U.S. public pension funds mull toxic bank assets

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skyriver's picture
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U.S. public pension funds mull toxic bank assets

Tue Apr 7, 2009 12:36pm BST
By Jim Christie

SAN FRANCISCO (Reuters) - At least a dozen U.S. public pension funds, including the nation's biggest, are mulling whether to put money behind the federal government's plans to rid banks' balance sheets of toxic assets.

The U.S. government hopes that if banks dispose of troubled assets, they will be better positioned to increase lending.

For their part, investors may scoop up the assets on the cheap with government-backed low-interest loans.

"People are exploring options which could potentially allow them to move forward," the chairman of one public pension fund looking at investing in the assets said on Monday.

"There is enough interest in the concept that people are going to try to work on options on how to potentially pursue it," said the fund official, who requested anonymity.

The official was one from a dozen public pension funds, including representatives of funds from California, New York and New Jersey, who with some state treasurers, including Bill Lockyer of California, discussed the U.S. government's plans on Friday by telephone with Sheila Bair, chairman of the Federal Deposit Insurance Corp.

The FDIC, which insures bank deposits and manages banks in receivership, and the U.S. Treasury are launching the Public-Private Investment Program to help sell distressed bank assets and are urging investors to join in.

The program will use government funds and private capital to buy up to $1 trillion (683 billion pounds) in distressed loans and securities. Investors would receive low-cost financing from the U.S. government to buy the "legacy" assets at auctions.

The U.S. government also plans to match private investment with its funds and to share in expenses and gains of the pools of distressed assets.

The FDIC is handling auctions to sell banks' whole loans and the Treasury and Federal Reserve will oversee programs to handle banks' mortgage-related securities.

The Treasury on Monday eased terms for fund managers to apply to its toxic securities investment program and said it will consider widening the number of companies it allows to run public-private investment funds under the program.

FDIC spokesman David Barr said Friday's conference call was one of Bair's first steps to brief investors on the programs.

"The FDIC is seeking as much input as possible from various participants during our open comment period in order to fully inform our rulemaking process and ensure the greatest opportunity for success of the program," Barr said.

"We expect to hold an open call with the investor community next week and will announce the timing and details shortly," Barr added.

Among the pension funds' with representatives on Friday's call with Bair were the $174 billion California Public Employees' Retirement System, known as Calpers and the nation's biggest public pension fund, and its sister fund, the California State Teachers' Retirement System, or Calstrs.

Calpers spokesman Clark McKinley declined to comment on the call.

Calstrs spokeswoman Sherry Reser said the $114 billion fund already has a program in place to invest in assets of distressed companies with the potential for returns that are better than fixed income. "We're certainly assuming that there are going to be some diamonds amid the bits of coal," she said.

Calstrs, however, is waiting to learn more about the U.S. government's plan for distressed bank assets. "We're seeing how this program is going to gel," Reser said. "We're not making any commitments. It's just way too early in the discussions."




When I read this article, so many things crossed my mind... I have long thought that the Banksters would figure out a way to get ALL of the baby-boomer money... ALL of it, before they are finished.   There is still a lot of it left, so it's a sitting duck.
pinecarr's picture
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Re: U.S. public pension funds mull toxic bank assets

Wow.  I think you are right; bye, bye pensions!! That's scary stuff!!

cmartenson's picture
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Re: U.S. public pension funds mull toxic bank assets

I think this strategy is called "doubling down".

Or, in this case, I suppose it is "quadrupling down" given just how far underwater all these pensions really are.

My slight kidding aside, this move, if taken, would represent a massive failure of fiduciary responsibility on the part of the pensions. Of course, they can merely add this latest transgression to their prior failures.

How could this be stopped?


Make it a criminal offense to engage in any sort of conflict of interest or 'revolving door" dealings (that would stop about 80% of this madness) and a civil offense to perform in a negligent manner.

Right now I am willing to bet that the public pension funds are mulling this terrible idea in large measure because pension managers are being wooed by the big banks holding the toxic sludge. Dinner, drinks, whispered promises of a big, fat job later on possibly...you know the drill.

tskypeck's picture
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Re: U.S. public pension funds mull toxic bank assets

 The only reason I can think of a troubled (read: insolvent) pension plan to buy this dreck would be... future leniency when the plan defaults on payments in the very near future? It's ironic, but hardly surprising, that the dim bulb decision makers who brought these plans to the cliff are the same ones now considering PPIP assets. I also notice that all of the states mentioned to be considering the "investment" are states with mortally wounded plans. 

 I live in Maine, where the state beauracracy has been an inefficient "jobs program" for decades, and generally at the expense of private business;  Maine has been ranked as one of the least friendly places to do business for years.  As the timber, fishing, and manufacturing industries have left or collapsed, govt jobs have filled the void.  A state pension collapse here, with a particularly large percentage of the population now dependent on it, would be the final straw towards some sort of state financial meltdown.  Alas, it will probably take a tragedy of this magnitude to shake people up enough to change the current model.   


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