This page has been archived and commenting is disabled.
When it rains, it pours. Please read my latest entry and leave your comments here:
http://pensionpulse.blogspot.com/2010/03/are-pension-liabilities-set-to-explode.html
Thank you,
Leo Kolivakis
- advertisements -
Contact Information:
Tips: tips [ at ] zerohedge.com
General: info [ at ] zerohedge.com
Legal: legal [ at ] zerohedge.com
Advertising: ads [ at ] zerohedge.com
Abuse/Complaints: abuse [ at ] zerohedge.com
Suggested Reading:
Make sure to read our "How To [Read/Tip Off] Zero Hedge Without Attracting The Interest Of [Human Resources/The Treasury/Black Helicopters]" Guide
It would be very wise of you to study our disclaimer, our privacy policy and our (non)policy on conflicts / full disclosure. Here's our Cookie Policy.
the articulation to hand-off will be quite interesting, but a hand-off there will be.
government is like an ark, only in the form of one animal, with all kinds of different parts. they can move anything, anywhere, at any time, but opening pandora's box has its cost, re-coherence on the event horizon. the shifting can never stop, and the glow is unmistakable.
Leo - thanks for the reply. Just to theorize, where do you think 10 year rates would have to go to in order to neutralize the problem? I'm just asking for wild-ass guess.
There is no magic number, but if we get a significant backup in yields, say to 6.5% in the next few years, all of a sudden you'll hear that the pension funding situation has "markedly improved". It's all smoke & mirrors because they're failing to address deep structural issues exacerbating pension deficits.
Actually, the point that everyone forgets is that if the discount rate increases (i.e. if interest rates go up) the problem is limited. Most commenters assume rising interest rates are a problem, but the opposite is true for pensions.
And don't we all think interest rates are going up ?
Rising interest rates lower the present value of future liabilities, but you still need assets to rise to to deal with chronically underfunded pension plans. Rising rates alone will help but the problem is so huge that it requires some tough decisions on the political front. I just don't see rates rising enough to deal with the pensions debacle.
** Edited for Content **
Here is a little fantasy for us all to ponder.....We Love New Taxes! We love them because a major accounting firm just took over revenue collection and will be posting everything online. Not that I'm a big accounting firm fan, but its gotta be better than the current system. Then we can find out what happens to the new taxes, like on internet sales, you know...income and outgo...like the rest of us have to do every month. Wanna work for the govt, get your crap posted online. Am I missing something or is it like a crappy restaurant that is running a deficit and keeps raising prices on meals to cover the debt?
The FASB should take a clue from the GASB.
Human nature controls every aspect of our lives. It's funny that we expect people in finance not to look after themselves first. The starting goal of any pension plan (or mutual or hedge fund or almost anything) is what's in it for the managers. If accounting rules can be used to create bonuses while hiding the truth from the plan members then you've found paradise.
Leo... again "thanks" for keeping this info flowing.
Why must this question be asked over and over again? We are more than well aware that pensions are all in deep trouble. Practically everyone of them, are we not?
Enough with Pension and legacy costs other than a running total of the complete unfunded liability for ALL the contracts that were signed without any provision to pay for them.
It's not like we can even plow thru these missives with a splendid shot of Doutzen Kroes slipping seductively out of her panties and bra awaiting us.
a big chunk of "permanent" local and state workers are getting terminated, and replaced with temporary federal workers. thank goodness for the census ... but
how does that affect the ponzi scheme?
Oh, is PBGC insolvent?
they can't cover Calpers or CTRS, let alone the rest of the system on a downturn?
which shell is that TARP money under?
answer: increase the required rate of return on the pension plans. perfect. garbage in, garbage out. rinse and repeat. just borrow the electronic money and record it off-sheet so it doesn't end up on the electronic deficit, so those deficit terrorists don't attack again.
capitalism saved for another day.
how long before the minions realize that they are going to get thrown under the bus, and start throwing wrenches in the works?
this is not like the collapse of the Soviet Union.
PBGC only applies to private pension programs, not public ones.
It has to come out of taxpayers' hides.
I wouldn't want to be a state employee in Illinois.
Mar and change away - just do it with the banks , and the Fed in unison . Goose and gander type stuff . Oh forgot , set up same accounting for the Soc Sec and Medicare fund .
Oops can't do that though , Soc. Sec. has been robbed blind for 40 yrs . Empty dust filled closets filled with untraceable IOUS'
To fix the problem with our "retirées" we should all look the filmed studycase "Soylent Green".
Now to be perfectly clear : THE COLOR GREEN CAN BE CHANGED! Blue and red are also a option!
Marvellous. Private sector accounting rules where change to allow for fantasy valuation of of assets (because accounting rules were the problem), put public pensions must be valued accurately to the point where they just will go bust because of the new accounting rules.
I'm surprised Mako didn't beat me to this reply...
It's all about increased federal control of the states. If states are insolvent due to unfunded pension liabilities, then who comes to the rescue? The also insolvent, but printing press enabled, federal government, that's who... sovereign indentured servitude is the end game for a few centuries until the thing resets again. Mako will say 60-80 years, but not with universal collusion from the central banks/governments.
Remember, Sox did away with FASB/GASB autonomy... they were captured (if they weren't already) via federal oversight/micromanagement. Think of it like GM and the government's hoopla and negative press/investigations into Toyota... little bit of a conflict of interest. The executive branch essentially got another vehicle for immediate and incredible change without reasonable congressional approval... a common theme if you will.
I hate to ignore occam, but when you see each of these little incremental steps over the last couple decades... each being used as a foundation for the next removal of a check and balance, individual freedom, and/or perpetuation of the exponential growth fallacy, it gets hard to ignore after a while. If it isn't directed, then we have to stop the incentive... if it is directed, then it will be impossible to convince people that invisible rich men are stronger than their gods. A lot of people on this site seem to think this will manifest itself into required purchase of treasuries... wouldn't doubt it at this point.
Regardless of whether these events were planned & pre-ordained, or developed exogenously, the end results are identical. So why dilly dally and dither?
The next stages just ratchet up the political divisions, ultimately manifesting in the conflict which cannot be named. Does it matter the cause? Perhaps only to historians - many of whom may not even witness these times.
As SWRichmond mentioned above, the last 20-30 years were an anomaly. Sit back and attempt to envision a functioning, productive society operating from our current basis of government, finance & law. Impossible, no?
So what is the alternative? I would suggest, as has been posted @ ZH, to review Kipling's "The of the Gods Copybook Headings". It doesn't matter what we wish, want or desire - nature has the final say. Nature says you cannot consume more than you produce, nor borrow at a rate exceeding income.
If you do, you only get a short amount of time before the reset comes. And boy, is it a bitch.
do chickens have beaks
does stuff smell
do three dogs have a chance at one hunk of meat thrown on the floor,
do bankrupt states, counties, cities paying 80,000 dollar pensions tax more from citizens making 40 thousand a year ,, with 22% percent unemployment .. qualify as the tree dogs .. the citizens as the hunk of meat
+1
Is the Pope, er, German?
Too late? By about two decades or more. Sure there's corruption and malinvestments in the management of the pensions, but the pension deals with the employees should never have been made. There is no free lunch, as most people are finding out now.
Outsized benefit packages are a direct result of allowing unions to organize public sector employees. Under these scenarios, the taxpayer is confronted with the reality that elected politicians are negotiating benefit packages with public sector unions.
And what could possibly go wrong with that arrangement....??
Refer to the GM/UAW bankruptcy fiasco for starters. Then add in the fact that organized labor wields the ability to fire the politician who goes counter to their will.
No public sector unions should ever have been allowed to exist anywhere in the USA. It's not the only reason these pension funds are on meltdown watch. But it's certainly close to the top reason.
its okay. buy more stocks.
Pensions are going to be such a huge issue over the next decade. While assumed rates of return in hindsight and presently are too high, the benefits agreed to and implemented by corporations and especially governments are so off the mark, it is hard to see how you solve this problem without cutting the liability side of the equation by wholesale benefit cuts, not just for retirees.
Every financial assumption made, every lesson learned over the past 25 years was made or learned in an environment that no longer exists, and one that in fact was never real to begin with. The Greenspanian era of easy money, based on ever-lowering interest rates, made us all partake in a full measure of "irrational exuberance." An entire generation lives their lives and plans their finances on the phony premise: it is easier to make money, earn a living, and run a business than it should be.
During a period of easy money, one could start a business selling two pounds of shit in a one pound bag, and one would meet with success. Of course pension systems made obligations they can no longer meet, because those obligations were taken during a period when it was easy to shake the money tree and tax revenue flowed like mana from heaven. Government employees are overpaid and too great-in-number, and so their pension obligations are bloated. WE COULD NEVER AFFORD ANY OF THIS IN THE FIRST PLACE, but we thought we could, thanks to Sir Greenspan.
We cannot move forward until we unlearn easy money. There is no goddamned easy money. It was a mirage, brought to us by 25 years of constantly lowering interest rates. The new financial class, born in this environment, is having the hardest time of all coming to grips with this. How can it be possible for so many to "earn" so much money while doing nothing other than buying and selling promises? It's ludicrous, and of course it's unsustainable. But they are the loudest advocates of propping up the status quo, because it is their destructive skimming and their self-indulgent lifestyles that are threatened the most by reality.
Totally agree, the constant analysis using old yardsticks is amazing. This period in our economic history is like no other...everyone should be required to say that before they trot out sollutions...I especially love bank valuations! When has this much intervention ever existed? To your point, 'unlearning it' is a great way to put it but just this morning on CNBC, Mr Rendell suggested raising taxes to cover the shortfall.
+ 100
Bingo. But the question is, when are the cuts going to come? Well, they'll come at a time of low employment, a time when the majority of folks are wards of the state, either through employment or reliance upon aid. So, at that point, what exactly is your bargaining chip to keep your pension? If posed with keeping your job or losing your pension, we'll make the choice that prolongs our lives the most... even if both result in death... which is why we're currently trying to re-blow the bubble... gives us just a little more time to say goodbye to loved ones (e.g. tvs, internet, sports cars, jet skis, teddy ruxpin and all its new manifestations).
At some point, hopefully soon, my generation will be incapable of ignoring the fact that we're paying into a system of which we will not get benefit. I hope that realization leads to a... correction of our current course.
"Bingo. But the question is, when are the cuts going to come?"
The cuts will come when, and not a moment before, there is a financial catastrophe that renders the payers unable to meet their obligations by ANY means. The (almost) failed Treasury auctions last week will likely be proven to be the first dead canary...
great point