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Pension Funds, Facing $1 Trillion Gap, Next In Line For Government Pittance
It was just a matter of time: with the government set to take over every aspect of the economy, its next holding will be the perpetually underfunded and soon to be bankrupt State and local pension system. Bloomberg notes that state and local government
pensions are underfunded by $1 trillion and may need to
seek federal guarantees for their debt. Another insolvent institution, the FDIC, will undoubtedly be happy to guarantee one broke entity's obligations with another broke entity's worthless guarantee. The only question is why it took them so long. And what is a trillion? Nothing more than twenty $50 billion 5 year auctions: the way these have been selling like hot cakes, courtesy the nuclear option that if even one auction were to fail the US emperor would have to seek repudiation or immediate Fed monetization, we expect this "underfunding" to miraculously become "funding" within a few months. At some point the government should think about funding the $2.3 trillion in consumer debt in a comparable fashion: after all Bernanke and his puppet Obama have now released all stops on fiscal and monetary prudence. Who cares if the next administration is saddled with $16 trillion in debt (which is where were are headed in 3 years). After those two, the proverbial flood (of worthless dollar bills).
More from Bloomberg:
Pension underfunding eventually will make it
impossible for some governments to raise money in bond
markets and will require federal intervention through
explicit or “implied guarantees” of municipal debt,
Kramer, 64, said in an interview today at Bloomberg News
headquarters in New York.
“The collective deficits should not be and will not be
overcome by an aggressive investment strategy,” Kramer
said. “I think that actually, ultimately, the severity of
the problem will become publicly visible and you’ll have
more entities that will have difficulty accessing the bond
markets.”
And here is where the idiot money feeding the market, chasing Medallion's low-volume induced momentum spurts in the S&P is coming from:
The 100 largest U.S. public-employee pension plans had
assets of $2.2 trillion as of June 30, down from $2.8
trillion a year earlier, according to a U.S. Census Bureau
report. The 21 percent decline compared with the 28 percent
fall in the Standard & Poor’s 500 Index during the worst
recession since the Great Depression.
With politicians obviously not caring about a sustainable debt situation, and unwilling to break Wall Street's gridlock over the fate of this country, and with the administration taking their play by play cues directly from such grizzled Wall Street professionals as Dick Bove and Lloyd Blankfein, one can only stand back and watch as the future of America is traded away to Chinese vassal interests, in the hopes of buying one or two more years of record bonuses on Wall Street. And before the Fed accept a pure monetization posture, and does away with such pleasantries as QE, at least retirees can receive whatever money they are owed for another several years to spend as they see fit (as long as said spending does not involve trips to Europe and the purchasing of Euros).
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Well, don't say I didn't warn you! I've been writing about pension bombs going off everywhere since last year.The pension smash-up will define Obama's legacy just like Iraq and the financial crisis defined W's legacy. All this tells me is that now more than ever, we need an international summit on pension funds, insurance funds, and financial markets. The system is broken and we can't ignore it any longer.
Leo Kolivakis
Pension Pulse blog
bank bailout was as much about preserving the insurance complex as anything.
No need to ignore it - tell the pensioners to join the rest of the world and invest it on their own. Taxpayers do not owe them a fat-n-happy retirement.
When equities go up pensioners win. When equities go down pensioners win because taxpayers are forced to make up the difference. What the fuck is that all about?
Get real with them; they're not getting what they expected - like the rest of us.
Sorry, OT, but someone just fragged a military base:
http://rawstory.com/2009/11/report-7-killed-fort-hood-army-base/
Well this day of reckoning with public sector pensions had to come. And it has undoubtedly worsened since the June 30 Census report. The CRE mess is really jamming along and these pension managers are loaded to the gills with that exposure.
So now Uncle Sugar must guarantee the municipal debt market. And you can bet they'll get it without payout adjustment concessions by public sector unions.
The horror of it all.
Not to worry - avian meowing swine flucks the herd.
http://www.youtube.com/watch?v=iNa551dR6Rc
Hopefully, finally, with all the evidence from GM, Chrysler, and now state pensions, people will start to figure out that unions are part of the problem, not part of the solution.
I'm being too optimistic, I know. It's a character flaw.
Giant, vampiric corporations being the other part, of course.
Muni Debt = Next bubble...get'em before GS does....ah, too late. They are already shorting them as soon as they put 'em into customers accounts. booooowah!
You can't short muni debt, not possible
Can you buy a CDS against a municipality? If so.....(and I am not sure)....isn;t that the equivolent of shorting municipals?
pretty sure it is actually pretty easy to do.
Here ZH, I'll save you a couple years of reporting by cutting to the chase: EVERYTHING is insolvent.
Our whole standard of living has been a deception for 25 years. We can't pay everyone their nice pension, because they never should have been that generous in the first place.
I've known a few Gov employees, they live for that pension. What is coming will have nothing to do with Government Guarantees - it's going to be telling these Gov employees that those fat retirement pension ain't coming.
So this is what we private sector folks get to look forward to, people who planned on retiring on a big fat pensions still working for the government and they are pissed...
I won't be wronged, I won't be insulted, and I won't be laid a hand on. I don't do these things to other people, and I require the same from them.
Books.
I'll believe it when I see it. $1,000 BILLION dollars? For... pensions? Come on. Like the Fed cares about the states. Like the Fed give one fetid dingo kidney for pensions, no less. Pensions are so middle-class. They are eating the middle-class, why now save their useless little pensions?
$1,000 billion for new 40-lane freeways and bridges cuz we're an automobile manufacturer now, sure. I might believe 40-lanes paved in silver ingots and Kool-aid rest stops every 5 miles. Staffed by willing virgins. That would sound about right for the country I come from.
Muni pensions. Sorry.
When private corp. has underfunded pension plan it's either discontinued, or the company files for chapter 11. Either way the workers get FAT ZERO. Not to mention that there are hardly any companies with pensions for rank-&-file.
When gov't pension funds go bust, they will ask the eds for a bailout? NOT ONLY will lazy-ass useless incompetent bureaucrats get paid on average 50% more than the private sector folks, but they will get the the money, but it will come FROM THE TAXPAYERS - i.e. people who themselves lost their pensions?
This will be the reason to take up the arms. I'm finally ready.
I wonder though how much of the 'underfunding' is being caused by low interest rates? (Thanks QE!)
One of the perverse side-effect of low interest rates is that it INCREASES the total liabilities for the pension fund and greatly outweighs any increase that might be gained from the bond portofilio. (Think NPV of the liabilities.) Thus, it makes it harder for contributors to fully fund the pension in that given year. (Hence the need for California to issue bonds to meet obligations.)
The underfunding could just be a quirk of pension fund accounting and large declines in the assets. I would be more worried about those coverage ratios.
However, having read Leo's article... I am stunned (not really) and agree this is something to watch. This blew me away too: "Federal Reserve Board data show that about 70 percent of state and local pension investments are in equities, compared to 62 percent in 2000 and 38 percent in 1990." Seriously?? I could manage their pension fund better than that!
Other random thoughts include:
1) This is a great case for further deflation, since Granny will be get $0.80 on the dollar when she goes looking for her retirement.
2) Boo-hoo... California teachers (and Social Security beneficiaries) won't get COLA increases.
3) I hope the pension funds start to 'rebalance' back into bonds, taking the market back down. (I would be cashing out here... thankful for dodging last year's bullet... mostly).
i wonder - are these public-pension funds able to offer present recipients a present-discounted (and discounted further for being so god-darnit diddly-doo nice) one-off payout?
could be a (feeble? - part?) solution for relieveing future liabilities and making the balance sheet appear (at a glance) well, less hopeless
at least this way Goldman could be given a fairer chance of getting their tenacles all over those benefits now, as opposed to the drip-feed they are facing today
good luck
Yes Jules the end willl be signalled by a rush to receive lump sum payments.
Dick Bove and LLoyd Blankfein mentioned in the same breath - c'mon Blankfein is in a totally different league in any which way