The road to ruinous financialization in the United States commenced in 1963, when the Studebaker auto company went broke and left many workers without pensions. Just over a decade later, Congress passed the Employee Retirement Insurance Security Act, which requires companies that offer retirement plans to manage those investments according to federal standards, ostensibly assuring wage earners of money to live on in retirement. ERISA was originally intended to insure defined benefit pension plans against failure, but by the ’80s these plans had been pre-empted by another well-intentioned government initiative: individual 401(k) plans. As corporate managers and investment firms manipulated these plans for their own gain, retirement savings became the fuel for widespread speculation and financialization of the American economy.
Pension savings, now estimated at nearly $3 trillion, could be invested in companies to finance productive growth, in bonds to fix bridges and build schools, in education loans and environmental protection. Instead, they have become rich fodder for Wall Street money managers. In the past three decades, partly because of this pension wealth, the financial services sector has increased its overall profits from 16 percent of total corporate profits to more than 40 percent.
Rather than distribute this profit to stockholders, financial firms reduced dividend yields from roughly 6 percent to less than 2 percent. Stock turnover accelerated, increasing traders’ commissions at the expense of the investors. Every year hundreds of billions of dollars of pension capital is diverted by senior management to stock buybacks. Dividends are not returned to the economy to fund innovation and growth. Instead they are often used to fund high-risk hedge funds and help private equity companies with their “buy it, strip it, flip it” acquisitions.
Full Article
Source: The Nation
Pension savings, now estimated at nearly $3 trillion, could be invested in companies to finance productive growth, in bonds to fix bridges and build schools, in education loans and environmental protection. Instead, they have become rich fodder for Wall Street money managers. In the past three decades, partly because of this pension wealth, the financial services sector has increased its overall profits from 16 percent of total corporate profits to more than 40 percent.
Rather than distribute this profit to stockholders, financial firms reduced dividend yields from roughly 6 percent to less than 2 percent. Stock turnover accelerated, increasing traders’ commissions at the expense of the investors. Every year hundreds of billions of dollars of pension capital is diverted by senior management to stock buybacks. Dividends are not returned to the economy to fund innovation and growth. Instead they are often used to fund high-risk hedge funds and help private equity companies with their “buy it, strip it, flip it” acquisitions.
Full Article
Source: The Nation
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