I was reading an article on CNBC about a man who is suing Harrah's casino for losing money gambling, and in it, contains information that CalPERS - California's state pension fund, has invested money into Harrah's casino.
Does anyone else see the conflict of interest here? A government agency investing in a private corporation and having a large vested interest in it? What if Harrah's decides to open a casino in California? Perhaps California with a financial interest, may decide to open up gambling laws for them?
Imagine the state of Nevada's pension fund was invested heavily in Harrahs. The judge hearing the case knows that his pension is on the line and rules in favor of Harrahs.
Is there anything to prevent government entities from investing in private corps and manipulating legislation as a conflict of interest?
tripleB said: I was reading an article on CNBC about a man who is suing Harrah's casino for losing money gambling, and in it, contains information that CalPERS - California's state pension fund, has invested money into Harrah's casino. I'm completely speculating here, so I could be 100% wrong on this. But is CalPERS actually a contracted entity, meaning that the state chose them to administer the pension program? That would put at least a little more distance in between the government and their investments.
TheBigDon
Senior Member
posted: Nov. 20, 2009 @ 9:35a
tripleB said: Is there anything to prevent government entities from investing in private corps and manipulating legislation as a conflict of interest?
Nope...
barbcole
Senior Member
posted: Nov. 20, 2009 @ 9:51a
Ok, so how would you prefer a pension plan with a fund the size of CalPERS invest their money? In a way that doesn't involve investing in any private business, of course.
barbcole said: Ok, so how would you prefer a pension plan with a fund the size of CalPERS invest their money? In a way that doesn't involve investing in any private business, of course.
Why should a state pension fund be investing in stocks? Then when you get a bear market and the pension fund is worth half of what it should be, what happens? Pension funds should only invest in treasury bonds with durations matching the liabilities of the pension fund.
The reason why pension funds are investing in stocks is because they want to negotiate ridiculous pension benefits to state employees that they can't afford so they have to take risks investing in stocks.
If the pension plan does include some equity allocation to hedge against inflation, then it should be a market-cap index style of investing that does not deviate from the market cap weighting. Even the largest stocks on the SP500 make up only about 5%. Since the pension fund shouldn't be more than half equity allocation, these numbers become insignificant.
barbcole
Senior Member
posted: Nov. 20, 2009 @ 10:16a
tripleB said: The reason why pension funds are investing in stocks is because they want to negotiate ridiculous pension benefits to state employees that they can't afford so they have to take risks investing in stocks.
Yes, because California Public Employees are just so amazingly well off in their retirement. If the retirement benefits are so awesome, why don't you apply? Oh wait. You mean it's a trade off between current benefits/salary/perks and a more stable retirement? I can't have both? The grass is always greener on the other side?
They're also doing it because the required contribution by employers (schools and other public agencies) decreases based on the return rate of the fund. So if they have a good year investment wise, the schools pay less money in the next year to cover their employee's retirement benefits.
The theoretical purpose of CalPERS is to manage the funds in such a way as to grow and self-sustain a large portion of the benefits -- reliving that burden from employer payroll contributions. In that sense gains in the fund trickle back out of the fund by relieving expenses in the general fund -- the gains aren't kept solely for the benefit of pensioners.
It's retarded to suggest they should be limited to just treasury bonds. A cautious strategy, sure.. but just treasury bonds, stupid.
barbcole said: They're also doing it because the required contribution by employers (schools and other public agencies) decreases based on the return rate of the fund. So if they have a good year investment wise, the schools pay less money in the next year to cover their employee's retirement benefits.
It's retarded to suggest they should be limited to just treasury bonds. A cautious strategy, sure.. but just treasury bonds, stupid.
What happens when the stock market crashes? Who bails out the government employees? Taxpayers through higher taxes who have to cover the losses in the pension fund.
barbcole
Senior Member
posted: Nov. 20, 2009 @ 11:54a
What happens when private mega-corporations crash? Who bails out the private corporations? Taxpayers through higher taxes who have to cover the losses in the private mega-corporations balance sheets.
Your point?
Considering the Treasury has mad a habit of investing billions in known failing corporations as of late, I would suggest many stocks are currently far more sound investments than Treasury bonds.
So they should do nothing because there's a possibility of a negative outcome?
mmusone
Member
posted: Nov. 20, 2009 @ 11:59a
it's not only ok, it's the norm. new york's pension funds not only invest in the stock market, they invest in the riskier private equities. (think private investor/angel investor)
tripleB said: barbcole said: They're also doing it because the required contribution by employers (schools and other public agencies) decreases based on the return rate of the fund. So if they have a good year investment wise, the schools pay less money in the next year to cover their employee's retirement benefits.
It's retarded to suggest they should be limited to just treasury bonds. A cautious strategy, sure.. but just treasury bonds, stupid.
What happens when the stock market crashes? Who bails out the government employees? Taxpayers through higher taxes who have to cover the losses in the pension fund.You do realize that all pension funds, public and private, invest the same? Yes, when there are year-to-year shortfalls, the sponsoring company/government has to make up the difference. But due to the size of the funds, and their long-term perspective, in the long run investment returns can be expected to exceed those of risk-free investments, and therefore save the sponsorer by reducing overall contributions.
Its no different than your own IRA/401k - you invest in stocks because over the long run you'll have to contribute less to reach your goal. You're argument is no different than saying that your IRA should only be invested in treasuries, because if stocks crash you'll have to make up the difference out of your current paycheck.
Xnarg
Senior Member - 5K
posted: Nov. 20, 2009 @ 4:05p
CalPERS and CalSTRS (state teachers retirement) have done pretty well investing in private industry. They're among the largest owners of equities in the world.
CA teachers don't contribute to Social Security, they get CalSTRS instead, which pays better. Kind of ironic, isn't it?
For those of you who think investing in government obligations or relying on a benefit like Social Security or Medicare means you're immune from the ravages of the stock market, you're wrong.
Where do you think that the government gets it's money anyway?
Private enterprise, and from individuals who are paid ultimately by private enterprise - so you're relying on business anyway.
Giving something over to the government does not protect anyone from the reality of the economy, it just gives them the illusion of security.
Glitch99 said: Its no different than your own IRA/401k - you invest in stocks because over the long run you'll have to contribute less to reach your goal. You're argument is no different than saying that your IRA should only be invested in treasuries, because if stocks crash you'll have to make up the difference out of your current paycheck.
If stocks crash and I am too risky I may never meet my retirement goals. If stocks crash and a state pension fund is too risky, it is still required by law to meet it's goal and that will lead to higher taxes and IOUs and other nonsense, unless the state makes a political play to bail out their investment.
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