Pension Funds Broke Because They Sold Credit Default Swaps, Bought Risky Investments

You’ve probably heard that pension funds are in big trouble. As Bloomberg notes:

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

But, there’s more to the story than stock market losses.

As the former senior investment analyst for two of the largest public pension funds in Canada points out, the pension funds’ trouble largely stems from the fact that they engaged in casino capitalism:

They were contributing to systemic risk by shoveling billions of dollars into commodities, hedge funds, real estate, private equity, CDOs, etc.? What were they possibly thinking selling CDS just like AIG?

States must guarantee public pension fund debts. Therefore, Bloomberg estimates that the government will have to give a trillion dollar bailout to pension funds. Another trillion dollars taxpayers will have to pay for either directly through taxation or inflation.

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