Video from a March meeting in Chicago reveals what some members of the 1 percent in America would like to do to public employee pensions: rig the market to weaken them enough to force state governments to make drastic changes that would affect both workers and retirees.
On March 6, 2013 Ty Fahner, former Illinois attorney general and current head of a group known as the Civic Committee Of the Commercial Club Of Chicago spoke to a meeting of the Union League of Chicago about the Illinois pension crisis. During the question and answer session following his address, an anonymous member of the audience made the following observation:
Maybe sometimes you gotta be irresponsible to be responsible. If a political solution really doesn’t produce a favorable outcome, maybe you really need a market solution. And a market solution, I don’t mean bankruptcy, I mean actually talking down the state rating even further so the state’s bonds essentially become below investment grade. And it drives up the borrowing cost to the state and all of us to a significant level enough that you really feel the public pressure…
In other words, the “market solution” to which the speaker is referring is not a market solution at all. What he is suggesting is that well placed individuals in the business and banking communities could use their influence on bond rating agencies in order to cause the agencies to give state bonds lower ratings. This would dramatically lower the value of the bonds, thereby decreasing the value of the pension funds that hold them. The result would be a situation where not only would the pension funds lose money, but the state’s cost of borrowing would increase, forcing state government to respond by making changes that could include reducing or eliminating pension benefits.
As explained in an article on Alternet, bond ratings are important to pension funds because
Pension funds buy bonds, often from the state, to stay financially healthy. In order for the pension fund to buy the bond, it must have a passing grade. If the grade is lowered, say from A to B, the price of the bond goes down, and the pension fund will suffer a loss. If the bond rating is dropped below a minimum standard, then the pension fund must sell the bond, and take a much bigger loss.
In his response to the comment Fahner acknowledges that some members of his Civic Committee had talked to members of rating agencies, but says that they stopped doing so for fear of hurting Illinois businesses.
The Civic Committee, not me, but some of the people that make up the Civic Committee… did meet with and call – in one case in person – and a couple of calls to Moody’s and Fitch and Standard & Poors, and say ‘How in the hell can you guys do this? You are an enabler to let the state continue. You keep threatening more and more and more.’
And I think now we’ve backed off. We don’t want to be the straw that broke the camel’s back… It hasn’t been irresponsible, but we have told them that we thought they were being irresponsible. But we stopped that a couple of months ago.
Here’s the video (The comments referenced above begin at about 46:30):
Pension benefits are under attack all across the United States. From private companies that are swallowed up by private equity firms that then proceed to raid workers’ pension funds, to cash strapped state and local governments that push “pension reform” on their workers and pensioners, few pensions are safe. Thanks to multiple tax cuts and reductions in the number of public sector employees over the past number of years public sector pensions are particularly at risk. A 2010 Pew Charitable Trusts report found that public sector pension funds in the U.S. were underfunded by a total of $1.38 trillion, with only sixteen out of fifty states having public employee pension systems that were meeting acceptable levels of funding.
Illinois has, by all accounts, the worst pension crisis in the country, with its public employees pension system being underfunded to the tune of almost $100 billion. Governor Pat Quinn and the state legislature have been working for months to try and address the problem, so far without much success.