Thursday, October 3, 2013

Your Pension Is Under Attack From All Sides. Here's 10.

By Raul Ilargi and originally published at theautomaticearth.com  

Sometimes it seems you can never write enough about our various pension plans, and the threats to them. Matt Taibbi's Looting the Pension Funds brings it all back with a vengeance, the things I've written about pensions in the past year, and Nicole's recent article on Detroit etc. Put together, we get a broader context.
Over the past week, I've read yet another slew of reports on what's going wrong with pensions. You can see it happening in real time wherever and whenever you care to look. For many people that's probably not a favorite pastime, because it instills fear in their hearts. But I think it's better to look than to avert one's eyes, because the difference between what you expect and what you're actually going to receive grows bigger by the day. Negative growth, that is.
In order to get a better overview, I made a list of points that are threats to pensions. The fact that there are 10 of them is purely coincidental and it's by no means complete; do let me know what I left out. While I focused mainly on US public pension funds, most of what follows, in some degree or another, is just as valid in US private plans and in Europe and Japan. Not all plans are set up the same way, in fact there are too many differences to list, but one overall trend can be identified across the board: pension funds are irresistible to the predatory financial system, since they are what I called earlier this year: The Last Remaining Store Of Real Wealth, and what Matt Taibbi defines his way:

With public budgets carefully scrutinized by everyone from the press to regulators, the black box of pension funds makes it the only public treasure left that's easy to steal ...

I would say probably pensions are not just "the only public treasure left that's easy to steal", they're more like the only public treasure left, period. And much of it is already gone. Just about everything else has already been either financed with credit or sold to private interests. And pension funds are not far behind. Any and all public treasures are fair game in today's societies, and unless we find ourselves a large group of politicians and judges that cannot be bought, everything will end up being sold to the highest bidder. This doesn't mean that every single pension plan is under attack from all the points below in equal fashion, and some plans may - still - be in fine health. But it just might be wise for you to check.

 Here goes: 10 threats to your pension plans:

 1 - They were always Ponzi schemes to begin with

Unless a rising stream of new members pay in, day after day after day, the plans go bust. Today, as baby boomers start to cash in, the numbers of people who pay into the funds vs those who claim benefits is changing radically. Where once the ratio was 5 or 10 to 1, it's now often 2 to 1. And those who do pay in today are supposed to build up their own pensions as well, not just pay for present retirees. Who never paid in enough to justify the benefits they now receive, much was supposed to come from their respective governments, and generated by brilliant(ly honest) and god-fearing fund managers.
So yes, fundamentally, the fact that pension plans were set up as Ponzi schemes would have doomed them no matter what. But they did get a lot of help along the way to speed up that process.



2 - They have consistently been underfunded

On this topic, and it's not the only one, there's so much material not even a book would suffice. The picture that emerges makes it very clear that both companies and governments on a large scale showed very little respect whatsoever for the laws that are supposed to define the extent of their contributions. Here are a few choice quotes from an article I wrote in 2012:


• S&P Dow Jones Indices said that the underfunding of S&P 500 companies' defined-benefit pensions had reached a record $354.7 billion at the end of 2011, more than $100 billion above 2010's deficit.
• Fitch Ratings later released its own study of 230 U.S. companies with defined-benefit pension plans and found that median funding had dropped to 74.4% in 2011 from 78.5% in 2010, and that corporate pension assets grew just 2.9% in 2011 amid sluggish returns and a 6% decline in contributions.
• In 2011, company pensions and related benefits were underfunded by an estimated $578 billion, meaning they only had 70.5% of the money needed to meet retirement obligations ... a funding level in the 70% zone is considered dangerously low. The looming shortfall, and the move by corporations to 401(k)-type plans in which the level of investment is controlled by employees, could keep many aging baby boomers from retiring ... "The American dream of a golden retirement for baby boomers is quickly dissipating ... "
• ... public pension funds in the U.S. are underfunded by $1 trillion to $3 trillion, depending on who's making the estimate.
• At least three of the nation's largest U.S. public pension funds have already announced returns of between 1% and 1.8%, far below the 8% that large funds have typically targeted.
• Ratings agency Moody's Investors Service calculated this month that if it used a 5.5% discount rate, a rate closer to the way private corporations value their pensions, it "would nearly triple fiscal 2010 reported actuarial accrued liability" for the 50 states and rated local governments to $2.2 trillion. Other estimates put the shortfall even higher.

State Budget Solutions estimated it in a recent study at $4.6 trillion as of 2011.



3 - "Normal" financial crisis losses

A huge source of losses for pension funds has been the 2007-present financial crisis, of course. But how can we fault the fund managers for this if and when their governments and banking sectors issue no warnings at all, when after the fact the overall mantra out of Washington and Wall Street remains that "no-one could have seen this coming", and when even their legal obligation to invest in AAA-rated paper only is rendered useless by complicit ratings agencies who rate all the nation's wet tissues, baby napkins and old newspapers investment grade? You can't expect pension fund managers to be smarter than the entire politico-financial system.



4 - Low interest rates imposed by central banks and Treasury departments

The most obvious point perhaps: with pensions plans historically hugely invested in sovereign bonds, pushing down their yields is severely punishing for fixed income, and in more than one way. This was for example discussed in Britain earlier this year:


The Bank of England's £375 billion policy of quantitative easing has left companies having to find £90 billion to fill pension fund deficits, MPs were told. Mark Hyde-Harrison, chairman of the National Association of Pension Funds, said inflexible pension regulations meant companies had to pay down these deficits, leaving them unable to use the funds to strengthen their balance sheets.
QE has raised the price of gilts, lowered yields and reduced the returns on pension investments, helping push final-salary schemes into large deficits. Government bonds are used by pension fund to ensure they have the necessary funds to payout members in future. Low gilt yields, along with low interest rates, has meant that pension schemes have had to hold more assets to meet those obligations. Mr Hyde Harrison said schemes needed to find £9bn a year over the next ten years to fill the gap.
Pensions expert Ros Altman told the committee that QE had been a "tax on pensions" and "savers". She said the policy was meant to be expansionary but not for pensioners. "Asset purchase have raised the cost of annuities," she said, adding that the consequences of QE on pensions had been "overlooked".



5 - (Mostly illegal) appropriation of funds by various levels of government before financial crisis

An issue that is very closely connected to the next one, since there's a thin line between a government not paying into a fund and one taking money out.
This first item is from January 2013, and it's of course eerily reminiscent of today's government shutdown.


The U.S. Treasury, in order to avoid default, has resorted to an eyebrow-raising move: it has borrowed from the federal employee pension fund as the country nears its debt ceiling. The U.S. government stopped investing in the federal employee pension fund Tuesday "to avoid breaching the statutory debt limit," according to a letter Treasury Secretary Timothy Geithner sent to Congress.
Geithner said that the move will free up some $156 billion in borrowing authority, while policy leaders in Washington wrangle over raising the $16.4 trillion debt limit. Geithner promised the fund would be "made whole once the debt limit is increased," and maintains that federal employees and retirees would not be affected by the action.
But an IOU from the federal government isn't very settling for those relying on the fund for retirement.

Of course it's not just the US; indeed, it seems to be a fairly common practice. One way to go about it, undoubtedly a popular one, is to force pension funds into buying more of your sovereign bonds. This is also from January:


Spain has been quietly tapping the country's richest piggy bank, the Social Security Reserve Fund, as a buyer of last resort for Spanish government bonds, raising questions about the fund's role as guarantor of future pension payouts.
Now the scarcely noticed borrowing spree, carried out amid a prolonged economic crisis, is about to end, because there is little left to take. At least 90% of the €65 billion ($85.7 billion) fund has been invested in increasingly risky Spanish debt, according to official figures, and the government has begun withdrawing cash for emergency payments.


And obviously, this doesn't only happen on a federal level. It may well be much more common at lower levels where there is less scrutiny.



6 - (Mostly illegal) lower payments from cash-strapped levels of government before and after the financial crisis

This is closely connected to both (mis)appropriation of funds as well as to pension plans being underfunded, though it's not the only cause of either. Some quotes from Taibbi:

Among the worst of these offenders are Massachusetts (made just 27% of its payments), New Jersey (33%, with the teachers' pension getting just 10 percent of required payments) and Illinois (68%). In Kentucky, the state pension fund [..] has paid less than 50% of its Annual Required Contributions (ARCs) over the past 10 years, and is now basically butt-broke- the fund is 27% funded, which makes bankrupt Detroit, whose city pension is 77% full, look like the sultanate of Brunei by comparison.
In Rhode Island, some cities have underfunded pensions for decades. In certain years zero required dollars were contributed to the municipal pension fund. "We'd be fine if they had made all of their contributions," says Stephen T. Day, retired president of the Providence firefighters union. "Instead, after they took all that money, they're saying we're broke. Are you f***ing kidding me?"
There's an arcane but highly disturbing twist to the practice of not paying required contributions into pension funds: The states that engage in this activity may also be committing securities fraud. Why? Because if a city or state hasn't been making its required contributions, and this hasn't been made plain to the ratings agencies, then that same city or state is actually concealing what in effect are massive secret loans and is actually far more broke than it is representing to investors when it goes out into the world and borrows money by issuing bonds. Some states have been caught in the act of doing this, but the penalties have been so meager that the practice can be considered quasi-sanctioned.



7 - Bad investments, often through "advisors"

It is no secret that Wall Street firms - literally - made out like bandits in the years leading up to Bear Stearns, Lehman and AIG by selling everyone who had a dime to spare boxes full of opaque financial instruments that the ratings agencies stubbornly kept on rating AAA. There is so much bad faith involved in all this - if not something much worse - that looking back today it's still hard to understand why no-one was ever truly taken to task for it.
There are a few only seemingly large fines, and some settlements in the same vein, though typically without any admission of wrongdoing. But there's no denying that people paying into pension funds, all over the world, were robbed blind. And it was sanctioned. In other words: crime pays, especially when everyone looks the other way or it's even outright legalized.
Is it a criminal act to sell someone "assets" under false pretenses? Apparently not. Is it a criminal act to rate "assets" investment grade when they're clearly nothing of the kind? Apparently not. The sellers pay fines, and don't see jail. It's like getting a speeding ticket. Except that it's the firm who pays the fine, not the actual perpetrator. he gets a bonus. The rating agencies simply claimed their AAA assessments were not legally binding, that everyone should do their own research. Not even a fine for them.


UBS AG, Switzerland's largest bank, said it's close to a settlement over U.S. mortgage-backed bond sales.
The bank reached an agreement in principle with the U.S. Federal Housing Finance Agency to settle claims related to residential mortgage-backed securities offerings between 2004 and 2007, according to the UBS statement, without disclosing the cost of the settlement. The company is booking about 865 million Swiss francs ($918.5 million) of pre-tax charges, provisions and writedowns in the quarter related to the settlement and a Swiss-U.K. tax agreement.
The FHFA sued UBS in 2011 over $4.5 billion in residential mortgage-backed securities that UBS sponsored and $1.8 billion of third-party RMBS sold to Fannie Mae and Freddie Mac, claiming the bank misstated the securities' risks. These suits alleged losses of at least $1.2 billion plus interest.


Stichting Pensioenfonds ABP, the biggest Dutch retirement fund, said it settled a lawsuit with JPMorgan Chase over sales of residential mortgage-backed securities.
“ABP is very content to have reached this settlement and is pleased that JPMorgan was willing to reach a mutually satisfactory conclusion of this litigation,” the Heerlen, Netherlands-based fund said today in an e-mailed statement. Harmen Geers, a spokesman for ABP, declined to comment on the amount of the settlement.
The suit, filed in state court in Manhattan in December 2011, accused the bank of negligent misrepresentation, alleging the sales were based on false and misleading statements. New York-based JPMorgan has denied and continues to deny these claims, ABP said in today’s statement.
ABP has sued other banks in the same court over similar allegations, including Deutsche Bank AG, Credit Suisse Group AG, Morgan Stanley and Goldman Sachs Group Inc.


... Remember that these are NOT just “institutional investors” like banks — they are pension funds, unions, cities, counties and states that invested in what was thought to be investment grade securities Triple A rated and insured.
So it isn’t surprising that the investors are now going on the attack. It is obvious that the banks and servicers are having a field day feeding off the carcass of what was purported to be good collateral — the homes of the borrowers. The starting insult though was the money the banks took out of the funds advanced by investors before they started funding mortgages.
In some cases the percentage is a staggering 40%. So for each million dollars that your pension fund put in, the banks immediately removed $400,000 and booked it as trading profits. Now with only $600,000 left, the pool was supposed to make enough money to pay the interest expected by investors plus the principal.
Those figures don’t work and Wall Street knew it. So all they needed was to place bets that the pool would fail and that is what they did under the guise of merely covering the “minor” risk of loss with yet another hedge.

Of course MBS are not the only bad investment made. And of course one might blame the pension funds themselves for their gullibility in this man eat dog world. But regulatory oversight before this came to light, and the legal system's reaction after, have been found so stunningly lacking one can no longer claim we live under a rule of law. Government agencies settle cases for ridiculously low fines, leaving pension funds not just to fend for themselves, but having to do so with the severe handicap of what can realistically only be seen as low-ball jurisprudence.
If you take a step back and look at where the attacks on the pension funds began for real, you'd probably want to go back to the 1990s, when the Blythe Masters JP Morgan crew started to "invent" new forms of "securities". That allowed for Wall Street to start selling paper the managers had no way of understanding, and for which they had to trust the sellers on their bright blue eyes.
But as I said, it's not all MBS. Here's an example of bad investment losses from the black box that is Detroit:


Detroit Police and Fire Retirement System and General Retirement System real estate investments have cost the city's two pension funds more than $144 million during the past two fiscal years, according to an audit of the funds requested by Emergency Manager Kevyn Orr. The preliminary findings are part of an auditor general and inspector general report released Thursday afternoon.
The pension funds were too heavily invested in real estate in 2010-11 and 2011-12, the report says. The General Retirement System had 12.22% of its assets in real estate in 2010-11 and 13.99% in 2011-12, higher than the fund's self-imposed limits of 10%. The GRS annual report documented more than $73 million in losses.
Likewise, the Police and Fire system had 14.33% in real estate in 2010-11, more than double the 7% limit. In 2011-12, there was 12.6% in real estate, higher than the 8% limit it had for that year. The total of losses for the system was more than $71 million. [..]
The audit first focused on the pension funds' real estate investments because of ongoing investigations into alleged criminal activity. [..] The audit also found that 13% of the city's unemployment compensation claims processed between July 2011 and March 2013 were "likely fraudulent."
In addition, there were questionable interest rates applied to GRS annuities and overtime pay included in the average final compensation calculation, the report's executive summary says. [..] Orr estimates that the pension funds are a combined $3.5 billion underfunded.



8 - Higher risk investments (chasing yield) - to make up for losses

The losses from the financial crisis, whether they were directly related to securities or not, have made it necessary for pension fund managers to "double up". And that means increasing their risk. Even if the natural reaction to such vast losses might be to become risk-averse for a while, and even though the yield-chasing attitude that led them into MBS etc. was such a disaster. A move from bonds to stocks must seem obvious for most of them.


Keith Ambachtsheer has made a living advising pension funds on the best way to meet their obligations to retirees. In 2000, he warned funds to reduce their exposure to stocks, which had reached nose-bleed valuations after a two-decade bull run, and add long-term government bonds. Since then, bond prices have risen about 10% a year on average, while stock markets have treaded water.
Today, his advice has flipped around. With the yield from long-dated bonds barely outpacing the inflation rate, the director of the Rotman International Centre for Pension Management says the safer investment for pension funds – and any long-term investor – is blue chip stocks.
“In this environment, it’s plausible that for long-term investors, their safest investment is buying and holding a diversified international portfolio of dividend-paying stocks” – companies such as Nestlé SA, pipeline utilities and Canadian banks, he said. “It takes a while to wrap your head around that.”
Indeed, it does. Trading in dull but dependable government bonds for inherently riskier stocks seems contrary to sound risk management. Yet, Mr. Ambachtsheer has a lot of company. The Caisse de dépôt et placement du Québec and GMO LLC, the Boston asset manager led by famed investor Jeremy Grantham, recently have said they are substantially reducing their holdings of bonds with long maturities.
“I’m pretty sure the odds of making money on bonds over a five-year horizon are zero,” added Leo de Bever, head of Alberta Investment Management Corp., the province’s public investment fund manager. “I agree being in high quality stocks is probably a better alternative to bonds. Five years ago I wouldn’t have said that.”

However, as Matt Taibbi says:

A study by noted economist Dean Baker ... reported that, had public pension funds not been invested in the stock market and exposed to mortgage-backed securities, there would be no shortfall at all. [..] Baker said, had public funds during the crash years simply earned modest returns equal to 30-year Treasury bonds, then public-pension assets would be $850 billion richer than they were two years after the crash. [..]

I guess the managers think it'll be different this time. Never is. But most are still stuck with expectations - if not legal obligations - of 8% annual returns, even if that's profoundly unrealistic; it's more chasing rainbows than chasing yields. Still, the result will be that they are driven, voluntarily or not, into the hands of the same kind of advisors that were instrumental in in the losses in the first place. A move that is facilitated by the next point:



9 - "Reforms"

Here we get into what Matt Taibbi really focuses on in his article: a politically driven movement, led by the likes of right wing billionaire John Arnold and the Pew Charitable Trusts, aiming to reform pensions plans in such a way there'll be little left of them.

Rhode Island [..], led by its newly elected treasurer, Gina Raimondo, a 42-year-old Rhodes scholar and former venture capitalist - [..] declared war on public pensions, ramming through an ingenious new law slashing benefits of state employees with a speed and ferocity seldom before seen by any local government.
Called the Rhode Island Retirement Security Act of 2011, her plan would later be hailed as the most comprehensive pension reform ever implemented. The rap was so convincing at first that the overwhelmed local burghers of her little petri-dish state didn't even know how to react. "She's Yale, Harvard, Oxford- she worked on Wall Street," says Paul Doughty, the current president of the Providence firefighters union. "Nobody wanted to be the first to raise his hand and admit he didn't know what the f**k she was talking about." [..]
What few people knew at the time was that Raimondo's "tool kit" wasn't just meant for local consumption. The dynamic young Rhodes scholar was allowing her state to be used as a test case for the rest of the country, at the behest of powerful out-of-state financiers with dreams of pushing pension reform down the throats of taxpayers and public workers from coast to coast. [..]

In an interview about his article last week, Taibbi said::

... among the problems here is that state and municipal pension funds are actually not covered ERISA which is the federal law governing pensions. So if there is no prudent man rule that requires a certain level of reasonability or prudence in investment, hedge funds probably would not have been a typical public or municipal investment a long time ago, but now they are being used in some cases 10%, 15 to 20% of these state funds are being put into these alternative investments.
If you look on the prospectuses of a lot of these investments, they say right in the front, in huge letters, these are high risk investments, you may lose everything. It is exactly the opposite of what you want to put public money into.

And about John Arnold:

John Arnold is a former Enron energy commodities trader who became a billionaire, one of the world's most successful commodity traders after the collapse of Enron and he is sort of the new Koch Brothers figure. He is on a crusade. He has created something called the Arnold Foundation which is funding pension reform efforts in multiple states all across the country from Montana to Kentucky to Florida to Rhode Island where I spend a lot of time.
In Rhode Island Arnold donated a lot of money to a 501(c)4 organization called Engage Rhode Island which helped promote the pension reform policies of the sort of Wall Street friendly treasurer they have in that state. And this is sort of the new formula, you have in the Citizen’s United age you have some person, a hedge fund guy like John Arnold, who gives a whole bunch of money to some shadowy organization which advertises this crisis that we can’t afford to pay workers any more so we have to do things differently. We gotta make cuts and then we gotta put all the money in Wall Street managed funds. That is sort of his playbook.

A final quote from the interview, about why he did the article in the first place:

The primary focus of my piece, there were a couple of things. Number one, how did these funds come to be broke the first place? I think everyone realizes that states are in fiscal crises or having trouble paying out their obligations to workers. One of the reasons is that at least 14 states have not been making their annual required contributions to the pension fund for years and years and years. So essentially, they have been illegally borrowing from these pension funds, sometimes going back decades.
Another focus of the piece was the solution that a lot of sort of Wall Street funded think tanks are coming up with now is to get higher returns by putting these funds into alternative investments like hedge funds. In a lot of cases what I'm finding is that the fees that states are paying for these new hedge funds and these new types of alternatives investments are actually roughly equal to the cuts that they are taking from workers. Like in the state of Rhode Island, for instance, they have frozen the cost of living adjustment and the frozen COLA roughly equals the fees that they’re paying to hedge funds in that state. So essentially it is a wealth transfer from teachers, cops, and firemen to billionaire hedge-funders.

With the introduction of hedge funders, we can seamlessly move on to the last point, number 10:



10 - Wall Street and hedge funds

As you see, when we bring up the recent spate of "reforms" proposed - and executed - for pensions, we fall face first into the cesspool that is hedge funds' growing interest in and interference with "the only public treasure left that's easy to steal". Because that's what these reforms aim for: bring in Wall Street, hand them huge payments for "managing" pension funds, and cut the latter to the bone while you're at it. Matt Taibbi:

In Rhode Island, over the course of 20 years, [Edward Siedle, a former SEC lawyer] projects that the state will pay $2.1 billion in fees to hedge funds, private-equity funds and venture-capital funds. Why is that number interesting? Because it very nearly matches the savings the state will be taking from workers by freezing their Cost of Living Adjustments - $2.3 billion over 20 years. "They pretty much took the COLA and gave it to a bunch of billionaires," hisses Day, Providence's retired firefighter union chief.

By the way, this sort of thing is by no means limited to the US. Just this morning I read that Dutch pension funds saw their costs for external "wealth management" rise by a third from 2012, to $6 billion. Same act, same difference.
Now you might think that they seek out hedge funds for good reasons: they make big profits. But what you would have to recognize first of all is that they make good money anyway through fees:

Hedge funds have good reason to want to keep their fees hidden: They're insanely expensive. The typical fee structure for private hedge-fund management is a formula called "two and twenty," meaning the hedge fund collects a two percent fee just for showing up, then gets 20% of any profits it earns with your money.
Some hedge funds also charge a mysterious third fee, called "fund expenses," that can run as high as half a percent- Loeb's Third Point, for instance, charged Rhode Island just more than half a percent for "fund expenses" last year, or about $350,000. Hedge funds will also pass on their trading costs to their clients, a huge additional line item that can come to an extra percent or more and is seldom disclosed. There are even fees states pay for withdrawing from certain hedge funds. [..]

Second, that they operate in secret, so you can't see where your own money is going:

Most pension-reform proposals required that states must go after higher returns by seeking out "alternative investments," which sounds harmless enough. But we are now finding out what that term actually means- and it's a little north of harmless.[..] ... in recent years more than a dozen states have carved out exemptions for hedge funds to traditional Freedom of Information Act requests, making it impossible in some cases, if not illegal, for workers to find out where their own money has been invested.

And third, that the big profits for hedge funds are a fairy tale:

... underperforming is likely. Even though hedge funds can and sometimes do post incredible numbers in the short-term- Loeb's Third Point notched a 41% gain for Rhode Island in 2010; the following year, it earned -0.54%. On Wall Street, people are beginning to clue in to the fact- spikes notwithstanding- that over time, hedge funds basically suck.
In 2008, Warren Buffett famously placed a million-dollar bet with the heads of a New York hedge fund called Protg Partners that the S&P 500 index fund- a neutral bet on the entire stock market, in other words- would outperform a portfolio of five hedge funds hand-picked by the geniuses at Protg.
Five years later, Buffett's zero-effort, pin-the-tail-on-the-stock-market portfolio is up 8.69% total. Protg's numbers are comical in comparison; all those superminds came up with a 0.13% increase over five long years, meaning Buffett is beating the hedgies by nearly nine points without lifting a finger.

In other words, bringing in hedge funds and other external managers is insanely costly:

.... investing with hedge funds is infinitely more expensive than investing with simple index funds. On Wall Street and in the investment world, the management price is measured in something called basis points, a basis point equaling one hundredth of one percent. So a state like Rhode Island, which is paying a two percent fee to hedge funds, is said to be paying an upfront fee of 200 basis points.
.How much does it cost to invest public money in a simple index fund? "We've paid as little as .875 of a basis point," says William Atwood, executive director of the Illinois State Board of Investment. "At most, five basis points." So at the low end, Atwood is paying 200 times less than the standard 2% hedge-fund fee. [..]
.The fees aren't even the only costs of "alternative investments." Many states have engaged middlemen called "placement agents" to hire hedge funds, and those placement agents - typically people with ties to state investment boards - are themselves paid enormous sums, often in the millions, just to "introduce" hedge funds to politicians holding the checkbook. [..]
In California, the Apollo private-equity firm paid a former CalPERS board member named Alfred Villalobos a staggering $48 million for help in securing investments from state pensions, and Villalobos delivered, helping Apollo receive $3 billion of CalPERS money. Villalobos got indicted in that affair, but only because he'd lied to Apollo about disclosing his fees to CalPERS. [..]

All of which leads Taibbi to surmise:

So when you invest your pension money in hedge funds, you might be paying a hundred times the cost or more, you might be underperforming the market, you may be supporting political movements against you, and you often have to pay what effectively is a bribe just for the privilege of hiring your crappy overpaid money manager in the first place.

And to reach this conclusion:

Politicians quietly borrow millions from these funds by not paying their ARCs, and it's that money, plus the savings from cuts made to worker benefits in the name of "emergency" pension reform, that pays for an apparently endless regime of corporate tax breaks and handouts. [..]
"This whole thing isn't just about cutting payments to retirees," says syndicated columnist David Sirota, who authored the Institute for America's Future study on Arnold and Pew. "It's about preserving money for corporate welfare." Their study estimates states spend up to $120 billion a year on offshore tax loopholes and gifts [..] and other subsidies - more than two and a half times as much as the $46 billion a year Pew says states are short on pension payments.
The bottom line is that the "unfunded liability" crisis is, if not exactly fictional, certainly exaggerated to an outrageous degree. Yes, we live in a new economy and, yes, it may be time to have a discussion about whether certain kinds of public employees should be receiving sizable benefit checks until death. But the idea that these benefit packages are causing the fiscal crises in our states is almost entirely a fabrication crafted by the very people who actually caused the problem.
Everybody following this story should remember what went on in the immediate aftermath of the crash of 2008, when the federal government was so worried about the sanctity of private contracts that it doled out $182 billion in public money to AIG. That bailout guaranteed that firms like Goldman Sachs and Deutsche Bank could be paid off on their bets against a subprime market they themselves helped overheat, and that AIG executives could be paid the huge bonuses they naturally deserved for having run one of the world's largest corporations into the ground.
When asked why the state was paying those bonuses, Obama economic adviser Larry Summers said, "We are a country of law ... The government cannot just abrogate contracts." Now, though, states all over the country are claiming they not only need to abrogate legally binding contracts with state workers but also should seize retirement money from widows to finance years of illegal loans, giant fees to billionaires like Dan Loeb and billions in tax breaks to the Curt Schillings of the world. It ain't right.

Our worlds have increasingly turned into man eat dog, and many of us have been so preoccupied with work and bills to pay and worries and fears for those closest to us that we have hardly noticed. And now we find ourselves here, where many of those those worries and fears have become reality, and we just get more afraid. Many of us perceive things that make us think: "It ain't right". Few so far have acted on that, though. But if we don't stand up for ourselves, for our loved ones, and for what we think is rightfully ours and theirs, everything will be taken away from us. It's simply how things work in man eat dog. That we can't change. What we can do is ask ourselves if that's the kind of world we want to live in. If we decide we don't, a change may still come, but it won't be free.

Bruce Springsteen defined man eat dog like this years ago:
Poor man wanna be rich
Rich man wanna be king
And a king ain't satisfied
Till he rules everything
But most of us don't really aspire to be kings, even as we've become accustomed to living like kings of old. And in our urge to try and hold on to that lifestyle, we've become fearful of losing what we've become dependent on, and we neglect to protect what is most important: our freedom and the basic necessities of life. Well, they're busy taking your pension away as we speak. What else are you going to let them take before you stand up?

One more Matt Taibbi quote:

... what did Willie Sutton say about why he robbed banks? That’s where the money is. Look, pension funds are sort of the last great big unguarded piles of money in this country and there are going to be all sorts of operators trying to get their hands on that money.

It should increasingly be clear that you can't count on your government to protect you and what's yours, for the very simple reason that it is not going to protect you from itself.