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Derivative Losses, Bad Bets, And Aggressive Assumptions Leave Detroit's Pensions Massively Underfunded

Tyler Durden's picture





 

Late last week, Detroit's emergency manager Kevyn Orr, outlined his plan to stop a disaster becoming a catastrophe in the slumping city. The initial suspension of payment on pension obligation bonds is just the start as Orr warns unsecured creditors may only receive up to 10 cents on the dollar as about $2.5 billion in general unsecured debt won't be recovered. Rather incredibly, the city's General and Police and Fire retirement systems have a combined underfunding of $3.5 billion made worse by "aggressive actuarial assumptions," and "investing in risky development projects around the city and loans that will never be repaid." Under more realistic assumptions the funding status of the two pensions drops from 83% and 100% to 65% and 78% and he notes that "if these pension funds' assets had just been invested in a conservative way," as opposed to the political and reach-for-yield driven extravagance, "they probably would be fully funded now." The bottom line is not just creditor haircuts but,"significant cuts in accrued, vested pension amounts for both active and currently retired persons."

Via Pensions and Investments Online,

...

 

Unsecured creditors may only receive up to 10 cents on the dollar under Mr. Orr's plan; his team said about $2.5 billion in general unsecured debt won't be recovered.

 

Detroit's liabilities total $17 billion, including $1.4 billion related to COPs and an additional $344 million in marked-to-market swaps related to the COPs, according to Mr. Orr's creditor plan.

 

...

 

Mr. Orr's pension fund analysis found that previous “aggressive actuarial assumptions” resulted in “substantially understated” funded status for each city pension plan. The funded status of the General Retirement System was 83%, while that of the police and fire fund was 100%, according to June 30, 2011, independent valuations.

 

Recalculations based on “more reasonable assumptions” substantially lowered the funded status of the General Retirement System to 65%, and the police and fire system to 78%, according to Mr. Orr's creditor plan.

 

...

 

“Because the amounts realized on the underfunding claims (the COPs and swaps unsecured debt) will be substantially less than the underfunding amount, there must be significant cuts in accrued, vested pension amounts for both active and currently retired persons,” the creditor proposal said.

 

...

 

“As discussed in the creditors' meeting today, if these pension funds' assets had just been invested in a conservative way, instead of investing in risky development projects around the city and loans that will never be repaid, they probably would be fully funded now,”

 


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Tue, 06/18/2013 - 09:57 | Link to Comment fiftybagger
Tue, 06/18/2013 - 10:00 | Link to Comment MillionDollarBonus_
MillionDollarBonus_'s picture

This pension disaster is a typical example of how CORPRO-CAPITALISM destroys a country. How many more disasters do we have to endure before people wake up and opt for a fairer and more equal society where the poor and sick are taken care of and the billionares pay their fair share?

Tue, 06/18/2013 - 10:01 | Link to Comment Dr. No
Dr. No's picture

Boring.

Tue, 06/18/2013 - 10:22 | Link to Comment Manthong
Manthong's picture

Government employee pensions might be reduced but will be saved.. influential union pensions, too.

Anybody else.. SOL.

It is the way the system will attempt to preserve itself (at the expense of freedom and justice).


and..

Some people got some book-learning to do..

It's Corpro-Statism that is the problem and it allows the concept of capitalism to be bastardized.

By MDB’s definition, the Nazis were capitalists..

Tue, 06/18/2013 - 10:22 | Link to Comment Joe Davola
Joe Davola's picture

I entered "investments" into google translate Politica -> English and it returned "fuck the taxpayer while lining my supporters pockets"

Tue, 06/18/2013 - 10:50 | Link to Comment flacon
flacon's picture

BrotherJohnF has a good exposition about the Detroit Pension Ponzi. Turns out the ponzi goes deeper and affects other pension ponzi's too. This should come as no surprise. 

 

Pension Ponzi

http://www.youtube.com/watch?v=Jex4jWTxRS0

Tue, 06/18/2013 - 12:40 | Link to Comment Never One Roach
Never One Roach's picture

<<loans that will never be repaid>>

 

So, who got those 'loans?'

 

BTW, excellent video by Brother John above, esp his "Cascading Defaults" illustrations. Scary.

Tue, 06/18/2013 - 14:47 | Link to Comment youngman
youngman's picture

The loans were given by the city to someone who said they were going to bebuild a building or start a business...but ended up just stealing the money...it happens in all big cities....Denver has a minority area...5 points..where mayors give loans to minority develpoers that never get repaid...there is a hotel there that has been remodeled/restored 5 times since I have lived there...always suposed to be a big jobs tourist attraction.....alls it is is a payoff for getting out the vote...millions lost....no jobs....its a joke...but its political...liberal politics at its worst...

Tue, 06/18/2013 - 13:36 | Link to Comment smlbizman
smlbizman's picture

i do love the flavor they try to pass off  ..as we're all in this together....and i go on record as i will no longer hold the sheep responsible...my dog depends on me to do him right, so no peanut butter...just because the sheep like peanut butter they still trusted their masters,

Tue, 06/18/2013 - 12:16 | Link to Comment Midasking
Midasking's picture

exactly why there will be no taper.... democratic mob will rule! Everyone will get their check.. it just won't buy much.. http://tinyurl.com/mem7o7x

Tue, 06/18/2013 - 10:04 | Link to Comment EscapeKey
EscapeKey's picture

Socialists love the word "fair", because it's completely meaningless.

But obviously, in their interpretation it means that "someone else" has to pay my expenses. Because that's fair to me.

Tue, 06/18/2013 - 10:34 | Link to Comment Popo
Popo's picture

And what makes the argument for socialism particularly outrageous in this case is that Big Labor is exactly what destroyed Detroit.

 

 

Tue, 06/18/2013 - 10:44 | Link to Comment EscapeKey
EscapeKey's picture

In 1913, Argentina were the 3rd richest nation on earth.

Then, they elected a socialist.

Tue, 06/18/2013 - 11:15 | Link to Comment Umh
Tue, 06/18/2013 - 11:20 | Link to Comment PT
PT's picture

popo:

No, cheap foreign labour destroyed Detroit.  Or over-priced real-estate destroyed Detroit.  I too could work for 2 dollars per week if my mortgage was only 5 cents per week.  But if I only earn 2 dollars per week then don't expect me to buy a car for 25 grand...  WTF doesn't anyone think these things through? 

Tue, 06/18/2013 - 14:24 | Link to Comment Things that go bump
Things that go bump's picture

It took a long time for Henry Ford to actually grasp this concept and he was dragged to it kicking and screaming before he finally raised the salaries of his employees enough so that they could afford to purchase his product. He had a miserly nature, as many of those successful early industrialists did, but his self interest finally won out. It must have been an epic battle. A whole new generation of industrialists who have forgotten the lessons of the past will need to learn this for themselves. It is so tedius that as a species we repeat the same mistakes over and over again.

Tue, 06/18/2013 - 14:51 | Link to Comment youngman
youngman's picture

Looks like the APPLE industrialists have this figured out....lol

Tue, 06/18/2013 - 10:56 | Link to Comment scatterbrains
scatterbrains's picture

you have no voice what so ever in the war that will erupt between the banks (that were bailed out via fed's printing and onshoring of trillions of worthless paper) and the union workers who's pensions will get dick for a bailout.  Fair is fair and maybe HMS might want to consider doubling their ammo stash when that day comes.

Tue, 06/18/2013 - 10:13 | Link to Comment LawsofPhysics
LawsofPhysics's picture

I agree, someone collected fees and got a bonus for selling all those financial "products".  Line those people up and execute every last one of them.  Nice work MDB, I second your call to roll the motherfucking guillotines.

Tue, 06/18/2013 - 10:44 | Link to Comment imbtween
imbtween's picture

In this case it is no surprise that they've cut the police force in half - if I were among the kleptocrats who destroyed the city and stole the cops' pensions, I'd want less of them walking around heavily armed.

Tue, 06/18/2013 - 11:25 | Link to Comment PT
PT's picture

imbtween:  If the population halved then it makes sense to halve the police force.  Or did I miss something?  (Perhaps the high crime rate ...)

Tue, 06/18/2013 - 12:43 | Link to Comment Never One Roach
Never One Roach's picture

My Dad says there is a retired cop from Detroit who just bought a $924,000 house down the way...paid cash.....wow....I don't think I'll ever see that  kind of bread.

Tue, 06/18/2013 - 14:30 | Link to Comment Things that go bump
Things that go bump's picture

I saw one on House Hunters a while back who lived in an enormous house outside Seatle with panoramic and unobstructed ocean views. He was looking for a vacation home in the Caribbean. I didn't think honest cops saw that kind of money.

Wed, 06/19/2013 - 01:58 | Link to Comment MisterMousePotato
MisterMousePotato's picture

"I didn't think honest cops saw that kind of money."

Then you are delusional.

Tue, 06/18/2013 - 11:00 | Link to Comment Urban Redneck
Urban Redneck's picture

And then there are the pension trustees who also got bonuses for purchasing financial "products" and marking their values to whatever would keep the monkeys happy... so they could go to their next posh "investing" conference on their investor's dime.

Are you sure you aren't taking your rage against the guy who lifted your wife's jewelry out on the pawnshop owner who served as a willing fence?  

Tue, 06/18/2013 - 11:06 | Link to Comment Umh
Umh's picture

Let us not forget the stupid politicians and bureaucrats that bought the products.

Tue, 06/18/2013 - 10:31 | Link to Comment Hippocratic Oaf
Hippocratic Oaf's picture

If they would have just invested conservatively.........

PIGS GET SLAUGHTERED!!!

Tue, 06/18/2013 - 11:45 | Link to Comment sluggo
sluggo's picture

I think it's "Pigs get fat, Hogs get slaughtered". But you made your point!

Tue, 06/18/2013 - 11:26 | Link to Comment Gold Eyed Cat
Gold Eyed Cat's picture

Detroit. Democrats. Corruption. Unions. Epic Fiscal Failures.

But MillionDollarBonus' go-to move is to blame capitalism.  And in all caps, like a total jackwagon.  Doc No is right, MDB has become a real bore.  He should relocate to France with that crap and live the life of his wet socialist dreams.

Everyone with 3 brain cells understands 100% asset confiscation from all billionairs still can't get us out of the hole we are currently in.  It would only guarentee Atlas would shrug and any remaining business would hit the exits.

That fair share crap is a tool for Nazis and communists.  What better way to control the game... than to control what is fair.  

 

Tue, 06/18/2013 - 12:47 | Link to Comment Freddie
Freddie's picture

MDB is troll and he posts his crap as a joke to get us to laugh.  It is a joke but that one was pretty weak.   We used to have more entertaining trolls here.  Most are a joke to get a laugh and they are not serious.  

Tue, 06/18/2013 - 11:55 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

1. MDB, "Fair Share" of taxes is only one part of the bigger problem, which is (a) Fraudulent monetary system (privately-issued fiat + FRB), and (b) perpetuated by crooked politicians and casino capitalists.

2.  MDB, define "fair share".  I'll take a shot at it...

   2.a. Use Excel and graph this:  Use X-axis for Taxes between 0 and 100% (0.0-1.0)

   2.b. On Primary Y-Axis, use Taxable Income.  On Secondary Y-axis, use Log(Income).

   2.c. Decide Min and Max tax points of X-axis, that correspond to Income.  E.g., 5% for $5000/yr, 45% for $1M/yr

   2.d. Draw a straight line on the Log(income) scale between Min and Max points.  You now have a LOG-based taxation system.  BTW, Nature just loves the log (exponential) scale!  Learn to understand it, and to stop fighting the Laws of Nature.

   2.e. Treat Earned Income same as Investment Income.  Still OK for investors, but not so 'OK' for an FRB Ponzi system that needs to keep growing.

   2.f. If you want to get really creative, you can have a Surtax for the > $1M/yr (above the 45%) crowd, but they get a say on where the money is going.  There are, say, 4 buckets for collection of Surtax: 1. Federal, 2. State, 3. Local (City/County), 4. Charity. 

Set limit for Min and Max on each, so that all get something, but the rich taxpayer gets a direct say on who gets more (a lot) and who gets less (little).  The rich taxpayer thus gets a direct tax-vote for supporting whatever level of Gov that he likes/dislikes and show his 'benevolence' via contributions to Charities. 

The various levels of Gov and Charity are now competing for Surtax on a meritorious basis (no pork-barrel amendments!), showing a track record of Performance vs. Cost.  The rich also get public recognition for their charitable contribution, which their egos love anyway.  If not, then they are psychos or sociopaths (giving nothing back?), who do not deserve the public's sympathy or support, and can also be publicly 'acknowledged'.  People may then choose to not favor their products or services, if so inclined.  Free Markets, baby!

There, ya go.  No arbitrary/capricious component to it.  Taxes become REALLY simple, a 5th grader could do it.  On the 'down side', it would down-size the IRS and a lot of CPA jobs.  Sorry.  And if this 5th grade math is too complicated for you, learn to live with whatever decisions the "6th Graders & Beyond" make for you.

p.s. IF (and that's a big 'IF') you had a "fair" system, I remain highly skeptical that things would be "fixed" for good -- because the need of the FRB and its owners is now curtailed, and they could no longer support (select!) their preferred (chosen!) political candidate, since these candidates are now also handicapped with how much they can spend.  Even the MIC would now have to live within its means, and therefore gunboat diplomacy and the NWO (global Manifest Destiny) is now 'shot'.  Do you think that this will happen?  I think not!

 

Tue, 06/18/2013 - 10:00 | Link to Comment DaddyO
DaddyO's picture

Just wait until the pensioners quit receiving their checks and the real end game will come into view.

More government bailout...

DaddyO

Tue, 06/18/2013 - 10:08 | Link to Comment ejmoosa
ejmoosa's picture

Is it too late to declare Detroit a Gun Free Zone?

 

Tue, 06/18/2013 - 10:13 | Link to Comment LawsofPhysics
LawsofPhysics's picture

LOL, indeed.  would probably have better luck declaring gravity illegal.

Tue, 06/18/2013 - 10:32 | Link to Comment Groundhog Day
Groundhog Day's picture

The retired police officers and firefighters milked the system by doing all the overtime in the last 3 years of their 25 year term to get a huge bump in their pay for life lottery ticket.  I can't wait till the funds run out so i can see the working cops go after the retired cops for fucking up the system (at least partly- they'll have to go after the bankers for some of the fraud as well) Fun times straight ahead

Tue, 06/18/2013 - 11:29 | Link to Comment waterhorse
waterhorse's picture

As I've always said, there is NOT ONE of these government workers that is worth a 100K+ pension.  NOT ONE.

Tue, 06/18/2013 - 15:12 | Link to Comment SilverRhino
SilverRhino's picture

I have a beautiful and cruel idea. Let the city start paying out the retirees pensions with the 'market value' of foreclosed / tax liened properties in Detroit.  

Got a pension worth $250K?   Here are 5 city lots and one derelict building.   PS: Now you can start paying taxes on these places.   

Assign the lots randomly as well,  no playing favorites.

Oh, and cap the pensions at $500K or so ... after all, it's only being "fair" ... 

Tue, 06/18/2013 - 10:48 | Link to Comment TJ00
TJ00's picture

Just wait until retired SWAT members quit receiving their checks and the real end game will come into view. FTFY

Tue, 06/18/2013 - 09:56 | Link to Comment Dr. No
Dr. No's picture

However, the Fund managers all received their promised bonuses throughout the years.   The fundamental objective of the managed funds was satisified.

Tue, 06/18/2013 - 10:05 | Link to Comment EscapeKey
EscapeKey's picture

Well, yes, but otherwise they might have lost all the "talent".

Tue, 06/18/2013 - 09:57 | Link to Comment fonzannoon
fonzannoon's picture

"if these pension funds' assets had just been invested in a conservative way," as opposed to the political and reach-for-yield driven extravagance, "they probably would be fully funded now."

They should have bought 5 year treasuries paying .5%?

Fucking hysterical. ZIRP crushed the whole thing and yet a few days worth of POMO sprayed in their direction could make the whole thing go away.

Tue, 06/18/2013 - 10:06 | Link to Comment EscapeKey
EscapeKey's picture

Add leverage.

Lots and lots of leverage.

After all, we all know risk has been eliminated.

Tue, 06/18/2013 - 10:42 | Link to Comment Hippocratic Oaf
Hippocratic Oaf's picture

fonz...

 

Im sure when they started, probably averaged 4 to 5% treas.

When the bonds get called they have to buy riskier product that makes $$$$ only for the banks writing the debt.

Bernank helped ZIRP Detroit faster down the toilet 

Tue, 06/18/2013 - 11:06 | Link to Comment MarsInScorpio
MarsInScorpio's picture

Watch Bernanke go invisible when he finally quits. IF - and that's a very big IF - the muppets ever figure this all out, they will make Brazil look peaceful.

 

Of course, that will only come IF the ghetto dwellers lose thier welfare, meds, and most importanlt of all . . . CABLE TV!!

-30-

Tue, 06/18/2013 - 11:15 | Link to Comment patb
patb's picture

ZIRP is crushing a lot of pension systems,  the 5 years of zero fixed income return is causing a lot of plans to go underfunded.

 

 

Tue, 06/18/2013 - 10:47 | Link to Comment ExpendableOne
ExpendableOne's picture

"pomo sprayed in their direction" == "I fart in your general direction!", snort!  Histerical....

 

Real life zombie movies coming to your town soon.

Tue, 06/18/2013 - 09:57 | Link to Comment hampsterwheel
hampsterwheel's picture

They'll all be bailed out - have no fear - no defaults are allowed - none - niente - nada

Tue, 06/18/2013 - 10:48 | Link to Comment El Viejo
El Viejo's picture

FDIC, SIPC, PBGC

I wonder how the Madoff victims made out?? Or the Corzined?? How many nickels on the dollar??

In the case of Madoff some were totally reimbursed: http://money.cnn.com/2012/09/20/investing/madoff-ponzi/

 

Tue, 06/18/2013 - 09:58 | Link to Comment peter4805
peter4805's picture

Things not looking good in Debtroit. I can't understand how a city with such a high percentage of liberals and blacks is doing so poorly.

Tue, 06/18/2013 - 10:06 | Link to Comment Big Corked Boots
Big Corked Boots's picture

Clearly, their policies were inadequately implemented.

They should be given the opportunity to go "all-in."

Tue, 06/18/2013 - 10:26 | Link to Comment Silverhog
Silverhog's picture

Maybe that's their version of Utopia.

Tue, 06/18/2013 - 10:01 | Link to Comment Doubleguns
Doubleguns's picture

California should take copious notes. Pensioners for sure..

Tue, 06/18/2013 - 10:58 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

DHS will take copius notes, as the thing they and the Banksters are interested in, is "when will the Frog jump"?  When will we have riots?  Then ease off on the gas pedal -- just short of riots -- for new Max Profits and Optimal Slavery.   Presto:  the New Normal. /s

Tue, 06/18/2013 - 10:01 | Link to Comment toady
toady's picture

I haven't heard anything about those cali bankruptcies in a while... How is Stockton doing? If they're coming around then their plan x10 should work for Motown.

Tue, 06/18/2013 - 10:07 | Link to Comment EscapeKey
EscapeKey's picture

You really think that's more important than Paris Hilton's new hair style?

Tue, 06/18/2013 - 10:18 | Link to Comment toady
toady's picture

I get that all the time.

"I didn't ask for ideas, I just wanted you to agree that it's horrible!"

Tue, 06/18/2013 - 10:01 | Link to Comment 101 years and c...
101 years and counting's picture

you mean bubble blowing and ZIRP has consequences?  but, but, but.......

Tue, 06/18/2013 - 10:05 | Link to Comment involuntarilybirthed
involuntarilybirthed's picture

,"significant cuts in accrued, vested pension amounts for both active and currently retired persons."

Look for the them to trash the place.  Well..........maybe a march on Washington in protest of themselves.

Tue, 06/18/2013 - 10:12 | Link to Comment JungleJim
JungleJim's picture

Trash the place ! That's really funny, I almost pissed myself ...

Tue, 06/18/2013 - 11:09 | Link to Comment MarsInScorpio
MarsInScorpio's picture

Subtle . . . and effective.

-30-

Tue, 06/18/2013 - 10:04 | Link to Comment involuntarilybirthed
involuntarilybirthed's picture

Their votes will be bailed out (again) by libs in D.C. 

Tue, 06/18/2013 - 10:06 | Link to Comment apberusdisvet
apberusdisvet's picture

Guillotines for the union bosses or the politicians, or both or is it Karma for promising more than could be delivered?

Meridith will be proven to be right after all, she just didn't take into account the life span of "extend and pretend" which is rapidly entering the ICUs in a town, city, jurisdiction near you. 

Tue, 06/18/2013 - 10:06 | Link to Comment Ancona
Ancona's picture

I should be able to see the columns of smoke from here in Florida when the checks get slashed.

Tue, 06/18/2013 - 10:12 | Link to Comment El Hosel
El Hosel's picture

What kind of crap is this? Why are the pension funds not allowed to participate in the 100% winning trade program afforded to the TBTF?

Tue, 06/18/2013 - 11:11 | Link to Comment MarsInScorpio
MarsInScorpio's picture

Because the Top 5 TBTF banks own 57% of all the assets in the US - and the TOP 5 pension funds in Detroit don't . . .

-30-

Tue, 06/18/2013 - 10:09 | Link to Comment ejmoosa
ejmoosa's picture

It's a damn good thing Obama saved the Auto Industry.

 

Imagine what Detroit would be like if he hadn't.

Tue, 06/18/2013 - 11:12 | Link to Comment MarsInScorpio
MarsInScorpio's picture

Totally brilliant deadpan humor . . .

-30-

Tue, 06/18/2013 - 10:10 | Link to Comment pods
pods's picture

So another ponzi is imploding?

I am Jack's complete lack of surprise.

pods

Tue, 06/18/2013 - 10:10 | Link to Comment More_sellers_th...
More_sellers_than_buyers's picture

Honestly....did these idiots not sign a paper somewhere declaring their fiduciary resposibilty? who is going to jail ...Dammit someone pay some consequences !!!!!!!!

Tue, 06/18/2013 - 11:13 | Link to Comment MarsInScorpio
MarsInScorpio's picture

What does TBTJ mean to you . . . ?

-30-

Tue, 06/18/2013 - 10:10 | Link to Comment Divine Wind
Divine Wind's picture

 

 

 

Hahahahaha. Brahahahahhaha.

But at least everyone has an Obamaphone.

Tue, 06/18/2013 - 10:13 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Off topic but since Bloomberg gets all the love in New York need to highlight the other Marxist Andrew Cuomo and how he is using tax breaks to centrally plan the New York economy.

http://reason.com/archives/2013/06/17/how-cuomos-tax-free-new-york-will-...

"The chief executives of GE, Goldman Sachs, and JPMorgan Chase are lining up behind a plan by the governor of New York, Andrew Cuomo, for what the governor calls “Tax-Free New York.”

Ordinary New York taxpayers, watch out."

 

I concur just on the fact that 2 of biggest government QE welfare queens are behind it also consider that GS considers everyone Muppets to be slayed that alone should make one skeptical if they are behind something.

 

"The whole episode is newsworthy for at least two reasons. First, there’s the attempt by Cuomo, a possible Democratic presidential contender, to portray himself as a tax-cutter when he isn’t one. Second, there’s the way that business leaders go along with it. 

If Cuomo were actually proposing a broad-based tax cut in the face of what the governor himself, in justifying the bill, calls “the perception and reality of New York as a high-tax state,” plenty of New Yorkers would be cheering for him.

Alas, the governor, having already hit New Yorkers who earn more than $2 million annually with an estimated $1.9 billion-a-year tax increase, is not proposing to actually make New York “tax free” or even to cut taxes for all taxpayers. Instead the proposal that has the CEOs cheering would offer tax breaks to businesses that locate on or adjacent to a State University of New York campus. The employees of those businesses would have their wages be exempt from state income taxes for five years, and the businesses themselves would not have to pay sales tax or property tax for ten years.""

There is always a catch and this were the Marxist Central Planning comes in.

"The catch is that, to qualify for the tax benefits, not only does the business have to be where the governor wants it, it has to be in a sector that the governor approves. “Certain types of businesses are prohibited from participating in this program, including retail, real estate, and professional services type businesses,” the governor’s memo in support of the bill says."

Arguments against

"Plenty of people are willing to call this what it is. A Republican state assemblyman from Staten Island, Joe Borelli, called Cuomo’s plan “one of the most disingenuous I have ever heard.” According to the Staten Island Advance, Borelli said, “It acknowledges that New York's tax structure is crippling business and then does nothing to address it. The fundamental flaw with this proposal is that it allows Cuomo and [Assembly Speaker Sheldon] Silver appointees to pick and choose which businesses get sweetheart deals, as every other existing business in this state suffers.” The New York Post, whose conservative editorial page usually likes tax cuts, editorialized against the governor’s “Tax-Free New York” plan."

Arguments for from the QE welfare queens

"

"Yet the big business leaders are lining up to support it. “Tax-Free NY is the type of visionary thinking we need from our leaders,” said the CEO of JPMorgan Chase, Jamie Dimon, in a quote distributed by the governor’s office. “I applaud Governor Cuomo for taking this initiative to help spur the state's economy,” said the CEO of GE, Jeffrey Immelt. The CEO of Goldman Sachs, Lloyd Blankfein, tweeted that it is a “thoughtful, smart plan to help drive private sector investment in NY, deserves support.” Hint that investment needs financing..........

GE, Goldman Sachs, and JPMorgan Chase have the size, influence, and lobbying juice to get special deals from the state when they need or want them. They do plenty of municipal bond business with the state. Maybe the governor asked for their support, and maybe they figured any move toward tax relief, even on a small scale, can’t hurt. And maybe ten years from now SUNY campuses will be surrounded with new high-tech firms like the ones that border MIT and Stanford rather than by rural voters annoyed at Governor Cuomo for his support of gun control." Perhaps."

Will they hold back financing for companies and non approved Centrally Planned industries they choose by using said influence to control the markets kind of like what JPM and GS do now with their HFT platforms levitating the stock market dangerously higher than it should be based on real tangible underlying assets.

The next question is what is Cuomo's personal angle besides political aspirations well here it is

"But in researching Governor Andrew Cuomo’s “Tax-Free New York” plan I came across a 1994 New York Times article headlined “21 Enterprise Zones Created, Including 4 in New York City.” It reported that “Under the state program, which was first established in 1986, businesses that locate in designated areas of high unemployment and poverty are eligible for a mix of tax credits, low-interest loans, reduced property taxes and discount utility bills.” Among the new zones were those in Buffalo and the Brooklyn neighborhood of East New York, which haven’t exactly been beacons of prosperity since Andrew Cuomo’s father, Governor Mario Cuomo, designated them nearly 20 years ago. In fairness, plenty of more conservative New York politicians supported enterprise zones, too — they were a favorite of Republican congressman Jack Kemp, who, like Andrew Cuomo, served in the federal department of Housing and Urban Development."

Conclusion

"Some businessmen with the patience and capital to navigate the complexity of the state’s political process and regulations may find the tax-free New York plan a good deal for them. But others may conclude that by moving either out of state or offshore, they can find a low-tax environment that doesn’t expire in five or ten years and that doesn’t require jumping through a lot of special hoops set up by the governor."

Not very business friendly when you think about it and smacks more of welfare for big business and Central Planning approved companies and industries but the average rube will see tax free and not bother to dig deeper.

For anyone who wants to read the actual legal stuff.

http://blog.timesunion.com/capitol/archives/188693/heres-the-tax-free-ny...

 

Tue, 06/18/2013 - 10:13 | Link to Comment Dr. Engali
Dr. Engali's picture

You mean to tell me that promising people that they can make more during retirement, and remain in retirement longer than they have worked comes with consequences? No fucking shit!

Tue, 06/18/2013 - 10:19 | Link to Comment ElvisDog
ElvisDog's picture

I know quite a few people working for local government who retired in their early 50's counting on their generous pensions (and usually health care benefits) to provide for them for the last 30 years of their lives. I always thought it was a little risky counting on government leaders not to overpromise and bankrupt their systems aka Detroit over that period of time. If I mention anything along these lines, the response is invariably that they are lawfully entitled to their full pensions, the benefits are "mandated", and so on.

Tue, 06/18/2013 - 11:32 | Link to Comment Almost Solvent
Almost Solvent's picture

Everyone has a plan till they get punched in the face

Tue, 06/18/2013 - 10:16 | Link to Comment Seasmoke
Seasmoke's picture

What ZIRP gives , ZIRP takes away .....

Tue, 06/18/2013 - 10:22 | Link to Comment AGoldhamster
AGoldhamster's picture

As long as the sheeple have Hamburgers, chips and TV - all is well in America.

Tue, 06/18/2013 - 10:22 | Link to Comment Savvy
Savvy's picture

"investing in risky development projects around the city and loans that will never be repaid."

 

Cui bono?

Tue, 06/18/2013 - 10:30 | Link to Comment Van Halen
Van Halen's picture

So what's the latest on the plan to raid the Detroit art collection?

 

Tue, 06/18/2013 - 10:39 | Link to Comment Uncle Remus
Uncle Remus's picture

What? Your own town's graffiti not up to par?

Tue, 06/18/2013 - 10:41 | Link to Comment Peachfuzz
Peachfuzz's picture

Blocked sale @ MI senate. Apparently Cheesepopes don't like modern affirmative action art....

Tue, 06/18/2013 - 10:34 | Link to Comment Darkside
Darkside's picture

These people don't realize their pensions are gone and what little is left is being used to bail out the city. 10 cents on the dollar fuckit you invested in shit you get shit its worth 0 go bankrupt start over. ITS OVER

Tue, 06/18/2013 - 10:37 | Link to Comment Yancey Ward
Yancey Ward's picture

One of the proposed pension measures is to require all beneficiaries to live within the boundaries of Old Detroit 365 days a year- to be monitored by ankle bracelet.  It is expected to solve the underfunding problem within two years due to decreased lifespan.

Tue, 06/18/2013 - 10:40 | Link to Comment ebworthen
ebworthen's picture

"The bottom line is not just creditor haircuts but,'significant cuts in accrued, vested pension amounts for both active and currently retired persons.'  "

In other words, theft.

Or slavery.

Tue, 06/18/2013 - 10:45 | Link to Comment rosiescenario
rosiescenario's picture

....and just yesterday I had a momentary concern about Ruger being able to maintain its recent sales growth. Well, one less thing to worry about.

Tue, 06/18/2013 - 10:47 | Link to Comment shovelhead
shovelhead's picture

Torch it and collect the insurance.

"Yeah, we got a little urban blight...but nothing a little aluminum siding can't fix."

Rocky Balboa.

Tue, 06/18/2013 - 11:23 | Link to Comment IridiumRebel
IridiumRebel's picture

Philly? You're on deck.......

Tue, 06/18/2013 - 10:56 | Link to Comment j0nx
j0nx's picture

No pensions until age 65. This shit where soldiers, police, firefighters, etc get full pensions after 25 years on the job when they retire at age 45 and receive those benefits until they die is going to end now.

Tue, 06/18/2013 - 10:57 | Link to Comment wagthetails
wagthetails's picture

I welcome a "realistic" actuarial assumption, but these reports should also include a worst case scenario.  All they did was bring fantasy land numbers down to normal expectations.  what is normal?

Tue, 06/18/2013 - 11:32 | Link to Comment waterhorse
waterhorse's picture

So, in a nutshell these government pensions are actually Enron pensions?

Tue, 06/18/2013 - 11:35 | Link to Comment MarsInScorpio
MarsInScorpio's picture

And once again the Wizards of ZH, and the many highly informed and financially experienced posters of ZH, are proven correct.

 

Those of you who want to trash-talk ZH, there is a place where there is no sunshine that you can use to store your trash-talk.

 

GS should be so lucky to be correct even half as often as ZH about what is going to happen. But then, maybe that's not fair to GS; if you realize that they are in the business of stealing from their muppets with counter-advice - telling them to do exactly the opposite of what they should do so that GS can counter-move to take advantage of the muppets' foolish trust - well, then maybe GS is batting in the mid-700s.

 

Regardless of that particular aside, ZH and its posters again prove they have a grip on the Real World. Anyone playing for keeps - and playing honestly, (this includes not getting stolen blind by those who aren’t) and doesn’t read ZH and its posts daily, is a fool.

-30-

 

Tue, 06/18/2013 - 11:36 | Link to Comment Satan
Satan's picture

Snake Plissken wouldn't get caught dead in Detroit...

Tue, 06/18/2013 - 14:29 | Link to Comment SmittyinLA
SmittyinLA's picture

I thought he was dead 

Tue, 06/18/2013 - 11:51 | Link to Comment orangegeek
orangegeek's picture

Call the Fed.

 

 

We need MO POMO.

Tue, 06/18/2013 - 11:52 | Link to Comment Turdy Brown
Turdy Brown's picture

We American are a pathetic people.  None of these pensioners will do anything to anybody because people are stupid and uninformed.  We are truly SHEEPLE!  Eventually every city in America will be just like Detroit (or worse) and we dumb Americans will do nothing about it! 

Tue, 06/18/2013 - 12:06 | Link to Comment Never One Roach
Never One Roach's picture
U.S. Manufacturing Takes The Worst Hit Since June 2009(Forbes)

 

As many try to minimize the impact of fiscal restraint and the sequester on the U.S. economy, the May manufacturing ISM printed at a contractionary 49%, the lowest reading since June 2009.

 

http://www.forbes.com/sites/afontevecchia/2013/06/03/u-s-manufacturing-t...

Tue, 06/18/2013 - 12:22 | Link to Comment vespasolo
vespasolo's picture

Pension plans operate under the same flawed premise as Social Security; that there would be more workers in the furture then in the present to cover retitrees benefits.

As companies became more efficient and productive through mechaniation and automation, not mention outsourcing  the result was fewer workers for same amount of productivity.

The only way to fund a pension plan was to go search for yield in the markets to make up the difference.

Well the markets won.  Not enough in the pensions.

 

Maybe the idea of pesnions should be tossed out.

 

We're all just visiting.

 

Tue, 06/18/2013 - 13:16 | Link to Comment dolph9
dolph9's picture

It's not just Detroit, Detroit is the canary in the coal mine.

The whole of America is bankrupt, because Americanism as an idealogy is bankrupt.  Remember, the American idealogy is infinite debt perpetually rolled over at lower and lower rates.

The entirety of our economy is based on interest rates approaching zero bound.  Again, this is the basis of the entire economy.  If interest rates rise, the whole banking and corporate structure falls to the ground.

How can that not result in anything other than systemic breakdown?

Tue, 06/18/2013 - 14:29 | Link to Comment W74
W74's picture

(using your analogy) And it'll be too late to run down the tunnels toward the exit.  Not only did the canary die long ago but plenty of citizens have been sounding alarm bells for decades. 

Those who chose to remain in the depths in an effort to chip out residual nuggets left in the taxbase mine after the bulk of the taxbase had hauled outta there, will get what they deserve.

Tue, 06/18/2013 - 13:39 | Link to Comment SmittyinLA
SmittyinLA's picture

This is just desserts for police and fire for teaming up with all the other less necessary workers to grow government. 

 

 

Tue, 06/18/2013 - 14:08 | Link to Comment SmittyinLA
SmittyinLA's picture

What Detroiters don't know YET is they have derivative contract liabilities for the next 30 years, maybe more 

Tue, 06/18/2013 - 14:24 | Link to Comment W74
W74's picture

Stick it to 'em.  Detroiters failed to provide proper oversight regarding their local officials and they should pay the price.  If you vote Nigerian Warlords into offices of power what can you expect other than ruin?  They've had plenty of choices and have chosen wrongly for the past 50 years.

Tue, 06/18/2013 - 14:37 | Link to Comment Longing for the...
Longing for the old America's picture

The major reason for underfunding was gross overpromising in the amounts for government worker and /or union benefits.

Tue, 06/18/2013 - 14:49 | Link to Comment W74
W74's picture

Gross overpromising....for votes.

Tue, 06/18/2013 - 15:00 | Link to Comment MassDecep
MassDecep's picture

Brother John goes into detail. very interesting!!

 

http://youtu.be/Jex4jWTxRS0

Tue, 06/18/2013 - 14:54 | Link to Comment SmittyinLA
SmittyinLA's picture

Wait till the geeks figure out all the "books" they're reviewing are fiction

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