Where have we gone wrong?

Pick your issue.

There seems to be no shortage of them.

  • Financial system shenanigans.
  • Burgeoning student debt not supported by post-Commencement Day paychecks.
  • A climate conversation that is divisive, confusing and sometimes terrifying.
  • The disappearance of the middle class – the bedrock of American democracy.
  • A foregone conclusion that for many of us – perhaps for all of us – there will be no pension to live on in retirement.

Let’s pick this last one, and dwell on it for a moment.

Most critics of this lifetime’s great existential crises look away when we talk about pensions.  Too boring. Too esoteric.  Too much structure. Not enough humanity.

They prefer to look for people to blame, for bad actors who are acting badly to punish for their bad actions.  “That’s the ticket,” they say. “Let’s get these bad actors to stop acting badly. That will make everything right again!”

We are not so sure.

What if, as we believe to be the case, pensions lie at the heart of the intractability of many of the most intractable problems facing society today?

And what if pensions are also the key to unlocking solutions to these problems?

“Pensions?”, you ask.

“Yes, pensions”, we say.

How can that be?

It starts with a proper understanding of what a pension properly is, and then enters an economic “worm hole” to arrive at a new philosophy of enterprise, finance, prosperity – and capitalism.

“Capitalism?”, you ask.

“Yes, capitalism.”, we say.

“Actually, the capitalisms.”

“Capitalisms?”,”with an “s”?  “You mean there is more than one of them?”, you ask.

“Yes. There are six, actually.”

“…but we are getting ahead of ourselves. Let’s tell the story in the right order, beginning at the beginning.”

What is a pension?

A proper pension – that provides income security in retirement for as long as we live – is an actuarial risk pool.  It is a form of insurance. It uses the Law of Large Numbers to socialize the cost of living in retirement across a statistically significant population of statistically similar individuals.

This risk pool is filled from two sources:

  1. contributions made by or on behalf of pool participants; and
  2. earnings realized on the investment of pooled savings.

It is drained by two purposes:

  1. paying its own costs of operation; and
  2. paying pension benefits to current retirees, currently.

The purpose of a properly functioning pension plan is to keep its inflows and outflows properly balanced, so that its risk pool remains always properly full and flowing.

This is not a future goal. It is a daily necessity, in a perpetual present…and a constant concern for those people in charge of pension fund performance.

“How can I generate adequate cash flows, forever?”
Anonymous, former pension fiduciary (retired)
pensions are good and they don’t have to die. [Maybe a graphic of media headlines?]
Section 1: Pensions
(1) Pensions have one goal: stay “afloat” to make payments. [Puff the magic float diagram.]
(2) The way that pensions invest today was completely illegal under the laws of fiduciary duty until 1972. [Uniform Law diagram.] This change transformed the ability of Wall Street to do what it does best: aggregate the savings of individuals to scale enterprise.
(3) The switch happened because it was clear that to meet their obligations pensions had to find better returns than just low-yield vehicles such as bonds and the like, but everyone mistakenly believed that that meant that tradeable equities were the “other” option.
(4) But pensions have the size and the ability to question the investment vehicles that they are being sold. [Wall Street at the center of the universe.]
Section 2: Wall Street is for Individuals—Not Pensions
(5) Pensions need to stop thinking of themselves as purchasers of investment assets and start thinking of themselves as suppliers of capital that comes in vehicles that best meet their beneficiaries’ interests—not just their financial advisers’ and brokers’—and that align the dynamic entrepreneurs’ interests. [Maybe Jon’s Diagram]
(6) When you look at the possibility of returns from tradeable securities, they are too volatile to plan actuarial returns around them. If there is a better way, why don’t they choose it?
(7) Tradeable securities are good for individuals; they were created for their idiosyncratic life choices.  Many people fail to realize that stocks are effectively derivatives one step removed from the operations of the enterprises they represent (a never-expiring put option that allows you to escape the investment at any time based on the market clearing price). This derivative nature was created for individuals’ needs and to let corporations go about scaling no matter who had rights to their output.  Pensions are not idiosyncratic.  Their needs are predictable.
Section 3: Pension Power to Invest Directly
(9) When you look at the underlying cash flow production of an enterprise, they are much better matched to the cash flow needs of pensions than the likely return from tradeable securities, particularly when you start stacking the the cash flows from many enterprises whose operations ebb and flow separately over time.
(10) Evergreencore.org is advancing a new kind of vehicle that overturns our assumptions about “equity” and debt” to create a whole new kind of vehicle that is designed for the interplay between pensions’ actuarial needs and the dynamic powers of entrepreneurs to do what they do best: create value.
Closing message: Pensions can survive by investing directly. They are already doing it in real estate, but waterfall structures are even more powerful for pensions than for real estate investments when issues of leverage are clarified.
Outcome: Pensions can do the other things they must do to keep doing what they do in perpetuity.
pensions are good and they don’t have to die. [Maybe a graphic of media headlines?]
Section 1: Pensions
(1) Pensions have one goal: stay “afloat” to make payments. [Puff the magic float diagram.]
(2) The way that pensions invest today was completely illegal under the laws of fiduciary duty until 1972. [Uniform Law diagram.] This change transformed the ability of Wall Street to do what it does best: aggregate the savings of individuals to scale enterprise.
(3) The switch happened because it was clear that to meet their obligations pensions had to find better returns than just low-yield vehicles such as bonds and the like, but everyone mistakenly believed that that meant that tradeable equities were the “other” option.
(4) But pensions have the size and the ability to question the investment vehicles that they are being sold. [Wall Street at the center of the universe.]
Section 2: Wall Street is for Individuals—Not Pensions
(5) Pensions need to stop thinking of themselves as purchasers of investment assets and start thinking of themselves as suppliers of capital that comes in vehicles that best meet their beneficiaries’ interests—not just their financial advisers’ and brokers’—and that align the dynamic entrepreneurs’ interests. [Maybe Jon’s Diagram]
(6) When you look at the possibility of returns from tradeable securities, they are too volatile to plan actuarial returns around them. If there is a better way, why don’t they choose it?
(7) Tradeable securities are good for individuals; they were created for their idiosyncratic life choices.  Many people fail to realize that stocks are effectively derivatives one step removed from the operations of the enterprises they represent (a never-expiring put option that allows you to escape the investment at any time based on the market clearing price). This derivative nature was created for individuals’ needs and to let corporations go about scaling no matter who had rights to their output.  Pensions are not idiosyncratic.  Their needs are predictable.
Section 3: Pension Power to Invest Directly
(9) When you look at the underlying cash flow production of an enterprise, they are much better matched to the cash flow needs of pensions than the likely return from tradeable securities, particularly when you start stacking the the cash flows from many enterprises whose operations ebb and flow separately over time.
(10) Evergreencore.org is advancing a new kind of vehicle that overturns our assumptions about “equity” and debt” to create a whole new kind of vehicle that is designed for the interplay between pensions’ actuarial needs and the dynamic powers of entrepreneurs to do what they do best: create value.
Closing message: Pensions can survive by investing directly. They are already doing it in real estate, but waterfall structures are even more powerful for pensions than for real estate investments when issues of leverage are clarified.
Outcome: Pensions can do the other things they must do to keep doing what they do in perpetuity.

in the current system…

maybe it is time we adaptively evolved a whole new system