“Never give a sucker and even break; never wise up a chump”–W.C. Fields
The FDIC has come up with the notion that it will market investments in failed banks, or perhaps some of their assets, to pension funds. These are the same funds which lost much of their value in the market collapse of a year ago or from the purchase of exotic derivatives caused by the drop in the real estate market.
“Direct investments may allow public retirement funds to reduce fees for private-equity managers, and the agency to get better prices for distressed assets,” Bloomberg reports. The improvement in fees does not mean much if the assets continue to lose value. A drop in value is clearly what caused the FDIC to shutter the banks in the first place.
Pensions are underfunded now corporations in the private and public sectors. That means the day may come when some workers will lose part of their retirement or healthcare benefits. One way that pensions can take to solve their problems is to make risky investments on the chance that they will get remarkable rewards. The method only works if the “trade” does not move against them.
What endowments failed to learn in 2007 and 2008 may cause them to have another unpleasant schooling this year and next. But, at least the FDIC will have dumped some problems to the benefit of its balance sheet.
Douglas A. McIntyre
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