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A few years ago, Poland made the first such move to ?nationalize? a
portion of its pension system. Nationalize probably isn?t the right word
though: steal is more appropriate. Given the fact that most Americans
probably can?t even point out Poland on a map, the news was given little
attention. If something doesn?t happen right in our own backyard, it might as
well happen on Mars.
Most folks you talk to will call one such occurrence of an oddball event
an oddity, an anomaly, or a coincidence. Two usually gets people?s attention.
We now have a second, bolder incidence of a pension grab that just became
?legalized? in our favorite PIIGS country ? Greece. The troubled
Mediterranean nation just can?t seem to catch a break. It borrowed more money
than a hundred Greek economies could ever hope to pay back and for some
unknown reason it insists on remaining a slave to the European Benevolent
Society, aka the European Union, and its bankrupt and irrelevant currency.
Now that pension grabs are once again on the radar, will this issue
now receive the attention here in America that it requires? Fat chance. The
American news media penned a few obligatory stories about this latest
rip-off, then promptly dropped the entire issue down the memory hole because
out of sight is out of mind after all.
So once again, it is up to us concerned citizens to outline the
latest in the Greek tragedy. It would be wise to pay attention since all of
these scams are initiated somewhere, then tested a time or two before they go
full spectrum. Whether or not anyone wants to admit it, America has
the same vulnerabilities. We don?t owe the IMF per se, but we might as well
since the not-so-USFed is about as American as the corrupt IMF.
To sum
up Greece?s new reality:
?Cash reserves of pension funds and other public
entities kept in Bank of Greece deposit accounts can be fully invested in
Greek sovereign notes, according to amendment to be
submitted in parliament, country?s finance ministry says in e-mailed
statement.
?Cash
reserves can be used for repos, reverse repos, buy and sell-back, sell and
buy-back transactions.
?Pension
funds, public entities will be able
to claim damages from Greek state in case of overdue repayment, partial repayment.
?Pension funds are not obliged to transfer their
reserves to the Bank of Greece, according to finance
ministry statement.?
The
latter two points are laughable. Pension funds would have the ability to
claim damages from the Greek government in the event the government can?t
make it?s payments or fulfills obligations to the pension funds only
partially. This is tantamount to conspiring to throw B?rer Rabbit into the
briar patch. Obviously the Greek government is broke or it wouldn?t be
ripping off pension funds to send the money to the IMF in the first place.
The following quotes from Greek ?officials? give the desperation with which
they speak as well as underscore the unexplainable dependency on the IMF:
?The new government has always emphasized
during the election campaign in January and December last year that it would
honor its obligations to the IMF,? says Jens Bastian, an economic analyst for
Macropolis, an independent organization, which provides data and analysis on
Greece.
?It has not moved away from that
position. Greece?s exposure to the IMF is considerable and it?s not in the
interests of the Greek authorities to default on any IMF obligation.
The Greek government has identified IMF
payment as an absolute political priority. You may be able to solve repayment
obligations in March. The bigger problems are looming around the corner in
July and August.?
So the
Greeks are now in the same boat as the rest. They can only rob the pension
system so much, then it is gone and there are still amazing debts to the IMF.
To top it all off, additional loans from the IMF are contingent on the
repayment of existing debt. Talk about robbing Peter to pay Paul.
Here?s
another analyst?s take:
Dr. Michael Arghyrou, director of the MSc
in International Economics, Banking and Finance at Cardiff Business School
agrees, says Greece has two options: default on obligations and leave the
Eurozone, or agree on a third bailout package. ?[Greek prime minister] Alexis
Tsipras clearly signaled that he does not want to risk Greece?s exit from the
euro,? he says.
?The public statements of government
officials suggest they'll use reserves of pension funds controlled by the
state and also money given to Greece by the EU such as agricultural
subsidies. There are statements they will be used to pay for the IMF loans.?
?This amount of money due in March will
be paid, but it only postpones hard decisions?, Arghyrou assures but adds
that these measures will not be sufficient to repay what is owed to the ECB
in the summer.
A
classic example of kicking the can down the road ? very similar to what
America continues to do with regards to its ballooning debt and broken
entitlement systems. Notice that you don?t hear much of anything about the
national debt here in the US. A few years ago, arguments on Capitol Hill
regarding the debt ceiling caused gyrations in the stock market that were
violent enough to give most observers a good case of whiplash. Now the debt
ceiling as a concept is all but gone and it is spend, spend, spend. And the
accounting gimmicks to make it all look right continue to mount as well.
But you
can only kid a kidder for so long. The rest of the world is in the
fabrication business too so who is the USGovt really fooling? For now, the
American consumer is probably the largest (and likely only) constituent group
that fails to grasp the gravity of the situation we have allowed ourselves to
be put in. This is evidenced by full parking lots at trendy new cookie-cutter
restaurants selling overpriced and undersized meals to yuppies all too eager
to swipe the plastic and call themselves rich. After all, the government has
told them that being in debt makes one rich. Politician after politician
parrots the idiotic myth across the TV screen day and night. Debt is good.
Liberating even.
This
same group has continued to endorse multiple simultaneous military and
economic conquests around the globe while remaining blithely ignorant of the
problems on our very doorstep. The bail-in model was crafted in America, but
tested in Cyprus. The pension rip-off scam was crafted in the Eurozone and
tested there, but does any thinking person really believe that these greedy
narcissists will be able to keep their hands off of what is quite possibly
the final crown jewel of western dominance? For as little as Americans save,
the pension and retirement system in this country is quite impressive.
Granted the distribution is skewed, but the pie is pretty large regardless.
And
even in America we already have our very own example of pension plundering. I
mentioned quite a few years ago that people should watch what happens with
regard to the bankruptcy situation in Detroit, Michigan because it would be a
signpost of sorts where the trend towards plundering and pillaging is
concerned. The results:
?Under the plan, general city workers
will endure a 4.5 percent base cut in pensions and the elimination of an
annual cost-of-living increase. In addition, the city will seek to recoup
$239 million from the optional annuity savings fund accounts of some general
city retirees who were credited with interest earnings that exceeded the
retirement system?s actual investment returns.
The pensions of police and firefighters
will not be cut under the plan, but their annual 2.25 percent COLA will be
reduced to about 1 percent.?
The
numbers seem small, but when you consider the rising cost of healthcare and
living expenses in general, the cuts are significant. The 4.5% base cut plus
no cost of living increase is going to set these folks back quite a bit. The
other side of the coin is that the pensions were unreasonably lavish to begin
with. That is not the issue, however, it is that we now have an example in
America where income sources that were previously thought to be sacrosanct
and beyond the scope of municipal action are, in fact, quite vulnerable. How
many Americans do you venture took definitive action based on what happened
in Detroit? Granted, there really wasn?t a thing the Detroit folks could do.
There is no way to divest of most pension systems, and contributing is mandatory.
The only way ?out? is to retire and many people can?t afford to do that early
just because some bankrupt city scrounged a few bucks from public sector
employees.
But,
like Greece, Detroit has similar issues. A recent New
York Times article notes:
?But the pension system that the
settlement leaves behind has some of the same problems that plunged the city
into crisis in the first place ? fundamental problems that could also trip up
other local governments in the coming years. Like many other public systems,
it relies on a funding formula that lags the true cost of the pensions, and
is predicated on a forecast investment return that the judge, Steven W.
Rhodes, himself sharply questioned during the trial on Detroit?s bankruptcy
plan.
Moreover, if Detroit finds itself
confronting another fiscal crisis in the near future, it can no longer tap the
museum?s art collection, which many saw as its top asset.?
So,
like the Greek tragedy, the Drubbing in Detroit that was downplayed so
happily by the media was staged by a series of one-off events, the art
collection being a prime example. And the model itself is still broken so has
the problem really been solved or just put off once again for another group
of even less fortunate folks to deal with?
?But Detroit is a blighted city and this is one incident?
the naysayers bray. Kind of sounds like Poland doesn?t it? This is
incrementalism at its finest. Slowly but sure, the examples will continue to
pile up. It might take a while before we see America go the way of Greece and
when it does it may not be nearly as dramatic, but as sure as you can rely on
baseball season being right around the corner, so too can you rely on a
pension or retirement ?haircut? sometime in your future. This is a brave new
world and there?s a new barber in town and he specializes in shredding your
formerly posh retirement.
Andrew
W. Sutton, MBA
Chief
Market Strategist
Sutton & Associates, LLC
http://www.sutton-associates.net
andy@suttonfinance.net
Sutton & Associates, LLC is a Registered Investment Adviser in
the Commonwealth
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