The financial mess that is happening in Detroit right now is terrible. A lot of people are probably going to lose their pensions. But there is a bigger picture that I would like you to consider about this - that this is a micro-cosmic example of what the Republican Party wants to do to Social Security and the country as a whole. It would be a disaster for us all and the parallels are easy to draw.
You see, government employees in Detroit and many other cities in Michigan don't get Social Security. Instead of paying into Social Security like the rest of us do they paid into a pension fund and this fund is where their retirement monies come from. The average payout per year is $19K. Some people make more, but most of the ones who do have earned it. Policemen. Firemen. One retired police captain makes $90K in his pension but he got shot at 6 times and stabbed twice. I think he earned it.
Let's be clear about this - the only pensions what are subject to being slashed are those who belong to city employees and retired city employees. No one else. These people paid into the system, many times treating the monies as deferred income - taking a pay cut in the now to have the money later, and that money is going to be gone.
The city of Detroit has been badly mismanaged. No doubt about it. It was once the 4th largest city in the U.S. and now has a population of about 700,000. Many parts of the city look like a ghost town. Sure, there are external factors like a terrible economy and an auto industry on the skids for a while, but ultimately the job of the city managers is to anticipate for these events and ride out the hard times. They failed, and now these people have nothing.
The Republican party talks about vouchers and retirement funds as a replacement to Social Security. They talk about using the stock market to bring about a better return on your money than putting your money aside in Social Security would provide. And done right it can work. So do you think the managers of Detroit thought they were doing it wrong when they invested the pension plans and lost so much money?
That's the real problem - while it can be done right and you can be made rich by investing the truth of the matter is that a lot of people don't. A lot of funds lose money and many experts get it wrong as to how each will perform. Remember when the analysts on CNBC predicted that people's money at Bear-Stearns was safe and they collapsed the SAME DAY? A lot of people who play in the stock market these days are looking for a get rich quick return and most of those people lose money. Investing is for the long haul and if you try to do anything else all you are doing is gambling.
This, among other things, is what happened in Detroit and why 91,000 people are going to find themselves in poverty or worse because their pensions have been taken away from them. Because they used a system other than Social Security and it got screwed up. No one, not ever, has lost their savings because of Social Security. Despite what you hear, until people fuck with it, Social Security is doing fine and doing what it is supposed to do.
Nothing else can make that claim when it comes to pensions. Or private accounts. Or anything like what has happened to the people who relied on the city of Detroit for their retirements. Next time you consider alternatives to what has happened here, really take a closer look at Detroit.
I handle money for a living. I know this.