As the Falls Church City Council mulls how to deploy the $14 million coming its way as net proceeds from the sale of the City’s water system to Fairfax County, we are puzzled by the prevailing wisdom coming from so-called experts on the subject that a lion’s share, at least, of those funds should go to buoying up the City pension fund.
As we have said before, our advice is to set the money into an endowment fund, an option being considered but not so far recommended to the Council.
While the numbers don’t show up as favorably for the endowment fund approach as for the pension fund approach, that’s based on what may be a serious fallacy. Namely, have we learned nothing from the last decade’s meltdown of the international financial markets?
Financial advisers were saying to their clients in 2007 and 2008 exactly what they are saying today. Denial of warning signs showing up everywhere led them to stick to their calcified analysis to the bitter end. When one City resident complained to her broker at a local bank about the danger signs, the broker threw her hands in the air and exclaimed, “Well, if what you say is true, then we’re all doomed!” Yes, it turns out that anyone who did not reject that person’s advice was “doomed!”
Now, in 2014, there has been a remarkable rebound in the stock market, but it shouldn’t take a rocket scientist to figure out that this has been the result of the Federal Reserve’s determined effort to reflate the international financial bubble, not to rebuild the nation’s infrastructure or build up the middle class.
So now, the stock market is at a record high with nothing to keep it there. Its has become completely disassociated from the real economy, and now that the Fed is beginning to taper down its financial stimulus, the puffed-up fiction of the markets will be heading in the direction of the condition of the real economy.
How can the Dow be up 26 percent and the S&P 500 up 30 percent in 2013 when the real economy sputtered along at barely two percent growth without it being obvious that the paper values in the market will eventually go up in smoke just as they did a half-dozen years ago?
Dim-witted market analysts can’t see such things. But if the Falls Church City Council or any government entity anywhere remains deluded by such “experts,” willing to subject their constituents’ resources to the consequences of yet another fierce dip in the world’s financial markets, then such would be unconscionable.
Put the money into the pension fund, and they’re helpless to get it back. Only an endowment approach keeps the local government in control of that money, and given the track record of the last meltdown, one should trust local government officials more than discredited financial advisers to do what’s right with the people’s money.