CALPERS

In October, I wrote about the problems caused by signficant investment losses in CalPERS, the California Public Employees Retirement System. At that point CalPERS had lost 20% of its value in 4 months and was going to state and local tax-payers to demand that they make up the hole in their investments.

Well, they screwed up, and they are back asking for more money. Not only did they lose invested money, but they were actually leveraged up, so they did particularly badly. From the WSJ:

Calpers in recent weeks said it expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. That's because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.

Now, obviously, it is terrible thwhen at any investor loses their shirts. But it seems that this is just blatant risk mismanagement, shifting assets to higher-risk investment vehicles:

But Calpers has targeted less money in bonds, and about double the allocation to private-equity investments and real-estate deals, than the average public pension fund, according to Calpers documents and an industry survey. ...

Since the average rate applies to Calpers's entire housing portfolio, some individual deals used as much as 80% borrowed money, Mr. McCook recalls. That level is more aggressive than many pension funds or land developers would use, industry consultants and developers say.

So how do they fill the gap? The tax-payer:

Calpers is now warning California's cities, towns and schools that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers. Some towns are already cutting municipal services, and at least one is partly blaming the Calpers fees.

Let's get this straight. The pension managers mismanage their money by engaging in more risky investments, the investments go under, and now the people of California have to foot the bill so that public employees don't have to suffer?

What about the rest of us? Why do public employees deserve to get bailed out, but not the rest of the pension holders?

Stopping this has got to be a political winner. If I were a California activist, I would be pushing a ballot measure that would require a referendum to approve any additional taxes to fill gaps in CalPERS.

Earlier this week, an extraordinary story hit. CALPERS, the California Public Employee Retirement System, announced that it took a HUGE hit. From the WSJ:

This is a transfer from already overburdened taxpayers to public employees that they didn't even get to vote on. This is a political opportunity for the right. Corrupt unions are asking for money from the taxpayers to fill their pensions while their own pocket books are getting slimmer.

This is a bailout. And Americans didn't like the bailout.

Note that when the bailout bill came through Congress, AFL-CIO and other unions wanted their piece of the action too:

He also said the bailout must include protections for worker pensions which suffered large losses because of Wall Street irresponsibility--a point Teamsters President James Hoffa echoed--and it must “ensure that taxpayers receive any future profit from mortgages bought by the Treasury.” 

Whether you agree with the framing of "Wall Street irresponsibility" (I do, to an extent) the unions and their lackeys in Congress are going to have to explain why they deserve a bailout on the backs of the rest of us.

This is an opportunity for the right. These fights will often be at the state level over an issue that people understand: their taxes. The leaders who articulate why this is wrong will become recognizable voices on behalf of all Americans, not just the 12% in union pension programs, will become public figures.

Between this issue and the broader issue of the state budget crisis, there are the seeds of the rebirth of the next right.