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Page 7 of 20
SOCIAL SECURITY AND PENSION FUNDS
- Social Security surpluses will begin a permanent decline in 2009, when the ability of these revenues to help offset national deficits will progressively diminish, causing the national budget to shrink. In 2017 it is projected Social Security will begin operating at a deficit, requiring it to redeem its US Treasury special securities holdings to meet these obligations. To generate the necessary funds will require higher taxes, lower spending on other programs, and/or higher borrowing from the public. (David Walker, US Comptroller)
- In the past two years, many US public pension funds have added to their hedge-fund investments, their own direct purchase of the very risky mortgage-backed securities (CDOs). Real estate investment analysts warn that the huge losses likely to come in these housing-bubble securities—likely in the hundreds of billions of dollars—are going to create a second-wave pension crisis in the US. (Executive Intelligence Review, July 6, 2007) As the credit crunch intensifies across the (CDO) world markets, it will become impossible for many of these “investment asset” components within pension funds to be sold at any price. Hedge funds, as they get into trouble, block investors from withdrawing capital for up to 60-90 days, at which point it is usually too late to make adjustments, as with the case of Amaranth, REfCo, and Bear Stearns. The MBS and CDO losses—perhaps nearly $1 trillion—will impact hedge funds and the investment-banks’ “hedge funds of funds” hardest. But, these institutions, in attempting to untangle themselves from their losses, will rely on the assistance of pension funds—in effect deepening the impact of the meltdown. (Executive Intelligence Review, July 6, 2007)
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