Proper reflection on the crisis of finance capitalism must always keep in mind public sector pension plans. Not merely are these blundering investment funds laying waste to state and local budgets: they also comprise a formidable chunk of the buy-side for debt securities. In other words, in the vast brittle architecture of bond markets, pension funds generate a very considerable portion of the demand for products. Moreover, with these plans grounding their actuarial calculations on 8% annual returns (if not more), the chase for exotic debt securities, riskier and thus bearing higher interest yield, grows ever more intense and reckless.
This hair-raising New York Times report examines the dire straits in which the state of Rhode Island finds itself. The situation is grim indeed.
And then — as always — the other side to this story:
For all the pain here, one important constituency — Wall Street — seems satisfied enough. To reassure its bond investors, Rhode Island passed a special law this year giving them first dibs on tax revenue. In other words, bondholders will be paid, whatever happens.
So we return to the principle of plutocracy: private creditors shall take no losses.