New Mexico: Investing Pensions in “Toxic Waste”

Thanks to a reader of our blog, James McHenry, for this story from Bloomberg which explains that New Mexico’s State Investment Council, which funds education and government services for children, has $522.5 million tied up in investments so risky that they make “junk bonds” look safe. In fact, because of their risky nature, bankers call these investments “toxic waste.”
These collateralized debt obligations (CDOs) are packages of securities backed by bonds, mortgages and other loans that have been bought by the State Investment Council with hopes of generating returns as high as 20 percent. That is, of course, assuming that the Investment Council doesn’t lose its shirt on the deal.
The fact is that state employee pension funds across the nation are tremendously underfunded and there is a great deal of temptation, like any gambler in Vegas knows, to double down on losses in an effort to make their money back.
This is just another reason that, contrary to the pleas of organized labor, we are much better off investing our own money in our own retirement accounts than we are letting governments or even corporations do the investing for us.

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