This was actually published on December 28th, 2023 on X.com where I went down a rabbit hole on pension funds. I bring no good news nor do I see any bright future. In fact, I see danger ahead. I can objectively say pension reform is the best course of action for someone who is not part of a union and has a bone to pick with Wall Street.
Matt Taibbi back in 2013 wrote an article in Rolling Stone magazine about hedge funds looting pension funds. In it, he referenced an Enron executive John Arnold, dubbed the “King of Natural Gas” in the nascent days of online energy trading at Enron. What good is a story without a villain?
Matt Taibbi expressed his disdain for Arnold in interviews and in his Rolling Stone article stating, “A dickishly ubiquitous young right-wing kingmaker with clear designs on becoming the next generation’s Koch brothers, and who for years had been funding a nationwide campaign to slash benefits for public workers.” Keep in mind Matt Taibbi was riding the coattails of the 2008 financial crisis achieving public visibility for uncovering and explaining the crisis in layman’s terms. Be that as it may, he is only one journalist, there is only so much he can do to investigate and understand the entire picture of what happened. This is not to discredit anything he has found because he uncovered a whole bunch of fraud and was rightfully upset that the public bared the front of the storm, they were the ones that were defrauded and suffered from a system that had a stroke and then a heart attack that shut down the entire economy. In short, a whole bunch of factors caused the 2007–08 financial crisis that decimated pension funds.
John Arnold used his bonus to fund Centaurus Energy, a Houston-based hedge fund specializing in trading energy products. The company grew to multibillion-dollar assets under his management. By 2007, his bets on natural gas made him one of the youngest U.S. billionaires at the age of 34.
After the financial crisis — in 2009, Arnold’ saw news articles about pension funds that collectively lost billions in the stock market crash. The whole thing was a chaotic mess!
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Arnold said, “The fact that you could go in one year from having a system that was well-funded to having a major gap — that affected me.” He was inspired by the book, Plunder: How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.
As he learned more about the challenges plaguing public pensions, Arnold started donating money to help study possible reforms. His meddling to fix a serious issue came with some major push-back. He became public enemy #1. among lots of government workers and union leaders. Moreover, tons of videos and news articles started coming out vilifying John Arnold. He was an easy target, especially given his past affiliation with the infamous Enron.
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While Matt Taibbi and others are justified in being skeptical and questioning John Arnold and by association questioning the legitimacy of Pew Research due to their donor backing, the issue is that Taibbi’s emotional attachment to the 2008 financial crisis distorts his journalism and thus reality. Indeed Arnold was a part of Enron, but that monumental epic failure does not entirely define many of the folks that were a part of the company. Many like Arnold did not play a part in the fraud, nor did he manipulate the price of oil (trading was his main skill and why he was hired). His quantitative skills and intelligence speak for themselves. Here’s a podcast of him discussing the matter and more:
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John Arnold and his wife Laura established the Laura and John Arnold Foundation. They believe philanthropy should be transformational and should seek innovation to solve persistent problems in society.
Fast forward to 2022, President Joe Biden passed the largest bailout, I mean “award” for pension funds, “$36 billion for the Central States Pension Fund, preventing drastic cuts to the hard-earned pensions of over 350,000 union workers and retirees… Known as the “Butch Lewis Act” — named after the heroic Ohio union leader and pension advocate — this program provides security for more than 200 distressed multiemployer pension plans, helping to ensure 2 to 3 million workers’ pension plans remain solvent and pay full benefits through at least 2051.”
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In 2023, France passed pension reform to address the financial sustainability of its pension system due to an aging population and the increasing ratio of retirees to workers, aiming to ensure long-term viability and reduce government pension deficits. Public outrage followed.
President Emmanuel Macron says the pension reform was needed to finance the pension system as the population ages. Unions and left-wing opponents say the changes hurt poorer workers and have argued for higher taxes on the wealthy and employers instead.
In 2022, the UK pension fund crisis unfolded when a sharp decline in gilt prices led to significant losses for pension funds heavily invested in leveraged positions and derivatives.
The funds were forced to sell assets to meet large margin calls, exacerbating the decline in gilt prices and triggering a need for emergency intervention by the Bank of England to stabilize the market. Yet, with European bonds falling apart, The Chicago Fed letter highlights that U.S. pensions, unlike their UK counterparts, are less vulnerable to interest rate shocks due to lower reliance on leverage and derivatives.
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However, the U.S. repo market and hedge fund leverage could still pose systemic risks, especially during market stress, given hedge funds’ significant role in repo markets and their highly leveraged positions. The letter underscores the need to monitor these vulnerabilities to maintain financial stability.
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In my view, unions and boomers have held countries hostage unbeknownst to them whether ill-informed or mal-informed. When something blows up, don’t start blaming Wall Street when you are part of the problem putting your pension into alternative investment vehicles like hedge funds and private equity for higher returns. It is time to educate yourselves and take responsibility for your actions or inactions!
For more information, I’ve compiled a playlist about pension fund issues here:
Social Scholarly 