Feb 15, 2010
In one year, the California State Teachers’ Retirement System lost 25% of its value.
This drop was not caused by massive numbers of teachers suddenly retiring or a drop in the number of teachers employed. No, what dropped was the value of the huge amounts of very speculative investments held by the pension fund.
Speculation was the trustees’ way of covering up the state’s earlier lack of funding. California and local governments had put in only about 20% of what it would take to pay out all the retirement benefits promised.
And California wasn’t the only state to play this doubly dangerous game! Already two years ago, the New York Times reported that at least half the states, including some of the most populous such as New York, Illinois, Michigan, Ohio, Virginia, Maryland, New Jersey and Florida, had been underfunding their pension plans. In 2008 all public pension plans, state and local together, lost 40% of their value through investment losses, and were underfunded by more than one trillion dollars (over one third of their value).
Over the years, state and local pension funds helped feed the enormous speculative bubbles in real estate, stocks and bonds.
Now, to deal with the enormous drops in their holdings, some of them are reverting to ... more speculation.
The governing board of the California State Teachers’ Retirement System is now proposing to use a part of the 134 billion dollars that it still has under management to speculate in commodities like copper, crude oil, and who knows what else.
Putting all that pension money in commodities will certainly create enormous profits and fortunes for the big Wall Street companies, private equity firms and hedge funds. But California teachers will see their retirement float away in bursting bubbles.