Pension fund robbery or a poisonous gift?

Portugal has to me an unknown number of pension funds.  Social security was only created after the revolution and all large companies had their own pension schemes.

When social security was created, for reasons beyond logic the separate pension schemes were kept.

Perhaps for the best as the social security has spent some of the money reserved for pensions (and "bought" Portuguese state debt of dubious value) and count on current and future income to be able to pay future pensions.  Until eventually absorbed by the social security the pension funds had money in them.   Friday, one of the last?, the bankers pension fund was handed over to the state.

For once I actually feel a little bit sorry for the bankers.  They will eventually as everybody else live from one day to another, as their pension money will be devoured by the state.  Also they will in the future see drastic cuts in their pensions - just like everybody else.  For now, though, they are fine as:

• For the state to be allowed to take the money the bankers have been guaranteed pensions are not touched by austerity measures
• The banks will continue to decide how much the bankers going into retirement will receive.  This point is incomprehensible as it suggests the banks will continue to stay outside the normal rules of society and social security.

The banker's pension fund had an amount of around 6 billion euros.  I.e. more than 3% of the annual GDP.

It is difficult to get a clear answer but the following are the apparent facts

• Without this one-off injection - Portugal would not be able to meet the max 5.9% state budget deficit demand.
• Some of the money will be spend right away
• Some of the money will be spend to assure then bankers pension the coming year
• Once again the politician state and swear:  This will be the last time we do this trick (perhaps because there are few pension funds left - but the military still has a large one...)
• Some of the money will be saved for future expenses

The last fact is stated by the Portuguese prime minister.  It is doubtful in my opinion.  Because the statement infers a third will be saved.  I do not believe it as the money is needed now.

What is interesting and extremely worrying:

• The payment from the banks (the pension fund) includes government bonds.  I.e. debt owed by the Portuguese state.  They will probably just be absorbed - the effect will be to absolve the debt.
• If the max. deficit of the state could not have been met without this injection - the public debt would then have ended up with an additional 9% (5.9% plus 3%+) of the the GDP this year?
• The requirement for next year is 4.5%.  There will be no more pension funds to rob.  The effort is not only one from 5.9% to 4.5% but actually from 9% to 4.5%?  A draconian cut.  No wonder the prime minister speaks of possible further austerity measures in 2012.
• The 6 billions euros correspond to nearly 10% of the annual income of the state.
• Robbing the money from the banker's pension fund will leave little money to pay future pensions.  Consequently, the next 80 years or so - money will be missing from the budget and will have to found elsewhere through taxation or by not paying (as much) pension. We have now a new debt for the state.
• I wonder why the banks handed over the pension fund without a peep from the banks.  They are usually extremely loud when not satisfied. Obviously because they will save money by doing it.  Ergo the public will now have an added burden here as well.  This is analogue to a loan with interest - probably a high one.

What a mess.  It looks bleak for 2012 and beyond.

Two sources (Portuguese): Passos: "Não há folgas, nem almofadas" and Ricas Pensões

Bad boy banker threatens

The bad boy banker Fernando Ulrich, president of BPI, one of the larger Portuguese Banks, makes an interesting statement:

Public entities local or central will never ever get credit (from the banks) again - unless they can show the same credit rating and cash flow as similar entities in Germany or Schwitzerland.

The reason I call him bad boy banker, is the he has been the most vocal of the bankers against the demand banks must raise their reserves to the levels demanded by the Troika.  From him came the by now infamous question.  It goes something like this (from my memory)  "How can 5th or 7th level rank bureaucrats (of the Troika) be deciding issues of this kind of importance?"

His argumentation is that the money applied for further capital in the banks is less money available for financing companies and society in general.  Also he argues, that banks forced to augment the capital by next year may have to borrow from the state's fund created for this reason.  The state gets the money from the Troika - a by now infamous fund of 12 billion euros.  He knows the state will demand influence (stocks?!) from the banks they lend money.  And as he claims - this is a kind of nationalization.

His most weighty argument in my opinion is this:  "Let the bankers take care of banking."

He has a point.  The politicians obviously do not understand banking or much of anything.  They should stay out of the private sector.

On the other hand this whole crisis has the financial sector as one of the culprits.  But it must also be stated that the Portuguese banks have been some of the most responsible of all Europe.

Until now, BPI, Mr. Ulrich's bank, has been awarded by Fitch by receiving a junk rating together with the Portuguese state.

Perhaps the public sector not being able to borrow money in the future is positive.  Then at least they can waste less and perhaps become responsible.  Spending less than your income would be a nice rule for the next 100 years...

The public sector can foresee some horrific short term problems.  If I were I bank I would not lend a cent to any public entity.  Not even the Bank of Portugal.  Not even if they handed in the gold reserves as a collateral.  Because no matter what - you can only be sure of one thing:  The public sector is untrustworthy.

The Devil Giveth And The Devil Taketh Care Of His Own

The world of finance and the banks are a major cause behind this financial crisis.  Why does it not surprise me that they will not suffer together with everybody else.

Well you see, the retired bankers in Portugal will be the only retirees for now (*) who will not loose their 13th and 14th month of retirement payment.  Further more, they will have their pensions updated yearly as usually.   Look at the bright side - maybe they can buy your house when you have to leave, because you can no longer afford it.  (Hat tip: Diario de Noticias)

(*) Some pigs are just more equal than others.  Rumors are that the ex-PIDE inspectors (Gestapo like secret police from the time of Salazar) will also not loose a cent in retirement benefits.  They are being considered for one extra 15th salary.  To lighten their burdens.  When you torture somebody - that leaves a mark...

Update:  One reader was surprised to know that the ex-PIDE people get pensions at all considering their previous occupation.   My dear friend, they were all bureaucrats as well, and rather efficient ones - I have been told.  Bureaucrats will use any means to get what they want.  And whether they lie, cheat, steal, work, do nothing, succeed and/or fail - they will always be respected and rewarded.  Results are irrelevant.  It is a law of nature.  But woe the people who actually do a purposeful job for a living like doctors, teachers or other common citizens - do not cross the line and for your own sake do not mess with the bureaucrats.

(*) The ex-PIDE do receive pensions, but that they are to receive more is a joke of mine
.. .. .. .. ..  not based on reality .. .. .. .. .. it would never happen .. .. .. .. .. I am sure...

Dexia and other banks

Hat Tip: The Black Commentator

It is not as easy being a bank these days as it used to be.   And it will undoubtedly get much worse before it gets better.

Look at this nice collection of 5 links concerning the Belgium bank Dexia and stress tests at the blog Blasfémia (Hat Tip)

The banks in Portugal have with a few and one grave exception behaved nicely compared to banks around the World.  Particularly banks in the US and Northern Europe.  I am somewhat against saving banks with bank packages and public money.  If they are not healthy - let them go broke - specially when they have done casino speculation.

Banks used to be the pillars of society, with responsible conservative boards and bank directors with a notion of social responsibility.   This is no longer the case.   They have shown themselves to be champions of the old cardinal sins.  Greed is ugly indeed, and ugliness is now associated with everybody in banking and even more so in finance.  Deservedly or not.  There are many in the world of finance that deserved to be tarred, feathered and evicted from town.  Quite frankly, the world would be a better place without them.  It is shameful they will receive no punishment.

Looking at banking generally speaking, it would be rather dreadful if they all closed as they are part of very fabric of our society.  Many small savers would loose much and many companies would close.  On the other side, the argument that the banks provide capital for private endeavors such as company financing is currently not true.  The banks should thread lightly and assume an apologetic attitude.  We don't like you anymore!

We expect you to be responsible, to have less greed, to stop lending money to idiots, to stop speculating to the same degree, to stop gearing every deposited Euro into many fictitious.   We expect larger reserves.  We expect you to be an asset for society instead of a burden.  Because you don't really produce anything.  You just make money out of money.

See this rather old article from Financial Times:  Faith and finance: Of greed and creed

I am by no means a religious person; but I find it interesting that both the Bible and the Quran speak against lending money with interest (in the Bible's case arguably: excessive interest, usury and foremost in relation to the poor).
But take a look at the credit card circus.  The best credit card clients of the banks have maxed their cards, are paying late and lots of penalties.  Interest can easily reach 50% a year.  Enough, I suspect, for a Mafia money shark to be convicted.
Hint - if you have little money - get rid of all your bank cards, debit and credit.  Use cash.  It is quite easy to see when the wallet or money jar starts getting empty.  It will make your life better!