Tag: pension funds

Eyewitness to Government’s Robbery of Chrysler Creditors

Further to Ilya Shapiro’s post this morning, let me also point you to a concise chronology of events culminating in the government’s robbery of Chrysler creditors.

The story is that of Richard Mourdock, Treasurer of the State of Indiana and the man responsible for stewardship of the state’s pension funds, some of which were victimized by the Obama administration’s pre-packaged and then forced-fed bankruptcy deal for Chrysler. I strongly urge you to read Mr. Mourdock’s testimony, which is at once revealing, sobering, compelling and, regrettably, a frightening sign of the times.

Mourdock will be speaking on this very topic at Cato, along with bankruptcy law expert David Skeel, on Thursday, October 15 at noon. Reserve your seat now.

Why Mortgage Modifications Aren’t Working

As covered in both today’s Wall Street Journal and Washington Post, the Obama administration has called 25 of the largest mortgage servicing companies to Washington to try to figure out why the Obama efforts to stem foreclosures has been a failure.

The reason such efforts, as well as those of the Bush Administration and the FDIC, have been a failure is that such efforts have grossly misdiagnosed the causes of mortgage defaults.  An implicit assumption behind former Treasury Secretary Paulson’s HOPE NOW, FDIC Chair Sheila Bair’s IndyMac model, and the Obama Administration’s current foreclosure efforts is that the current wave of foreclosures is almost exclusively the result of predatory lending practices and “exploding” adjustable rate mortgages, where large payment shocks upon the rate re-set cause mortgage payment to become “unaffordable.”

The simple truth is that the vast majority of mortgage defaults are being driven by the same factors that have always driven mortgage defaults:  generally a negative equity position on the part of the homeowner coupled with a life event that results in a substantial shock to their income, most often a job loss or reduction in earnings. Until both of these components, negative equity and a negative income shock are addressed, foreclosures will remain at highly elevated levels.

Sadly the Obama Administration is likely to use today’s meeting as simply an excuse to deflect blame from themselves onto “greedy” lenders.  Instead the Administration should be focusing on avenues for increasing employment and getting our economy growing again.  Then of course, this Administration has from the start been more focused on re-distributing wealth rather than creating it, which explains why it views mortgage modifications as simply a game of taking from lenders (in reality investors - like pension funds) and giving to delinquent homeowners.

SEC Favors Special Interests in New Corporate Elections Rule

Yesterday, the SEC repealed a long-standing rule which allowed brokers to vote shares on behalf of their investors, unless they obtained written directions from each individual investors.  While investors have long been able to direct the voting of their shares, many do not take the time to.  In these cases, the brokers vote those shares, after all they are the agents of the investors and are hired to act on their behalf.

The direct effect of the rule will be to reduce the voting weight of retail investors, as represented by their brokers.  In voting against the rule, SEC Commissioner Kathy Casey raised the point that the rule would skew voting toward large institutional investors and away from little retail investors.

What did the large institutions investors have to say?  As reported in today’s Financial Times, Ann Yerger, who represents large pension funds claimed that “counting uninstructed broker votes is akin to stuffing the ballot box for management.”  One has to wonder whether the pension funds, which Ms. Yerger represents should have to get written instructions from all the pensioners whose pensions are managed by these funds?  Of course not, treating all agents of investors equally would make too much sense for the SEC.

Then one should not be too surprised to see pension funds be allowed to cast their “uninstructed” votes while brokers cannot.  The largest pension funds manage the retirement of unionized state and local employees, often with the fund management itself representing the interests of the unions.  We witnessed this same favoring of union interests over the common good in the auto bailouts.

The rule once again illustrates that the new bosses in Washington are busy rewarding their allies at the expense of everyone else.