November 15, 2004 NYT: Teamsters Find Pensions at Risk

[Omaha Steve]

Hoffa went to jail for handling the $ better than the bankers! Jail some bankers for their mess.

http://www.cepr.net/err/nytimesarticles/teamsters_11_22.htm

By MARY WILLIAMS WALSH

In the 1960's and 1970's, the Teamsters' huge Central States pension fund was a wellspring of union corruption. Tens of millions of dollars were loaned to racketeers who used the money to gain control of Las Vegas casinos. Administrative jobs were awarded to favored insiders who paid themselves big fees. A former Teamster president and pension trustee was convicted of trying to bribe a United States senator.

Yet for nearly half a million union members who are expecting the fund to pay for their retirement, those may have been the good old days.

Since 1982, under a consent decree with the federal government, the fund has been run by prominent Wall Street firms and monitored by a federal court and the Labor Department. There have been no more shadowy investments, no more loans to crime bosses. Yet in these expert hands, the aging fund has fallen into greater financial peril than when James R. Hoffa, who built the Teamsters into a national power, used it as a slush fund.

The unfolding situation holds a hard lesson for others with responsibility for retirement money. What may appear as a sensible, conventional approach to investing - seeking a diversified mix of growth and income investments for the long term - can wreak havoc when applied to a pension fund, especially one in a dying industry with older members who are about to make demands of it.

But the kinds of investments that make sense for such a fund - like long-term bonds that will mature as members enter retirement - are not attractive to most money managers, because they generate few fees. Consequently, very few pension funds use such strategies today.

FULL story at link.

[Travis_0004]

1. Long term bonds loose value as interest rates go up

And I think its fairly obvious that interest rates will go up.

Also, pensions are not some magical lockbox where I have money set aside for my retirement. Its closer to a pyrmid scheme where current employees are paying for retirees.

If we invested in bonds we would make even less and loose even more money. And stocks go up or down, bonds will go down as the feds raise rates, and no way do they keep them this low for several more years.

[A HERETIC I AM]

2. "Lose", not "Loose"

A pension fund can LOSE money, as soon as dumbass money managers are set loose upon it.

Point 1) A bond bought at a given coupon rate, say 5%, will continue to pay $50 a year per bond for the life of the bond (based on the standard $1,000.00 par value of ALL bonds in the USA) REGARDLESS of the current quoted price of the bond. A portfolio manager or other holder of such a security that seeks the income bonds provide is only affected by a falling price in a rising yield environment if he sells the bonds.

It is agreed that the bond market is currently in somewhat of a bubble, as high demand for them has pushed yields down dramatically in recent years, but to say "Long term bonds loose (sic) value as interest rates go up" obscures the true value of owning a bond portfolio in the first place.

[n2doc]

3. When?

Yeah, they will go up, because they can't go down. If you keep expecting another 1980's runup you are going to be just as disappointed as the gold bugs. Unless the economy starts generating wage increases inflation is going to stay very low, because prices can't rise if people can't buy.