You see, kids, government has to closely regulate evil capitalists, because these capitalists sometimes make investment mistakes, like making highly leveraged investments in risky bubble assets. The government must be the one to watch over their shoulder, because well-meaning public servants would never make such a mistake themselves:
The California Public Employees' Retirement System (CalPERS)is now warning California's cities that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers, reports the Wall Street Journal. Some communities are already cutting municipal services and they are blaming CalPERS, not Proposition 13. Dan Cort, mayor of Pacific Grove, has been quoted as saying, "CalPERS could bankrupt us faster than anything else."
According to the Journal, CalPERS has lost almost a quarter of the $239 billion in assets it held in June of this year. Stock market losses are an obvious cause of the fund's distress, but less well known is that CalPERS makes extensive investments in real estate -- investments that have been largely financed by borrowing. Some deals involved as much as 80 percent of borrowed money. While this worked well in a rising market, now that real estate has tanked CalPERS expects to report paper losses of 103 percent on its housing investments for the fiscal year ending in June.
Note especially the text in bold. It takes some effort to lose more than 100% of your investment in one year. They would have been better off investing with Bernie Madoff, since a 100% loss would have been better than 103%.
The inherent flaw in every call for government action is not the "insight" that business people sometimes are wrong, even way wrong. The flaw is assuming that anyone in government is more capable, or has superior incentives, to make better decisions.