PIIGS In America: Is Illinois Preparing To Request A Federal Bailout?

Tyler Durden's picture

Moments ago we saw the following amusing headline crossing the BBG:

  • ILLINOIS TEACHERS' PENSION FUND CUTS RATE OF RETURN TO 8% FROM 8.5%

It's amusing because these are the same teachers who were demanding, and received, higher pay - 17% higher over four years in fact - following a several day strike. It is even more amusing considering that in a fiscal year in which we saw QE2, Operation Twist 1 and 2, and LTRO 1 and 2, the nation's largest pension fund, Calpers, managed to eek out a measly 1% gain (and this is including the end of June surge following the then announced European bailout which turned out to be yet another dud). It is, however sadly, most amusing, because it may be a harbinger of something truly sad: the advent of the "PIIG bailout" to America, when a US state demands a Federal bailout. We have seen how eager Europe has been to bailout its insolvent nations. We are next about to see just how "united" the US is when its own solidarity is tested as state after state repeat the European bailout experience. But hey: at least we have the dollar so all should be well.

From the WSJ:

Now that Chicago's children have returned to not learning in school, we can all move on to the next crisis in Illinois public finance: unfunded public pensions. Readers who live in the other 49 states will be pleased to learn that Governor Pat Quinn's 2012 budget proposal already floated the idea of a federal guarantee of its pension debt. Think Germany and eurobonds for Greece, Italy and Spain.

 

Thank you for sharing, Governor.

...

 

Illinois now has some $8 billion in current debts outstanding and taxpayers are on the hook for more than $200 billion in unfunded retirement costs for government workers. By some estimates, the system could be the first in the nation to go broke, as early as 2018.

 

For years, states have engaged in elaborate accounting tricks to improve appearances, including using an unrealistically high 8% "discount" rate to account for future liabilities. To make that fairy tale come true, state pension funds would have to average returns of 8% a year, which even the toothless Government Accounting Standards Board and Moody's have said are unrealistic.

 

The city is already facing upwards of a $1 billion deficit next year with hundreds of millions of dollars in annual pension costs for retired teachers coming due. But despite the fiscal imperatives, the negotiation didn't even discuss pensions. The final deal gave unions a more than 17% raise over four years, while they keep benefits and pensions that workers in the wealth-creating private economy can only imagine.

 

As a political matter, public unions are pursuing a version of the GM strategy: Never make a concession at the state level, figuring that if things get really bad the federal government will have no political choice but to bail out the pensions if not the entire state. Mr. Quinn made that official by pointing out in his budget proposal that "significant long-term improvements" in the state pension debt will come from "seeking a federal guarantee of the debt."

So when the time comes to bail out Chicago we can just tell America's insolvent state(s), who will soon pursue the MAD strategy of Europe's PIIGS, to demand a bailout with the ECB. We are confident the ECB will be more than happy to comply: after all quite soon Mario Draghi will realize that his goal should be to push the EUR down not up, and taking on more and more bailouts and money printing is precisely what he should be doing to once again retake the lead in the global FX race to debase.

After all, as it was already made clear earlier, Obama's promise in exchange for European votes, is to bail out Europe. It is only fair that Europe reciprocate after the election.

Quid pro quo.

And now: the End of the Beniverse

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holdbuysell's picture

O/T: Is anyone following this:

Exclusive: Iranian hackers target Bank of America, JPMorgan, Citi

http://www.reuters.com/article/2012/09/21/us-iran-cyberattacks-idUSBRE88K12H20120921

It was on CNBC earlier as well:

http://video.cnbc.com/gallery/?video=3000117611&play=1

 

http://www.cnbc.com/id/49122380

 

Daily Bail's picture

Meet Neil Codell an Illinois educator with a $26 million state pension.

Yes $26 fucking million.

You Thought California State Pensions Were Out Of Control? Wait Until You See This List From Illinois

Kitler's picture

The bad news for Neil is that he will have to wait 14 years before he collects.

That $602K/year might buy him a double latte once a week at Starbucks once Ben is done.

Daily Bail's picture

As long as we are on the subject of state bailouts:

 

Slideshow with great photos, especially the 1st one:

 

Hype Alert's picture

Not a problem, they'll just raise property taxes to cover it.  Remember you only lease your property from the government, the home ownership thing is another scam.

A Nanny Moose's picture

The nice thing about small states is the relative short distance that is required to vote with your feet. The western US is screwed.

Sauk Leader's picture

Meet Illinois Governer Joe Quimby (Pat Quinn) http://www.youtube.com/watch?v=AXWYbk3DoHc (He loves "the great state of illinois")

jeff montanye's picture

re: "the nation's largest pension fund,Calpers, managed to eek out a measly 1% gain"

eek means set 'n wet 

eke means get w' sweat

Vampyroteuthis infernalis's picture

And my question is which US gubbimint agency is going to back this shit. The Fed? Congress sure as hell won't back a bailout so Quinn is desperate and pulling promises out his ass to keep his job.

Shocker's picture

We are at a point all the decision made many years ago, coming back now. All theses Pension, Grants... are all coming due.

Interesting times for sure.

 

AldousHuxley's picture

nah....

pensions...public employees just getting what they always got. adjust benefits to inflation they are not that far off.

private sector employees got screwed in last 30 years and now they are noticing the difference: no overtime, no job protection, no retirement, foreign labor, outsourcing, no real salary growth.

 

All the anti-union fucktards in private sector just realized they got raped by their capitalist masters but never saw the reality due to arrogance, and now trying to pull other worker slaves down.

 

 

avg. household income should be $90,000 adjusted for inflation.

 

the fact is BANKSTERS ALREADY GOT BAILED OUT

elite POLITICIANS ALREADY GOT BAILED OUT

MONEYED INTERESTS ALREADY GOT BAILED OUT

 

they are just looking to punish "you people"

 

 

 

 

 

i-dog's picture

Pat Quinn ... yet another Zionist graduate from [Jesuit] Georgetown U ... very deliberately driving America off the road and into the dust....

Joseph Jones's picture

The Roman church official declaration: if you believe the Hebrews killed Christ, you go to hell, plain and simple, no alternative. 

SeattleBruce's picture

"For God so loved the world that He gave His one and only Son, that whosoever believes in Him shall not perish but have eternal life."  New Testament

It was everyone's sins that killed Christ, and it's in believing in Him that anyone is saved.

AldousHuxley's picture

logic proves that god doesn't exist, because there is no need for god.

 

fuck god. some bullshit created to control you.

pay now, reward in afterlife?

 

haha.....great scam. tax shelter too.

 

nmewn's picture

I've always found it ironic (and enlightening) that so many atheists call to Him from their own death beds.

And they had so much faith in their beliefs for all their lives...and lost it at the very end ;-)

SeattleBruce's picture

"because there is no need for god."

Perhaps you believe in the eternity of matter?  Not really the scope of this blog - but where did you come from, and where are you going, and who cares?  ("Who love you baby?")  Really your vitriol is quite depressing.  Besides,  imho you've got it wrong - there's no 'pay now' - this isn't some kind of transaction - it's LIFE and life to the full, and if you're not doing that now,  it's not going to be rectified in some after life.  Why don't you tell a 10 year old African kid there is no god?  They'll look straight at you and laugh.  But ah no, you know better....well God bless ya Aldous!

Meremortal's picture

Oh, it will be a problem. Property taxes are collected by counties, to pay for education. The teachers' union will not sit quietly by....

 

And if there's anything that will wake voters up, it's raising their property taxes. You can't pass that off as taxing the rich.

JohnKozac's picture

I thnk the Lord I sold my box in 2009....taxes for -- the new schools, sewer systems, roads, etc --  were endless. I was not at the peak but who cares....the neighborhood has gone downhill and half are rentals now.

 

Taxes have gone up twice since I sold. House ownership IS NOT what it used to be.

HyperinflatmyNutts's picture

The American dream!! Own your own home was a scam thought up by the Banksters to enslave u in their debt chains.

You end up paying 3x what you bought the house for. Then you DO NOT really own it, because we have to pay the government taxes forever. If you r lucky to sell the house and make a profit here comes good old Uncle Sam to take more money.  You tell me why would anyone want to own a House.  Way better off renting..... better yet lets just abolish the property TAX..

SPAREPARTS's picture

There is some confusion, the list is entirely administrative(Principles and superintendents not teachers) further these are not chicago affiliated but suburban. Teacher union is also inaccurate rather hundreds of unions. Nearly all those listed are paid more  than the mayor of Chicago. These decisions were made at the lowest community level  and everyone in Illinois has wondered why including teachers, how can these sums be justified? many of those named are running one school. Average teacher compensation in Chicago Public School is about 70K, the highest paid with 30 years and two masters degrees is under 100K.

Abitdodgie's picture

Are you really that dumb to think property taxes are for education , try a "land pattent" , property taxes are rent because you don't own that they do.

Mae Kadoodie's picture

I'm trying to come up with an acronym for Florida, Utah, California & Kentucky.  Something catchy like PIIGS.  Can anyone help me with this?

 

Kastorsky's picture

HFS!

Using actuarial calculations from the Teachers' Retirement System (TRS), Champion News reports that the total estimated pension liability for the top 100 retirees will equal...

$887,925,790.00

http://dailybail.com/home/make-this-story-go-viral-you-thought-california-state-pensio.html

cranky-old-geezer's picture

 

 

I figured out why pension fund managers will go along with federal confiscation.  As this article points out, they're way underfunded.  They'll go along with federal government confiscating all the assets in exchange for IOUs (just like they do with social security).  They can shrug their shoulders saying the government took it all, it's not their fault.

No way will pension funds get a bailout.  Assets will be confiscated instead.  Retirees will get a social secuity check more or less, for way less than what they were promised.

How will pension funds get away with it?  Simple, bankruptcy.  Pension funds will quietly bankrupt, wiping out their obligations and turning assets over to the federal government.  Now retirees are the federal government's problem and will be shoehorned into the social security system, benefits determined by their highest 3 quarters just like everyone else. 

State and local govt retirees are chickenshit compared to Wall Street banks who get all the bailout money.  No, their pension fund won't get a bailout, it'll be looted instead.

Almost Solvent's picture

http://www.pbgc.gov

 

The mechanism is already there waiting for use in the next 10 years as boomers retire en masse . . .

Winston Churchill's picture

Which is another off balance sheet monster thats already insolvent.

Current shortfall is over $3t,getting worse with  every year of zirp.

centerline's picture

I agree.  I think at first though there will be some more game playing, higher taxes, bizarre transfers, etc. - with the rug getting pulled out from underneath when the whole municipal budget comes completely unwound.  Of course it is all about cash flow... which is why when the hammer final falls, the whole thing comes down at once.  Just locks up completely and only a bankruptcy will get it moving again.

Hope you don't mind junks though... talking about public sector pensions being vaporized scares a lot of people around here.

cranky-old-geezer's picture

 

 

No problem, I'm used to junks.

Yep, truth hurts sometimes.   Those people need to quit living off taxpayers and go get a real job.

...but that's it, they can't get a real job, they have no skills anyone in the private sector would want.

Sitting on their asses drawing a high salary doing nothing productive.  Nope, nobody in the private sector wants that. 

Bloated government will be the downfall of America, and they're part of it, so they're anti-American, working against the best interest of this nation.  They don't care of course, they're some of the most selfish people around ...as the subject article points out.

disabledvet's picture

This is so spot on I don't even know where to begin. We're all at the mercy of "economic theory"...now and for some time going forward. In other words only "growth money" can pay for trillion dollar DEFICITS not by simply "tanking the pension plans" and "sticking everyone on SSI." in other words Wall Street has it all wrong...as certainly do the clowns at the WSJ by "discerning growth in the annihilation of incomes." that approach was an EPIC fail. Right now the Federal Government goes through about 50 billionaires a week New York! Your job is as simple as it is stupid: "create credit growth or wither on the vine." the theory that "there is no one to lend to" is hysertically flawed. You sure lent to your London Whale yes?! Anywho the crux of the problem is that buying trillions in MBS is not the same as buying the real estate itself. It is my contention that in buying the MBS the Fed is in fact lowering the value of the actual real estate as people just go out and borrow more and stay totally illiquid as before. There must be a liquidation in order for the debt to be destroyed. Ideally it is orderly...but rarely is that the case. Now profits are slowing and the War is going parabolic. All resources will now be devoted to either an open policy of expansion or some "withdrawal in force." Illinois is no different under these ONLY two possibilities than Fannie or Freddie Mac. Some type of Government "receivership" followed by non payment of interest as determined under the "odious debt" clauses in US jurisprudence.

CheapBastard's picture
Property Taxes Will Increase 60%

 

http://www.chicagonow.com/trackitfan/2011/01/property-taxes-will-increas...

 

 

Money has to come from somewhere. 60% is a good start, but it will go much higher. Taxes are one of the joys of owning a house.

10mm's picture

Passed on to the renter.If they can get one.

JohnKozac's picture

Good luck with passing extras on to renters. As I mentioned above, I sold and am renting now. There are so many rentals it's a "Rental Bubble." I told my landlord I want 10% off or I'll move and got it. An empty house for 2 months is a loss for that year for the lord of the estate. Not to mention the costs of cleaning, finding new tenant with good credit, etc.

I owned two properties back in the 1990s and all I can say to all these new landlords is, "Good luck!" Being a landlord is not cracked up to what they say but all these people rushing into that area need to leanr on their own. Some will do fine...many will not.

cranky-old-geezer's picture

 

 

Money has to come from somewhere. 60% is a good start, but it will go much higher.

You're assuming city governments will go on, but that might not be the case much longer. 

City governments aren't needed anymore.  County governments can do everything city governments do, and I believe we'll start seeing some consolidation as city governments bust their budgets and can't come up with the money anymore.

I think state governments will force it, ignoring massive protest from entrenched city government bureaucrats.  The money just ain't there to support that extra layer of government anymore.

 

Sauk Leader's picture

Thanks for the post. So do we take the top 11 or just the top 4 or 5 for a new acronym? We have....

F O M RI NY N NJ M C I

 

Monedas's picture

FROM MY CIN JYNN  ?     Sin Gin ?      That's a hard one to acronymize !

FreedomGuy's picture

It is likely they have some sort of inflation protections. His retirement will likely keep up.

Popo's picture

If Illinois gets a bailout... this could be Obama's personal Black Swan.   The Romney video confirmed everyone's suspicions about Romney.  But Illiinois being bankrupted by public unions would likewise pretty much confirm everyone's fears about Obama.

CrockettAlmanac.com's picture

I don't care for Romney but I heard nothing untoward in that video.

Ham-bone's picture

"truthiness" in a ponzi is certainly "untoward"...both sides are now back to the bullshitery.

WillyGroper's picture

He's an SOB, but at least he was telling the truth (this time).

sessinpo's picture

And generally the ones calling him an SOB are the ones that have a hard time dealing with that truth.

gtb's picture

...and asshole Obama has never come close to speaking the truth...about anything.

DaveyJones's picture

except when he says he wants to be president 

Uncle Sugar's picture

"he wants to play president."

 

There, fixed it for you.

RiverRoad's picture

He wants all the millions that come from speaking fees when he's done.  That's all he's ever wanted.

Vendetta's picture

oh come on.  He talked about hope and change, ppl hoped that something would change for the better... Obama didn't say anything about change for the better.

RiverRoad's picture

It was an "Anybody but Bush/Republicans" election and people got the government they deserved.

Everybodys All American's picture

What has and is happening in California, New York, Illinois, and other typically democratic run state's budgets is what Romney has pointed out. Deficit spending is ruining our collective future.