Goodbye Pension.

(Photo credit: Cartoon Stock)

Meet the Federal Pension Guarantor. This is the federal agency that guarantees 44 million Americans’ pensions in case of companies going bankrupt and no longer able to meet their pension plans. In the months before the financial crisis, the Federal Pension Guarantor had a great idea - to take on a riskier financial strategy and try to eliminate the deficit (didn’t have quite enough funds to guarantees all pensions). So the agency took a huge chunk of its $64 billion fund and poured it into the stock market. Hmm? Did anyone take finance 101? Diversification?

This is one of the worst possible moves you could make. Sure, you need to make up a deficit, but by putting all your eggs in one basket you also run the risk of making that deficit much more pronounced. And that was what happened precisely. The market collapsed and, although no numbers have been released recently by the Federal Pension Guarantor (smart move by them), it is pretty safe to say they wouldn’t look good. The agency’s stock-related investments were down 23% at the end of last September prior to major downturn in the market. It is quite probable that their stock-related investments much more now.

Prior to this move, the fund had a great deal of its portfolio in bonds, but after the move a significant amount of funds were sitting in risky investments such as stocks in emerging foreign markets, real estate (oh god!), and private equity funds.

Interested to know who was running the Federal Pension Guarantor when this decision was made? Charles Millard an ex-Lehman Brothers executive. Lehman Brothers being the company who had the largest bankruptcy in U.S. history, which acted as a catalyst to the financial crisis we are in now.

Many advisors told the Federal Pension Guarantor not to make this move, but these arguments apparently fell on deaf ears. Now, in a time when American companies are declaring bankruptcy at an increasing rate and are unable to pay out their pensions, the Federal Pension Guarantor doesn’t have close to amount of funds they need to make sure Americans will get their pensions. This means the average Joe who lost his job and can’t get his pension from his company will have to somehow pay off his mortgage, pay his car payments, pay off his bills, and provide for his family without the help of the Federal Pension Guarantor.

The stupidity in government is astonishing. This move was made during the Bush Administration, which, I’m sure, makes it easier to understand how it happened.

Here are the three reasons, according to Paul Krugman, this happened:

1. The stock market captures the essential spirit of capitalism.

2. Capitalism roolz!

3. Therefore, stocks will go up.