Pension Underfunding

The Dallas Pension Fiasco Is Just The Beginning

The recent blow-up of the Dallas Police and Fire Pension System was entirely predictable. The combination of overpriced financial markets, inadequate contributions and overly generous pension promises mean dozens of US local and state government pension plans will end up in the same situation.

Illinois Warns Of "Crippling Tax Hikes", "Devastating Impact" If Largest Pension Fund Admits Reality

Action this week by Illinois' biggest public pension fund to lower its expected rate of return, could "cripple" the state's already fragile finances, Governor Rauner has warned. "If the (TRS) board were to approve a lower assumed rate of return taxpayers will be automatically and immediately on the hook for potentially hundreds of millions of dollars in higher taxes or reduced services... the unforeseen and unknown automatic cost increases would have a devastating impact."

Central Bankers To The Masses: "Let Them Eat Rate"

A new generation of revolutionary central bankers must be called to arms for all of our sake. Their battle cry: We commit to never returning rates to zero or below again, to never let be money be free and forever ensure there is a true cost associated with borrowing. Release the markets to set interest rates now and forever! Will it work? Stranger things have been known to succeed in capitalistic economies with competitive and freely functioning markets.

Puerto Rico Re-Junked, This Time By Moody's - Full Report

Three days ago it was S&P that opened the can of Puerto Rico junk worms. Moments ago it was Moody's turn to downgrade the General Obligation rating of the Commonwealth from Baa3 to Ba2, aka junk status. We note this just in case someone is confused what the catalyst was that just sent stock to a new intraday high in the aftermath of today's disappointing jobs number which until this moment barely managed to push the S&P higher by 1%. From the report: "While some economic indicators point to a preliminary stabilization, we do not see evidence of economic growth sufficient to reverse the commonwealth's negative financial trends. Without an economic revival, the commonwealth will face difficult decisions in coming years, as its debt and pension costs rise. The negative outlook signals the remaining challenges facing the commonwealth."

JPMorgan Brings The Second Public Coming Of Chrysler

Four years after it filed for Chapter 11 bankruptcy protection, and was purchased from the depths of bankruptcy court hell by Fiat S.p.A., the circle (jerk) is complete, and thanks to lead underwriter JPM, the second coming of Chrysler, this time for sale to a whole new batch of gullible ROI chasers, is now a fact with the S-1 statement filing moments ago, in which the only cash transfer will be from the VEBA Trust to new shareholders and no new cash will go to the actual company. In other words, the UAW is selling to the general public.

Detroit's Fallout: Muni Illiquidity And Full-Faith-And-Credit Failure

Municipal finance is in sharp focus after Detroit filed the largest municipal bankruptcy in history. Detroit’s filing is arguably an isolated case and its fiscal problems are not indicative of the broader municipal credit landscape; but, the outcome of the bankruptcy process will dictate whether the value of the full faith and credit pledge backing GO bonds will be diminished going forward. The global hunt for yield has probably chased new investors into the Muni market who may not fully understand that in recent years it has become an ‘ownership not rental’ market.  In other words, it is unlikely holders of Munis can sell what they own, as liquidity in the secondary market is almost non-existent.

Three Funny Charts

Nothing like good ole' Goldman to brighten up things with a wink and a smile just as the economy is sliding, earnings are retrenching (and declining excluding pension underfunding adjustments), cash flow is negative and revenues are poised to double dip.

ZIRP Strikes Again: Pension Under-Funding For S&P 500 Companies Hits Record

The public pension and retirement 'schemes' are in considerable trouble (as we noted here and here) and now, according to a recent S&P study, private companies are at record levels of pension under-funding. Fiscal 2011 shows that the under-funded level for S&P 500 companies' defined pensions reached an epic $354.7 billion - an increase of over $100 billion from 2010 and surpassing the 2008 record of $308.4 billion - and OPEB under-funding reached $223.4 billion. An aggregate $578 billion or 29.5% underfunding or the $1.96 trillion in obligations is increasing as the rates of return are reduced thanks to yet more unintended consequences of the Fed's ZIRP and perhaps most worrying is there comment that "The American dream of a golden retirement for baby boomers is quickly dissipating; plans have been reduced and the burden shifted with future retirees needing to save more for their retirement.  For many baby-boomers it may already be too late to safely build-up assets, outside of working longer or living more frugally in retirement."