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61% Underfunded Illinois Teachers Pension Fund Goes For Broke, Becomes Next AIG-In-Waiting By Selling Billions In CDS
- AIG
- American International Group
- Brazil
- CDS
- Citadel
- Credit Default Swaps
- default
- Discount Window
- European Central Bank
- GMAC
- goldman sachs
- Goldman Sachs
- Goldman Sachs Asset Management
- Greece
- Illinois
- International Monetary Fund
- Ireland
- Italy
- Lehman
- LIBOR
- Mexico
- notional value
- OTC
- OTC Derivatives
- Portugal
- Prop Trading
- Risk Management
- State Street
- Yield Curve
“If you were to have faxed me this balance sheet and asked me to guess who it belonged to, I would have guessed, Citadel, Magnetar or even a proprietary trading desk at a bank.” So begins a story by Alexandra Harris of the Medill Journalism school at Northwestern, which, however, does not focus on some exotic product-specialized hedge fund, or some discount window (taxpayer capital) backed prop desk (hedge fund) at a TBTF bank, but instead at the 61% underfunded, $33.7 billion Illinois Teachers Retirement System (TRS), which just happened to lose $4.4 billion in 2009 (a year when, courtesy of America's conversion from capitalism to socialism, the market rose 60%), and 5% in2008. Yet underperformance can be explained. What can not, is that the TRS has now become a shadow AIG. As Harris notes "TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default, that were blamed in part for the 2008 collapse of Lehman Bros. and bailout of insurance giant American International Group Inc., or AIG." Demonstrating just how far the fund is willing to go in the "for broke" category, knowing full well that if it repeats AIG's implosion, the government will likely bail it out, is the disclosure that a stunning 81.5% of the fund's investments are considered risky - this means it is the fourth-riskiest investment portfolio for a pension fund in the U.S! All it will take is another Flash Crash-like event, or a liquidity crunch, and the 355,000 "full-time, part-time and substitute public school teachers and administrators working outside the city of Chicago" will likely end up with a big, fat donut in their retirement portfolios courtesy of some deranged lunatic, portfolio manager, situated externally at a bank like Goldman Sachs, who in taking a page straight out of Obama's bailout nation, has decided there is no such thing as risk. And to those naive enough to think the TRS is the only such fund which has now gone all-in on "no risk and infinite return", wait until such stories start emerging about every single massively underfunded pension and fully insolvent fund in the US.
From Harris' report:
Frank Partnoy, a law and finance professor at the University of San Diego who worked on Wall Street as a derivatives structurer in the mid-1990s, said TRS’s portfolio is an indication that investing is not about what is smart but what will generate the highest returns.
“It’s an epic illustration of how we’ve really gotten lost in financial complexities,” he said, after studying the Illinois Auditor General's 2009 audit of TRS and the fund's March 31 derivatives positions.
TRS said it uses over-the-counter, or privately negotiated, derivatives to maximize the performance of its portfolio and only allows money managers to invest in derivatives if they “have the appropriate expertise and knowledge and employ sophisticated risk management systems,” said David Urbanek, public information officer, in an e-mail.
The fact that TRS trustees and investment advisors approved the use of OTC derivatives isn’t, in itself, alarming. The financial instruments are not explicitly prohibited in the Illinois pension code, and many derivatives contracts provide protection against losses on other investments.
In the balance sheet provided to Medill News Service, TRS’s OTC derivatives portfolio showed that in addition to writing CDSs, the pension fund was selling swaptions and shorting international-based interest rate swaps. For each contract written or sold, TRS received a premium.
And as always happens when one collects pennies before a rollercoaster, the spectacular blow up always eventually catches up with you:
Unfortunately for TRS, its OTC positions soured in late April when Greece’s debt woes worsened, Standard & Poor’s downgraded Spain’s debt to AA and the euro dropped to its lowest levels since the currency’s inception. The International Monetary Fund and European Central Bank orchestrated a $1 trillion bailout to ensure that Greece and the other PIIGS—Portugal, Ireland, Italy and Spain—would not default on their debts.
“As the European debt crisis worsens, TRS’ positions are going to bleed money,” the trader said.
Where it gets even scarier, is that TRS may be fraudulently misrepresenting its massively underwater portfolio:
But the Illinois Teachers’ Retirement System said if it unwound the OTC trades held in its pension fund today, the positions would have a market value of $5 million and a notional value of $1.1 billion. Notional value is the total value of a leveraged financial instrument’s assets.
It isn’t clear how TRS is valuing its OTC derivatives and market experts, among them Rosenthal, who estimated a loss of $515 million as of March 31, were skeptical the OTC positions could have been showing a net positive notional value.
TRS projects it will have logged a $158 million gain from its derivatives portfolio by the June 30 end of fiscal 2010— with $5 million derived from its swaptions, CDS and interest rate swaps positions—and just a fraction of its projected $627 million total return.
A significant portion of TRS’s OTC derivatives are linked to interest rate swaps and those are tied to either the London Interbank Offering Rate or Euro Interbank Offering Rate. Interest rate swaps stipulate for every basis point tick upward in the LIBOR or EURIBOR, the fund is forced to pay out an interest rate that is two basis points higher. This is why the notional value of TRS’s U.S. dollar- and international-based interest rate swaps were in the red by $361.4 million at the end of March.
TRS’ portfolio also includes a large number of swaptions—or the right at a future time to enter into a swap position—which showed a loss of $14 million as of March 31. In addition, the fund sold approximately $154 million worth of CDSs guaranteeing the debt of dozens of companies, countries and states, among them American International Group Inc., GMAC, Panama, Mexico and California. (See graphic).
A large part of TRS’s international-based interest rate swaps positions are linked to the Brazilian Interbank Deposit Rate and Euribor in a bet that inflation would stay low in Europe but rise in emerging markets.
Rosenthal, who said TRS appears to be betting that long-term Treasury yields will greatly increase, is incredulous that the fund even has this view. “Their job is not to play the [Treasury] yield curve,” Rosenthal said. “It’s not their job to have that view.”
Swaptions, Euribor exposure, curve trades? What the hell happened to buy and hold. Does TRS really expect to survive this, when there are sharks like Goldman who know every single trade the TRS has on, and one day, sooner rather than later, will destroy it, but not before margin calling it to death in the process.
The logical question of who the hell is supervising this slow motion train crash surprisingly has no answer:
Section 1-109.1. of the Illinois Pension Code states it is the duty of the board of trustees of a retirement system or pension fund to appoint fiduciaries to manage its assets—including the power to acquire and dispose of any assets—as well as assign others as fiduciaries to oversee activities other than asset management.
TRS said it makes day-to-day operational decisions concerning strategic asset allocation, portfolio structure and manager selection, but cedes all of its investment decisions, within TRS parameters, to professional money managers, a list some 60 names long that includes Goldman Sachs Asset Management, JPMorgan Investment Management, Northern Trust Co. and State Street Global Advisors.
When asked which managers were responsible for the pension fund’s derivatives portfolio, Urbanek, the Illinois TRS spokesman, said OTC derivatives positions are scattered across each asset class because they are “complementary positions” within each portfolio.
According to its investment policy, TRS encourages diversification of assets and “prudent” risk taking because these strategies align with its long-term investing goals. “Increasing risk is rewarded with compensating returns over time.”
“They’re not maintaining effective internal controls,” Partnoy said. “Is it prudent risk-taking to write CDSs on Brazil?”
At the end of the day, it appears the fund is doing nothing illegal by essentially offloading front-office duties to Goldman, which of course is happily trading in advance of the fund, to whose books it likely has full exposure, to benefit its own prop trading desk, and reward its own shareholders first and foremost: 63 out of 63 profitable trading days anyone?
The bottom line, experts say, is that there is no language in the Illinois pension code that prohibits pension funds and retirement systems from buying or selling OTC derivatives as an investment method. In the event of catastrophic losses, lawsuits would be filed against the fiduciaries, but ultimately taxpayers would be left holding the bag.
And here we see where the next layer of catastrophic systemic collapse will come from: the multi-trillion pension system, which is now invested in the riskiest imaginable products, and whose existence is contingent on a market and economy, both priced to perfection. The Fed is surely aware of this, and will do everything in its power to prevent a catastrophic collapse. Yet the Fed always loses the battle at the end of the day. And if Americans were angry the last time they had to bail out bankers, just wait until it becomes obvious that these very banks blew up the pensions of tens of millions of Americans only so that the very same banks could enjoy at least one more year of record bonuses. It is not obvious where the next crash will happen. And it is certain that nothing will be done, as facing the problem would mean recognizing the massive losses already facing the pension system. And that would be the dominoes that forces yet another round of inevitable mark-to-market, and bank implosions. The timebomb is now ticking and there are merely seconds left before it goes off. We have been warned, and will do nothing to stop it.
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This is the truff.
Reminds me of South Park, playing roulette to "buy" the town back from the Indian Casino. They win, then couldn't resist the double down and spin again. Lost it all.
Well at least we know the probability of failure of that is 37/38, while selling CDS on say Greek bonds is much less predictable but likely worse odds.
America you are being fleeced! This right before you are to be put down! There is no next year! Buck the system!
I hear you again Mr Lennon. I am working on it as hard as I can.
Nothing to invest in the way I see it. Who wants to open a business now?
did anyone tell them they have a better ROI by moving their remaining chips to the craps table?
They should have Goldman invest their money... Oh, wait...
Don't worry about this at all. Fin Reg will address all of these problems. Everything will be fine. For about another six months......
Chase the desperate money into the riskiest assets - and club them like baby seals. Straight-up play. Shameful, but expected.
The flavor of the day continues to gain in acceptance by the ravenous hordes of Gerbervores. At least until it is all spit back while the kool aid loaded juice cup goes flying.
Why shouldn't you work for Uncle Sam??
http://www.youtube.com/watch?v=UrOZllbNarw
I think Damon read John FORBES Kerry's bio.
But at least my pension would be guaranteed.
You don't like it, close your 401k, You don't like the way the Stock Market is being manipulated, Get the fuck out of it then. If you know your money is being used as gambling money, Put it in a Liberty Safe and buy a Hawkin Rifle. Hatchett Jack is giving one away.
Illinois pension system no problem , just have leo write a puff piece,, it will all come up roses and wine.
just a \blimp in a cycle.
and soon the growing economy will blossom,
if not.. ask for leo. and ask for your change back,
LOL, good seeing your pieces dumpster.
The teachers themselves deserve some of the blame. Bet they're unionized too.
Actually, Leo probably would have lost LESS money for the teachers with solars rather than the TRS putting it all in derivatives...
"Liberty Safe and buy a Hawkin Rifle. Hatchett Jack is giving one away".
- hahahaha..and the system is giving your ass away, HAHAHAHAAAA
Ahnold to Bernanke: "Get to the Choppah!!!"
Ho Ho Holy Shit. Accounting on a hold-to-maturity cash flow basis which is entirely predicated on future bailouts. Does E&Y do their accounting?
"Fiduciary Responsibility?"
Yeah, I have had these Trustee briefings where the advisors tell you that you will (most likely) not lose anything near the notional value at risk, which is supposed to make you feel like you have been absolved of your guilt.
You would be surprised just how many pension funds around the world have been and continue to write CDS coverage. Check that ... it should have read "You will be surprised ...."
Wait - Leo is gonna tell you this stategy is AOK causa St Pension funds never expire, they exist in infinitum, and short falls will be made up by tax increases, so to pursue, risky and BTW high margin to the dealer, deals is well within their bounds....PMs say fuk it might as well get good Blackhawk seats and pay GS in full....
Simply astounding. Good money was put up and it was promptly lost. If the money had gone to the casinos (better odds probably) then someone would be going to jail. Since it went to the TBTF banks nobody goes to jail. There is not much difference in either case but one method of going broke is somehow more palatable than the other. How did that happen?
LOL
Good eye for the big-picture irony!
What do you guys expect - look at this from the pensions POV. Either:
A- admit you are underfunded massively even after the big market recovery and that responsible rates of return will be nowhere near enuf to pay benefits...talk of benefit cuts or raising taxes would both be death to those who admit this.
B- double down and take the 25% odds you win...nobody in public is the wiser if it works out. If you lose, well, you were gonna lose anyway and the fact you went completely broke vs. partially broke doesn't matter...at least you pushed it out to the next poor sucker in office.
Nobody wins or gets credit for avoiding the crisis. Politicians only gain importance and stature by putting off the problem til another day ensuring what could be resolved today will ultimately be a crisis "nobody ever saw coming" before we begin to deal w/ it at 100x's the cost. American politics 101. Easy choice.
This is the "democracy" our founding fathers feared.
i think i've seen this movie before. Nick Leeson was the central character...
"I cannot undertake to lay my finger on that article of the Constitution which
granted a right to Congress of expending, on objects of benevolence, the money
of their constituents." - James Madison
But, we've been here before:
"Do not blame Caesar, blame the people of Rome who have so enthusiastically acclaimed and adored him and rejoiced in their loss of freedom and danced in his path and gave him triumphal processions. ... Blame the people who hail him when he speaks in the Forum of the 'new, wonderful good society' which shall now be Rome's, interpreted to mean 'more money, more ease, more security, more living fatly at the expense of the industrious.'" - Roman statesman Marcus Tullius Cicero (106-43 B.C.)
I once had an interview with a manager with one of the smaller state's boards of investment. What a smug idiot. He completely dismissed me when I said I had left my job at a mortgage lender when it became completely obvious that the housing market would soon crash. It's really no wonder that state pension funds are considered the dumbest of the dumb when it comes to institutional investors. I'd really hate to be a state employee knowing this guy was managing my pension.
True Parrot True ... back in the day, everyone who worked for a brokerage firm was trying to get a Pension Fund as a discretionary account because you could churn them to death, back out the winning trades and essentially fleece them. They were always so dumb they could never figure it out!
He who gets canned and moves his retirement into an IRA first wins.
Great Expectations .... http://chicagobluesgirl.com/2009/04/01/the-raping-of-illinois-teacher-retirement-system/
When will they understand there is entirely too much debt, evaporated capital and more monstrous debt on deck for all the years of frivolous lending, borrowing and previous money printing than there is ink available. Every day they continue to pretend the boogeyman will not come out of the closet so long as they feed him more and more meat to keep him at bay only ensures he is going to be both incredibly larger and hungry the day he emerges because there is no meat left.
And when he gets out not only is he going to eat everyone in their house but he is going to eat everyone in every block on the house.
I've tried to explain to people just how extreme this has gotten. There is no upper limit to the amounts that can be symbolized on a printed page or within a DRAM chip but the reality does have limits. Just as you can easily depict a number greater than all of the particles in the universe, you can easily perform transactions on volumes of capital vastly in excess of what can be found in the valuation of virtually everything that can be assigned a value.
Have you ever said, "Not for all the money in the world." Well, the debt of all the nations left that behind a long time ago. We're dealing in such immense sums, above and beyond any real-world value that can be demonstrated, that somebody has to take a massive haircut at some point. Say, down to around the waist. The kind of haircut too many of the victims cannot walk away from because it doesn't just grow back once chopped off.
These teachers would be better off giving their money to the Shamwow spokesman and having him invest it. He's got to be more trustowrthy than Goldman Sachs.
I am involved in a small microcosm similar to the TRS. I am on the Pension Board and a fiduciary for a small public entity, fund value about $18 million. The board has 5 members, the main 3 members are all retired in there 60's, 70's, and 80's with high school educations at best. Myself and one other member are mostly patsy's to take the fall if anything goes wrong. Our "professional" money manager that the board hangs on every word has told us flat out, "well, we haven't been having much luck, we've been buying at the tops and selling at the bottoms, therefore I'd like to switch us to an asset allocation plan..."
Me: "So basically we're switching from active management to passive management???"
Professional: with a somewhat panicked look on his face, "Oh NO, you'll still be actively managed..."
He brings printouts of various mutual funds and uses the morningstar 4 star and 5 star rated funds as the extent of his fundamental analysis. He, just like everyone on CNBC, is skilled at prognosticating the market without really saying anything either way. He provides absolutely no, like CNBC, 'actionable intelligence' as I like to call it.
However, when he decides to move $1 million dollars from one mutual fund to another, he does it in $50,000 and $75,000 blocks. So it takes us about 3 months to move 5% of our portfolio, in 20 separate transactions. I believe this guy is giving, churn-and-burn a new definition.
If I bring up any question about this guys qualifications, or the fact that we only made 18% ROI when the entire market was up 60% last year, I get looks from the 3 senior board members like I have worms coming out of my mouth.
Our money manager however does provide the 3 board members with free golf games, free baseball tickets, etc etc.
Did I mention that the 3 senior board members are also in charge of hiring and firing and discipline, of which I am subject?
I'm considering dropping off this board, however I'm the only one at my place of employment that even knows what the S&P 500 is. It's very frustrating....
+1 to this post!
Dude, resign from that board immediately or at least start keeping a personal log of what's going on what your objections are and anything else that might be used in your defense at your trial because that's why your on the board in the first place.
And who the hell can give free tickets and golf to clients? I'm a registered principal and I think FINRA might take a somewhat jaundiced view of a registered advisor priming the pump with more than $100/yr (I think that's still the limit but it might be even lower.)
Since I work in a somewhat similar field as this guy I'd love to know who it is. He sounds like the worst money manager around and I know lots of them!
I would be writing one long cover my ass letter about everything that's wrong and circulating it to everyone who has any interest at all in the situation. They're counting on the people who care but don't know anything about it to remain ignorant of what's going on.
Stay close to your enemies. Document everything for later use. The mob will thank you.
Hope you have a good lawyer, sounds like you are the one who will be left holding the bag.
Document everything. Bring it back to those paying into the fund and get the board ousted if it isn't too late.
My personal advice, honestly, is to put your complaints in writing, submit it to any higher-ups or authorities who will lend you an ear, and resign. You do have a fiduciary and legal duty to the beneficiaries, perhaps especially so as the only remotely intelligent individual.
Like you said, you're the patsy. When problems get uncovered, they'll use the old person standard, "Well shucks, this big-town investin' stuff seemed pretty gosh-dern hard to li'l ol' me. That's why we hired guys like Biff."
You are their selected scapegoat. Get out of Dodge buddy and the sooner the better.
Anyone who has their money managed by someone else is going to be robbed or has already been -from 401k's, pensions, state funds to Ira's for kids educations . How the hell can people be so naive to believe that someone else is better to manage their money is beyond me .
Not so ... I have a PIMCO (managed) bond fund that has shown great returns consistently ... Go Gross
I live near the swamp ( Springfield, Ill) When the teachers came to rally at the state capitol for more money, they were not allowed to go to TRS building. They have full time security personal and cameras , for a pension fund building. And I am sure the teachers union is a player in this as I belive they have a say on the pension board, which is filled with political hacks. The circle is unbroken.
It's all good. Bailout money, Social Security, or China? They think we're gonna pay 'em back? They'll be getting dollahs with Ben's picture on it, Bernanke that is.
It's all about the Benjamins?!
Only losing 5% in 2008 is quite a feat.
Tyler, I dont think anything needs to be said about this.
http://www.businessinsider.com/if-you-thought-new-york-was-bad-check-out-the-ridiculous-public-sector-pensions-in-illinois-2010-6
When at best one year of payouts will be made based on current funding structure, no, nothing needs to be said. The fund will be insolvent shortly.
The powers that be will just raise taxes, float a bond or borrow some cash from uncle sugar. There will also be high profile budget cuts that target the taxpayer. Lots of long lines getting a license, garbage pickups lessened...etc. It is being done all over the country for other shortfalls. The game of musical chairs will go on for longer than you think.
Get to know BABs
still going to invest in duracell batteries.
Bond floats for pensions ... Wow, I wish the X-Geners and Millennials understood the implications of this ... or for that matter the bum boomers who are pushing for this payoff
And they say capitalists are greedy?
GOOD!!!!!
'The race to the exit'; on your marks, get set...hey, I didn't say go!
Whoa....who's this Neil Codell person.
Head of the school board in Chicago. Just kidding, I have no idea but WTF ??? With those salaries who the hell needs a pension?
He's the Niles Township High School Superintendent.
Now this is some useful, pragmatic information! A list of very local banks to solicit for no-money-down-no-interest loans settled with a handshake and a gun.
Good work Cheeky for posting that list of parasites. Pretty hefty pensions.
Have fun paying them Illinois! Oh, and don't come looking to me for a bailout, been there and done that.
No kidding, against the payouts, but that is some serious "jack" for sitting around - actually, many will probably go back and make another salary as consultants.
I didn't have much of a reaction to this thread until I read this. But now, I'm fucking pissed
BURNS MY ASS
Your ass would burn even hotter if you knew just how little work these folks have done over their so called careers and if you knew how incompetent these folks are...
This is welfare at its worst....
Oh I don't know Hulk ... they do pretty important work ... they pass the legislation that lets banks get bailed out - as payback for "campaign Contributions" (oopps, I meant bribes) Anyone who still tries to argue Banks=Good/Politicians=Bad (or the reverse) (or Repub/Dem BS) has lost the plot. THEY ARE TWINNED... They are working the street together... one is a head-fake for the other and vice-versa. Wake up y'all.
Cheeky always delivers the goods. Over 30 teachers pulling in over 250 large just in IL. Imagine the possibilities in CA.
Pay to the Order of
Cheeky Bastard
One Bajillion Banzai Bucks from the 8th dimension.
Then the whole time you work. I hover the fat pension over your head and tell you that it goes away if you get fired. So you teach the stupid crap I want you to teach.
It's the same old trick. Offering to the temple for gain. Presents to the king for favorable judgement. etc etc. Before you know it completely screwed up educational system that leaves people inadequately prepared to even see what they are looking at in situations much less understand them or shape them with reasonable thought. The brightest bulb doesn't have to be the best bulb he just has to crack the other bulbs.
"Then the whole time you work. I hover the fat pension over your head and tell you that it goes away if you get fired. So you teach the stupid crap I want you to teach."
...and then everyone bitches when people have tenure - which was supposed to eliminate this...
"which is supposed to eliminate this...."
I think you found the source of the bitching. The tenure should come early and disapper later.
You have no idea how many things I've needed to try to convey or bring to conciousness in people. I can do it but I have to go to very scary areas in very real ways. In the end I spoil the whole thing and render it harmless but it's the same thing with teaching. You can't know an approach is bad until much later and prejudging just makes it worse. And people can fake through the support time and once they've achieved a nearly unreproachable position they can pull the crazy out of the hat.
I also have a jupiter aspect which lessens reactions to things by half. So i'm allowed much more leeway than most other people but it's still not enough.
People also believe that teaching is a superior/inferior function. Where the superior conveys and teaches the inferior. It's not. It's mutual teaching and learning. This allows true learning the superior/inferior approach allows "conditioning" and possibility of taking advantage of it. By teaching people the wrong thing and then taking advantage of the gullibility.
Tenure is a bad thing. It should be replaced with a highly defensible position. In other words a very long drawn out process of fighting the person before being allowed to fire them. But bullet proof. That's not good for anybody.
Excellent post Tyler...
"Alexandra Harris of the Medill Journalism school at Northwestern.."
Nice Work Ms. Harris
You will now be made an offer by the oligarchy to silence you...
Take the CNBC position of "anchorette," the bonus, salary and the complimentary breast enlargements... drink Kool-Aid, file your nails and speak the truth no further...
OR Become a Broke Semi Employed Journalist
Getting shot at, harassed and occasionally jailed...
And occasionally post on ZH and once a year appear on Democracy Now or Truthdig...
As for the latter... best of luck paying off those student loans...
"It's not for the want of employment I'm going,
For tomorrow I sail far away,
For a life of dign-ity, devoid of strife,
On the shores of Amer-i-kay."
People need to go to jail. If there is a bailout it should be from the taxpayers of the great state of Illinois. When the pain level gets high enough they will a) begin to either yell and scream and maybe elect different rulers or b) leave the state.
My brother in law lives in the Chicago area and says the bureaucracy, taxes and red tape are already at all time highs. Those of us in other states shouldn't have to subsidize those numbskulls for the high level of incompetence and criminality that appears to exist in Illinois.
On the other hand, there is a kind of justice in seeing the demands from the unions resulting in these just rewards. Soaking the taxpayers year in and year out results in what? A bankrupt pension. Still, where was the oversight, where was the real sense of a fiduciary, where were the grown-ups?
Our daughter lives and works in Chicago. She tells us that the Sales Tax is 10.5%, the highest in the nation.
I have a lot of friends I grew up with in that system. Don't think they are entitled to any Social Security either because they were exempted out of it. It is really going to get ugly in this state when the SHTF. I think Blaggo borrowed from this fund to finance a tollway expansion back in the day. Well at least we can all get to I-80 a little faster as we move to Indiana.
just sad.
I'm paying Social Security and expect squat when I retire.
Isn't all the debt really nothing more than just another addiction in American? Addicted to food, addicted to smoking, addicted to binge drinking and alcoholism, addicted to consumerism, addicted to lotteries, credit, addicted to illusions.
Isn't this whole game just America's unwillingness to accept life for what it is?
In my expat days we lived overseas and had what the company provided. Was great because it showed us how little was neccessary to be happy and how liberating it was to leave behind the "keeping up w/ the Jones'" rat race.
But we were lucky because we knew our future had hope / opportunity. Be frightened once Americans no longer have hope or hand outs...will make for a lot of progressively strange, sad headlines in coming years of murders, suicides, riots, thefts, you name it (and think global). Not advocating for more handouts but lets be clear about the short term outcome once these are reduced or gone. This is why many advocate guns and ammo.
We soooo need a depression to clean the system and to force us to put our feet back on the ground and gain perspective on life but avoid societal chaos (ie, the wild west). My great fear is that the depression will be avoided at all costs and Americans will be totally shocked if/when tshtf and simultaneously the gov will be completely out of bullets or in the hands of the anti-Obama who sees no role for gov. This could cause a very dangerous period until some sort of new "normal" is set.
We want to stop the bailouts / handouts but I also hope we want to avoid total breakdowns that costs the lives of the innocent. This is the "managed" depression I'm advocating.
Good comments, but I doubt very much that the upcoming depression can be "managed" at all.
Protect your families. Think, plan, prepare. It could get VERY bad.
. . . addicted to stock-jobbing, home ownership, and derivatives . . .
Addicted to capitalism, and buying stuff one doesn't need.
as much as i respect your rights of freedom of speech i really wish you would just fuck off.
In a related story, but on a positive note, from today's paper:
New Jersey is one of the few states where the pension system is run by on-staff investment teams. According to the minutes of a State Investment Council meeting last November, New Jersey had the top-performing pension system in fiscal year 2009 -- with a gain of 14.2 percent -- compared with an average of minus 19.6 percent among the 44 states that reported returns
As of April 30, investments in the state pension system were up 19.5 percent for the fiscal year, to a total of $68.9 billion.
http://www.courierpostonline.com/article/20100614/NEWS01/6140320/BP-stoc...
Is that Cheeky with the first comment?
hambone
Don't think a managed depression is manageable. When you have the massive unemployment payments, wellfare and other social payments escalating at the current rate, any cutback will feel like cold turkey to a drug addict, and they will react accordingly. We have built this trap and, human nature being what it is, the entitlements are now expectations. Fear will have people in the streets and they will use the threat of violence to try and get back to their "normal". Tragic as it is Greece showed that huge cutbacks create unrest. We are a much less homogeneous society and are polarized already. I am with you, I hope for a peaceable transition but I am not optimistic of that outcome.
The admin is doing nothing to begin preparing people for any sort of real world. All of this "stimulus" must be paid for and the OMB's budgets showing higher interest rates, higher taxes, continuing high unemployment, and above trend GDP is garbage.
People need a leader (a depression coach?) to explain times will be tough but we will get through this together. We'll keep a floor in place that doesn't allow for the worst outcomes (starvation, mass homelessness, mass uneducated). But big O is such a piece of shit all he can do is tout the "recovery" and attempt to get folks to feel at ease to spend the last savings they have as we approach much tougher times (don't think this is partisan, I actually hated Bush deux more...hell, I actually voted for big O vote for prez...I had to vote for somebody?). Anyway, you get my drift.
If the floor isn't in place, desperate people will take desperate actions and my kids will grow up in an America I won't recognize. If the cupboards bare or the political pendulum swings, I fear for our cities and suburbs full of paper pushers (like myself).
I think your Fear is well placed. There is still time to stock up. First and foremost, get yourself a few handguns and a couple of shotguns.
Don't forget to buy gold (and silver) as well!
UNION YES!
Wall Street found an easy mark. Damn ZH for exposing it.
Hmm, where did I see this movie before:
http://pensionpulse.blogspot.com/2008/07/guest-commentary-diane-urquhart.html
-)
Gee, Illinois. Never would have guessed.
Subsisto pensio taxes!
ZHers: you guys are being way too hard on Leo. He has been very accurately and zealously exposing the pension problems in the US and Canada all along. He is probably wrong about solar stocks. But he has been damn right about this major, major problem. Public employees will be marching in the streets before this one is over.
Leo is a big boy and does somewhat deserve what he gets because he's promoting to "extend and pretend" the system rather than call for it's much needed demise and renovation (well at least Leo the Bull...there is also Leo the realist looking at the pension systems with a wary eye). I think that's why folks get pissed at "Leo" (bullish proxy or real?). Many are tired of those cheering for the next "bull" market that will only just draw out this bullshit for one more highly lucrative and subsequently even more destructive bubble. It may happen but it only allows us to continue to build elaborate castles on sand w/ high tide coming soon...and the future of our loved ones hanging in the balance. Nothing personal Leo and wish you well, I just want a stable system that allows for my family to live and let live peacefully.
OK - maybe I'm just calling out the different crowds within ZH and owe Leo an apology. There are those that are "traders" (maybe Leo) looking to profit regardless the outcome and willing to take either side of the argument vs. those making social commentary and wanting (fixed to) a certain outcome to stabilize the system (btw - the 2nd group are decidedly not good traders).
+1 hambone.
PS:
"There are those that are "traders" (maybe Leo) looking to profit regardless the outcome and willing to take either side of the argument vs. those making social commentary and wanting (fixed to) a certain outcome to stabilize the system (btw - the 2nd group are decidedly not good traders)."
Guilty of wanting to profit regardless of the outcome.
I trade (very very small-time) on the FX, and one very big reason for this is that I think all these fiat currencies are garbage. So I have no emotional investment in any doing 'better' than any of the others, don't believe in any of them lasting, just watch the charts and pick what looks profitable for that day. This is not investment to me - it's simply much more profitable than earning an honest wage in an honest job that requires skills & training. In other words, I'd rather trade currencies that I'm damn sure are garbage, care for myself & my family, rather than get fleeced by the government and corporates, only to find at the end of a working life that I built their empire rather than my own.
Am I part of the problem? Maybe, but I think ALSO part of the problem are the worker bees who stand in line, work hard, and hand over their earnings to Big Parasite b/c they 'trust'. (Decades of nationalistic programming and paternalistic government create a very docile worker-pool. Someone mentioned slavery above - of course, slavery has been and will always be with us.)
Can't say I feel good about this situation. I don't feel that 'adding liquidity' is particularly useful or good at this time. But, doing something more 'moral'(?) for a living would ensure that a) my & husbands' fleeced parents won't get taken care of; b) we will never own a house or land; c) we would never be able to retire (possibly not a reasonable desire but since realistically we will be unable to work our whole lives and will have no-one to take care of us, I still believe retirement is necessary for us to try for).
Not meaning to go into a rant on you. :-) Just presenting more of the picture, as your comment does resonate with me.
Whenever I see a story about public employee union pensions I like to know a couple of things:
1. Are the union officers in the same pension or is it separate?
2. What is the funding level of the officers' pension compared to the rank-and-file?
3. What returns are the officers getting compared to the rank-and-file?
I have yet to see a case where the officers are worse off than the rank-and-file. Funny thing, ain't it? The union officials always seem to know how to run their own pension system... yet the failure of their member's system is always blamed on outside forces.
Has anyone seen figures on the teacher's union officials pensions?
Am I missing something, or wouldn't they be in the same boat? By the looks of Illinois's TRS, plenty of higher-ups are on the dole, too. These aren't separately managed accounts, either; that would be a cash-balance plan.
Moreover, the officials' goal is to keep the plan underfunded. I'm not saying union officials try to lose money on investments, but the second they start seeing some returns, they push for more and more benefits. At some point the taxpayer will acquiesce and bail them out. A 60% shortfall, they have discovered, is the level they can extort from Illinois's taxpayers beyond pension returns. I'd say that's about right.
... "Has anyone seen figures on the teacher's union officials pensions?" ...
Is this something Cheeky can find?
Swaptions? Swaptions? Is there no end to this insanity? Sounds like a particle the Large Hadron Collider would spit out. Except this one won't create a black hole and swallow the whole planet -- just all the teachers in Illinois.
So do I have it straight? Basically all the state pension funds are playing blackjack together at a table with Goldman Sachs as the dealer. But instead of getting to 21, the bets are based on the direction of interest rates which GS controls via its proxies in TG and BB? I think I remember how this one ends. ;-)
And another thing: this is only the fourth-riskiest investment portfolio for a pension fund in the U.S ???!!
Ye gods what do the other three look like?
And who does the rating?
Lehman Brothers, probably!
Tyler,
It's time we added a new thread: American Retirement Assets: The Last Bastion.
As we progress through a time of further deflation, giant holes in retirement and pension funds will become too huge to ignore, just in time for the rising ranks of retirement age Americans to begin withdrawals.
This will be the political battleground of the century, the crucible in which the ugly reality of paper wealth and casino capitalism meets the red faces of angry Americans. And it will apply to retirement assets across the board, not only pensions but all accumulated tax-advantaged stores of wealth. Like a run on the banks, there is more than a passing chance that Americans accelerate withdrawals out of concern. And there's more than a chance that these funds will get restricted, taxed and regulated. How will Wall Street fare once the last significant pile of cash gets drawn down? Illinois will be a good test case. But there will be lots more installments to this story.
Caviar Emptor writes good stuff.
+$1225
When you see that avatar with the tin of fish eggs, wake up and read it twice!
Heed his warnings! The end may be near and very ugly.
dupe
And the crock of gold at the end of the rainbow for all the hard working teachers ...http://www.championnews.net/article.php?sid=1023
Why doesn't Vegas just invite all the underfunded pension fund managers to a comp weekend where its winner take all. The Mirage would be a nice venue. At least someone will come out a winner.
hehe
There are a number of pension fund managers/union bigwigs/government tools/corporate piggies that I'd like to invite somewhere for a nice weekend, or just a nice dinner - Borgia-style.
Kinda related is the following:
http://globaleconomicanalysis.blogspot.com/2010/06/ny-state-shell-game-m...
"NY State Shell Game - Municipalities Borrow from Pension Fund to make Required Pension Fund Contributions"
The tail is not only wagging the dog, it appears to be doing so after the dog ate it!
Illinoisome!
New York Avoids Shutdown as Lawmakers Pass Weekly Stopgap Bills
http://www.bloomberg.com/apps/news?pid=20601087&sid=aY0oKf6Ba17A&pos=9
Don't worry , Obama will get to that issue ---- between golf games and bashing BP
Can someone help me out? Do they publish how much TRS has paid to the counter parties for any exercised CDS's?
Only one critique, probably mentioned multiple times prior, the move to socialism happened a long time ago. Anyone who denies this is not worthy of a retort, for their capability of rational, reasoned thinking is nonexistant. Not a pure socialism by any means, but the farcist variety that has been exposed here in many posts. That a public pension fund would engage in such behavior is a testament as to how perverted we have become.
Wow!
The means of production are no longer in private hands anymore!
Government has taken over all the key industries.
And all without letting corporate executives, shareholders, and boards of directors know they've been replaced.
Funny thing, this new socialism.
Uncle Sam has helped himself to nearly half of corporate income for the last 50 years.
The means of production were in private hands in name only.
Back to the brick question - is it a brick of coke or a brick of hash?
It is a Brazillian, Russian, Indian, Chinese swaption sold to Illinois Teachers by the Giant Squid.
This is incredible. I am anxious to see if this event represents the tip of the next iceberg which will be ripping a massive hole in the hull of the global economy. Is it really possible that the investment banks loaded up numerous public pension funds (worldwide) with these toxic assets in their mad quest to generate fees & profits for themselves? If this turns into the mess I suspect, the feds / banks will not be so successful sweeping this problem away by sacking our kids with a decades of higher taxes and significantly reduced standard of living - they already took the brunt in crisis #1. This time around it is going to impact the aging and retiring baby boom generation directly in reduced retirement security. Maybe this will wake up the sleeping dog and trigger the long awaited political backlash that throws all the DC bumbs out on their butts - and puts some bankers in jail. Accountability needs to be demonstrated in order to be learned.
Here' some interesting tickets to speed the Apocolypse.
Huckabee and Mean Jean Schmidt
Can run on a platform of insulting gay war heroes who want to get married.
Barney Frank and Barack Obama
One's a great orator and the other is a great orifice.
Mitch McConnell and Orrin Hatch
Could run on a platform of vast banking deregulation for multiple Mormon wives.
Steny Hoyer and Chris Dodd
The "forked tongue" tour.
Really want to see revolution in America ? Pass a law banning TV remotes.
Teacher can't count. And that's going to cost. If you don't know who is the dumb money in the room, it's you. Color me unsympathetic that these lifelong taxeaters won't be getting the benefits of their ill-gotten gains. There is some kind of justice going on.
+ $1225.
No make that: + $55,000.
My nomination for best short post of the day.
The public sector workers to which you refer with such scorn made one simple mistake: they believed the benefits of the system would trickle down to them because they had a contract.
Little did they know that the whole POINT of the contract was to enable the pillage of their savings by the banks, facilitated by a government wholly-owned by those same banks.
If only your hatred for those greedy people out to make $40,000 after six years of college would apply equally to the bankers who rape babies and steal millions . . .
I won't hold my breath.
"The Fed is surely aware of this, and will do everything in its power to prevent a catastrophic collapse."
With that conniving scoundrel at the helm of the Fed YOU CAN REST ASSURED ABOUT THAT!!
Is lynching a person a crime??
Anyone catch Steve Keen on WABC 77 radio? He was just a guest on the John Batchlor show. Some good stuff. Keen said he was gonna be in NYC in early July for some speaking gigs.
And.... it's gone.
Too few greenback printers for too many DOA retirement funds, muni bonds, euro junks, soverign debts...its too late to stop the tide. Redemption avalanche will be here soon, the day of the reckoning.
But please don't give up on humanity.
WRONG WRONG WRONG
This is the digital age, it's all digital. It only takes a few keystrokes, and if things get really bad they can probably write programs to do all the work.
What I really want to know is:
WHICH PENSION FUND CAUSED THE MAY 6TH FLASH CRASH TO LIQUIDATE STOCKS?
Huh???
". . . . but cedes all of its investment decisions, within TRS parameters, to professional money managers, a list some 60 names long that includes Goldman Sachs Asset Management, JPMorgan Investment Management, Northern Trust Co. and State Street Global Advisors."
Ruh-Roh.
History will look back and judge these "investment managers" in the harshest of terms.
These are not INVESTMENTS, these are GAMBLING BETS.
An "investment" provides the opportunity for all invested to end up with more because the investment generates increases in productivity, lower costs, etc. In effect, an investment is made with the express intent of providing a good or service that yields an increased benefit to society.
By and large, the crap referred to in this article is necessarily a "less than zero" game. The gain by one party is equally offset by the loss of the other party and the "investment advisor" takes his cut upfront.
Sound familiar? It should, Vegas is built on that principal.
+!
Quite so.
These pensioners pay no social security. If you're on the hook for your own pension as a 401k you're still paying social security.
Get ready for the new normal. No more 401ks. No more defined benefit pensions. The strategic risk posed by all the insolvent pensions will force the Fed to stroke the invisible hand and combine all of these different retirement schemes into a single retirement pension overseen by the Executive branch of the Federal Government.
It will arrive in 5 years time. It will resemble the Chilean model if we're lucky.
Agree--except I don't think we have five years.