0:01

All right, and we should be

0:03

live. Welcome to Thawful Money. I'm

0:05

Thawful Money founder and your host

0:07

Adam Taggart. Welcome you here for

0:09

a special Wednesday's with Stephanie Palm

0:12

Boy. Hi, Steph, how you doing?

0:14

I'm good. How are you, Adam? Well,

0:16

I'm great. And particularly excited today

0:18

because not only are we going

0:21

to get to, you know, have

0:23

you on on your regular twice

0:25

weekly or bi-weekly appearance on this

0:27

channel. But we're joined today by

0:29

a special guest. We're Folks, you've

0:32

heard Stephanie and I mentioned many

0:34

times in the past that our

0:36

pension system definitely has some concerning

0:38

vulnerabilities to it. I'll say that

0:40

that's probably a big understatement is

0:43

Ted will explain in just a

0:45

moment. But Ted who I've interviewed

0:48

a couple of times over the

0:50

years, great guy. He is a

0:52

former SEC attorney and his firm

0:55

has pioneered over 1 trillion in

0:57

forensic investigations. into the money management

1:00

industry. He's nationally recognized as an

1:02

authority on pensions and he's testified

1:04

before the Senate Banking Committee regarding

1:07

fund scandals and is an expert

1:09

in various Madoff related and other investigations.

1:11

He also secured the largest SEC whistleblower

1:13

award in history and the largest CFTC

1:16

award in history as well. So Ted.

1:18

Thanks for joining us today. I've got

1:20

a lot of road to cover here.

1:22

Folks, if we have time at the

1:24

end, I'll try to take some questions

1:27

from the audience as well, so you

1:29

can ask them, Ted. I want to start

1:31

just by reading something that you wrote a

1:33

few years ago, Ted, and then we'll kind

1:35

of open up this discussion. You said, quote,

1:38

we are on the precipice of the greatest

1:40

retirement crisis in the history of the world.

1:42

And that makes perfect sense because, first

1:44

of all, we have the largest elderly

1:46

population in the history of the world.

1:48

Just focusing on the United States are

1:50

elderly or woefully unprepared to retire.

1:52

And in the decades to come,

1:54

we will witness millions of elderly

1:56

Americans, baby boomers and others, slipping

1:58

slipping into poverty. Too frail to work,

2:01

too poor to retire will become

2:03

the new normal for many elderly

2:05

Americans. All right, so that

2:07

is the tough news. Question is what

2:09

do we do about it? But why

2:11

don't we just start at the

2:13

very top, Ted? I know we

2:15

got a lot of specific questions

2:18

we get to get into and

2:20

there's a number of specific investigations

2:22

you're involved in right now

2:24

across the country, but at

2:26

a very high level. What

2:28

is the state of our

2:30

pension system and why are

2:32

you this concerned about it?

2:34

Well, of course, most people don't

2:37

have pensions anymore. Pensions are

2:39

phasing out, but for those who

2:41

do, there's lots to worry about.

2:43

I do a lot of my

2:46

work with state and local

2:48

pensions, which are called

2:50

public pensions, as opposed

2:52

to corporate pensions that

2:54

are private pensions. And

2:56

public pensions, that have

2:58

about six trillion in assets

3:01

in them are not regulated

3:03

on the federal level

3:05

at all. Corporate pensions

3:08

are regulated under ERISA,

3:10

so there's a comprehensive

3:12

federal law. Public pensions,

3:14

state pensions are not

3:17

governed by any

3:19

comprehensive law. The

3:21

boards of these pensions

3:23

consist of firefighters, policemen,

3:25

politicians, investment experience. So

3:27

they're watching over making

3:30

decisions about how to

3:32

invest six and a

3:34

half trillion of state

3:36

workers money. So there's

3:38

a lot there are a lot of things

3:41

to worry about in the

3:43

public pension space in particular.

3:45

And what we've seen over

3:47

the last 20 years is

3:49

allocation of ever greater assets

3:51

to high risk, high costs,

3:54

private equity, hedge funds. And

3:56

now we're on the precipice

3:58

of state pension. investing

4:00

up to 10% in crypto, which has

4:03

never happened in history, and

4:05

that's about, that's what we're poised

4:07

to happen now. I think 17

4:09

states have legislation to invest up

4:11

to 10% of their assets in

4:13

crypto. That is absolutely

4:16

frightening. So just to recap

4:18

some of the previous discussions we've

4:20

had, you really boiled this down

4:22

simply in a way that's easy

4:24

to understand. Where you say, when

4:26

it kind of comes to the

4:28

solvency, of pensions, it comes down to

4:31

three things and correct me if any

4:33

of this is wrong. It's how much

4:35

you put in, right? It's how it's

4:38

managed while it's there, and then

4:40

it's how much comes out, right? And

4:42

I think you can kind of walk

4:44

through each and tell kind of

4:47

a scary story about each one

4:49

of those steps, but my recollection

4:51

is maybe the scariest story. is

4:54

not we're putting in too little

4:56

and we're taking out too much,

4:58

but it's how mismanaged it's being

5:00

when it's actually in the pension

5:02

system. Am I correct in this

5:04

summary? Absolutely, Adam. So the three

5:06

elements are money in, which is

5:08

called contributions. And then you have,

5:10

then the money sits in the

5:13

pot for 30 years, and it's

5:15

managed. That's money managed. And then

5:17

the final thing is money out,

5:19

which is benefits paid. And so

5:21

there's a lot of attention is

5:23

paid to, is enough money going

5:26

into these state than other

5:28

pension funds are, or is,

5:30

are the pension benefits

5:32

paid out too rich? There's a

5:34

lot of attention paid on contribution

5:36

and benefits, very little

5:39

attention, almost no attention

5:41

paid to how is

5:43

the money actually being

5:45

managed over time? And

5:47

what... You understand, particularly

5:49

if you read this

5:51

book, who stole my

5:53

pension, which I wrote

5:55

with our friend Robert

5:58

Kiosaki. Over at the. 30

6:00

year period if you're losing

6:02

even 1% or 2% a

6:05

year through excessive fees or

6:07

mismanagement over a 30 year

6:10

period with compounding you

6:12

basically you're losing

6:14

half your money and so

6:17

it is the slow the

6:19

leakage if you will over

6:21

the 30 year period through

6:23

mismanagement that causes funds to

6:25

have half as much money

6:28

as much money as at the

6:30

end of a 30 year period. Okay, and

6:32

just some elements that kind of

6:34

go into that mismanagement. First, you have,

6:36

as you mentioned, perhaps a lack of

6:38

expertise on behalf of the board that's

6:41

managing the pension. Like you gave an

6:43

example of firefighters or teachers who are

6:45

sitting on the board there. They might

6:48

be great at putting out fires, but

6:50

they don't have a, you know,

6:52

an expert investing background and yet

6:54

they're making these big decisions. Secondly,

6:57

you've said that in the past that,

6:59

you know, Wall Street looks as pensions as

7:01

kind of the dumb money. What does

7:03

Wall Street love to do? It loves

7:05

to sell Dumb money products that it

7:07

makes a really big fee on, right?

7:10

And so you kind of you kind

7:12

of went to the extreme on this

7:14

with the example about crypto But you

7:16

know from our previous conversations you've given

7:18

lots of examples about how pensions get

7:20

kind of influenced or you might say

7:22

swindled into investing into all sorts of

7:24

alternative investments and this can be anything

7:26

from private equity to stadiums to you

7:29

know private credit to all sorts of other

7:31

things and we tend to think of tensions

7:33

as oh they must they have to be

7:35

safely managed and so they're probably mostly in

7:37

safe bonds you kind of blew my mind

7:39

the last time we talk saying like no

7:41

it's it's it's there's a small minority

7:43

in those type of investments it's now mostly

7:46

a lot of junk is this all

7:48

true? Absolutely. The craziest

7:50

case I ever came

7:52

on was in Ohio,

7:54

the State Ohio

7:57

Bureau of Workers'

7:59

Compensation. in beanie babies. And

8:01

of course, that was one

8:03

of the wildest schemes I've

8:06

ever seen. But yeah, what

8:08

Wall Street knows that public

8:10

pensions are the dumbest investors

8:13

in the room. Their boards

8:15

consist of laymen that have

8:17

no investment experience at all.

8:20

And as I mentioned earlier,

8:22

Wall Street knows that these

8:24

public pensions are not. regulated

8:26

as comprehensively as ERISA, so

8:29

they can sell crap to

8:31

public pensions that would never

8:33

fly in the corporate pension

8:36

market. When you look at

8:38

their contracts, you'll see that

8:40

these investment contracts, they say

8:42

this account is not governed

8:45

by ERISA, which is sort

8:47

of a way of saying

8:49

anything goes. So yeah, you

8:52

will see the oldest alternative

8:54

investment in public funds.

8:56

or in pensions, it's been

8:59

real estate. You'll see real

9:01

estate, private equity, private credit,

9:03

hedge funds, hedge fund to

9:05

funds, hedge fund to funds,

9:07

which I've investigated in some

9:10

cases. So you'll see some

9:12

pretty wild stuff that is very

9:14

unusual. And the last thing

9:16

I'll mention about public pensions

9:18

that makes them unique is.

9:21

They are supposed to be the

9:23

most transparent of all pensions

9:25

in the world because every

9:27

state has a Freedom of

9:29

Information Act or public records

9:32

laws. So theoretically public

9:34

money is supposed to

9:36

be subject to public

9:38

scrutiny and accountability,

9:40

but what has happened over

9:43

the last 25 years is

9:45

Wall Street has eviscerated public

9:48

records laws. by building in

9:50

the contracts that these investments

9:52

are quote unquote trade secrets

9:55

and don't have to be

9:57

disclosed. All right, well look, folks.

10:00

I just wanted to sort of set the

10:02

table here. Ted, thank you. You've done a

10:04

great job of getting us pretty far down

10:06

the road in a pretty quick period

10:08

of time with these great, specific, but concise

10:10

answers. Steve, I'm gonna hand the baton to

10:12

you here now, because you know a lot

10:15

more about the situation than I do, and

10:17

I have also interviewed Ted several times in

10:19

the past. So let me let you start

10:21

driving here. I might chime in once

10:23

or twice with a clarifying question, but.

10:25

take this conversation where you'd like

10:28

to take it. Thank you. Well,

10:30

please chime in, Adam, for sure.

10:32

But, you know, obviously, my main

10:34

focus has been number two in

10:36

the one, two, and three, and

10:38

that is the management side, and

10:40

specifically this rush into alternative assets

10:43

that's completely taken off post-cove, especially

10:45

with the advent of private credit

10:47

now and all these new fangled

10:50

alternatives. And I just saw a

10:52

disaster written all over it, you

10:54

know, with... you know, brick collections

10:56

of Michael Milken peddling junk bonds

10:59

to the pension fund so successfully

11:01

back in the 80s and this

11:03

seemed like the new iteration of that.

11:06

But you know, a couple things I'd

11:08

love to get your thoughts on Ted

11:10

that kind of dial it back. I

11:12

know you said that you believe this

11:14

is setting up for the worst pension.

11:16

debacle, which is

11:18

saying something, since we've

11:20

seen several pretty spectacular

11:22

spills. And I would

11:25

agree with you, but

11:27

from a macro standpoint,

11:30

I see it as a function

11:32

of this mismatch between

11:34

real world rates of

11:36

return and the ridiculous

11:38

return assumptions that a

11:41

lot of these pensions

11:43

have built in. to their

11:45

program. So as far as

11:48

I recall, the numbers originally

11:50

were, you know, double digit

11:52

annual return expectations and they came

11:54

down somewhat to around seven or

11:56

eight percent was sort of the last

11:59

number that I had. Is that

12:01

still the case? Are these

12:03

numbers still that insane that

12:05

there are high single digit

12:07

assumed rates of return? Yeah,

12:09

step, I think the average

12:12

is about seven percent, seven

12:14

and a half percent, somewhere

12:16

in there, still very high

12:18

and the funding levels of

12:20

public pensions are I think

12:22

average about 75 percent. So

12:25

they have 75 cents for

12:27

every dollar in benefits they

12:29

promised. And that, by the

12:31

way, to your point, Steph,

12:33

that's assuming the values on

12:36

hard to value illiquid, opaque

12:38

private equity and other private

12:40

investments are true. And they're

12:42

not, as you know. But

12:44

these funds are, let's say

12:46

75 percent. these pensions are

12:49

75% funded if you believe

12:51

the valuations that are being

12:53

offered. Yeah, absolutely. And then,

12:55

you know, the mismatch that

12:57

I see is that you're

12:59

expecting 7% and we went

13:02

through basically a decade of

13:04

artificially repressed interest rates where

13:06

the real world risk-free rate

13:08

was pretty close to zero,

13:10

which forced all these pensions.

13:12

to go into the farthest

13:15

corners of risk to get

13:17

anything approximating a seven or

13:19

eight percent return. So that's

13:21

sort of the angle that

13:23

I come at it from

13:25

and then I, you know,

13:28

I am looking forward to

13:30

you just completely blowing my

13:32

hair back on the nitty

13:34

gritty details of the obscene

13:36

amount of risk that they're

13:39

taking. I mean, I look

13:41

at the, the only data

13:43

I can find. broadly speaking,

13:45

on the total pension system

13:47

comes from the Federal Reserve's

13:49

flow of funds accounts and

13:52

they, you know, give you

13:54

the total amount of underfunding.

13:56

And then they also have

13:58

a proxy for other assets,

14:00

investments. and other assets, which

14:02

I assume is a catch-all

14:05

that includes a lot of

14:07

these alternatives. And that alternative

14:09

bucket has gone from zero

14:11

by their measure percent allocation

14:13

pre-cove it to 13 percent,

14:15

which I know is not

14:18

the number. I mean, the

14:20

total exposure to alternatives is

14:22

probably closer to a third

14:24

now or something like that.

14:26

Do you have any senses

14:29

to? broadly how much money

14:31

is tied up in these

14:33

super illiquid, highly speculative assets?

14:35

Yeah, I think you're, the

14:37

number I believe is somewhere

14:39

around 35 to 40 percent.

14:42

And what I've seen in

14:44

every public pension I've investigated

14:46

and I've investigated about a

14:48

trillion, including the state of

14:50

Minnesota, the state of North

14:52

Carolina, the state of Rhode

14:55

Island. and Ohio, tip Ohio.

14:57

In every case, the allocation

14:59

to alternatives is understated. They

15:01

do not. They say they're

15:03

25. Most these funds say

15:05

they're 25 to 35 percent,

15:08

but the actual allocation is

15:10

much greater. It's just how

15:12

you how do you define

15:14

alternatives. For example, is real

15:16

estate included in the alternatives?

15:18

But one of the most

15:21

important things to remember about

15:23

alternatives is that they have

15:25

exponentially greater fees than traditional

15:27

investment accounts. So you're looking

15:29

at fees of at least

15:32

2% plus 20% of the

15:34

games and there are additional

15:36

fees that if you forensically

15:38

investigate, but the all in

15:40

fees of these funds can

15:42

be as high as 7

15:45

to 10% annually. So when

15:47

you talk about having an

15:49

investment assumption that you're going

15:51

to return 7% a year

15:53

on alternatives, you have to

15:55

make at least 10% to

15:58

net 7% a year, which

16:00

is not going to happen.

16:02

So that's one of the

16:04

reasons I focus in my

16:06

investigations on are the fees

16:08

being properly disclosed? And the

16:11

answer universally is no, they're

16:13

not. And one of the

16:15

things I wrote about just,

16:17

I think it was just

16:19

last Friday, was I did

16:22

an investigation of the $146

16:24

billion Minnesota state pension fund.

16:26

And by the way, that's

16:28

an example where the chairman

16:30

of the board of the

16:32

pension fund was a fellow

16:35

named Tim Walsh, who turned

16:37

out to be the vice

16:39

presidential candidate. Tim Walsh acknowledged

16:41

that he had never bought

16:43

a stock or bond in

16:45

his life. Yet he's responsible

16:48

under law as the governor

16:50

for $100 billion. But what

16:52

I came out with last

16:54

week, the state admitted that

16:56

after my investigation that they

16:58

had underreported the alternative fees

17:01

by 400%. Wow. And nobody

17:03

in Minnesota has written about

17:05

it. It's it's I asked

17:07

in this column the sub

17:09

stack I wrote, does it

17:11

even matter if the fees

17:14

are that wrong and no

17:16

one in the state even

17:18

reports on it? Right. Then

17:20

maybe that maybe maybe the

17:22

funds shouldn't report any financial

17:25

results at all because they're

17:27

There's some dramatically off. Wow,

17:29

it's like if a tree

17:31

falls in the woods, you

17:33

know, I mean, but it

17:35

explains why the pensions are

17:38

the patsies, you know, for

17:40

Wall Street, because in addition

17:42

to being able to unload

17:44

all of these highly liquid

17:46

assets, they collect fees upon

17:48

fees, you know, continuation funds

17:51

and all of this stuff.

17:53

The other thing that I

17:55

noticed had started to happen

17:57

in this era of financial

17:59

repression that was forcing them

18:01

to, you know, take on

18:04

more risk and they were

18:06

getting into alternatives was then

18:08

you also have, you know,

18:10

like CalPERS, actually adding leverage

18:12

to the mix. Have you

18:14

seen that more broadly or

18:17

was that sort of just

18:19

exceptional among a handful of

18:21

state local pensions? Well, every

18:23

private investment I've ever reviewed

18:25

and I've reviewed thousands. Every

18:28

hedge fund, every private equity

18:30

fund has built into their

18:32

documents leverage. And in fact,

18:34

many of them say they

18:36

can engage in unlimited leverage.

18:38

So there is leverage built

18:41

into every alternative, whether it's

18:43

real estate, private equity, it's

18:45

there. And so I've seen

18:47

that and it's not reported

18:49

anywhere because first. and foremost,

18:51

the pension officials, these cops,

18:54

firefighters, school teachers, they don't

18:56

scrutinize the documents, they don't

18:58

understand what the documents say,

19:00

and so it's not reflected

19:02

in the financial statements either.

19:04

And one last thing recently,

19:07

you may have a couple

19:09

years ago, CalPurs went to

19:11

sell a bunch of its

19:13

private equity, and they said...

19:15

They sold the private equity

19:18

at a 10% discount on

19:20

average, 10% below the state

19:22

of value. But there are

19:24

two things to keep in

19:26

mind. First of all, they

19:28

probably almost certainly sold their

19:31

most liquid private equity first,

19:33

because that's what you do.

19:35

And you hang on to

19:37

the garbage you can't sell.

19:39

And second of all, that

19:41

was an effective rate of

19:44

10%. Some of the funds

19:46

that they sold at that

19:48

time. were sold as much

19:50

as 40% discounts. Wow. But

19:52

you know, I understand the

19:54

leverage. built into these various

19:57

vehicles for sure, but weren't

19:59

some of these the state

20:01

and local pension funds actually

20:03

adding leverage on their own

20:05

and like borrowing money to

20:07

put into alternative assets or

20:10

was that not what was

20:12

happening there? I thought Calpurs

20:14

was actually adding leverage as

20:16

part of their investment process.

20:18

Yes, that's my understanding too

20:21

and I think they were

20:23

That was publicly reported that

20:25

they were they were going

20:27

to be doing this. So

20:29

it has not shown up

20:31

in any of the investigations

20:34

I've done so far and

20:36

Calpurs is one that I'm

20:38

being I am currently being

20:40

asked to investigate, but I

20:42

haven't looked into that. Yeah,

20:44

now I mean, it's just

20:47

like lighting a match to

20:49

this already blazing tinder, but

20:51

I guess the other question,

20:53

you know, going back to

20:55

these illiquid assets and how

20:57

they have to sell the

21:00

most liquid parts first and

21:02

hang on to all the

21:04

garbage and hope eventually that

21:06

the market. provides them an

21:08

opportunity to unload. There are

21:10

also lockups for a lot

21:13

of these investments. I assume,

21:15

you know, they can't in

21:17

a crisis say, all right,

21:19

we want our money out

21:21

and you're seeing like the

21:24

endowment funds now, I think

21:26

Harvard the other day, came

21:28

and said to some private

21:30

equity funds, you know, we're

21:32

starting to take our money

21:34

out of there. So the

21:37

the line to the exit.

21:39

is starting to form and

21:41

I assume that the state

21:43

local pension guys will be

21:45

the very back of the

21:47

line by the time they

21:50

wake up and figure it

21:52

out. But do you have

21:54

any thoughts on that? Yeah,

21:56

that's absolutely true. Your observations

21:58

are correct. I have seen

22:00

private equity funds that have

22:03

your typical private equity fund

22:05

has a ten year life,

22:07

but that life can be

22:09

extended at the discretion of

22:11

the general part. And I've

22:14

seen seeing these funds extend

22:16

and extend. They call it

22:18

extend and pretend. But I

22:20

have seen some that have

22:22

a 50 year life, which

22:24

I call cradle to grave

22:27

funds, because you'll be dead

22:29

before you get your money

22:31

back. But that's a very

22:33

real issue of, can you

22:35

get out of these funds?

22:37

And every private one of

22:40

the. The hallmarks of private

22:42

investments is that every investor

22:44

in a private investment can

22:46

essentially have a different deal,

22:48

including different liquidation rights. So

22:50

you have to negotiate that

22:53

up front. And of course,

22:55

the dumbest investors in the

22:57

room are going to have

22:59

to negotiate. Yeah, absolutely. So

23:01

playing this out, I mean,

23:03

obviously this is right now

23:06

a slow motion train wreck.

23:08

How do you see this

23:10

devolving going forward? Well, first,

23:12

you're absolutely right. It's slow

23:14

motion because none of these

23:17

alternative investments are being, the

23:19

performance are, they're not reporting

23:21

on a current basis. So

23:23

whatever you see it for

23:25

a public pension, whatever you're

23:27

seeing in their fiscal. 20,

23:30

24 year end statements. That

23:32

was not the value at

23:34

fiscal year end. So that's

23:36

why we say you can

23:38

extend and pretend that you

23:40

can continue to carry the

23:43

to inflate the value of

23:45

these investments long after they

23:47

have fallen in value. And

23:49

so that's they give. institutional

23:51

investors cover because they can

23:53

say that they're outperforming the

23:56

market or performing better. because

23:58

25 to 40 to 40%

24:00

of their assets are not

24:02

being currently valued. So what

24:04

will happen over time is

24:06

that they will continue to

24:09

delay the day of reckoning

24:11

as long as possible. And

24:13

as usual, cut benefits and

24:15

try to increase contributions all

24:17

to make the problem go

24:20

away. The thing to remember

24:22

about pension funds is that

24:24

the politicians running state and

24:26

local pension funds will be

24:28

gone within four or eight

24:30

years these pension they will

24:33

make decisions which they say

24:35

will produce results within 30

24:37

years no one will be

24:39

there in 30 years none

24:41

of these elected officials will

24:43

be there 30 years from

24:46

now and even if they

24:48

were no one would remember

24:50

no one has a timer

24:52

that says all right your

24:54

time's up you got it

24:56

wrong So it's like if

24:59

you were to ask me,

25:01

Steph, could I for a

25:03

million dollars give you an

25:05

opinion that your personal pension

25:07

will be doing fine 80

25:10

years from now? I'd say

25:12

absolutely. I'll give you that

25:14

opinion. Give you the million

25:16

dollars. Because I'm not going

25:18

to be around 80 years

25:20

from now. And so one

25:23

of the things I found,

25:25

I've worked with the many

25:27

corporate pension plans that have

25:29

been taken over by the

25:31

PBGC. And one of the

25:33

things I say is there's

25:36

never been a pension that

25:38

failed that didn't have a

25:40

room full of experts saying

25:42

it wouldn't. Oh my gosh.

25:44

Because I envision three different

25:46

things that could trigger sort

25:49

of the acceleration of the

25:51

pension crisis. You know, one

25:53

would be obviously just. Every

25:55

day this demographic issue is

25:57

insurmountable so every. you've got

25:59

more people taking money out

26:02

than putting money in. So

26:04

that becomes a problem at

26:06

some point. The other one

26:08

that I envision and I'd

26:10

love your thoughts on is,

26:13

for example, this Harvard pulling

26:15

money out of private equity,

26:17

that will at some point

26:19

create a mark for some

26:21

assets. Does that precipitate a

26:23

repricing of those? quote unquote

26:26

assets across the board that

26:28

then is reflected in the

26:30

pension funding status that causes

26:32

some kind of a wake-up

26:34

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27:07

I think you're on mute. Workday

27:09

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27:11

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27:14

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27:18

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27:36

fit. Well, one of

27:38

the things that I emphasize

27:40

in my work is to

27:42

understand any of these investment

27:45

issues, you have to be

27:47

aware of pervasive industry conflicts

27:49

of interest. So each of

27:51

these pensions has a private

27:53

or alternative investment consultant. who

27:55

advises them specifically on their

27:57

private investment portfolio. Well, that

27:59

advisor has a conflict because

28:01

if I tell you now

28:04

is the time to get

28:06

out of alternative investment, you're

28:08

going to fire. You're not

28:10

going to have any need

28:12

for me. So there are

28:14

these conflicts every step of

28:16

the way that create firewalls

28:18

that delay the day of

28:20

reckoning. the managers of these

28:23

funds by and large have

28:25

discretion in valuing the assets.

28:27

So the manager who gets

28:29

paid based on the value

28:31

of the assets is always

28:33

going to have a conflict

28:35

and always want to value

28:37

the assets at a greater

28:39

level. The consultants who recommend

28:42

the managers are always going

28:44

to have a conflict. So

28:46

there's going to be all

28:48

of these, all of these

28:50

conflicts. All of these conflicts.

28:52

delay the truth coming out.

28:54

And by the way, one

28:56

of the things that, you

28:58

know, years ago, you may

29:01

remember endowments and foundations being

29:03

in alternative investments was was

29:05

was widely touted by Yale.

29:07

They used to call it

29:09

the Yale model and Yale

29:11

said we've invested, you know,

29:13

a ton of money in

29:15

alternative investments. We've done great.

29:18

And David Swenson, I think,

29:20

said, I wouldn't recommend this

29:22

for everybody, but it's worked

29:24

out. great. But the reality

29:26

is that, which was not

29:28

talked about, is if Yale

29:30

is indeed in investing in

29:32

deals, private deals, and getting

29:34

treated very well, there's probably

29:37

other investors in those funds

29:39

that aren't getting treated badly.

29:41

Right. So yes, Yale profited.

29:43

Yale was savvy in negotiating

29:45

their investments in these private

29:47

equity funds. But who lost?

29:49

That's the untold story. So

29:51

the third catalyst that I

29:53

could see causing some kind

29:56

of crisis or run on

29:58

the pension is a repeat

30:00

of what we saw with

30:02

the Dallas police pension. What

30:04

was that over a decade

30:06

ago where the word got

30:08

out? that they had some

30:10

far-flung investments. I forget what

30:12

it was in real estate

30:15

in Africa or something. I

30:17

forget what it was. But

30:19

the word got out and

30:21

there was a line of

30:23

policemen knocking on the door

30:25

to collect their pensions early

30:27

because they wanted to get

30:29

the money before it was

30:32

all gone. And you literally

30:34

had to run on a

30:36

pension. I guess, you know,

30:38

since everything is so illiquid

30:40

now and they can mark

30:42

to Mets for as long

30:44

as possible, do you see?

30:46

any potential for that kind

30:48

of scenario in the typically

30:51

a hundred page report or

30:53

100 to 125 page report,

30:55

which has been made public,

30:57

published in Forbes, you know,

30:59

widely distributed. And given also

31:01

these investigative findings have been

31:03

given over the last 13

31:05

years to the SEC, the

31:07

FBI, the Department of Justice,

31:10

and in every case to

31:12

the Attorney General of the

31:14

State. We've reported massive fraud,

31:16

performance numbers that are mathematically

31:18

impossible, fees that are mathematically

31:20

impossible. And what I've discovered

31:22

most recently in Ohio and

31:24

Minnesota is even if you

31:26

uncover massive fraud, report it

31:29

to federal authorities. The feds

31:31

want nothing to do with

31:33

state pension matters. State authorities

31:35

are all elected officials who

31:37

depend on contributions from Wall

31:39

Street. So there's really no

31:41

one to report it to.

31:43

Now more than ever, there's

31:46

no one to report it

31:48

to because the enforcement at

31:50

the SEC has been gutted,

31:52

basically, in the current in

31:54

the last few months. So

31:56

I don't know. I can

31:58

tell you that we have

32:00

found massive fraud and wrongdoing

32:02

that we have gone to

32:05

everybody who possibly addressed it

32:07

on behalf of participants and

32:09

no one is willing to

32:11

do so. Wow, doesn't that

32:13

just make the case, I

32:15

see you here Adam, make

32:17

the case for a bailout?

32:19

So much greater, you know,

32:21

on the part of the

32:24

employees who are contributing, you

32:26

know, we were waiting for

32:28

these pensions and they could

32:30

point to all your work

32:32

and say, look, it wasn't

32:34

like everyone wasn't alerted that

32:36

there was all this fraud

32:38

going on and you frittered

32:40

away our money. We want,

32:43

you know, some recompense. I

32:45

mean, it seems like that

32:47

is clearly going to come.

32:49

Well, I think that one

32:51

of the problems is that

32:53

People don't understand pensions. The

32:55

general public doesn't and politicians

32:57

don't. And they don't understand

32:59

investing. So the outrage isn't

33:02

there that it should be.

33:04

What what I was seeing

33:06

recently in North Carolina, for

33:08

example, there's a legislative proposal

33:10

to invest 10% of the

33:12

money in crypto. And the

33:14

legislators said they're going to

33:16

do it in a safe

33:19

way. And I'm like, what

33:21

is that? So this is

33:23

in the testimony, the legislator

33:25

says, we're gonna do it

33:27

right, we're gonna. in a

33:29

safe way. And this bill

33:31

is actually, I think, been

33:33

passed. So the legislators haven't

33:35

a clue about the realities

33:38

of crypto or private equity

33:40

or hedge funds, but they're

33:42

debating presenting the issues to

33:44

the public, they're being discussed

33:46

in a way that nobody

33:48

really understands what's going on.

33:50

Yeah. Yeah. All right. I'm

33:52

just going to reject for

33:54

a second. I've been. sitting

33:57

on my hands here because

33:59

stuff you've been doing such

34:01

a great job I'm sorry

34:03

to intrude but I wanted

34:05

to go kind of where

34:07

you were going stuff on

34:09

this which is Ted you're

34:11

saying right now feds want

34:13

nothing to do with this

34:16

right but if if some

34:18

of these pensions start going

34:20

under yeah in the state

34:22

is not going to be

34:24

able to bail them out

34:26

do you anticipate that there's

34:28

going to be a federal

34:30

bail? Let's take Calpers for

34:33

example if Calpers really started

34:35

to go under do you

34:37

think the feds would still

34:39

stand aside or would there

34:41

be some ballot engineered? I

34:43

think they will be bailed

34:45

out. One thing I wanted

34:47

to mention to you all

34:49

is I worked with the

34:52

PBGC on the United, on

34:54

the U.S. Airways, U.S. Airlines

34:56

pilots pension plan like 15

34:58

years ago, and I met

35:00

with the senior executives of

35:02

the PBGC. And one of

35:04

the things I pointed out

35:06

to them is that when

35:08

pensions are spiraling down. You

35:11

will see in the last

35:13

five years, they load up

35:15

on risk. Right. Right. There

35:17

are Hail Marys. Yeah. You

35:19

know why? The Hail Mary.

35:21

Yeah. We're going to. And

35:23

who's selling the Hail Marys?

35:25

They're advisors. There's only one

35:27

way out of this. And

35:30

that's gambling. More cowbells. Yeah.

35:32

So the the other side

35:34

of that is if you

35:36

have. investments that are high

35:38

risk and you want to

35:40

unload that. is Wall Street,

35:42

you go to public pensions.

35:44

So public pensions are a

35:47

lot, and I think that's

35:49

what's going on right now

35:51

with crypto, is there's a

35:53

desire to get government in

35:55

the crypto market, and the

35:57

way to do that is

35:59

to sell crypto to public

36:01

pensions, so that if there

36:03

is a failure, there will

36:06

have to be a bailout.

36:08

So yeah, I think there

36:10

will be bailouts. I mean,

36:12

look what happened recently with

36:14

Tesla, where you have the

36:16

president saying buy Tesla stock

36:18

and the head of the

36:20

Minnesota pension saying he thinks

36:22

it's great Tesla stocks going

36:25

down because it so you

36:27

have essentially the government supporting

36:29

Tesla price. But I think

36:31

that's it's very likely you're

36:33

going to see bailouts. One

36:35

follow-up in this, then I'll

36:37

give you the baton back,

36:39

Steph. So I've seen in

36:41

the comments people raising this

36:44

issue, right, which is, we've

36:46

talked about this a little

36:48

bit, Ted, but maybe we

36:50

can just readdress it here,

36:52

is, you know, not everybody

36:54

has a pension. In fact,

36:56

it's probably more of a

36:58

minority now than a majority.

37:00

And if pension funds are

37:03

failing, if we get to

37:05

the point where they're starting

37:07

to fail, Doesn't have to

37:09

be but probably will be

37:11

concurrent with some trouble in

37:13

the financial markets and whatnot,

37:15

right? And so What about

37:17

the potential social clash here

37:20

where mismanaged pension going under

37:22

requires a bailout? And I'm

37:24

the guy who's been working

37:26

in the private industry. I'm

37:28

struggling right now perhaps because

37:30

the markets aren't doing well

37:32

and yet my taxes go

37:34

up because I have to

37:36

bail out my neighbor who

37:39

is lucky enough to have

37:41

a public pension, right? How

37:43

worried are you about sort

37:45

of the social fallout from

37:47

these bailouts? Well, I'm very

37:49

worried about it and it's

37:51

well known. It's in the

37:53

industry. it's called pension envy

37:55

and for decades now there's

37:58

been a growing issue because

38:00

and this is something I've

38:02

written about decades ago is

38:04

the utter failure of 401k

38:06

plans. The 401k plans were

38:08

never designed to be retirement

38:10

plans. There were supplemental savings

38:12

plans. And so you have

38:14

this equally bizarre system where

38:17

the average American is presumed.

38:19

to be an adept portfolio

38:21

manager. Right. Who can decide

38:23

not only what his asset

38:25

allocation is, but which particular

38:27

funds and analyze the fees

38:29

and the risks. And now

38:31

we're seeing more that, again,

38:34

getting back to the previous

38:36

point, there's a huge, there's

38:38

been a huge push under

38:40

Trump on and now Trump

38:42

too, for private equity in

38:44

alternative. I'm sorry, private equity

38:46

in 401k. Why is that?

38:48

because somebody wants to distribute

38:50

risk and the untapped market

38:53

is the 401k marketplace. So

38:55

I think 401ks have failed

38:57

utterly to provide the vast

38:59

majority of Americans with retirement

39:01

security. It's been a colossal

39:03

failure. If you look at

39:05

what is the average 401k

39:07

balance for a 65 year

39:09

old? It is scarily small

39:12

and when you look at

39:14

the median. It's tiny compared

39:16

to that. It's almost nothing

39:18

on average. Let's imagine it's

39:20

$100,000, which it isn't. Which

39:22

it isn't. Certainly not in

39:24

the median. Yeah. Yeah. And

39:26

so how do you retire

39:28

on $100,000? And I said

39:31

years ago, because employers, according

39:33

to Deloitte studies, employers have

39:35

known for a long time

39:37

that these plans are not

39:39

providing their employees retirement retirement

39:41

security. I once sued the

39:43

Walmart 401K. 15 years ago.

39:45

The average balance for a

39:48

Walmart employee at that time,

39:50

I think was like $2,000.

39:52

So employers have long known

39:54

that these plans are not

39:56

retirement plans, yet they've continued

39:58

to tout them as such.

40:00

And that is going to

40:02

be a growing problem is

40:04

that people who, first of

40:07

all, many workers don't have

40:09

a 401k. They don't have

40:11

any retirement plan at all.

40:13

It's not. true that all

40:15

workers have retirement plan. Especially

40:17

as folks are working multiple

40:19

gig jobs, right? Yeah, and

40:21

then many of the plan.

40:23

So a lot of people

40:26

don't have a 401k. And

40:28

then those who have a

40:30

401k, they have virtually nothing

40:32

in it. And then you

40:34

have these state plans that

40:36

pensions that promise benefits that.

40:38

because of years of mismanagement

40:40

will not be able to

40:42

not be able to to

40:45

pay. So I don't know

40:47

where the money comes from,

40:49

but certainly it creates an

40:51

environment where a lot of

40:53

angry people. Well, yeah, exactly.

40:55

Just to my point there.

40:57

So we have all that,

40:59

right? And I'm the guy

41:02

with nothing or very little

41:04

of my 401k. And, you

41:06

know, feeling very frustrated about

41:08

my prospects. And I read

41:10

in the paper that my

41:12

neighbor's pension plan was poorly

41:14

managed, right? So I'm thinking,

41:16

well, they should eat their

41:18

own meal there that they

41:21

created. And yet, government bailout,

41:23

I see my tax bill

41:25

go up. And I mean,

41:27

we even saw a little

41:29

bit of this during the

41:31

ZERP error, right, where it

41:33

was so hard for a

41:35

retiree who had saved up

41:37

to get any return off

41:40

of their safe fixed income

41:42

portfolio that they were hoping

41:44

to retire to retire on,

41:46

right? and yet somebody on

41:48

a pension was getting a

41:50

check every month and it

41:52

was like they had millions

41:54

of dollars that they were

41:56

off getting a return off

41:59

of, right? I remember back

42:01

when one of my neighbors

42:03

said to me, for the

42:05

first time in history, you

42:07

would make less income off

42:09

a million dollars savings than

42:11

unemployment benefits. Yeah, yeah, goes

42:13

back and I don't know.

42:15

That's why five years ago

42:18

or so yeah. So anyways,

42:20

I mean, just just to

42:22

underscore the point and stuff,

42:24

I'll let you go again.

42:26

Right. I mean, what do

42:28

you, do you have any

42:30

thoughts on when we get

42:32

to that flashpoint? Right, where

42:35

it's, hey, wait a minute,

42:37

there's a subset of us

42:39

that's getting a bailout here

42:41

at everybody else's expense who's

42:43

having a rough time. What

42:45

do you think is likely

42:47

to happen? Just a lot

42:49

of angry thoughts or is

42:51

there some sort of unraveling

42:54

that that worries you? Well,

42:56

I'm trying to create that.

42:58

I'm trying to draw attention

43:00

to the fact. I pointed

43:02

out. I recently did an

43:04

an article about. the government

43:06

should create an agency called

43:08

Dope, which is the department

43:10

of pension efficiency. Sure. And

43:13

I said, and my investigations

43:15

have shown that if the

43:17

money was managed well over

43:19

time, instead of 6.5 trillion

43:21

in public pensions, there'd be

43:23

13 trillion. And then I

43:25

put a dollar amount. Like

43:27

in Ohio, if the pension

43:29

had been managed properly. that

43:32

would have produced I think

43:34

$46,000 per house per taxpayer

43:36

in Ohio, which is in

43:38

excess of the average annual

43:40

income. So they're very big

43:42

numbers. The amount of money

43:44

that we're talking about that's

43:46

being lost through mismanagement could

43:49

provide a lot of benefits

43:51

to people. Wow, I laughed

43:53

when you said dope, but

43:55

that makes a ton of

43:57

sense. It does. I hope

43:59

they listen to you. So,

44:01

sorry, Steph, take it back

44:03

over here. I'm sorry. Well,

44:05

no, I mean, I was.

44:08

was going to get to

44:10

this question in terms of

44:12

the bailout, which I think

44:14

is the real question because

44:16

we all see that that's

44:18

what's where we're headed. The

44:20

PBGC is essentially bankrupt, right?

44:22

What do they have $100

44:24

million? They've got nothing in

44:27

the PBTC, I think. Is

44:29

that correct? The PBGC, I

44:31

just looked at this recently,

44:33

the PBTC was bankrupt, but

44:35

then they did something, I

44:37

think that the Biden administration

44:39

did some re- additional monies

44:41

for multi-employer plans or something,

44:43

but somehow the PBGC is,

44:46

let's say, less insolvent today

44:48

than it was five years

44:50

ago because of some dramatic

44:52

government intervention. But I mean,

44:54

it's still nothing close to,

44:56

like right now, the current

44:58

public and pension underfunding according

45:00

to the Federal Reserve, which

45:03

again we've discussed is woefully

45:05

understated, is four trillion. I

45:07

mean, the PBGC has... They

45:09

don't even have a trillion.

45:11

I'm sure of that. I

45:13

mean, they probably have a

45:15

couple hundred billion or something.

45:17

So that begs the question,

45:19

where is this money going

45:22

to come from? Well, it

45:24

was interesting. The US Air

45:26

Pilots hired me, I think,

45:28

2012, to meet with the

45:30

PBDC and to do the

45:32

first ever forensic investigation of

45:34

a failed plan trustee by

45:36

the PBDC. And we said

45:38

to them. The pilots and

45:41

I met with senior executives

45:43

at the PBGC and we

45:45

said, we see a lot

45:47

of money that's been looted

45:49

from this pension by Wall

45:51

Street that we could recover

45:53

if you will authorize us

45:55

to do so. And they

45:57

said, no, they were not

46:00

interested in recovering money, you

46:02

know, from the firms that

46:04

had looted the money. And

46:06

one of the interesting things

46:08

was they said, we wouldn't

46:10

even know what to do

46:12

with it. under the statute.

46:14

Because if the PB. If

46:16

the PBGC recovered money from

46:19

looting the U.S. air pension

46:21

plan, would it go to

46:23

U.S. air workers or would

46:25

it go to the general

46:27

coffers of the PBDC? That

46:29

question has never been answered.

46:31

And they didn't. So I

46:33

concluded by saying to them,

46:36

well, wouldn't it be better

46:38

to have the money and

46:40

have that profit than not

46:42

have the money? And he

46:44

said, no, they were not

46:46

interested. We propose that every

46:48

failed pension taken over by

46:50

the PBTC should have a

46:52

forensic investigation to determine if

46:55

any parties had contributed to

46:57

its demise. Right. And prevent

46:59

that from happening again. You

47:01

know, you need to set

47:03

the example and have their

47:05

because consequences. Otherwise, you know,

47:07

like they're saying, these people

47:09

all operate on the assumption

47:11

that by the time the

47:14

cows chickens come home to

47:16

roost, they'll be long since

47:18

retired and they won't have

47:20

to deal with it. So

47:22

it's, you know, no harm,

47:24

no foul. Yeah. The prophylactic

47:26

effect we argued to them

47:28

like 15 years ago was

47:30

If Wall Street knows that

47:33

every plan that gets taken

47:35

over by the government is

47:37

going to have an investigation,

47:39

that will have a tremendous

47:41

effect on pension behavior, industry

47:43

behavior, generally. They weren't having

47:45

any of it. They weren't

47:47

interested. That's an answer to

47:50

your question. Where could the

47:52

money come from for some

47:54

of these pension insolvencies? It

47:56

could come from Wall Street

47:58

if anybody had a desire

48:00

to recover, to recoup. the

48:02

money that has been stolen.

48:04

That would be great, except

48:06

that it's so much easier

48:09

to just run the printing

48:11

press. I mean, that seems

48:13

to be the solution is,

48:15

okay, we got to bail

48:17

out. We have to fund

48:19

the PBGC to bail out

48:21

the pensions, so we'll just

48:23

print a lot of money,

48:25

shovel it into the PBGC,

48:28

and they can take these

48:30

things over, and nothing will

48:32

change. It'll just be allowed

48:34

at rinse repeat, and we'll

48:36

go through the milken private

48:38

equity. over again. Here's a

48:40

mechanical question for you, though,

48:42

Ted. At what point in

48:44

these state and local pensions

48:47

does the underfunding, what's the

48:49

threshold that requires them to

48:51

start making outright contributions? Because

48:53

I'm looking at state and

48:55

local budgets right now that

48:57

were, you know, in massive

48:59

surplus during the COVID funny

49:01

money era. And in many

49:04

cases, already swung to deficit.

49:06

And if they start to

49:08

have issues in terms of

49:10

performance, since the markets are

49:12

now starting to trade a

49:14

little risk off, at what

49:16

level are they required these

49:18

state and local governments to

49:20

actually pull money out of

49:23

police and whatever services and

49:25

make contributions to shore up

49:27

those funds? Well, I'll give

49:29

you the non-answer, which is

49:31

on the federal level, the

49:33

PBTC, on the federal level,

49:35

there is a hierarchy where

49:37

you're in the red zone,

49:39

the green zone, or the,

49:42

you know, if you're in

49:44

the green zone, you're good,

49:46

and under federal law, you

49:48

don't have to do anything.

49:50

If you fall into the

49:52

red zone, then you have

49:54

to develop a... a rehabilitation

49:56

plan to get yourself out

49:58

of the red zone. There

50:01

is no comprehensive regulation, so

50:03

I couldn't even, you'd have

50:05

to research whether. for this

50:07

city, this county, this state,

50:09

this teacher fund, even on

50:11

the state level, there are

50:13

different types of, there's teacher

50:15

funds, police funds, general employee

50:17

funds. So the answers are

50:20

not clear, not uniform. Yeah.

50:22

And presumably, again, because now

50:24

they have so much almost

50:26

40% let's say of their

50:28

assets tied up in a

50:30

liquid stuff that can be

50:32

marked to whatever fantasy they

50:34

want, the urgency probably isn't

50:37

there. But anyway, that's that's

50:39

a topic, I guess that

50:41

we will see play out.

50:43

Do you have any observations

50:45

about, you know, I always

50:47

love the hair raising anecdotes.

50:49

Are there any, this private

50:51

debt, private equity, all these

50:53

liquid vehicles? Are there any

50:56

things out there that you've

50:58

seen that aren't on the

51:00

radar that I should be

51:02

looking at that are potential?

51:04

real areas of disaster that

51:06

you know should be in

51:08

focus that people aren't paying

51:10

attention to right now? Well

51:12

I think the fee issue

51:15

is very important because as

51:17

Warren Buffett would tell you

51:19

is that the fees are

51:21

the only aspect of an

51:23

investment you can control. You

51:25

can't predict or control whether

51:27

the investment is going to

51:29

go up. and control the

51:31

fees you're going to pay

51:34

on a recurring basis. And

51:36

of course, the higher the

51:38

fees, the less likely you're

51:40

going to outperform because or

51:42

have competitive performance. But the

51:44

fees are not being reported

51:46

anywhere actually. And I have

51:48

never seen a pension fund

51:51

that has the information to

51:53

report it correctly, even if

51:55

they wanted to. In that

51:57

area I have seen, like

51:59

I mentioned earlier, fund of

52:01

fund. of funds. So you

52:03

have a fund which is

52:05

paying charging fees of paying.

52:07

Right. And then a fund

52:10

a funds manager who's charging

52:12

fees of let's say one

52:14

and ten. And then a

52:16

fund a funds manager who's

52:18

charging fees of one and

52:20

ten. And then you have

52:22

underlying organizational expenses. So if

52:24

you add all that up.

52:26

you can find some what

52:29

I call toxic investments that

52:31

couldn't competitively structurally could not

52:33

or structurally do they could

52:35

not produce competitive performance and

52:37

I've seen and I so

52:39

those are the the fees

52:41

generally are or are opaque

52:43

and they're some of the

52:45

worst abuses are the fund

52:48

to fund to funds. And

52:50

I've seen crazy stuff like

52:52

beanie babies, any kind of

52:54

deal you can imagine shows

52:56

up in these funds. This

52:58

consulting thing is another one.

53:00

I mean, the fee is

53:02

paid to consultants. I mean,

53:05

there's a whole cottage industry

53:07

around keeping the state and

53:09

local pension patsies invested in

53:11

all the latest and greatest

53:13

iterations coming out of Wall

53:15

Street, it sounds like. Yeah,

53:18

there is there's the the

53:20

consulting industry conflicts of interest

53:23

in the investment consulting industry

53:25

is something I worked with

53:28

the SEC on from 2003

53:30

to 2005 and because they

53:32

came to me For information

53:35

about that and they they

53:37

tried to clean up the

53:40

industry in 2005 which actually

53:42

made it worse the The

53:45

fix didn't work, it actually

53:47

drove investment consultants into more

53:49

conflicted arrangements rather than forced

53:52

them to shed that. So

53:54

yeah, the conflicts in the

53:57

consulting industry are profound. And

53:59

then you have these, in

54:01

the public sector, you have

54:04

these conference promoters and organizations

54:06

that bring, that exists to

54:09

bring Wall Street and funds

54:11

together, the National Council on

54:14

Teacher Retirement, the National Council

54:16

on Public Employee Retirement Systems.

54:18

These are organizations that host

54:21

conferences where Wall Street sells

54:23

their products. So there's a

54:26

lot of. problems in

54:28

the system. Yeah. Can I

54:30

just comment on this real

54:32

quick? So Ted, most of

54:35

these examples you're giving there

54:37

are kind of abuse coming

54:39

down from the top, right,

54:41

from the people who are,

54:43

you know, parasiting off of

54:45

all the funds at the

54:48

top. How about at the

54:50

bottom, you know, we hear

54:52

stories like with police forces

54:54

or fire departments where like

54:56

your last year of service,

54:59

you get transferred to a

55:01

different department given a bigger

55:03

title. and your salary gets

55:05

boosted and your pension is

55:07

based upon a multiple of

55:09

your last year's salary. So

55:12

there's, you know, all this

55:14

abuse at the bottom, sorry,

55:16

there's reported abuse at the

55:18

bottom to over inflate the

55:20

inputs that will determine what

55:22

your pension's gonna be. How

55:25

big of an issue is

55:27

that? Well, it is an

55:29

issue. That was, I remember

55:31

I heard about that first

55:33

decades ago. It was called

55:36

Sergeant for a day. You

55:38

would be promoted to Sergeant

55:40

the day before you retired.

55:42

so that you'd get a

55:44

sergeant's pension. So there are

55:46

abuses in the calculation of,

55:49

calculations of benefits and there

55:51

are some outrageous situations where

55:53

people are getting hundreds of

55:55

thousands of dollars a year.

55:57

But those, all of those

56:00

abuses combined really don't amount

56:02

too much. money actually. I

56:04

mean, that's more compared to

56:06

the fee abuse. Yeah, I

56:08

mean, I mean, Wall Street

56:10

gets 20. of the profits

56:13

on $100 million investment. That's

56:15

going to be a lot

56:17

more money than the cop

56:19

who gets $200,000 a year.

56:21

But I believe that those

56:23

abuses should be called out

56:26

and stopped. But if you

56:28

look at the data on

56:30

what is the average state

56:32

employee get as a pension

56:34

benefit, it's roughly comparable to

56:37

Social Security. What are we

56:39

in a 30 to $50,000

56:41

somewhere 25 to $50,000 in

56:43

that range? So you're not

56:45

seeing particularly their their outliers

56:47

Sweetheart deals, but you're not

56:50

seeing widespread Abuse there who

56:52

also saw in Ohio in

56:54

particular that the state teachers

56:56

pension was was hiring investment

56:58

staff huge number of investment

57:01

staff I think they had

57:03

108 investment staff that we're

57:05

getting paid more than any

57:07

investment professionals in the local

57:09

community and that made no

57:11

sense. So sort of like

57:14

the education system where they're

57:16

just loading up on admin?

57:18

Yeah. Well, you know, the

57:20

the corollary is the more

57:22

you have allocated to alternative

57:25

investments theoretically, the more staff

57:27

you need to monitor those

57:29

investments because they're not simple.

57:31

index funds, publicly traded. So

57:33

you will see that over

57:35

certainly at CalPurs that the

57:38

more you get into the

57:40

exotics or the private investments,

57:42

the more staff you have

57:44

and the more highly compensated

57:46

the state investment staff is

57:48

and you will find in

57:51

every state these pension investment

57:53

staff are compensated. They're the

57:55

most highly compensated state employees.

57:57

They make more than the

57:59

governor, the attorney general, it's

58:02

the state employees. the state

58:04

investment staff that gets the

58:06

highest pay. That's a sweet

58:08

too, right? So, Steve, I'll

58:10

let you have about five

58:12

more minutes with Ted, because

58:15

we're going to start wrapping

58:17

up and then I'll put

58:19

a bow on it. Actually,

58:21

I was going to ask

58:23

him, I was going to

58:26

team up for the last

58:28

question, which I think is

58:30

the perfect opportunity for you

58:32

to advertise your services. Ted,

58:34

that was going to be.

58:36

How do you recommend that

58:39

people who have pensions that

58:41

they're worried about that are

58:43

exposed to all of these

58:45

liquid assets and that are

58:47

underfunded chronically and are going

58:49

to run out of money?

58:52

How do you recommend they

58:54

address that? Is there any

58:56

action they can take to

58:58

kind of protect themselves? Well,

59:00

I will mention the book

59:03

again that Robert and I

59:05

wrote, because this book gives

59:07

a very... basic understanding of

59:09

the fundamental truths about pensions,

59:11

public pensions. Every state worker

59:13

should have a copy of

59:16

this because it says that,

59:18

you know, there's certain universal

59:20

truths. They all overstate their

59:22

performance. They all understate the

59:24

fees they pay. They all

59:27

understate the risks they take.

59:29

They're all lacking federal regulations.

59:31

You just need to understand

59:33

these basic truths about all

59:35

public pensions before you start

59:37

diving into your own. And

59:40

what I started doing back

59:42

in 2012 was offering state

59:44

workers. participants in public pensions

59:46

the opportunity to crowdfunding a

59:48

an expert of their own

59:51

choosing, look at their pension?

59:53

Would it be something that

59:55

they would want to do?

59:57

And it has been done

59:59

successfully now. So that's something

1:00:01

they can consider is, first

1:00:04

of all, I'd say, read

1:00:06

the book and get an

1:00:08

understanding of the flaws in

1:00:10

the system, and then consider

1:00:12

having a forensic investigation done

1:00:14

through the crowdfunding. Yeah, well,

1:00:17

I guess that and then

1:00:19

also prepare for the possibility

1:00:21

that whatever pension you're being

1:00:23

promised might not actually be

1:00:25

there, you know, probably take

1:00:28

measures to save on your

1:00:30

own outside of that just

1:00:32

in case things don't work

1:00:34

out. Yeah, the problem with

1:00:36

that is the saying like,

1:00:38

you know, with Social Security

1:00:41

is that people, most people

1:00:43

really who, you know, a

1:00:45

great deal of elderly Americans

1:00:47

rely almost exclusively on Social

1:00:49

Security. So to say to

1:00:52

them, prepare for the potential

1:00:54

Social Security, it's like, well,

1:00:56

how would I do that?

1:00:58

And I personally don't think,

1:01:00

if Social Security fails, America

1:01:02

is over. It's done. I

1:01:05

mean, there will be, the

1:01:07

country would fall apart and...

1:01:09

the majority of elderly people

1:01:11

would be homeless and it

1:01:13

would be the end of

1:01:15

the world basically. But for

1:01:18

these, it's not, it's not

1:01:20

very helpful to say to

1:01:22

them, you know, to state

1:01:24

workers prepare for the possibility

1:01:26

that your pension may not

1:01:29

be there. And what I,

1:01:31

and some of, in some

1:01:33

states, state workers do get

1:01:35

Social Security in many states,

1:01:37

they don't. school teachers don't.

1:01:39

So it's it's if they

1:01:42

if they get a state

1:01:44

pension they don't get Social

1:01:46

Security. So that was that's

1:01:48

been an issue for a

1:01:50

long time. But what I

1:01:53

would say is my observation

1:01:55

with pensions is that because

1:01:57

this is a long process

1:01:59

like Social Security, the way

1:02:01

the fixes usually are incremental

1:02:03

changes. So it's the younger

1:02:06

teachers who are going to

1:02:08

get screwed. The older teachers

1:02:10

are getting a better deal.

1:02:12

It will be kind of

1:02:14

more like death by a

1:02:16

thousand paper cuts over a

1:02:19

30 year period rather than

1:02:21

a sudden collapse. The closest

1:02:23

thing to the sudden collapse

1:02:25

I think you see is

1:02:27

Kentucky is their pension is

1:02:30

in terrible condition last I

1:02:32

heard it was 12% funded.

1:02:34

So there are some states

1:02:36

and cities and what they're

1:02:38

in terrible shape. There will

1:02:40

have to be some kind

1:02:43

of bailout but it you

1:02:45

know it. can be sort

1:02:47

of a pay as you

1:02:49

go type of bailout as

1:02:51

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On our way. Well,

1:04:01

look, I'm going to rest back

1:04:03

to the baton here, but folks

1:04:05

watching, please, first off, give Steph

1:04:07

true props in the live chat

1:04:09

here for what a great interview

1:04:12

she conducted. This is really fun,

1:04:14

Stephanie. We need to keep this

1:04:16

modality going. I mean, I could

1:04:18

talk about this stuff all day,

1:04:20

but I don't want your audience

1:04:22

to throw themselves out the window.

1:04:24

No, well, and look, folks, if

1:04:26

you want us to bring Ted

1:04:28

back on to keep talking about

1:04:30

this again in the future, maybe

1:04:33

give us an update later on

1:04:35

in the year. Please let us

1:04:37

know. I'm sure folks are going

1:04:39

to want that. I've got the

1:04:41

unendable job of bringing this really

1:04:43

interesting discussion. We'll close. I got

1:04:45

a couple things to mention as

1:04:47

we really wrap up, but one

1:04:49

last general question for you, Ted,

1:04:51

and I'll take your short answer

1:04:54

on this. We can dive into

1:04:56

it later and more depth and

1:04:58

more depth. The new administration is

1:05:00

listening to this video and they

1:05:02

think, you know what, dope sounds

1:05:04

wonderful. So they create it, Ted,

1:05:06

they put you at the head

1:05:08

of it, they give you, you

1:05:10

know, Elon Musk style, you know,

1:05:12

access, and also just people have

1:05:15

to do what you say. What,

1:05:17

are there one or two reforms

1:05:19

that, you know, you would most

1:05:21

want to implement right out of

1:05:23

the gate in terms of addressing

1:05:25

this problem? Yeah, when I proposed

1:05:27

Dope, the Department of Pension Efficiency,

1:05:29

a few months ago, I said

1:05:31

this is the easiest problem to

1:05:33

fix in America. It would result

1:05:36

in no loss of jobs, really.

1:05:38

It's just, this is the simplest

1:05:40

thing, simplest way to save $6.5

1:05:42

trillion. And the fix is very

1:05:44

simple. A, all public money has

1:05:46

to be transparent. By doing

1:05:48

so, you've eliminated all private investments

1:05:51

because they're not transparent. They're very

1:05:53

fair. So, and then the simplest

1:05:55

fix is to simply index. the

1:05:57

$6.5 trillion and that would result

1:05:59

in improved performance across the board.

1:06:01

But even if you don't go

1:06:04

to 100% indexing, go 100% transparent.

1:06:06

And that alone would be a

1:06:08

complete game changer. And by the

1:06:10

way, that was the intention of

1:06:12

our state public records laws for

1:06:15

the last. whatever, 50 years, 70

1:06:17

years before the last 20 when

1:06:19

that's been eviscerated. But it's a

1:06:21

very simple problem to fix and

1:06:23

the results would be tens of

1:06:26

thousands of dollars in savings. Forget

1:06:28

the $5,000 dope check. We could

1:06:30

give every American a $50,000 dope

1:06:32

check. All right, well, look, I'm

1:06:34

seeing lots of comments there in

1:06:36

the live chat. Ted for Dope.

1:06:39

So, a lot of folks here

1:06:41

for that. Well, Ted, look, one,

1:06:43

thank you so much for coming

1:06:45

on and doing this with us.

1:06:47

Superfasting, it's sad. There are so

1:06:50

few people bringing the alarms about

1:06:52

this, but we so appreciate that

1:06:54

you are one of the few

1:06:56

who are dedicating your career to

1:06:58

doing this. For folks that are

1:07:01

watching who would either just like

1:07:03

to learn, you know, follow you

1:07:05

or learn more about your work,

1:07:07

but probably even more importantly to

1:07:09

Steph's If they're like, look, I've

1:07:12

got a state pension I depend

1:07:14

on, and I might want to

1:07:16

do some crowdsourcing to see if

1:07:18

we can't find an independent audit

1:07:20

of it, how can people reach

1:07:22

out to you? Well, I write

1:07:25

a sub stack, which is Pension

1:07:27

Warriors by Edward Siddell, and then,

1:07:29

like I said, you try to

1:07:31

read the book, I think it

1:07:33

would be helpful to get a,

1:07:36

to learn. more about it. But

1:07:38

they can, I'm the easiest guy

1:07:40

in the world to find my

1:07:42

phone number, everything's all on the

1:07:44

internet. And so just reach out

1:07:47

to me and I'd be happy

1:07:49

to, I always answer my phone,

1:07:51

be happy to talk to them

1:07:53

about it. All right, great. Thank

1:07:55

you. And folks, I just put

1:07:58

the link to his substack there

1:08:00

in the, and the live chat.

1:08:02

And real quickly as you wrap

1:08:04

up here, first off, if you

1:08:06

folks haven't already done so, Stephanie,

1:08:08

our fantastic interviewer for today. She

1:08:11

operates at macromabins.com. And Steve, real

1:08:13

quick, if you can just give

1:08:15

a quick summary again of the

1:08:17

retail offering you make available there.

1:08:19

Oh yeah. So that's information available

1:08:22

on the website. It's once a

1:08:24

month. You get to listen to

1:08:26

me rant about all the things

1:08:28

that are. controversial out there. So

1:08:30

you can sign up there and

1:08:32

also follow me on Twitter at

1:08:34

S Pomboy or right here every

1:08:36

other Wednesday with Adam. Yep, every

1:08:39

other Wednesday here at Thoughtful

1:08:41

Money and very quick and

1:08:43

just wrapping up I'm putting

1:08:45

up the URL here to

1:08:47

Thoughtful money.com because you know, retirement is

1:08:49

a universal, I think for everybody watching

1:08:51

this, a universal concern, meaning, okay, am

1:08:53

I going to be able to get

1:08:55

there? Is my money going to last

1:08:57

for me? Obviously, if you are dependent

1:09:00

on a pension and are quite worried about

1:09:02

this discussion, then I highly recommend that you

1:09:04

talk with a good financial advisor about, you

1:09:06

know, steps you might be able to take

1:09:09

now to try to. make sure that you're

1:09:11

getting your cost footprint under control so that

1:09:13

if indeed your pension turns out to disappoint

1:09:15

you you've got at least some cushioning against

1:09:18

it and maybe some other things that you

1:09:20

might be able to do to to you

1:09:22

know increase your your retirement nest egg there

1:09:24

and obviously if you don't have a pension

1:09:27

and can't depend on a bailout if you

1:09:29

don't have great confidence in your ability to

1:09:31

retire by the time you want to retire

1:09:34

with the money you want to retire at

1:09:36

that time again. very helpful to talk

1:09:38

with a good financial advisor to put

1:09:40

together a financial plan to try to increase

1:09:42

your odds of hitting that and if you

1:09:44

don't have a good one who's can do

1:09:47

that for you right now feel free to

1:09:49

talk to one of the Financial Advisers that

1:09:51

thoughtful money endorses They'll sit down with you

1:09:53

for free and discuss all this personal your

1:09:55

situation to do that just fill out the

1:09:57

short form there at thoughtful money.com

1:10:00

All right, I can't thank you both

1:10:02

enough. Stephanie and Ted. Ted, it's great

1:10:04

to see you again. I think it's

1:10:07

been about a year since we last

1:10:09

talked. It is a bit sad that

1:10:11

the situation hasn't improved at all since

1:10:14

then, but of course, that's what you've

1:10:16

been warning about anyways. But can't thank

1:10:18

you enough. And folks, if you enjoyed

1:10:21

this, you know, sort of special report

1:10:23

on a specific topic of concern like

1:10:25

this, would like to see Stephanie and

1:10:28

I do more of this. Please let

1:10:30

us know in the comment section below

1:10:32

and in the live chat. And if

1:10:34

folks want us to, we definitely will.

1:10:37

But Ted, look, I'll let you have

1:10:39

the last word here. Well, I just

1:10:41

wanted to say that I heard from

1:10:44

reporters in Ohio about the work that

1:10:46

you and Steph have been doing, the

1:10:48

broadcast you've been doing recently, and they

1:10:51

were thrilled. That's great. You're going to

1:10:53

be on the show with them because

1:10:55

evidently whatever you're doing is sparking a

1:10:58

lot of interest in the Buckeye state.

1:11:00

Well, thanks. That's an honor to hear

1:11:02

and I can guarantee you that's about

1:11:05

98% Stephanie. I just want to say,

1:11:07

I've so enjoyed getting to meet you,

1:11:09

Ted. I've seen your interviews with Adam

1:11:12

and this was really fun. Thank you

1:11:14

for your patience with me and my

1:11:16

silly questions, but I really enjoyed the

1:11:19

conversation and hope we all three of

1:11:21

us get to reconvene, hopefully under more

1:11:23

positive circumstances, but somehow I'm doubting that.

1:11:26

Well, great. Thanks for inviting me. Thanks

1:11:28

for coming on Ted and everybody else.

1:11:30

Thanks so much for watching.