I am shocked, shocked that there was gambling in our pension insurance system

It sounds like a Washington-based thriller, but it's today's news.

The former head of the nation's pension insurance agency, who last year pushed through a high-risk strategy that shifted the insurance fund heavily into stocks just before the market crash, committed a "clear violation" of agency rules by contacting Wall Street firms that were bidding to oversee the new policy, while also seeking the help of one firm in gaining employment, according to a government report.

All it would need is a murder and an investigator trying to salvage his tattered reputation to sell for $16.95 in paperback!

Seriously, folks, although what Charles E.F. Millard (and I am not making that name up) is alleged to have done is disgusting, he is not the problem. We have a system that makes this kind of thing possible, and close to inevitable. We saw the same kind of malfeasance and self-dealing 20+ years ago, in the Savings & Loan scandal. As I wrote on March 31: "We cannot rely on capitalism to save us from the shortfalls of capitalism. It takes serious government policy, made by grown-ups, to do that. "

It's Still the Same Sad Story

This is really big news--except that it's not new at all.

The Pension Benefit Guaranty Corporation may go bankrupt, and if it does, a lot of people--up to 44 million people--who are expecting to collect pensions after they retire may be pinching pennies instead.

Unlike 401k's, pensions are supposed to deliver a fixed amount of money that people can count on in retirement. And just like the FDIC insures your bank account against bank failure, the PBGC is supposed to insure your pension against a corporate pension fund running dry. You would think the very first priority of an insurer like that would be to take care of its own money. But according to the Boston Globe, "Just months before the start of last year's stock market collapse...the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds." Well, we know what has happened to the value of those investments!

This is really big news because so many older Americans will never get the chance to make up for those losses. If they are to be saved, it may cost the taxpayers "several hundred billion dollars"--on top of the money we are already spending to bail out the banks.

But it is also an old story. The name of the story is "double or nothing." During the Bush administration, the director of the PBGC realized that it was falling behind on its obligations. According to the Globe again, he said that "the prior strategy of relying mostly on bonds would never garner enough money to eliminate the agency's deficit." His answer? Gamble!

This was the same reasoning that led the Savings & Loans banks to make risky investments in the 1980's. Before that, they had been resolutely local, conventional, and conservative. Then, they tried to make up shortfalls by buying and flipping real estate for a profit and by investing in all kinds of high-risk ventures, foreign and domestic. We the taxpayers ended up on the hook then too.

We cannot rely on capitalism to save us from the shortfalls of capitalism. It takes serious government policy, made by grown-ups, to do that.