So what’s the second (okay, third)-day story? Millard didn’t sit there picking and choosing stocks himself, so we need to know who he gave the money to. Which money managers got it? How much did his chums at Lehman Brothers get? Surely this is gettable information via the Freedom of Information Act.
Keep your eye on this one. Great job by the Globe. This is what newspapers are for.
*I originally mischaracterized what the Globe reported, saying the PBGC had moved the assets already. The extent of how much it had been carried out is not yet known (see my comment below).
Ryan,
I find it interesting that you think the Boston Globe has done a "superb piece of accountability reporting" when you mention that the PBGC moved its assets heavily into stocks last year.
But there's one little problem with the Boston Globe's article --- it's not correct.
You stated that you could only find that the PBGC's fund had 28% of its portfolio in equities (as of 9/30/07). Like the Boston Globe, you neglected to check the PBGC's annual report which shows this asset allocation in equities was even less as of 9/30/08 (this was due to negative equity returns, but assets do not appear to have moved out of bonds into stocks as of this date).
If you want the real story, Time has the story straight. See this link: http://tinyurl.com/c67nhx
#1 Posted by WorldlyPlayer, CJR on Wed 1 Apr 2009 at 06:54 PM
Worldly,
The Boston Globe wasn't wrong. Here's the third paragraph:
The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn.
And here's its lede:
Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.
"Decided to" doesn't mean "did." The Globe was appropriately careful about this, unlike me, who said that the PBGC "moved the assets." I was wrong to characterize what the Globe wrote like that.
As for the Time piece, its impossible to tell how much of PBGC's assets were shifted into stocks by looking at portfolio percentages. Stocks went down last year, that would decrease the percentage it held. T-bonds, for instance, would have done better, increasing the bond percentage.
But the core point stands: The PBGC decided to switch its policy to get more aggressively into equities (including volatile foreign ones) instead of following a conservative investment strategy. We'll be lucky if it hasn't already made much of that shift into equities, but we won't know until we can say dollar amounts, not percentages of the portfolio.
#2 Posted by Ryan Chittum, CJR on Wed 1 Apr 2009 at 07:30 PM
One more thing Ryan...if you really think that PBGC's new investment policy is akin to playing the roulette wheel at Vegas, then please tell me that you don't hold any of your own money in stocks. I don't know how much money you personally need in retirement, but most people need to assume at least SOME risk to generate enough returns on their savings to retire comfortably. Maybe you are getting an inheritance, or you are comfortably wealthy through some other means, and can invest your money very conservatively. But PBGC doesn't seem to have that luxury. It must generate a return above that of Treasury bonds to give itself an opportunity to pay benefits to retirees for many decades into the future. Such a realization is not an admission of a gambling mentality.
#3 Posted by WorldlyPlayer, CJR on Wed 1 Apr 2009 at 08:53 PM
Worldly,
I do indeed invest my meager IRA in stocks (within reason), but then again I'm not an insurer of other people's retirement plans, and I have 35 more years to go. It's a conscious bet I make. I can take risk right now.
My mom, on the other hand, who's a decade or so from retirement and whose 401k I manage—she's in far fewer equities and hasn't lost all that much money in the last year and a half.
I understand the thinking behind diversification, but even portfolio theory so well lately.
And the point is Millard was trying to vastly increase PBGC's risk in search of return, specifically to try to catch up because the fund was way behind. He was gambling with the fund's money to try get it out of a hole. That's a very poor strategy.
#4 Posted by Ryan Chittum, CJR on Wed 1 Apr 2009 at 10:31 PM
""Decided to" doesn't mean "did." The Globe was appropriately careful about this, unlike me, who said that the PBGC "moved the assets." I was wrong to characterize what the Globe wrote like that."
Well for heaven's sake - plenty of people made the same mistake you did (just surf the lefty blogs.)
So can a story be "excellent", "superb" and misleading? Interesting.
Well, in the course of putting together this "superb" story, Kranish overlooked Congressional testimony from PGBC Director Millard on Oct 24 2008. He was specifically asked about the new strategy and specifically claimed that the assets shift has not been implemented:
"Mr. MILLARD. Correct. The decline in our portfolio, the portfolio was approximately 70 percent [corrected to 30 percent] equities in September a year ago, and other than the fact that equities have dropped, we have not changed our allocation yet."
As you note, the allocation to equities fell because equities fell.
This story was a superb hype job intended to catch attention and gull the gullible. Mission Accomplished.
"He was gambling with the fund's money to try get it out of a hole. That's a very poor strategy."
Oddly, that point is debatable. The PBGC lacks a formal government guarantee but everyone figures the Feds will bail it out. Well, if Millard invests conservatively, he is settling for a high probability of a small bail-out down the road. Even a small bail-out will establish the principle of government support, which may prompt every insured private fund in America to under-fund as much as possible going forward.
To reduce this moral hazard, Millard invests in riskier assets,with two results:
1. The probability of a bailout is reduced (good!);
2. The expected loss in the event of a bailout goes up (bad).
Congress would not be crazy to have concluded that it is an acceptable trade-off.
To put it in terms of your rent example - if you win, you keep the apartment.
If you lose, well, they can only evict you once, which will happen whether you pay half the rent or none of it.
Anyway, the Globe piece was dreadful.
#5 Posted by Tom Maguire, CJR on Fri 3 Apr 2009 at 09:53 AM
Ryan,
Here's your slap-down:
http://justoneminute.typepad.com/main/2009/04/i-dont-think-superb-means-what-he-thinks-it-means.html
and
http://justoneminute.typepad.com/main/2009/03/prof-krugman-meet-prof-krueger.html
#6 Posted by motionview, CJR on Fri 3 Apr 2009 at 12:48 PM
Tom, I still think it's a good story.
I think what misdirected readers, including myself, to think the shift into stocks already happened was the headline and some language that could've been clearer in a couple of graphs. But the story clearly says the reporter doesn't know how much of it has been implemented. This is the third paragraph (emphases mine):
The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.
Also, Millard's testimony was on October 24. That's coming up on six months ago. PBGC had been laying the groundwork to shift investments that year. We still don't know how much has been put into stocks since then. But note the "scheduled to begin in earnest" line. That's a flag that says the shift into stocks hadn't happened yet but that the reporter has information that it may have since begun.
Some parts of the Globe story could have been phrased better, but the core issue in the story is that the PBGC is drastically upping the risk in its portfolio (something Millard for some reason denies) by gambling on equities.
That's what really matters here.
#7 Posted by Ryan Chittum, CJR on Fri 3 Apr 2009 at 04:57 PM
Oh, please. The core issue is that this "superb" story was under-researched, overhyped, and misled everyone who read it, including you.
ANd yes, even the Columbia LJ-school trained Ryan Chittum fell for the "where's the corruption?" angle:
"So what’s the second (okay, third)-day story? Millard didn’t sit there picking and choosing stocks himself, so we need to know who he gave the money to. Which money managers got it? How much did his chums at Lehman Brothers get?"
Absurd.
Well, here's another "superb" story:
Something Awful May Have Been Done By Bushies... Unless It Wasn't.
Where's my Pulitzer?
Last thought - "Gambling" on equities is a loaded and misleading phrase - at a casino, the gambler has a negative expected return, unlike equities.
Finally, here is Peter Orzsag himself, in a bit that the "superb" story missed (my emphasis):
"The effect on taxpayers of PBGC’s new investment strategy will depend on policymakers’ response to that strategy. If the new investment policy does not cause the government to lower premiums or raise benefits relative to what otherwise would occur, **taxpayers should be largely indifferent to the choice of a riskier investment strategy** because the higher expected returns will compensate for the greater risk. "
Wait a second - is he saying that over the long run, the taxpayer shouldn't care? Yes, actually. Wel, unless Congress is lulled into a false sense of security by higher returns and cuts premiums, which is not exactly the risk you identified.
I think what really matters here is that our watchdog press is barking at anything with "Bush" on it regardless of the facts, and their "watchdogs" at our journalism schools are cheerleading rather than critically evaluating. Twenty minutes of research and reflection could have put you on a better path. Let Google be your friend.
#8 Posted by Tom Maguire, CJR on Sat 4 Apr 2009 at 09:46 AM
Now that this misleading and poorly researched story has been thoroughly debunked, I'd like to know what inspired our intrepid Globe reporter to look into it in the first place.
Did he wake up one day with a bad case of Bush Derangement Syndrome withdrawal? Or perhaps the BU professor (gee I wonder who he voted for) or the Obama spokesman put him up to it?
My money is on the Obama guy. They are desperate to point fingers elsewhere and the press are only to willing to do their bidding.
That is your story.
#9 Posted by JLD, CJR on Sat 4 Apr 2009 at 11:41 AM