Monday, May 23, 2016

Why Hoffa was Killed: Unfunded Pension Liability

Unfunded pension liability.  How can a pension get unfunded, not funded.  People work, the boss puts some money in a pot, the pot grows over time.  What could go wrong?

Well, start at the beginning where both the definitions and the premise are wrong.  What is put in the pot is not money, it's malcredit.  Next, those liable for the pension need not ever put in all of the malcredit promised, because with the magic of compounding interest, promises about future payments can be fulfilled with far less assets today.  Pensions start off underfunded on purpose.

This may work relatively well when pensions are funded by money and invested in true economy assets, but when Nixon went off the gold standard (lite) in 1971, this gets dicey since there is no rational limit to what can be promised to pensioners, or anyone else.  Curiously, Nixon let Jimmy Hoffa out of prison in 1971 too.  Inflation kicks in, and all of a sudden everyone is trying out all sorts of financial engineering to to deal with the new economic system Nixon introduced.

 The premise that money only grows through interest is false, we now have negative interest rates.  And then add in many instances the tally is on the books as treasury, that is on the asset side of the balance sheet against a company's liability side.  They should balance, but since the liability is in the future, who can help but borrow that asset today?  But sadly, if he company goes down, that pension goes poof too.

In 1982 in the management side of the table in the Longshoreman Master Contract negotiations, unfunded pension liability was the strike issue.  Hadn't a clue what that was, but learned right away.  The company for which I worked had the pension inside the company, and it was fully funded, so my vote was take a hard position against the union.  The union tactic was to pick off small companies like the one I worked for first, and then put pressure on the big companies next.  There were petty harrassments going on back at the shop, my job was to grin and bear it.

But then murders started, mysterious, unsolved to this day. That essay blames the communist party, but this book blames the mob.  (Indeed, the book cites a dozen of so mysterious union murders across the country in those times). Who knows?  The fact of the matter is the big issue was unfunded pension liability, and usually murders are about "the big issue."

With a new wife and infant at home, and people on the other side getting mysteriously murdered (WE weren't doing it, were we?) the idea of getting protection came up, but the smart money said it was all intra-union fighting.  Are you sure?  And who, of all the people on managements' side sitting in the meeting was most expendable?  Me!  They lived in gated communities and I lived across from the Bart tracks in Albany.  Sheesh.

Well, the can got kicked down the road.  The union did not get much if anything.  And today the unions are looking at 60% haircuts on benefits not being enough to save the pension.  Jimmy Hoffa would not put up with that.  He is dead.  And a dozen other reformers across the country.  Pensions are a huge source of (mal)credit, and since they only grow, one can borrow against what they will be worth in the future.  My guess is Hoffa and the others were murdered essentially for getting in the way of the looting of pensions in the new economic regime.

The heart of this problem is interest, at any rate of any amount for any duration.  With 100 other aspects, no one will focus on this, the actually heart of the problem.  The miracle of compounding interest is a two edge sword.

If you'll note most of the articles on the miracle of compounding interest are directed at the young, for a little today becomes a lot later.  The young accept this even if they do not participate themselves.  But those who use it are the old, whose new (young) projects, funded with malcredit, that promise to be paid back later based on doubtless success.  What could go wrong?

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