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TRS Responds to "Death Spiral" Comments

Leo Kolivakis's picture




 

Via Pension Pulse.

In response to my last comment on whether pensions are the next AIG,
Dave Urbanek, Public Information Officer at the Teachers’ Retirement
System of the State of Illinois (TRS), sent me this message:

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.

 

We could potentially
sell $3 billion in assets if the Illinois General Assembly does not
come up with its annual contribution to TRS. The state owes us $2.35
billion. Two other state pension systems are also selling assets until
the state makes its payments to them. That is the only reason we are
selling assets.

 

We are not selling assets
because we are on the risky side of any investments, as Mr. Durden
claims. Here are the facts: We could potentially sell $3 billion in
assets. Last year our investment income totaled $4.6 billion – a 13
percent return. We did not lose money. We have $33 billion in total
assets. We will pay $4.1 billion in pensions and benefits during the
current fiscal year. Do the math. We are not in a death spiral.

 

What
Mr. Durden doesn’t say – and won’t because it ruins his story – is
that TRS sold $1.3 billion in assets last year for the same reason: The
General Assembly hadn’t yet come up with its annual contribution. The
state ultimately sold bonds and made the payment, and we not only got
our money back from the assets we sold but did not have to sell any
further assets.

 

Repeating Mr. Durden’s incorrect rants on your blog is highly irresponsible.

I
thank Mr. Urbanek for his response and I am glad TRS is not in a
"death spiral". I never claimed they were, just that they're forced to
liquidate stocks at the worst possible time and are taking riskier bets
to cover their shortfall. In particular, did TRS sell billions of
derivatives (mostly CDS) to bet on a rising market/ collapsing spreads
(aka the AIG trade) and are they still betting on a drop in Treasuries (rise in yields)?

What
remains to be seen is how TRS and other mature public pension plans
suffering from ever widening deficits will respond to long-term
structural issues plaguing the pension industry. Tough choices lie
ahead, and there are no simple solutions to the pension crisis.

I will update this comment if further information is provided by TRS. You can also click here to get more information on TRS's investments and click here to access their publications, including their latest comprehensive annual report.

 

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Wed, 08/25/2010 - 22:21 | 544924 Artful Dodger
Artful Dodger's picture

Also, this is funny: "Do the math. We are not in a death spiral." Cuz that whole actuarial thing can be done on a napkin, after all. I got no time for subtleties, I'm a P.I.O.!

Wed, 08/25/2010 - 22:17 | 544915 Artful Dodger
Artful Dodger's picture

That's a rather defensive-sounding email to come from a "communications professional".

Can someone enlighten me on the difference between "the system requested $2.35 billion in contributions from the state" and the CIO's "The state owes us $2.35 billion". So you make a request and poof, you're a creditor? Cool.

Wed, 08/25/2010 - 21:41 | 544855 Fred Hayek
Fred Hayek's picture

Congratulations, Leo!

At times a man may be judged by the quality of his enemies.  The lower the quality of the enemies, the higher the quality of the man.  You, sir, seem to have at least one very low grade nemesis.

Wed, 08/25/2010 - 21:35 | 544839 malek
malek's picture

> TRS is not in a death spiral. We’ll still be operating and paying pensions for years to come.

This statement does not contradict Leo or TD.
If they sold $3 billion of $33 billion in total assets this year, at that rate they would run dry in 11 years - definitely years to come.
Not sure if many people are satisfied by that though.

Wed, 08/25/2010 - 20:25 | 544708 papaswamp
papaswamp's picture

TD I love tha fact that people are pissed they are being called out. I agree that the state is lacking paying into the fund which forces them to liquidate assets...do they somehow miss that is the point?! State revnues are collapsing because the economy sucks and pensions so extravagant only work in high revenue years? I mean the economy is collapsing...they are toast.......I love it.

Wed, 08/25/2010 - 21:47 | 544858 Bow Tie
Bow Tie's picture

lol you said it! and crumbling economy = depreciating asset prices. sounds like a spiral to me. the response is full of denial and sidestepping what would happen in supposedly improbable (in reality VERY probable) scenarios. awesome!

Wed, 08/25/2010 - 20:01 | 544654 bmfe
bmfe's picture

Any system predicated on the ‘fact’ the market always returns an average of 7% is bound to face the music one day.    But don’t stop that music now,  why borrow what we can just print?

 

Federalize me bitchez!

Wed, 08/25/2010 - 19:59 | 544644 Chris88
Chris88's picture

Oh boy, anything is possible when you are funded with stolen money!  No wonder people love the government!

Wed, 08/25/2010 - 19:25 | 544587 skippy
skippy's picture

We could potentially sell $3 billion in assets if the Illinois General Assembly does not come up with its annual contribution to TRS.

 

=====

 

Potentially :

Definition of POTENTIAL 1 : existing in possibility : capable of development into actuality <potential benefits> 2 : expressing possibility; specifically : of, relating to, or constituting a verb phrase expressing possibility, liberty, or power by the use of an auxiliary with the infinitive of the verb (as in it may rain) ==== Skippy...."It may rain"....some droughts last 20 years....hahahahahahaha....catfood, GOMOS, price increase, alternative? 
Wed, 08/25/2010 - 19:41 | 544613 cougar_w
cougar_w's picture

It's really simple. He meant they could potentially find a buyer for their assets at a price they desperately need in order to not go into the hole deeper than they already are. Because -- you know -- that whole death spiral thing sort of -- well -- sort of spirals out of control. Sort of thing. Just say'n.

Otherwise, yeah.

Wed, 08/25/2010 - 19:24 | 544582 cougar_w
cougar_w's picture

I notice the guy did NOT take exception to my accusing them of being a bunch of redeployed hedge fund managers looking for e-z money to suck more obscene bonuses out of.

In which case, I'll take that as a Yes.

Wed, 08/25/2010 - 19:20 | 544575 bugs_
bugs_'s picture

Illinois TRS would like you to take some aspirin - A LOT OF IT.

Wed, 08/25/2010 - 18:56 | 544529 JackTheOffer
JackTheOffer's picture

If "removed" means "buried under a huge outpouring of condemnation of TRS" that should satisfy Mr. Urbanek.

Wed, 08/25/2010 - 18:25 | 544459 NERVEAGENTVX
NERVEAGENTVX's picture

Seems Ty really touched a nerve on this one. Sometimes the truth hurts, and vindication can be found in counterparty denial.

Wed, 08/25/2010 - 17:19 | 544317 The Alarmist
The Alarmist's picture

It is not excellent.

Wow, is that the best a person representing thousands of teachers can do? If the math wizzes they employ are of the same caliber, they are certainly not in a death spiral ... they are in a dive straight to hell.

Wed, 08/25/2010 - 17:07 | 544273 trav7777
trav7777's picture

I think they were pissed where I called them pavement apes

Wed, 08/25/2010 - 17:06 | 544269 Dicite justitiam
Dicite justitiam's picture

Leo,

Did Mr. Urbanek address the collateral issue that Tyler introduced?  To me that was point of Tyler's argument.  That selling the liquid and having the remaining liquid tied up in collateral could lead to a PB endgame if push came to shove.

Cheers

Wed, 08/25/2010 - 17:18 | 544293 Leo Kolivakis
Leo Kolivakis's picture

No, he did not. He dismissed Tyler's "incorrect rants" and stated I'm "highly irresponsible" for repeating them on my blog. I guess fiduciary responsibility isn't something we should bring up when discussing pensions and markets.

Wed, 08/25/2010 - 17:27 | 544335 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Hehe.  He said "Fiduciary responsibility."  That's funny. 

I think I remember what that was when it still existed.  I think.

Wed, 08/25/2010 - 20:07 | 544665 ZackAttack
ZackAttack's picture

Yep, and now I gotta go perform my seduciary responsibilities.

Wed, 08/25/2010 - 17:00 | 544246 mynhair
mynhair's picture

Liquidate, bitchez!

 

Nice one, Leo.  Still think Chinee Solars are crap, though.

Wed, 08/25/2010 - 16:50 | 544216 Jake Lamotta
Jake Lamotta's picture

There is still time, but not damn much...........

The good news is that good people will survive

And mankind will carry on, but the looters are all gonna get wiped out

Anybody that does not know how to completely & independently survive from money is going to die.

The trouble with gold & silver is that Americans are armed to the teeth, and not terribly bright: someone will attempt to take your wealth from you so use your guns to defend your families.

Wed, 08/25/2010 - 16:41 | 544186 scratch_and_sniff
scratch_and_sniff's picture

lol Mr Durden

Wed, 08/25/2010 - 16:29 | 544142 Panafrican Funk...
Panafrican Funktron Robot's picture

I'd be very suprised if their total value was greater than 30 billion by the end of the year. 

Wed, 08/25/2010 - 16:22 | 544119 MiguelitoRaton
MiguelitoRaton's picture

So after "years to come" comes to an end (say 2015) and there is no money left, those teachers are cool with getting nothing right?

Wed, 08/25/2010 - 16:19 | 544106 delivered
delivered's picture

Always love to see it when some feather's get ruffled and responses start to fly. Are some of the pensions starting to feel the heat and get a little testy? I did review all of the articles on the TRS's problems and found them interesting and concerning from two perspectives. First (which I'm by no means an expert) is that it would appear that TRS is starting to reach for yield/return with some risky transactions (with derivatives). Not sure if they know what they're doing but if GS is involved, its safe to say GS will make money at the TRS won't. Of course we all know how well AIG "made out" with their plays so there won't be any surprises if TRS ends up being worse off.

The real problem I have with TRS is that their biggest customer (and really only customer), the state, is bankrupt. Nothing like banking (no pun intended) your entire economic model on one large bankrupt customer that has to issue debt (state munis) just to payoff other debt (unfunded pension obligations). Herein lies the real problem as just like consumers have had to tap their 401ks to cover other expenses/debt, so to is the TRS having to liquidate investments to cover obligations. I suspect that the TRS is just the tip of the iceberg with the pension problems as the rule now for basically all state, city, county, and other government back pensions is that with no real revenues available and expenses for necessities cut to the bone, the only real avenue to cover unfunded obligations is to issue more debt (which of course is just making the overall problem worse) or, god forbid, dramatically reduce future pension obligations.

I agree that the problems with pensions is going to make AIG look like a walk in the park. The only question isn't if now it is just when (and that day looks to be approaching rapidly).

Wed, 08/25/2010 - 16:16 | 544098 Dismal Scientist
Dismal Scientist's picture

I applaud you, Leo. The fact that the TRS have replied in this manner indicates you have rattled them.

'...is that TRS sold $1.3 billion in assets last year for the same reason: The General Assembly hadn’t yet come up with its annual contribution. The state ultimately sold bonds and made the payment, and we not only got our money back from the assets we sold but did not have to sell any further assets.

Whoopee. Last year they made it. What happens next year when the General Assembly can't make the annual contribution, and the bonds the state ultimately sell (because they absolutely have to) are worth far less ?

Tightening, bitchez

Wed, 08/25/2010 - 16:07 | 544070 mt paul
mt paul's picture

Teachers’ Retirement System of the State of Illinois (TRS),

 

let them eat.... hinden burgers

Thu, 08/26/2010 - 04:18 | 545256 Hephasteus
Hephasteus's picture

oh oh ouch. Hurts when ya get those glib superficial sociopathic taunts thrown back in you face.

Wed, 08/25/2010 - 16:06 | 544064 Sancho Ponzi
Sancho Ponzi's picture

From the Chicago Tribune

Here's a good article that questions the legality of lowering future pension payouts:

http://articles.chicagotribune.com/2010-05-04/news/ct-edit-pension-0505-20100504_1_illinois-pension-future-benefits-lawmakers

 

Wed, 08/25/2010 - 16:03 | 544053 DosZap
DosZap's picture

Sir, you make an ASSUMPTION,also the other two systems. 

The state owes us $2.35 billion. Two other state pension systems are also selling assets until the state makes its payments to them. That is the only reason we are selling assets.

Last I read, your state is BROKE, so, where are they getting the funds to PAY your Funds?.

 

Wed, 08/25/2010 - 20:52 | 544762 StychoKiller
StychoKiller's picture

Wasn't it Illinois (or New Jersey) that was "borrowing" currency from it's pension funds to pay current pension fund obligations?

Wed, 08/25/2010 - 22:10 | 544900 Blano
Blano's picture

New Yawk I believe.

Wed, 08/25/2010 - 16:05 | 544057 ZackAttack
ZackAttack's picture

where are they getting the funds to PAY your Funds?.

 

Mirror, mirror on the wall...

Wed, 08/25/2010 - 16:04 | 544050 MarketFox
MarketFox's picture

With the imposed 0% reward for bonds...just how is it that any actuarial assumption regarding meeting future obligations be made ?

The government is creating a new society......

 

Serfs: 99%

The "Haves":  1%....

 

Had enough of the "Princeton Harvard Yale Club" yet ?????

Reset button anyone ?

 

 

 

 

Wed, 08/25/2010 - 15:57 | 544032 MrSteve
MrSteve's picture

In May, I worked a church charity sale with several Illinois teachers, some still employed and others retired. They all complained about recent retirement account shenanigans where control of the accounts was changed and the retirees complained "they got me". So. something, somewhere, somehow is going down, with political muscle being pulled to do it.

The current State Treasurer's office lost half of some families' state-sponsored college savings funds in Operation Bright Star, investing in money managers who gamed and lost the money in totally inappropriate vehicles. Now the Treasurer is running for US Senate and claiming the taxpayers lost no tax money, a very fine distinction. Of course, the settlement did not include full restitution or any jail time as they offered a "market" defense. This just illustrates the Newspeak we endure here in Illinois.

ZH needs to just keep "passing the ammunition" in the battle for truth, justice and the American Way.

Wed, 08/25/2010 - 17:23 | 544327 The Alarmist
The Alarmist's picture

Seriously, they called it Bright Star? That was what we used to call the joint-service goat ropes we had in Egypt during the 1980's.

Wed, 08/25/2010 - 15:44 | 543984 digalert
digalert's picture

OK, here's a knee slapper, CALPERS is not in a death spiral.

I really crack myself up.

Wed, 08/25/2010 - 19:31 | 544598 cougar_w
cougar_w's picture

CalPERS is fine. They're smart guys, probably heavily invested in munis dontchaknow.

Oh -- wait ---

Wed, 08/25/2010 - 15:44 | 543983 Problem Is
Problem Is's picture

Isn't This What ShoreBank Said on August 19th??

"Please remove your post. It is not excellent. It is wrong."

"We are not in a death spiral. We’ll still be operating and paying depositors for years to come..."

Wed, 08/25/2010 - 15:58 | 544033 baserunr
baserunr's picture

The problem is they don't like the term "Death Spiral".  Now, if TD had written "spinning mortality plunge", why, that would have been OK.  they just don't want you to mis-characterize things, after all!

Wed, 08/25/2010 - 15:45 | 543968 Council of Econ...
Council of Economic Terrorists's picture

.

Wed, 08/25/2010 - 15:37 | 543949 colonial
colonial's picture

laughing swordfish has this pegged. 

Tyler might have been a bit of an alarmist.  Perhaps the headline should have read, "Illinois TRS in a SLOW Death Spiral."  I'm waiting for similar articles from States like Michigan and Ohio.

Wed, 08/25/2010 - 15:35 | 543942 truont
truont's picture

I think Dave Urbanek slept through his "How to Convincingly Spin $h!t" class at B-School.

More coffee next time, Dave!  More coffee!

Wed, 08/25/2010 - 15:32 | 543928 jbc77
jbc77's picture

I'm sure betting on OTC derivatives and CDS on soverign junk is perfectly acceptable gambling standards for TRS. The only reason they responded is likely due to a backlash of angry teachers who caught wind of ZH's EXCELLENT piece on TRS.

Tell that asshole over at TRS that we know the truth Leo and we're going to roast marshmelllows over his charred remains.

This whole thing is too funny....

Wed, 08/25/2010 - 15:28 | 543914 jc125d
jc125d's picture

Double down - it's only money, and it ain't yours!

Wed, 08/25/2010 - 15:09 | 543834 ElvisDog
ElvisDog's picture

Saying the State of Illinois owes you money is exactly like European banks saying that Greece owes them money. Technically true, but not the same as money in your pocket.

Wed, 08/25/2010 - 15:05 | 543822 glenlloyd
glenlloyd's picture

for a public information officer he certainly can't write worth a crap. seems to be a little bit on the angry pills today

Wed, 08/25/2010 - 15:03 | 543813 GFORCE
GFORCE's picture

Broke Teachers Bitchez

Wed, 08/25/2010 - 14:42 | 543711 laughing_swordfish
laughing_swordfish's picture

Memo To TRS:

You missed the entire point of the article, which was to state that when the Bankrupt State of Illinois has to BORROW to make its pension funding payment, rather than make the payment from TAX REVENUE, you are in a DEATH SPIRAL, because at some point, sooner rather than later, Illinois will LOSE ITS ABILITY TO BORROW and it will then default on its obligations to the pension fund.

What about that don't you understand?

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