the agency, according to an Obama administration spokesman.

Last year, as director of the Congressional Budget Office, Orszag expressed alarm that the agency was “investing a greater share of its assets in risky securities,” which he said would make it “more likely to experience a decline in the value of its portfolio during an economic downturn the point at which it is most likely to have to assume responsibility for a larger number of underfunded pension plans.”

Posted by James on Monday, March 30, 2009