The problem with the notion that pension reform is “good for Wall Street,” of course, is that pension reform is bad for Wall Street. The biggest shareholders in the world are public employee pension funds. This began back in 1984, when the California state legislature placed a citizen’s initiative onto the ballot, Prop. 21, that “deleted constitutional restrictions and limitations on the purchase of corporate stock by public retirement systems.” Scarcely understood and narrowly passed, Prop. 21 turned California’s government pension funds into the biggest gamblers on Wall Street.
Before Prop. 21, just for example, pension funds might have purchased bonds to finance revenue generating projects such as dams, power stations and desalination plants, which yield decent annual returns to investors and greatly benefit ordinary Californians. Now, thanks to Prop. 21, California’s 81 independent state/local government employee pension systems,controlling over $722 billion in assets, invest 90% of it out-of-state, chasing 7.5% returns by gambling on volatile stocks, private equity funds, and even hedge funds. Private financial firms rake in billions every year in commissions and fees, while directly managing tens, if not hundreds of billions on behalf of California’s state/local government employee pension funds.
And when those investment banks and private equity firms and hedge funds make bad bets on behalf of public employee pension systems, the taxpayers bail them out.