In my readings about the Jimmy Hoffa era of the Teamsters, it seems that the Mafia likes a cosy relationship with the union-the union “invested” large amounts of the pension funds in Mafia run hotels and casinos in Las Vegas. This was one of the main reasons why Hoffa was killed-he threatened this arrangement. What has never been clear to me, was the results of this: did the union lose money on this? Under the Mob, Las Vegas casinos were highly profitable; did the investments return a profit to the union? The relationship benefitted the union to management; but were the rank and file ripped off? When the Nevada authorities cracked down on the corrupt casinos, the Mafia was barred from ownership-did the union get their money back then?
I once read an article about this in - IIRC - the NY Times. They said that the Teamsters did very well under Hoffa and his mob investments, and that when they subsequently went legit and switched to investment/money management professionals they did not do nearly as well.
I believe this may be the article I’m remembering.
Unsurprisingly, investments in criminal enterprises are often quite profitable. Turns out that’s one of the prime motivations for people who commit crimes.
Well yeah, but the tricky part is to make sure some of the profits accrue to you instead of just to the criminals themselves. Or, looked at another way, to make sure you’re really an investor and not a victim.
If you’re knowingly investing in illegal activities it’s hard to report ‘criminal activity’ if your mafioso partner rips you off. Nobody would be surprised to hear that the mob ripped off the Union along the way. However overall it sounds like the Union’s coffers, and its officials, benefited from its relationship with the Mafia during its heyday. The rank and file, perhaps not as much.
Thanks-it sounds like the Mob made a lot of money in Las Vegas-probably because they were able to “skim” a lot of money off the top-not paying taxes increases your profits greatly!
This is a plot point in James Ellroys American Tabloid…a great read.
Another way to look at it would be to say that those “prominent Wall Street firms” skimmed off more money in fees and charges than the corrupt mafia did.
After all, I remember reading as a youngster that those terrible loan sharks charged victims up to 25% on their loans – now my credit card companies would charge 29.5% if I didn’t pay it off every month.
The loan sharks charge 25% a MONTH, not 25% annual rate.
Actually that’s not what it sounds like. Read the article I linked above.
So Wall street was like the Mafia (but with lower returns?)
What happened was Hoffa created the pension fund and his mafia friends got him to lend it to other mafia members who built the casinos. At one point the Teamster’s pension fund had over 90% of its pension invested in Las Vegas casinos. This is kind of crazy for a pension fund since the failure of a couple of businesses could have wiped out the entire fund and left thousands of teamsters with no retirement. However, the casinos prospered and the Pension funds got repayed. The seventies were a down decade in the stock market so having the funds in Las Vegas real estate instead of stocks probably was a much better investment in hindsight though the risk made it unwise. Having the mafia involved meant millions of dollars in kickbacks but apparently the casinos were so profitable they were able to repay anyway.
After the Department of Justice went after the teamster mafia connection, the pension fund was switched to regular wall street investments. This is a much safer strategy and is more appropriate for a pension fund. At the same time this happened there was trucking deregulation, which devastated the teamsters union and the pension fund has been in trouble ever since.
An update on the Central States Pension Fund:
heh people in las wages say the same thing ie"we were better when the mafia ran the joint"
of course it probably helped too that the mafia controlled a lot of the trucking companies that the teamsters worked on
So what happens now? Does the pension fund continue it’s current pension benefits until the money runs out–and then the government pays out reduced (government maximum) benefits after that? Or will the government take over in a few months?
Why didn’t the government require action many years ago?
The rules for when the government steps in to take over a failed multi-employer plan are complicated, and I don’t think anyone but a specialist lawyer, accountant, or actuary will be able to explain in detail. I certainly can’t. It sure seems to happen pretty late, though, long after the outcome was all but certain.
Note that any payment to the participants in a failed plan is supposed to come from premiums paid to the PBGC by healthy plans; it’s supposed to be an insurance company organized by the government, not directly a government guarantee. The PBGC is itself running out of money, and I think its limits for multi-employer plans are much lower than for single-employer plans, and much lower than typical benefits paid by Central States.
From the perspective of the failing plan, there’s no incentive to get taken over sooner than absolutely necessary. Things might always turn around due to an unexpected marketed upturn, etc., and it’s easier to argue that the government should pay to stop retirees from getting nothing than it would have been to argue that the government should step in to stop retirees from getting a 20% (fake number; I don’t know what would have saved the plan here) cut in benefits twenty years ago.
The whole problem arises because pensions promise a risk-free payout, and fund it with risky investments. Everyone has an incentive to use an optimistic rate of return, to maximize the promised benefit for a given contribution. If that’s actually achieved, then great. If it’s not, then at least you get your “insurance” payout, and maybe the government will give you money too. I think other countries have pensions where the benefit is continuously adjusted according to actual historical performance, which avoids this problem/opportunity.