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Illinois' Pension Fund Death Spiral Revisited: "10 Years Of Money Left"

Tyler Durden's picture




 

A month ago, we discussed the death spiral that the Illinois Teachers Retirement Fund has now entered by openly commencing to sell its securities. We stated: "At this point it is too late: for TRS, and likely for many, many
other comparable pension funds, which had hoped that the Fed would by
now inflate the economy, and fix their massively incorrect investment
exposure, the jig may be up. As liquidations have already commenced, the
fund is beyond the point where it can "extend and pretend", and absent
the market staging a dramatic rally, government bonds plunging, and risk
spreads on CDS collapsing, the fund is likely doomed to a slow at
first, then ever faster death
." This speculation immediately prompted a response by Dave Urbanek who replied to Leo Kolivakis (we have yet to hear from Mr. Urbanek directly), who said: "Please remove your post of Tyler Durden’s inaccurate analysis of the Illinois Teachers’ Retirement System. It is not excellent. It is wrong. TRS is not in a death spiral. We’ll still be operating and paying pensions for years to come." Yup - about 10 years to be precise, and then it's over. Today, Bloomberg's Jon Erlichman settles the debate, by focusing on the Illinois State Board of Investment in a special video report, where he confirms that absent state funding "the $9.6 billion fund, in less than 10 years, could have no money left. If they get no state funding and they just have to rely on employee contributions, there you go, you could go from $10 billion to zero in less than ten years." There you go indeed. Our condolences to Illinois pensioners - you now have about 10 years of natural asset coverage, absent your pension funds becoming the latest government-sponsored ponzi scheme.

Mr. Urbanek, we look forward to seeing what your projections are like now that the TRS is also selling securities to fund its ongoing distributions, and how long before your own fund hits zero.

More from Erlichman:

This fund is already selling, this year, about $80 million of assets a month. Here's the problem - if you have to sell faster than you thought you have to sell, because you are not getting that state funding, then you sell the liquid stuff - stocks, bonds, and then you are left with private equity, real estate, infrastructure...all of a sudden your portfolio has changed, people are asking questions, it is a major issue.

There is no news yet whether the ISBI has performed the same ludicrous selling of CDS and other risk insurance that we discussed previously to obtain immediate cash injections, although with borderline criminal lack of fiduciary responsibility now manifest by virtually all pension funds, nothing would surprise us, as more and more funds put their fate openly in the hands of the Fed's reflation experiment. 

 

 

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Mon, 09/20/2010 - 11:23 | 592009 Sudden Debt
Sudden Debt's picture

10 YEARS!!!

COLLECTIVE SUICIDE IN 9 YEARS SHOULD FIX ALL OF THIS!!!

WHOEHOE!!

Mon, 09/20/2010 - 11:27 | 592023 LeBalance
LeBalance's picture

I completely agree.  But as the pathfinder of this concept I think you should take the lead and show us how it is done, today.

Mon, 09/20/2010 - 11:56 | 592115 MichaelG
MichaelG's picture

Nooo!  Anyway, Raging-Gif-Thing is hardly part of this particular problem.

May have been involved in this one, though:

http://english.ntdtv.com/ntdtv_en/ns_europe/2010-09-16/066168741522.html

Mon, 09/20/2010 - 14:59 | 592625 GoldSilverDoc
GoldSilverDoc's picture

Having lived and worked in Illinois for 20 years, in one of the (if not the) most corrupt counties in the USA, I will say with relish.... it couldn't happen to a better place.

All you Illinoisans, who just KNEW that the way to arrange your affairs was to vote for whomever could steal the most for you...may you all enjoy your just desserts.

Mon, 09/20/2010 - 11:59 | 592136 masterinchancery
masterinchancery's picture

Nah, just wait until the billion dollar Bernanke notes show up, all will be well. Got gold?

Mon, 09/20/2010 - 13:38 | 592430 Translational Lift
Translational Lift's picture

Nah....no problem...the fix is already in via the bammaboy...........peoples money from the Peoples House..........

Mon, 09/20/2010 - 11:28 | 592028 fiftybagger
fiftybagger's picture

Soylent Green

Mon, 09/20/2010 - 12:14 | 592182 Spastica Rex
Spastica Rex's picture

"To Serve Man"... It's a COOK BOOK!!!!

Mon, 09/20/2010 - 13:29 | 592406 Monkey Craig
Monkey Craig's picture

I love the Twilight Zone reference.

I personally am sick of the government telling me how good everything is. Apparently, the recession ended last June.

Mon, 09/20/2010 - 11:29 | 592031 Conrad Murray
Mon, 09/20/2010 - 11:29 | 592037 Shameful
Shameful's picture

10 years?  Well hell's bells where is the problem?  It's not like the US has 10 years left at this rate, and that aught to clear their liabilities one way or another.

Mon, 09/20/2010 - 12:18 | 592192 Mad Max
Mad Max's picture

My thoughts exactly.

In 10 years you'll probably be able to trade a pile of cash equal to any teacher's pension for an egg or two, or maybe a sandwich.  Trade either direction.

Mon, 09/20/2010 - 12:47 | 592300 DaveyJones
DaveyJones's picture

Oh you want the chicken?, that'll be two principals and a janitor  

Mon, 09/20/2010 - 11:31 | 592040 doomandbloom
doomandbloom's picture

death spiral, death spiral, death spiral:-)))

Mon, 09/20/2010 - 11:35 | 592049 Fourth Horseman...
Fourth Horseman of the Apocalypse's picture

The math is simple:  this year most unfunded pension funds have had to net liquidate assets to cover current cash calls.  In the GM IPO prospectus, the pension has $80 billion in assets and $9 billion of cash payments this year plus GM is not contributing any money for a several more years.  The net impact (assuming a generous 4% blended return for this year) is nearly a $6 billion liquidation of assets.  This math is the same for state pension funds as state deficits have slashed pension contributions.  Even Harvard's endowment, unless donations skyrocket, will be forced to sell assets this year.  

Mon, 09/20/2010 - 11:35 | 592051 WSP
WSP's picture

Funny when that bimbo says "might be many more" ---REALLY, no, couldn't be in the United States, a country that more or less invented and has now perfected government sponsored ponzi scheme's. 

Truly amazing that so many people act surprised at the criminal fraud that these ponzi schemes respresent----from the criminals that run them in the government all the way down to the retards that believe that they are entitled to the annuitized equivalent of millions of retirement dollars to retards in health care that encourage people to live healthly lives----yes, that's what we need, more people to give up smoking and stop eating so that they will live to be 100 and thus live off government support even longer.    What retarded, corrupt country the United States is....so many idiots with different, yet all corrupt agenda's that do everything they can everyday to make hard working, honest people's lives miserable by lying, cheating, and stealing.

Should the United States ever have revolution to clean out all of the corruption, part of the new constitution should require that in order to vote, you have to understand basic finance including fiat money and the "getting something for nothing" mentality.   If you cannot pass a basic, simple test that demonstrates that you understand fiat money and the corruption is represents, you cannot vote, plain and simple.

And which states do you think will be the most underwater on their pensions?  The socialist ones of course----Illinois, California, New York....of course the rest of the country should pay for their socialist programs, right?

 

 

Mon, 09/20/2010 - 13:10 | 592349 The Rock
The Rock's picture

If you cannot pass a basic, simple test that demonstrates that you understand fiat money and the corruption is represents, you cannot vote, plain and simple.

I wish!!!  If you gave that test right now, I bet not more than 1% would be allowed to vote!

 

Mon, 09/20/2010 - 13:38 | 592429 mnevins2
mnevins2's picture

I live in Illinois and have been aware of this issue since the "5 + 5" early retirement incentive program of over 15 years ago. I didn't initially conclude "bankrupt," but just figured that "taxes were going up."

I also know plenty of people in the ed field. The ones in the 20's to 40's are willing to talk "compromise," etc., but the rest of the group? It's "where's mine" and "I earned every penny" and "it's for the children"........... When I point out that this will actually bankrupt "the children" they just get this blank look on their faces.

They long ago drank the kool-aid and robotically accepted that they are the best and the brightest and that they earned every penny because they paid in to the system (which they did - but not enough) and worked 26 hour days seven days a week and spent their summers preparing lesson plans!

As a society we are, in a perverse way, fortunate that the wall is upon us now - during this economic crisis. If times were better, the solution would have been raising taxes, period. That's what the union leaders counted on - when they gave permission for the state to not make the annual contribution (of which money then went to the school districts and then to higher pay for the teachers and then higher pension benefits and then to today and "boom!").

Why did they agree to this? Because the state constitution, per them, guarantees every penny - that's why!!! Top Chicago legal firms today, though, are questioning whether or not this is true. Yep, panic time in my great state!!!

Mon, 09/20/2010 - 13:59 | 592494 WSP
WSP's picture

"As a society we are, in a perverse way, fortunate that the wall is upon us now - during this economic crisis. If times were better, the solution would have been raising taxes, period"

Interesting observation-----will be even more interesting to see if it makes any difference or if governments will steam roll new taxes and bailouts to pay for these unfunded liabilities like the feds did with health care.  In the end, it seems the narcissistic psychopaths that rise to positions of leadership in government will do whatever gets them votes, and given that most of the generous unfunded pensions were to government employees and union thugs who hold great power, I am not optimistic that pension bailouts are not only forthcoming, but also, ongoing.

 

Mon, 09/20/2010 - 14:39 | 592571 Justibone
Justibone's picture

In the short run, I would agree with you.

In the long run, cash flow will force default.

Mon, 09/20/2010 - 14:45 | 592591 dark pools of soros
dark pools of soros's picture

but just like our rights & freedoms, TPTB are keen on isolating one item at a time so the rest feel it is ok since it is not them or most of their friend's problems..  just like when Hitler or another begins his reign.. "oh its just Poland..  or its just so and so, nothing to do with me'

 

so the same with this economic destruction that has been going on for decades..  everyone here is waiting for that 'tipping point' but when it does come, there will only be a small % of the population that is left to lose the last bits of serf wealth.. they'll look around for a grand fight to ensue and realize how many have already lost everything during the decades they were cowering safely untouched...

 

 

Mon, 09/20/2010 - 11:35 | 592054 pat53
pat53's picture

nonsense, a skyrocketing stock market will fill the voids and put these pension plans back in the black again. the stock market is a creator of wealth, it will not be allowed to fall....period !

Mon, 09/20/2010 - 11:49 | 592093 centerline
centerline's picture

pension funds = bagholders.

Mon, 09/20/2010 - 11:55 | 592111 baserunr
baserunr's picture

Almost.

Taxpayers=bagholders.

Mon, 09/20/2010 - 11:59 | 592132 centerline
centerline's picture

+1

Mon, 09/20/2010 - 11:37 | 592057 ZeroPoint
ZeroPoint's picture

I wonder if any of those teachers can take a lump sum payout. Get out before it's too late.

Mon, 09/20/2010 - 11:38 | 592062 Superdrol
Superdrol's picture

I think analyst were projecting 9 years.  So this comes in better than expected.  Time to have a reverse flash crash +1,000 points.

Mon, 09/20/2010 - 12:45 | 592291 Almost Solvent
Almost Solvent's picture

+25,000 is closer to what's needed at this point.

Mon, 09/20/2010 - 11:38 | 592063 bigdumbnugly
bigdumbnugly's picture

Mr. Urbanek is on the same short-span timeline as all politicians...  in 10 years he will probably be long gone, leaving the cupboards bare for the little people.

For these guys 10 years out is some futuristic sci-fi era.

 

Mon, 09/20/2010 - 12:47 | 592297 Almost Solvent
Almost Solvent's picture

Reminds me of the goofy (but cute) movie: City of Ember, where the succeeding generations of "mayor" were more and more corrupt and less and less knowledgeable about how to keep the light on!

Mon, 09/20/2010 - 11:39 | 592068 tony bonn
tony bonn's picture

clearly mr urbanek's claims were predicated upon the confident and reliable assumption that the state would bail out the pension fund.

yet another example of why higher education is a complete misnomer and mr urbanek earns fucktard of the day award. trailer trash descends to new lows.

Mon, 09/20/2010 - 11:43 | 592073 Xedus129
Xedus129's picture

Maybe the Bears can win the Superbowl.. then they can garnish the winnings from the team/players.  Player civic endorsements ftw.

Mon, 09/20/2010 - 12:08 | 592167 Thunder Dome
Thunder Dome's picture

BEARSS!!

Mon, 09/20/2010 - 11:43 | 592075 Internet Tough Guy
Internet Tough Guy's picture

Somebody set us up the bomb.

Mon, 09/20/2010 - 12:18 | 592193 Mad Max
Mad Max's picture

All your pension are belong to us.

Mon, 09/20/2010 - 12:20 | 592200 mikla
mikla's picture

+1 HAHAHAHAAAA!

Shirts for Illinois Teachers:

Mon, 09/20/2010 - 14:22 | 592538 trav7777
trav7777's picture

It's "up us" n00bz

Mon, 09/20/2010 - 11:46 | 592082 Something Wicke...
Something Wicked This Way Comes's picture

Watching the national Ponz ramp up today. How many points will the Ponz fall as Obama talks?

 

Over under is 52.

Mon, 09/20/2010 - 11:47 | 592086 Rainman
Rainman's picture

Ignore the starving pension beast behind the curtain.

Mon, 09/20/2010 - 11:47 | 592087 centerline
centerline's picture

Coming to a pension fund nearest you!

 

This is just the first and possibly worst right now.  

Mon, 09/20/2010 - 11:48 | 592089 glenlloyd
glenlloyd's picture

pension fund futurama

Mon, 09/20/2010 - 11:51 | 592096 Something Wicke...
Something Wicked This Way Comes's picture

There is a site I am familiar with called "Public Fund Survey." Here is the Illinois funding levels as of 2009.

35 IL Illinois Teachers 52.1 $38,026,044 $73,027,198 $35,001,154 7/1/2009 6/30/2009 36 IL Illinois SERS 46.1 $10,995,366 $23,841,280 $12,845,914 6/30/2008 6/30/2008
Mon, 09/20/2010 - 11:58 | 592100 jmc8888
jmc8888's picture

Where's Ben 'Ebby Calvin "Nuke" LaLoosh' Bernanke?

We gotta protect that million dollar arm, (you know the one that operates the printing presses, can't have that thing sore ya know, especially with Europe calling).

Who else will bail them out? Calpers? How about a swap arrangement between the two?  With the nuclear option at his disposal, the answer is to print of course. (remember Nuke, no casinos, pulling slots is not covered by Federal Reserve insurance, you work for the Federal Reserve, your arm needs to stay ready for OUR printing presses)

However, like Laloosh, perhaps we should be more concerned with Big Ben's 5 cent head? (conincidently America's new 2016 minimum wage)

Another pension bites the dust.  Sad, because they are so needed, and so needed.  You'd think someone with fiduciary responsibility would be sued at some point, but that only happens in the twilight zone, not real life. So who is going to tell America they've been Vic Morrow'ed?


Mon, 09/20/2010 - 11:52 | 592102 rle1221
rle1221's picture

ten years, more money than 97% of the rest of the country.

Mon, 09/20/2010 - 11:54 | 592105 Something Wicke...
Something Wicked This Way Comes's picture

oops. Not the prettiest snip. Funding levels have dropped to 52% one of the worst in the survey. Survey avg is around 79...wait until the Ponz ramps down some more. Ten years is looking mighty optimistic.

Mon, 09/20/2010 - 11:56 | 592121 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

10 years? BS! When the market finally does crash it will be much quicker to drain the assets. How about 3 to 4 years or even less.

Mon, 09/20/2010 - 12:22 | 592206 Yophat
Yophat's picture

LOL....yeah 10 years is way optimistic!  As you point out 3 to 4 years is very optimistic.  All the pension fund holds is paper.....and it can go to zero in a hurry!

Mon, 09/20/2010 - 11:57 | 592129 augmister
augmister's picture

Tax the citizens!  Tax the citizens!  Tax the citizens!  Bring on the revolt!

Mon, 09/20/2010 - 12:02 | 592139 Bill Lumbergh
Bill Lumbergh's picture

Not to worry...Benny will print a few billion dollars to bail out the Messiah's home state.

Mon, 09/20/2010 - 12:01 | 592141 Something Wicke...
Something Wicked This Way Comes's picture

Ok. I am gonna force myself to listen to the mouth of America. My over under is about 3 mins. Hopefully he can rein in this up ramp with talk of more programs and government spending.

Mon, 09/20/2010 - 12:12 | 592175 Something Wicke...
Something Wicked This Way Comes's picture

The first question, from a black admirer, omg...a softball. Tyler...does it ever end?

Mon, 09/20/2010 - 12:18 | 592190 Conrad Murray
Conrad Murray's picture

"I would first like to suck your dick and the dick of whoever at CNBC made this happen.  I am a giant fan of yours, voted for you and all that, but I'm tired of defending your absolute lack of action in helping anyone outside of 'the circle'.  If you would be so kind as to hit some talking points, I'm sure I'll get my $200 check the lady at the door said I would".

Mon, 09/20/2010 - 12:12 | 592176 jmc8888
jmc8888's picture

Why is everything out of these idiots mouths talk about their investments as if they live in the republican test tube ideology bubble?  It's amazing. 

Vacuum bubble or reality?  These idiots need to revise their forward outlooks to something other than residing in the land of 'happily ever after'. 

 

 

Mon, 09/20/2010 - 12:17 | 592188 ZackAttack
ZackAttack's picture

Well, we should deconstruct the Illinois portfolio and lean on the fuckers a little bit. 

Pension payments go out the first of the month? Guess he's selling the last week of the prior month.  

Mon, 09/20/2010 - 12:24 | 592203 ShankyS
ShankyS's picture

Austerity bitches!

 

Not long till Uncle Benny and Barry take control of all pension, 410k and IRA assets and have then "saving the country" buying nothing but treasuries.

 

Mass exodus of the country in 5...4...3...2..

Mon, 09/20/2010 - 12:33 | 592254 Shameful
Shameful's picture

While I have no doubt they want that juicy multi trillion dollar plumb they are still having to dance around to get it.  If people want to leave they might want to think about it BEFORE Uncle Sugar takes their nest egg.  Also everyone should remember the vast majority of Americans don't have much in those accounts.  I think the average is less then 40k, so it will not cause the waves a lot think it will.  It will be part of the "soak the rich" plan.  That plan always goes over well in a kleptocracy.  The poor think they will get he goodies, when in reality the looters will walk away with it.

Mon, 09/20/2010 - 14:49 | 592598 Justibone
Justibone's picture

One person I know who has a 401k still (despite my urging) knows how much she has in there down to the dollar (as of her previous statement), and if anybody messed with it she would be very, VERY vocal about it.

She has much less than $40K.

Then again, the plural of anecdote is not data.

Mon, 09/20/2010 - 12:22 | 592208 ac3
ac3's picture

Illinois and especially Chicago look like a great economic environment with the gangs and now the teachers getting ready to hit the streets with pitchforks ... sounds sweet

Mon, 09/20/2010 - 12:33 | 592247 Leo Kolivakis
Leo Kolivakis's picture

No worries, all those Nobel-prize winners at the Chicago School of economics will let the market fix these pension woes. <sarcasm off>

Mon, 09/20/2010 - 13:49 | 592458 Monkey Craig
Monkey Craig's picture

and Paul Krugman / Ben Shalom Bernanke Phd has any better plan than deficit spending and money printing?

I've thought for quite awhile that economics was modern day alchemy.

Mon, 09/20/2010 - 14:50 | 592603 Justibone
Justibone's picture

Alchemy had a use -- it gave us chemistry.  What's economics going to do for us?

Mon, 09/20/2010 - 20:44 | 593617 StychoKiller
StychoKiller's picture

They're transforming walth and value into paper confetti!

Mon, 09/20/2010 - 12:52 | 592309 Bolweevil
Bolweevil's picture

Duh, just loan a bunch of money to the state and wait for the bailout (california).

Mon, 09/20/2010 - 12:54 | 592314 williambanzai7
williambanzai7's picture

I believe they are on a BASIL III Time line.

Mon, 09/20/2010 - 13:14 | 592356 Blano
Blano's picture

Not to defend Urbanek, but he did say "years" so technically he was correct.  He'll just bail out a couple years before it blows.

Mon, 09/20/2010 - 13:25 | 592392 midtowng
midtowng's picture

It's not as big of deal as you make it out to be. Given the demographic bulge, all the pensions in the developed world will be selling their bonds at some point. It's not necessarily a bad thing. Pensions shouldn't be buying bonds to the moon.

The problem is that we are talking less than 10 years. That's the part that isn't OK.

Mon, 09/20/2010 - 13:25 | 592394 midtowng
midtowng's picture

It's not as big of deal as you make it out to be. Given the demographic bulge, all the pensions in the developed world will be selling their bonds at some point. It's not necessarily a bad thing. Pensions shouldn't be buying bonds to the moon.

The problem is that we are talking less than 10 years. That's the part that isn't OK.

Mon, 09/20/2010 - 13:29 | 592404 bugs_
bugs_'s picture

Advice to the Illinois "teachers".  Quit and take your lump sum ASAP.

Mon, 09/20/2010 - 13:30 | 592410 Jim in MN
Jim in MN's picture

 

See here, it ain't no spiral twisty shit, it's more like a rock when you throw it toward the crapper, youknowwhatimean?  Kind of a curve, but straight.  Very straight as it falls in, see?  So kindly correct your innuendo-y spirally kinked up garbage or persons unknown might perform certain unstated acts upon youse. 

Also, if you see any sweet deals please contact Vinny.  We like small bills, and billions.

--Sincerely, Chicago School Man Peoples' Society of Pension Lovers

Mon, 09/20/2010 - 13:51 | 592462 Double down
Double down's picture

I think Dave Urbanek should be looking for a new job. 

Never challenge Tyler, it only draws attention to how FOBRed you already are.  It is an invitation for MSM to dive in.  Only thing left is damage control.

Fool

 

Mon, 09/20/2010 - 20:47 | 593624 StychoKiller
StychoKiller's picture

Aren't these the same jokers that thought issuing bonds to pay the interest due on other bonds was a way out?   Or was that New York?  It's getting hard to keep the playas straight without a score card!

Mon, 09/20/2010 - 13:58 | 592491 AndrewJackson
AndrewJackson's picture

This is honestly not a big surprise. The top 100 Illinois school administrators collectively have a pension due to them in the amount of about 1 billion dollars. http://www.washingtonexaminer.com/opinion/blogs/Examiner-Opinion-Zone/e-d-kain-Top-Illinois-public-school-administrators-split-nearly-1-billion-in-pensions-96723204.html This ponzi needs to fail.

 

 

Mon, 09/20/2010 - 15:08 | 592651 kaiserhoff
kaiserhoff's picture

Just one of the many consequences of ZIRP.  Things that were on the road to hell get there so much faster.

Mon, 09/20/2010 - 15:12 | 592670 Hype Alert
Hype Alert's picture

Once again, inflating the stock market is the solution to our problems.

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