Willie Sutton, meet Robert Rubin. You have much in common.
Willie Sutton robbed banks because that was where the money was. Mr. Rubin, the U.S. treasury secretary, robbed two federal employee pension funds two weeks ago because that was where the money was when he needed it.
How is it the government can raid pension funds under its control to avoid bankruptcy, when companies can't? Once again we have an example of there being different laws for the government and for the governed.
Mr. Rubin raided two federal employee pension funds for their $61.3 billion of Treasury securities to avoid a federal government default.
In effect, Mr. Rubin converted the funds' holdings of long-term U.S. Treasury securities into a book entry denoting cash, which would not count against the federal government's debt limit. "(I)t is my responsibility ...to do everything in my power to make sure this country does not default," Mr. Rubin said.
Of course, Mr. Rubin and other government officials promised that, once the immediate crisis passed and the default was averted, the Treasury would make up to the fund any interest lost through the transaction.
Imagine how that would play in court for any corporate chief financial officer who used a similar maneuver to prevent a company from breaching its loan covenants and perhaps plunging into insolvency.
For example, imagine if a CFO sold (or even borrowed) some long-term bonds belonging to his company's pension funds and replaced them with a book-entry IOU the company declared was as good as cash.
And, imagine if the CFO and other corporate executives promised to make up to the fund any interest lost in the deal as soon as the threat of company insolvency passed.
The CFO would wind up in the slammer in short order, pursued all the way by the Labor Department and the Internal Revenue Service (one of Mr. Rubin's own agencies).
There is no moral difference between what Mr. Rubin did and what the fictional CFO did. Mr. Rubin used government employee pension assets in a manner not solely in the interests of the beneficiaries. Morally, he breached his fiduciary duties. The fictional CFO would pay a very heavy price for a similar action.
Of course, the federal employees' pension funds are not protected by ERISA. And the federal employees' pension assets are not invested in marketable securities. They are invested in "employer securities," specifically in non-marketable U.S. Treasury securities. It is time federal employee pension funds were given the same legal and economic protection that corporate and state and local government funds are given.
They should be invested in a diversified portfolio of marketable securities, and no more than 10% should be invested in Treasury securities. They should also be invested under ERISA-like rules.
Those justifying the different rules for the federal employees' pension funds argue Treasury securities are the safest of all investments, and besides, the federal government can never go bankrupt.
Oh, what almost happened? What prompted Mr. Rubin's maneuver? Could not some Congress in the future, finding the federal deficit and federal tax burden too onerous, repudiate all or part of the non-marketable securities the funds hold, if not overtly, then covertly by inflation? Mr. Rubin's maneuver made the need for change obvious. There should not be different rules for the government and the governed.
