Posted by Herodotus on 08:33:47 06/07/05 (12.77.239.243)
The fate of United Airlines' (UAL) employee pension fund is instructive for what easily could happen to "private accounts" set up under Bush's plan to "reform" Social Security.
UAL was required by law to maintain the balance in the pension fund at a level that would guarantee the ability to meet future pension disbursements. This law was passed in 1974 after a series of scandals that wiped out employee pension funds. The 1974 law should have prevented UAL from defaulting on its pension obligations, but UAL sidestepped the law. By the time the shortfall was discovered, UAL was in bankruptcy court, and the court allowed UAL to step out of its contractual obligations to its employees.
Here's how it happened. Until 2002, the year after the 9/11 attacks, UAL's pension fund was apparently healthy. It was invested in securities that were increasing in value and paying dividends, so that UAL was not obligated to add additional funds to the account. This is the same arrangement that would be used for privatized Social Security. Because most individuals do not have the time or experience necessary to make investment decisions, it's likely that investment firms will set up group-private accounts, similar to 401(k) plans offered by many corporations. (Anyone who has invested money in a 401(k) plan knows how volatile they can be.)
In 2002, however, the shrinking value of the investments in UAL's pension account caused it to fall below the required minimum funding amount. UAL was required by law to place additional funds into the account to bring it up to the minimum. Here's where college degrees in accounting allowed UAL to ultimately deprive many of its employees of what the employees thought were their contractually guaranteed retirement funds: UAL transferred securities from its own portfolio into the pension account, but the securities were valued at the amount UAL originally paid for them. By that time, however, the securities had fallen in value, and they continued to fall. And, as is so often the case when corporations are trusted with other peoples' money, UAL did not own up to the large-and-growing-rapidly shortfall until it got into bankruptcy court, at which time a judge allowed them to walk away from their obligations. In fact, by the time word leaked out, UAL's shortfall was an astounding $8.3 billion.
In other words, the system failed, miserably. We are a nation of laws, and we often count on laws to protect us. What we forget, though, is that laws are written, observed and enforced by people. The law may seem as infallible as the pope, but the people involved are far from perfect. It's hard for me to imagine UAL did not realize the risks it was taking with its employees' futures by overvaluing the securities it transferred into the pension funds. Taking risks is an accepted practice in business, but some things -- such as retirement accounts -- should be as far removed from risk as possible. That was the intention of the 1974 law. Any Social Security privitization laws will surely be written with what their authors feel are strong protections against risk. Just because the government and the investment funds don't start out intending to scalp investors, though, is no guarantee the investors won't get scalped. That is why a retirement fund backed by (what so far is) a trustworthy system like the existing Social Security is a necessity.
Bush and his allies believe privatization is a good thing, despite the obvious dangers. It's worth asking why, when the amount of money needed to maintain Social Security through the lifetimes of the Baby Boomer peak is a drop in the bucket compared with the amount of money we're pouring into the bottomless pit of Iraq. First, Bush thinks Social Security is socialistic, and anything that smacks of socialism is bad, in his eyes. To get another perspective on this, however, look at where Bush came from, and what he's done, or not done. Even the 'disassembling' Bush can't deny he is a child of wealth and privilege. Every job he ever had was arranged through his family's political and financial connections. What does George W. Bush know or care about risk?
Second, Bush is influenced by conservative ideologies mandating an "ownership society," where everyone is responsible for himself or herself. Presumably, we're also responsible for our actions. Unfortunately, this ideology stops at you and me. It never extends into the corporate boardroom or the Oval Office. I won't even go into the failures of this administration as they're aren't specifically relevant to this discussion, but what about corporate responsibilities? Some well-educated people in positions of trust at United Airlines reneged on their responsibilities, and covered their tracks until it was too late to save the pension funds. During the same fiscal quarter in which congress passed a law protecting credit-card companies against individual bankruptcies, which are increasing, UAL was allowed to walk away unscathed from its pension fund obligations, and not a single UAL employee was so much as criticized by anyone in the government.
The message is unmistakeable: If you are a corporation you can exercise poor judgement bordering on criminality and the courts will hand you a Get Out of Jail Free card. But if you are a victim of corporate malfeasance and lose your pension funds, and are thus prevented from making your credit card payments, be prepared to become homeless because that's your fault.
A recent New York Times article mentioned in a post by Jim, says
Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000. Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.This government "of the people" is serving only the rich and the corporations. We are no more than serfs, deserving of whatever scraps they condescend to throw at us. In Bush's ownership society, we the people bear the responsibility, while the owners laugh all the way to the bank.