Pension Ponzi Squared: New Jersey Wants To Sell Debt To Its Own Insolvent Funds

Tyler Durden's picture

After struggling to raise debt from third parties to repair crumbling infrastructure, the state of New Jersey has come up with a "clever" approach to fundraising that entails selling debt to their own insolvent pension funds...something we've dubbed the "Pension Ponzi Squared."  Of course, because when everybody else shuns your debt for being too risky who better to sell it to than yourself?

With $3.4 billion in annual benefits payments versus only $1.9 billion in contributions, funds like the New Jersey Public Employees' Retirement System already qualified as a plain vanilla ponzi scheme.  But, using what little pension assets they have left (38% net funded) to buy debt in the entity that ultimately backstops their liabilities is a whole new level of madness.  As we recall, the mortgage CDO^2 didn't work out so well back in 2008.

NJ Pension


As Bloomberg points out, this new "creative approach" to budget financing will require changes to a law that currently restricts NJ's pensions from buying more than 10% of a bond offering.  Of course, we can't imagine why that limitation would have been implemented in the first place..."all" is almost always better than "some," right?  Especially when you're buying the bonds of your own bankrupt parent. 

New Jersey lawmakers are proposing a creative approach to raising money for needed work on Garden State roads: Sell bonds directly to its struggling pension funds.


A bipartisan bill backed by state Senate President Steve Sweeney would let the Transportation Trust Fund Authority sell securities directly to the retirement system, a step that would reduce the cost of issuing debt and provide a steady investment return. With respect to transportation debt, the bill proposes lifting regulations that block New Jersey’s pensions from buying no more than 10 percent of a bond offering.


"This would offer an investment strategy that is mutually beneficial for New Jersey’s underfunded pension system and the Transportation Trust Fund," said Sweeney in a statement.


Sweeney anticipates the transportation fund would pay up to five percent in interest annually, which would be a "reliable and positive return" for the pension system, which lost one percent on its overall investments last year, according to the release.

Meanwhile, this latest move comes after NJ Governor Chris Christie was forced to shut down road and rail projects over the summer when the state's Transportation Fund ran out of money.  Ironically, S&P just downgraded NJ's debt last month because of the State's growing pension liabilities.

The Transportation Trust Fund Authority issued $2.8 billion of bonds in October, with 5 percent coupon securities due in 2031 priced to yield 3.02 percent. Governor Chris Christie temporarily shut down all road and rail projects this summer after the fund ran out of money.


S&P Global Ratings downgraded New Jersey’s debt one step to A-, the fourth-lowest investment grade, on Nov. 14 because of the government’s growing debt to the pension fund after years of failing to save enough each year. New Jersey’s $135.7 billion shortfall ranked it as the worst-funded pension system in the U.S. in 2015, according to data compiled by Bloomberg.

But, we've been told we have a tendency to be too cynical...this will all probably work out just fine.

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Itchy and Scratchy's picture

The socialist end game! Next up : cutting pension benefits by at least 50% because the other guy officially ran out of money! Socialism Kills!

CoCosAB's picture

So I guess "USA capitalism" is all nothing but a BIG PROPAGANDA scam!

BennyBoy's picture


Christie's Corruption Cronies needed the funds.

The Fat Fuck is just a stooge.

therover's picture

How dare you insult the stooges ! 

PT's picture

CoCosAB:  That's right.  It was Capitalism while they were winning.  Then they started losing so they had to invent "reasons" why they should be bailed out.

Now the would-be pensioners are going to have to go to work so they can pay taxes that will pay for the unemployed young people to be on the dole.  Oh, hang on.  No, they're trying to invent "excuses" for why the pensioners should have the money so that does not happen.  I've often thought of funding myself by borrowing money from my own pension fund.  I promise to be upset if I die too soon and never get round to paying myself back ... he he he ...

Capitalism is for losers who do maths.  Everyone else gets by using a combination of charm and violence.

Buck Johnson's picture

It's coming, it's coming.  All those state employees who thought they where safe aren't.  They are going to get fucked.


Due North's picture

Two years back I chose the option to take a one-time lump sum payment of a pension that I had accrued from 20 years service with a private corporation. Took a significant loss versus an annuity schedule, but reading information like this makes me raise a glass to that loss!

Jayda1850's picture

As much as I look down on fiat, it does share the same principle as precious metals: You don't hold it, you don't own it.

KittyKittyBangBang's picture


pooff all gone... ..lucky old peopl got many year's left to work.... ...HA HA HA

dey mite demoneyize the fiat...but.. ...@jayda1950


Jayda1850's picture

The elite have turned the American Dream into an illusionary debt trap. Unfortunately, I'm young enough to see the concept of retirement becoming another unattainable goal for Americans. The ever increasing reality is that it's gonna be work until they're tossing you in a grave.

KittyKittyBangBang's picture

unlucky for you @jayda.. just gonna git the missus too look afta me.... shes young nd purdy................. ... ..HA HA HA

jenniewadeguy's picture

I work with many 60+ year olds and I have observed that they are tired and unmotivated after about the age of 62.  Some of these folks display the remnants of past greatness, and have the stories that bespeak it.  But, alas, they are now expended and just showing up every day incapable of doing much other than collecting their paycheck and contributing to their 401k plan.  I fear that this is the new normal that rails against our human biological clocks.

PT's picture

You can only fake energy and enthusiasm for so long.  If you don't get results then eventually your subconscious acknowledges that there is no hope.

It doesn't help when you see fuckwits succeed where you have failed, either.

WTFUD's picture

Yes DN you coulda been raising a gun to your head instead, lol!

Due North's picture

DEATH!!!........By Chi-Chi!!!

SpanishGoop's picture

You did not put it on the bank hopefully....


Due North's picture

hookers and blow....... hookers and blow....

Wile-E-Coyote's picture

This is theft dressed up, plain and simple.

WTFUD's picture

Darn wish i'd thought of that i'd 'ave been a squillionaire in no time. String up the Protectors/Executors of the FUND who's payed position is sure to, one would hope, to execute/manage in the best interests of their clients when investing their funds into the Meerkat, not shaft 'em.

Jayda1850's picture

What happens when interest rates go up? 

PT's picture

As long as the banksters keep lending, they can keep borrowing, and no-one notices until they get past that elbow on the exponential graph.  Even then, everything is fine for as long as the hyperinflation is slower than the increase in the number of microprocessor data lines and floating point calculation speed (yes that statement is not mathematically perfect but I think you know what I mean).

Now with direct debit, people can demand to be paid by the millisecond and program computers to buy stuff by the millisecond.  That will make this round of hyperinflation a little more interesting.  But again, only the "little" people have to endure such things.  As I said before, everyone else works on charm and violence.  They'll be given whatever money they need and their accountants will manufacture the books that "justify" it all.

CoCosAB's picture

"... only the "little" people have to endure such things." hence... the "suidice"!

Bank_sters's picture

Naturally.  And this type of behavior underpins the  whole debt based system and is  the reason we stack.  

micmac's picture

it's the new normal 

mrdenis's picture

It just about is toast ....but the police pension fund wants to break off from the rest and give to the unions to manage ....fromthe pan into the fire ! 

kappal_toba_dhurr_ne_thook's picture

I take it that PERS is toast?

FlKeysFisherman's picture

If New Jersey gets away with implementing this you can bet there will be quite a few states (and cities) following their lead.

Krugman will praise it as a new gold rush and be given another "Nobel."

Richy's picture

Madoff be sitting in his cell now thinking "why didn't I think of that!

Grandad Grumps's picture

Banks do it all the time. I wonder where NJ got the idea. The kicker then is that the banks will the compound it by using the debt instruments as collateral to sell more debt.

What a screwed up system!

nathan1234's picture

Must be Goldman Suck's/erstwhile GS man/woman's advise.

SpanishGoop's picture

I do not have to "buy debt", my wife creates it out of nowhere when she has the credit card.


Sparehead's picture

Good point, but in the government's defense most wifes don't want to fuck us as regularly.

VWAndy's picture

 That giant sucking sound? Its the government.

NoPension's picture

I've pretty much given up trying to understand or contemplate any of this.
USA, Greece, Italy, Dallas, New Jersey, China, .......millions of migrants in Europe...millions of iilegals in the US...

The never ending stream of overwhelming debt...lack of jobs..selective rule of law..artificiality low interest rates. Rich getting richer...poor getting poorer. Millions who don't work, but and procreate.

Each one is a screaming headline, for 3 days or two weeks...and then's goes away, as if solved. Nothing happens.
For example...a year ago, it was Greece. Now, nothing. Venezuela, still hanging in there. China, still building ghost cities? Dallas, must be good.

For me, every month is a battle. It's like a war that won't end. I don't even think about a year out. Commercials for pension money management make me laugh....who are these people who have all this money....and they need these people to tell them what to do with it! Generally, the only people I know are are doing ok, work for government. I build. My best buddies build. We are busy, working HARD, seven days a week...and barely hang on. There are few who build houses for big money...and they do ok. And if you try to play by the will get more or less crushed.

Go to a paint store..any national chain. They will have a cork board with cards on it. It will be inundated with cards...full of mistakes and Licencse numbers...all Hispanics. We collect them for the humor.. one " Diegos Paintyng " on the front..."peinting " on the back.
"LLC & insured"... wtf? If I operate like's a $1000 fine for each offense, and THEY know where to find me. This crap, nothing. All I ask for is a level playing field. If I don't get it....I level it. But it makes me a near do well. need to cheat the system to succeed, because the system has failed you..if you are a native born..

I'm wandering..

Wile-E-Coyote's picture

Good post, anyone with a trade is getting screwed over. It's everywhere.

Baby Eating Dingo22's picture



Why is this any different than what the Fed has been doing for the last 8 years?

BigWillyStyle87's picture
BigWillyStyle87 (not verified) Dec 13, 2016 7:23 AM

Holy shit! Best idea ever!

eishund's picture

eh. Now accountants are creative designers?

prophet_banker's picture

If NJ really wanted to stick it to the vipers and vultures that run the bond market that finances public projects they would incorporate their own bank using funds from the pensions to capitalize the bank !!!

The banker mindset of opposition to this is laid bear for the idiocracy it is "money creation for private gain is not inflationary" but "money creation by government for the public good would create untold inflation."  After all the Bank of North Dakota is going on 100 years of hindsight that bankers are wrong and public banking works.  My glass raises to toast the 21 century Non Partison Leage that is yet to be created to bridge our 2 party sytem to get public banking implemented; this is how ND did it 100 years ago - "support this plan or we won't elect U"


Sledge-hammer's picture
Sledge-hammer (not verified) Dec 13, 2016 10:33 AM

All of this political and financial f*ckery and maneuvering reminds me of the men who would bid against each other and with the Praetorian Guard to see whose offer would be accepted to become the Roman emperor. 

Sparehead's picture

I approve. There can't be more deserving suckers than the pro-socialist, big-gumbint NJ employees. For the fewer number that this doesn't apply to I'd assume they know where this is headed and should have prepared accordingly. As socialism dies they'll eat their own.

mary mary's picture

"We pretend to work.  They pretend to pay us."

A. Boaty's picture

Governor's new weight loss program: Eat yer own ____.