Snyder Warns Of The Ticking Time Bomb That Could Wipe Out Virtually Every Pension Fund In America

Tyler Durden's picture

Authored by Michael Snyder via The Economic Collapse blog,

Are millions of Americans about to see the big, juicy pensions that they were counting on to fund their golden years go up in flames in the biggest financial disaster in U.S. history? When Bloomberg published an editorial entitled “Pension Crisis Too Big for Markets to Ignore“, it simply confirmed what a lot of people already knew to be true.  Pension funds all over America are woefully underfunded, and they have been pouring mind boggling amounts of money into very risky investments such as Internet stocks and commercial mortgages.  Just like with subprime mortgages in 2008, this is a crisis that everyone can see coming well in advance, and yet nothing is being done about it.

On a day to day basis, Americans generally don’t think very much about pensions.  Most of those that have been promised pensions simply have faith that they will be there when they need them.

Unfortunately, the truth is that pension plans all over the country are severely underfunded, and this has already resulted in local fiascos such as the one that we just witnessed in Dallas.

But what happened in Dallas is just the very small tip of a very large iceberg.  According to Bloomberg, unfunded pension obligations on a national basis “have risen to $1.9 trillion from $292 billion since 2007″…

As was the case with the subprime crisis, the writing appears to be on the wall. And yet calamity has yet to strike. How so? Call it the triumvirate of conspirators – the actuaries, accountants and their accomplices in office. Throw in the law of big numbers, very big numbers, and you get to a disaster in a seemingly permanent state of making. Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007.

And of course that $1.9 trillion number is not actually the real number.

That same Bloomberg article goes on to admit that if honest math was being used that the real number would actually be closer to 6 trillion dollars…

So why not just flip the switch and require truth and honesty in public pension math? Too many cities and potentially states would buckle under the weight of more realistic assumed rates of return. By some estimates, unfunded liabilities would triple to upwards of $6 trillion if the prevailing yields on Treasuries were used. That would translate into much steeper funding requirements at a time when budgets are already severely constrained. Pockets of the country would face essential public service budgets being slashed to dangerous levels.

So where are all of these pensions eventually going to come up with 6 trillion dollars?

That is a very good question.

Ultimately, even if financial conditions stay as stable as they are right now, a whole lot of people are not going to get the money that they were promised.

But things will get really “interesting” if we see a major downturn in the financial markets.  According to Dave Kranzler, if the stock market were to fall by 10 percent or more and stay there for a number of months, that “would cause every single public pension fund to blow up”.  And Kranzler is also deeply concerned about the tremendous amount of exposure that these pension funds have to commercial mortgages…

Circling back to the mall/REIT ticking time-bomb, while the Fed can keep the stock market propped up as means of preventing an immediate nuclear melt-down in U.S. pensions (all of which are substantially “maxed-out” in their mandated equities allocation), the collapse of commercial mortgage-back securities (CMBS) will have the affect of launching a nuclear sub-missile directly into the side of the U.S. financial system.

 

The commercial mortgage market is about $3 trillion, of which about $1 trillion has been packaged into asset-backed securities and stuffed into yield-starved pension funds. Without a doubt, the same degree of fraud of has been used to concoct the various tranches in these CMBS trusts that was employed during the mid-2000’s mortgage/housing bubble, with full cooperation of the ratings agencies then and now. Just like in 2008, with the derivatives that have been layered into the mix, the embedded leverage in the commercial mortgage/CMBS/REIT model is the financial equivalent of the Fukushima nuclear power plant collapse.

I have previously talked about the ongoing retail apocalypse in the United States which threatens to make so many of these commercial mortgage securities go bad.  It is being projected that somewhere around 3,500 stores will close in the months ahead, and this is going to absolutely devastate mall owners.  In turn, it is inevitable that a lot of their debts will start to go bad, and pension funds will be hit extremely hard by this.

But the coming stock market crash is going to hit pension funds even harder.  Stocks are ridiculously overvalued right now, and if they simply return to “normal valuations”, pension funds are going to lose trillions of dollars.

We are talking about a financial tsunami that will be absolutely unprecedented in our history, and yet investors continue to act like the party can last forever.  In fact, we just learned that margin debt on Wall Street has just hit another brand new record high

The latest data from the New York Stock Exchange show margin debt, or cash borrowed to buy shares, hit a record $528.2 billion in February, up from its prior high of $513.3 billion in January.

Of course my regular readers already know that margin debt also shot up to dramatic peaks just before the last two stock market crashes as well

Prior periods when margin debt hit records occurred around stock market peaks, including 2000 when the dot-com stock boom went bust, and 2007 when stocks began to crater amid early signs of trouble in the housing market ahead of the 2008 financial crisis.

 

Margin debt jumped 22% from the end of 1999 before peaking in March 2000 at $278.5 billion, the same month stocks peaked. In 2007, margin debt shot up to $381.4 billion in July, three months before stocks topped.

We are perfectly primed for the greatest financial disaster in American history, and yet very few people are sounding the alarm.

This massive financial bubble is a ticking time bomb, and when it finally goes off it is going to wipe out virtually every pension fund in the United States.

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seek's picture

If they can print to float the stock market, they can print for pensions (at least the government ones, of course.)

One way or antoher they'll get the hyperinflation they secretly want.

Richard Chesler's picture

Obondinga's, the legacy that keeps up giving.

JRobby's picture

That's when the pichforks and torches come out.

Oblivio will be safe in Tahiti? Or some non-extradutable nation (Kenya?)

Cognitive Dissonance's picture

"So where are all of these pensions eventually going to come up with 6 trillion dollars?

That is a very good question."

Just another BIG reason massive inflation is coming round the bend. Either inflate it away or crumble it away. Which method is more palatable?

Jason T's picture

Inflation or Taxes and more Socialism?

Muddy1's picture

Yeah and we heard all about his predictions tha DIDN'T come about last fall.  Why does ZH give this discredited guy any space to post his drivel?

Ghost of Porky's picture

Will the $6 trillion dollar coin have Janet's face on it?

Four chan's picture

i pulled all my cash out and bought a safe, this thing is gonna blow.

CJgipper's picture

I picked up another 2k in bitoin.  Yes, I have tools and gold.  But it's so easy to buy more bitcoin/ether/dash/whatever.  It may lose, but the dollar is guaranteed to lose.

vealparm's picture

When the Feds or cops come knocking on your door and find your safe........they will simply confiscate your cash. You're best to bury it deep somewhere on your property and plant some bushes over it.

Budnacho's picture

Exactly how many times do you think the local constabulary will be able to do this before taking unsustainable losses from homeowners? If it turns to that the term "Neighborhood Watch" will take on some pretty interesting dimensions...

 

MalteseFalcon's picture

"Will the $6 trillion dollar coin have Janet's face on it?"

 

Harriet Tubman.

Clesthenes's picture

All of the above, which will launch the next Dark Age.

Jeffersonian Liberal's picture

Their goal is to confiscate private retirement accounts.

Clesthenes's picture

Why... privately employed workers, of course; even if it requires the destruction of Western Civilization - it will be done.

As far as state and federal bureaucrats are concerned, it's written in stone - not even open for discussion.

RighteousDude's picture

Yep, only solution is to print. Since everyone else is in the same boat -Europe-China-Japan, it'll be all done while no country in particular gains an advantage over another one. Que the printing presses.

Offthebeach's picture

Hard to old a torch when you use a walker.

By then it'll be old childless white people.  Our new brown ilegals, made legal, and others, aren't going to slave for whitey.  

"Nursing homes" will become ( are ) assest stripping mills, death camp the minute you run out of cash

JRobby's picture

Funny that you would assume that "pensioners" are all old and decrepid, near death (especially police & fire fighters) when the average person will spend 30 years in "retirement" now? It doesn't mean they are not still working either.

ToSoft4Truth's picture

He's right.  Depends on where you are in the cycle. 

 

55 year old "pensioners" act much differently than 85 year old "pensioners".

Clesthenes's picture

Private workers (on SSA) can full-retire at 66, and expect monthly $1500.

State and federal employees can retire after 50, and expect monthly $5,500 to 8,500 - depending on several variables.

redressone.wordpress.com/cheat

vealparm's picture

I know a guy in his late 50's collecting $11,500/Mo public pension. High school grad.......but his job was "so dangerous".

rmopf2010's picture

 

 

55 year old are not pensioners, but vampires sucking their own childrens blood 

 

 


 

No_More's picture

It's not about age, it's about health. I know plenty of older folks who are hale & hearty along with plenty of younger folks who have already amassed massive medical debt.

Countrybunkererd's picture

And additional debts from these mills in some states can be tacked onto the children.

Clesthenes's picture

Also, if they find cash in your possession (closet or basement), you'll be cashless the next day.

No_More's picture

I've already been through that family health apocalypse. Have I got scary tales to tell!

What made the most sense was for me to stay out of the work force & care for my widower demented father in his home until he died 11/2015 (at only 75, other than slightly elevated cholesterol and some mild diffuse arthritis near the end, he was healthy). Hospice helps for the late stage dementia care (I used hospice the last 7 months of my 10 years & 5 months of caregiving, if you can get one a non-profit hospice is likely going to give the most caring care), Medicare will cover hospice (at home or in a facility) & not come seek repayment whereas I've heard of assets seized to repay people whose elders went on Medicaid (I met a woman in Maryland who after her demented mother had spent down everything, they came after her & the family home she thought she inherited free and clear because she had used Medicaid to help subsidize her mom's senior daycare visits (at maybe $50/day, couple days a week, total bill was way less than what a single 30 day month of facility care cost, maybe $4000 if that. A good elder law attorney stopped that from happening but his counsel wasn't free). Daycare is only needed in early or midstage dementia (to keep the caregiver from going psycho due to the 24/7/365 nature of the task), I know of no daycare options for late stage, it's only facility placement or care for demented person at home.

It's way cheaper to have a CARING family member or friend train to provide care for a demented elder in a home setting (the elder's or a family member's or a friend's) and supplement with either other family members who get training or 1 certified nursing assistant part time. This person has of course to want to do this because it's the toughest job period. I had a period of time close to 3 years straight where I was 24/7/365 responsible for my father (no siblings or spouse and local carers were non-existant or booked up because of how rural my area is & my father got kicked out of the closest Area Agency on Aging federal tax funded daycare because they did stupid stuff with him and the staff found him too 'disruptive' after only 2 4 hour days with him...frankly the director & her volunteer staff in a dingy church basement were woefully unprepared though I did put the fear of God in them with a complaint of reverse sexual discrimination though I didn't follow through on it). That was very difficult but once I got hospice elligible, that was great because I got a part time CNA paid for by Medicare. My father was VA elligible for help, but that was a joke. I had to fight for 3 of the last 7 months to prove it & in the end I got all of 80 hours of a 2nd CNA's care (and 1st one they sent was unqualified mess, so spent 1 more month total waiting for someone decent to show up from VA to do the job & be worth the tax $$$ spent, $18/hr).

The earliest years of dementia care are about making sure your elder doesn't get financially fleeced. Best way to avoid that is to live with them and keep an eye on the finances, scare the telemarketers & door to door cretins off, make sure they buy some nutritious food when you go with them to the supermarket, figure out when to stop them driving, keep them as social as possible, etc.

Mid stage years you are learning to cope with behavioral issues (these are where family give up due to no training and trying to act like someone's angry mother on one of her worst days, and even pros screw this up if they're poorly trained or just having a bad day at work) and their activities of daily living (dressing, bathing, toileting, eating, walking).

Late stage months-years, you're dealing with a chair or bed bound person, handing off some of the care to others and knowing to refuse stupid stuff (at some point it's not worth it to take person for more doctor exams, tube feed, use a respirator, do CPR, call 911 etc but just use in home hospice who come 24/7/365 if you need them and make sure the person with dementia is kept pain free using the mildest drugs needed and kept in a quiet homey caring environment) but ensuring that others who are supposed to be helping you actually follow through until the inevitable happens.

This is not a place where $$$ necessarily buys you totally out of a bad situation. Some of the high paid carers are not as up to date on their training as they should be (and you won't know how to evaluate that unless you educate yourself) and they can pose problems trying to gain financial control or just plain stealing stuff or choosing to sit around watching TV or having their significant other over especially when no one is watching them (this has happened to a caregiver friend of mine in Colorado).

You need an ETHICAL CARING person to help you, someone who takes pride in her (or his though so far women outnumber men by a lot in this field) work. This is probably an older person who while she (he) may have a harder time lifting the person with dementia at least was raised with a real work ethic and won't give up at the first sign of a problem/challenge, especially if YOU show determination to do your best and treat them as a PARTNER with valuable experience. These people should be paid like doctors (who in reality barely do anything, most don't stay up to date in their care strategies either, especially if they're not hospice, palliative care or geriatricians, because in the end they can't be heroic and save someone whose brain is increasingly dying, and will rarely give you much time because they're pricey even at Medicare/Medicaid rates compared to a nurse or a CNA) but no one said life was fair.

Probably more than y'all wanted to know, but then again a major reason why dementia care is SCARY is precisely because it's like cancer was 50 years ago, stigmatic, not spoken of, kept hidden as if it were shameful to have gotten sick and that the families should share in that shame. Dementia is a person's brain dying slowly at first, faster closest to the end, in an unstoppable process. You do more to ensure the person with dementia's quality of life for the time they have left (eating what they want, doing what they want so long as it does not hurt or endanger others, looking for the good life moments) than micromanaging their 'health'.

daveO's picture

Sing a long! Be it ever so humble, there's no place like home!

ToSoft4Truth's picture

Would you like a reverse mortgage on your home? 

Winston Churchill's picture

Nowhere in the world is safe from a drone strike.

The irony is so acute, it hurts.

Observationist's picture

this has nothing to do with Obama, this game has been onging well before he got into in public office.

Hammer823's picture

This is exactly what I have been writing for years and why they HAVE to rig the stock market forever higher.  Why else do you think buying the dips works so well?

https://www.instagram.com/the_rigged_street_journal/

GUS100CORRINA's picture

TITLE: Snyder Warns Of The Ticking Time Bomb That Could Wipe Out Virtually Every Pension Fund In America.

My Response: I agree completely!

We cannot have ZIRP for 8+ years without unintended consequences!

What PENSIONS needed to do to avoid this crisis was go out on the RISK CURVE which they did not do.

Therefore, we are hosed!!

JRobby's picture

"go out on the RISK CURVE" (Laugh Track Deafening !!!!!)

Generally they are restrained on risk by various legal covenants promelgated by GOVT'S. 

CJgipper's picture

That's why they were basically REQUIRED to buy mortgage backed securities.  MOST can only buy AAA or AA rated debt instruments by law.

lester1's picture

Snyder should do some research on the Federal Reserve's plunge protection team. Aka PPT !

 

Stocks only go up now as a matter of national security.

major major major major's picture

.gov should just give all the student loan debt to the pensioners... they could continue to let their adult children to live at home and if they don't make the payments it wouldn't matter because they would really owe it to themselves...

 

Everyone has a share

roadhazard's picture

My daughter-in-law was just saying how good her 401K was doing... I didn't say anything.

tmosley's picture

Boomers gonna get a boo boo, and go boo hoo hoo all the way home.

And when they get their, they will find it has been foreclosed on.

Can't shrug the bill off onto the younger generation any more.

Bill of Rights's picture

All one has to do is drive by a Plaza and look up at the sign...Empty spaces everywhere....its amazing how they think we dont see this shit...Its the assholes who sit in their million dollar palaces who don't see it.

daveO's picture

The deflation being created by the death of debt-slave boomers will make costs collapse for the rest of us.

CJgipper's picture

But they're not.  They're staing in their 5000 sqft family homes and letting them age and crumble around them.  When they finally eventually die, those houses will be completely destoryed and no longer WORTH anything.  That's destruction, not deflation.  That'll cause INflation of decent homes.  The boomers are just going to take us all down with them.

ToSoft4Truth's picture

“Now we are approaching 50 percent of all retirees who still have a mortgage. That’s ludicrous from a financial planning standpoint. That’s crazy,” he added.

Bill of Rights's picture

 FDIC INSURED, we guarantee it.

buckstopshere's picture

Pensioners were also wiped out in Weimar Republic's hyperinflation.

ToSoft4Truth's picture

The 'disabled' and 'handicapped' were all wiped out too.  This is the reason the 1950's were Earth's (The West) golden age....  Unless you were sent to fight in Korea. 

 

 

Observationist's picture

the 50's was Earth's Golden Age? LMAO......silly human

biker's picture
biker (not verified) Mar 31, 2017 2:01 PM

Taking pension control out of wall street and back into the hands of the people.

Employee controlled pensions

 

Having companies pay for retirement facilities.

Having companies pay for work housing!

 

Whats the point of working if it doesnt pay enough for food or housing.