The State Pension Time Bomb

Poor accounting rules and flagrant irresponsibility have sped up the states’ day of reckoning.

For decades state officials have encouraged adults to believe in the financial equivalent of the Tooth Fairy: that state pensions can yield high returns while being risk-free. Now taxpayers are in for a serious toothache.

Nearly every state offers defined-benefit pension plans for public employees. Financed through a mix of employee and employer contributions along with the investment returns on pension funds, a defined-benefit plan represents a contractual obligation to dole out a set amount in annual payments for as long as the recipient lives, regardless of whether there are sufficient assets in the fund at the time of the employee’s retirement.

One would think this obligation to pay no matter what would have led states to invest conservatively and plan ahead. Instead, they have been following accounting rules that pretty much guarantee the funds will be unsustainable.

First, by law, states are not required to pony up regular contributions to pension systems. Lawmakers generally jump on any opportunity to be fiscally irresponsible, so many states have deferred pension payments and used their share of the contribution to increase spending in other areas.

Second, government accounting standards systematically underestimate fund liabilities, which in turn encourages pension deferrals. Eileen Norcross, my colleague at the Mercatus Center at George Mason University, argued in a December 2010 paper that the difference between government and private-sector accounting rules is at the root of the unfunded liability crisis.

For accounting purposes, private pension plans use the market value of their liabilities. This rule requires future liabilities to be discounted at an interest rate that matches the risks associated with the assets; the resulting value represents the amount a private insurance company would demand to issue annuities covering all the benefits owed by a given plan. By contrast, states calculate the value of pension liabilities based on the returns they expect from investing pension assets. And on average, the states assume an unrealistically high 8 percent annual return on pension investments while the actual rate should be closer to the yield of 15-year treasury bonds. Here is why that’s so problematic.

Pension funds need to assume a certain rate of return on their current assets in order to gauge whether or not the assets held today will be enough to pay future benefits. Obviously, the assumed interest rate or rate of return has a major impact on whether a pension plan is adequately funded. Most pension plans would rather play it conservatively and assume a lower rate of return, so that they ensure that the assets they have today will be enough to cover tomorrow’s promised benefits. But the states would rather put less money up front today, so they’re pinning all their hopes of being able to pay benefits tomorrow on an 8.5 percent annual growth rate. If that 8.5 percent growth rate doesn’t come to fruition, either tomorrow’s beneficiaries will see a cut in their benefits or taxpayers will be asked to pick up the tab. It would be much more prudent to assume an adequate risk-adjusted rate of return closer to the rate offered on 15-year Treasury bonds—3.5 percent, say—and fund their plan accordingly.

An unrealistically high discount rate also means that states are highly discounting the likelihood of future payments. In other words, the states are essentially stating that there’s a low probability that they’ll have to pay their pensioners. That is silly.

State officials not only failed to set aside sufficient money to fund future benefits, but they also illogically assumed that the riskier the investment, the better funded the plan would be. Illinois, for example, borrowed $10 billion in 2003 and used the money to invest in its pension funds. After the recession sent its investment returns below its expected target in 2010, The New York Times reported in December, Illinois sold an additional $3.5 billion worth of pension bonds. This year alone the state is planning to borrow $3.7 billion more for to repay those pension bonds, with interest.

How big are the shortfalls? State officials estimated their plans’ unfunded liabilities at $452 billion, with total liabilities of $2.8 trillion. But when economist Andrew Biggs of the American Enterprise Institute calculated the figure with the methods used by private-sector pensions, he found that total liabilities amount to over $5 trillion, with the unfunded liability at $3 trillion. (See Figure 1.)

Since much of government pension liabilities is off the books, most states and cities underestimate their actual debt. In Figure 2, Joshua D. Rauh, an associate professor of finance at Northwestern University, and Robert Novy-Marx, an assistant professor of finance at the University of Rochester, add Connecticut’s unfunded liability to the state’s debt. As you can see, the state’s reported debt is roughly $23 billion. The estimated value of its unfunded pension liabilities is $48.4 billion. To that amount we should add another $28.2 billion in underestimated liabilities due to poor accounting standards.

While all states’ pension plans are in bad shape, some are worse than others. Figure 3 shows the first 10 states scheduled to run out of cash.

Once the pension plans run out of money, the payments will have to come out of general funds, meaning taxpayers’ pockets. If states want to avert that, they need to push through reforms as soon as possible. A first step would be to switch to accounting methods that show the true market value of their liabilities. Once these methods are in place, lawmakers could consider moving away from defined benefit pensions. Otherwise, taxpayers will discover too late that the Tooth Fairy of their dreams is actually the Wicked Witch of the West. 

Contributing Editor Veronique de Rugy (vderugy@gmu.edu) is a senior research fellow at the Mercatus Center at George Mason University.

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  • Mike in PA||

    Nice job, Veronique.

    But you know there's still going to be those who think the answer to this is to make sure the rate of return is even higher than the 8.5% fairy tale. And the only way to do that is to "invest" in the economy by spending more. It's sort of like putting a big fan on your sail boat for when the wind dies down. You spend a lot of energy, but for some unknown reason of physics, the boat never seems to move.

  • ||

    In the words of Porter Wagoner, and Obama, "Big wind a 'comin."

  • ||

    Bread Slice
    SHIT
    Bread Slice

  • Hoohah||

    "CalPERS reports 13.3% net return on investment" -- http://articles.latimes.com/20.....s-20101110

    And this during our slow recovery.

    So, 7% is unrealistically high and was have to use an artificially low bond rate? The argument does not hold water.

  • Old Mexican||

    By contrast, states calculate the value of pension liabilities based on the returns they expect from investing pension assets. And on average, the states assume an unrealistically high 8 percent annual return on pension investments while the actual rate should be closer to the yield of 15-year treasury bonds.


    The interesting part is that, when bad planning in the private sector blows up in its face, the pundits are quick to blame the free market. When the public pension system blows up in OUR faces, the pundits are quick to blame... the free market - somehow.

  • ||

    I like how accounting rules don't apply to government or, sometimes, to favored constituencies.

  • A Serious Man||

    Yeah, and just you mention the culpability of public employee unions, you'll get the whole "Why do you hate the children and favor the rich" argument.

    Sadly though, you are correct, any failing of Big Goverment does not wake up the American people to the folly of that kind of system, it makes them even more favorable towards the nanny state.

  • ||

    It's always a red flag when rules of general applicability that exist to prevent fraud, etc. don't apply to certain groups or, worse yet, to government. Those exceptions are rarely justifiable.

  • cynical||

    Like insider trading laws?

  • ||

    There's an example. Whether rules like that make sense in the first place are one thing, but to the extent that they are law, they should apply to government officials as well as to common folk.

  • The Gobbler||

    Like 1,040 ObamaCare waivers?

  • ||

    That's an interesting number of waivers.

  • Red Rocks Rockin||

    Sadly though, you are correct, any failing of Big Goverment does not wake up the American people to the folly of that kind of system, it makes them even more favorable towards the nanny state.

    The one thing they never take into account is the limits of scale. European socialism had muddled along due in large part to these countries having small-scale communities, smaller populations, and cultural homogenity. Of course, at this point they're on the brink economically just as much as we are, and the importation of foreign labor (most of whom actually despise Europeans but love the social welfare) will eventually break up the cultural homogenity that's kept trust bonds between its citizens at a high level.

    Eventually, all societies reach a point where they become too complex to sustain their social and economic structures, and begin unwinding to a level where they can be sustained. Any attempts to kick the can down the road not only fail to solve the problem long-term, they make the collapse that much worse.

    The biggest lie progressives ever told humanity was that THE GOVERNMENT was capable of solving every problem, to the greatest benefit of all its citizens. Their sociopathic need to promote the idea that no bad thing should happen to anyone, ever, has been more effective at undermining individual liberty than anything even the slave runners of the 18th century could have devised.

    They never grasped that Governments are not the state, the people and their communities are, and that most community problems are typically solved far more effectively on the local level than they are at the top.

    Ironically, for all their "power to the people!" rhetoric, progressives are terrified of letting communities actually determine what would be best for their own social well-being, because there's a pretty strong chance that the progressive philosophy would be rejected wholesale. States like Vermont are anamolies, influenced largely by transplanted hippie wanna-bes from Massachusetts and New York who ended up running from the same dysfunctional societies their philosophy helped create. Thomas Frank spent a whole book and liberals have spent years trying to figure out "what's the matter with kansas," not wanting to accept that "Kansas" had already gotten a taste of Marxist progressivism in the early 20th century and determined it to be a community-destroying force.

  • Sudden||

    Can I conduct a citizen's arrest of california legislators for violation Sarbanes-Oxley? Can I shoot their dogs while I do it?

  • ||

    Probably.

  • Jennifer||

    And that second graphic perfectly illustrates why I want to get the hell out of Connecticut. Right now they're merely raising taxes (the governor's proposition that we not only raise sales taxes, but tax the full purchase price if people buy things on sale or with a discount coupon, ought to cause interesting fallout) but there's a sort of lashing-out desperation to the government's money-grubbing actions that occasionally makes me fear for more than just the sanctity of my bank account.

    They want to make the tax system more regressive, too; among other things, there's talk of rescinding the tax-free status of clothing purchases under $75. That'll be especially rough on the poor, especially people with kids who can't wear the same clothes more than a year without outgrowing them.

  • ||

    Instead of the Free-State Movement, I suggest a Free-Jennifer Movement. Florida has a mild anti-government strain. The empty western states are another option.

  • Virginia||

    Wyoming.

    The state of Wyoming does not levy a personal or corporate income tax. Wyoming does not impose a tax on intangible assets such as bank accounts, stocks, or bonds, either. In addition, Wyoming does not assess any tax on retirement income earned and received from another state. Further, there is no legislative plan to implement any of these types of taxes.

  • ||

    Sounds good. And it's got Yellowstone, the Grand Tetons, Devil's Tower, and other natural goodies. And large tracts of land!

  • ||

    She's got HUGE... tracts of land.

  • ||

    One day all this will be yours. What? The curtains?

  • Jennifer||

    Florida's too goddamned hot, though. And I'd rather avoid the west because of their water issues -- don't tell me I'm not allowed to catch and use rainwater falling out of the sky onto my own property, especially not when you keep charging me higher prices on tapwater so you can afford to give mega-discounts to farmers who shouldn't be raising water-intensive crops like rice in what is effectively a goddamned desert anyway.

  • ||

    Well, if heat is an issue:

    My tiger friend has got a sled,
    And I have packed a snack.
    We're all set for the trip ahead.
    We're never coming back!
    We're abandoning this life we've led!
    So long, Mom and Pop!
    We're sick of doing what you've said,
    And now it's going to stop!

    We're going where it snows all year,
    Where life can have real meaning.
    A place where we won't have to hear,
    "Your room could stand some cleaning."

    The Yukon is the place for us!
    That's where we want to live.
    Up there we'll get to yell and cuss,
    And act real primitive.

    We'll never have to go to school,
    Forced into submission,
    By monstrus, crabby, teachers who'll
    Make us learn addition.

    We'll never have to clean a plate,
    Of veggie glops and goos.
    Messily we'll masticate,
    Using any fork we choose!

    The timber wolves will be our friends.
    We'll stay up late and howl,
    At the moon, till nighttime ends,
    Before going on the prowl.

    Oh, what a life! We cannot wait,
    To be in that artic land,
    Where we'll be masters of our fate,
    And lead a life that's grand!

    No more of parental rules!
    We're heading for the snow!
    Good riddance to those grown up ghouls!
    We're leaving! Yukon Ho!
  • Or||

    Have you considered the moon, Jennifer? I think you'd finally be happy there.

  • ||

    That's hilarious! Did you think of it yourself?

  • Sudden||

    I'm holding off until they terraform Mars... besides, the commies we have on Earth have made this the truely Red planet.

  • The Fringe Economist||

    Don't do it! It's not safe, NASA's gonna bomb it again.

  • Jim||

    Come to Texas! The northern part isn't THAT hot. A friend of mine who was an attorney in Hartford recently moved out here, for the very reasons you're describing. They even charged him an annual profession tax for being an attorney, even though he wasn't practicing.

  • Jim||

    Or, in all seriousness, check out New Hampshire. That way you wouldn't have to leave the area (from the view of a Texan, everything north of Maryland and east of Ohio is just one thing anyway), and the economics should be much more to your liking (no state OR sales tax, IIRC).

  • #||

    but new hampshire is currently being invaded by retarded massholes intent on turning that state into the one the fled from.

  • ||

    The invasion has been ongoing for years.

  • Old Mexican||

    Re: Jennifer,

    And that second graphic perfectly illustrates why I want to get the hell out of Connecticut. Right now they're merely raising taxes[...]


    But... But... but Jennifer! Taxes are payments for the civilization we enjoy!

    At least, that is what Tony told me - he would't be bullshitting me, would he???

  • ||

    Interesting analysis but we all know it won't mean squat to the "progressives": they're taking the Micheal Moore line that there is plenty of money, i.e. that Tooth Fairy that goes by the name "Soak The Rich".

  • sarcasmic||

    That's right.
    The rich don't pay their fair share.
    How do we know this? Well, they're rich.
    If they paid their fair share then they wouldn't be rich anymore.

    But then they wouldn't have any wealth to plunder. Funny how socialists assume that the rich will never run out of wealth or stop producing.

  • #||

    "Funny how socialists assume that the rich will never run out of wealth or stop producing."

    [insert thatcher quote here]

  • Virginia||

    What's going to be really maddening is in 10 years when all the plans are broke and we say told ya so, all the papers report no one could've seen this coming quoting only moronic fucktards from the AFT, NEA, AFSCME, IAFF, FOP despite mountains of studies from Pew, Mercatus, etc and we're all labled a bunch of Captain Hindsights.

  • ||

    The libertarian goddess is Cassandra.

    Medicare Part D costs more than forecast? Who'd a thunk it? The wars in Asia haven't gone as planned? Nobody could have forseen that. New homeland security rules at the border have reduced travel and tourism? How did that happen? ObamaCare will favor large corporations over smaller competitors? Say it ain't so.

    I'm used to it.

  • what about...||

    what about what these dudes are saying re: pensions: http://www.cbpp.org/cms/index.cfm?fa=view&id=3372

    They claim that there won't be a true pension crisis for at least 20 years... or something.

  • JD||

    So none of us need to worry about it unless we're planning on still being alive in 20 years. Do they know something we don't?

  • ||

    tax the full purchase price if people buy things on sale or with a discount coupon

    Interesting, but much too timid.
    Merchandise should be classed as to "Social Benefit" and taxed accordingly.

  • Auntie Semitic||

    Don't give em any ideas.

  • Mark Brophy||

    Regardless of which state you live in, the country has accumulated great debt that cannot be repaid and will burden you for the next 40 years or more. Ideally, it's best to live in a country with a responsible government like that of Hong Kong, but with the climate common in the Mediterranean and California. Unfortunately, no such Utopia exists; each individual must decide what he values most and which deficiencies he is willing to tolerate.

    I chose Chile, which has a good climate and a smaller and better government than the United States:
    http://brophyworld.com/why-im-living-in-chile/

  • ||

    Whats wrong with the Hong Kong climate ? granted it can get a bit humid, but other than that, it is rather pleasant.

  • ||

    Eh, Hong Kong is getting irresponsible with the money and it is infested with NIMBY assholes who want to turn the clock back to the 1950s.

  • Red Rocks Rockin||

    Ideally, it's best to live in a country with a responsible government like that of Hong Kong, but with the climate common in the Mediterranean and California.

    Ironically, southern California used to be like this, during the early 20th century. That's probably as close to a real-life version of celestial Paradise as our country has ever seen.

  • ||

    Ha ha. Wall Street loots state pension funds to the tune of trillions a mere two years ago, and this amnesiac writer can't even put any one of these terms into a piece concerning state fiscal catastrophe:

    Wall Street
    mortgage-backed securities
    credit default swaps
    collateralized debt obligations
    corrupted private ratings agencies
    Glass-Steagall repeal
    bundling
    bubble
    predatory lending

    Ha ha. The alleged pals of liberty at Reason are once again energetically tugging away at the tumescent members of business - this time, blaming the robbery victim for having a money clip vs. a wallet. Such great work at the Mercatus center - none other than the home of Phil "Glass-Steagall" Gramm's leathery wife Wendy. Ha ha. Try again.

    I have no idea how you ghouls sleep at night.

  • ||

    Ha ha. Please don't feed the troll. Ha ha.

  • ||

    Can we feed it flouride?

  • ||

    I'd prefer Fluorine.

  • ||

    That is pure genius.

  • ||

    That whole site is hilarious.

  • ||

    It's like Maddox and The URKOBOLD™ fused together to make one giant Gundan blogger.

  • ||

    Not without white-on-black it doesn't.

  • ||

    Miscegenist!

  • ||

    I meant the text on background colors, silly.

  • ||

    Silly me. And here I though you would be playing the role of Sydney Pointier's John Prentice, with Aisha Tyler in Katharine Houghton's role, in a sassy, sexually explicit update of the classic film.

  • ||

    Really, where do you get these ideas from?

  • ||

    C'mon, you can't say that you haven't thought about it from time to time.

  • ||

    White text on black backgrounds?

  • ||

    It's jungle typography!

  • ||

    Guess whose CUMMING to Dinner

  • ||

    I'd prefer Fluorine.

    Damn you're a pussy.
    Phosgene.

  • Sudden||

    Is this for real? I mean this literally has to be a parody right? Is it not tragic how impossible it is for me to tell sometimes?

  • Stretchy||

    Ha ha, you've managed to put all of those terms in a post. Ha ha, but, you've failed to explain how any of these terms are relevant to anything. Ha ha.

  • ||

    [Y]ou've failed to explain how any of these terms are relevant to anything

    Hi! I'm an opening sentence! I have words, and words mean things. When you read them, the words make you think and see meaning! Well, unless you're very stupid, I guess!

    Here's the opening sentence from before:

    Wall Street loots state pension funds to the tune of trillions and this amnesiac writer can't even put any one of these terms into a piece concerning state fiscal catastrophe

    Hmm. Gee, I wonder what that could mean? Oh, I see - it's right there in the words. "When you write about missing money, maybe you should write about a big recent theft on the premises."

    Whew! Boy, I'm glad I'm not an illiterate!

    Gosh, it looks like lots of people do know what it means! Here are plenty who are real mad and are going to see a judge about it!

    http://www.ohioattorneygeneral.....uitRelease

    http://www.investmentfraudlawy.....ue_ub.html

    Well, bye! Hope you have better luck with words than you did before.

  • Sudden||

    So a government run pension fund invests in a type of asset known to have fluctuating values (interestingly enough basing their decision off of ratings granted by a government-supported monopoly) and when said known fluctuating-value asset depreciates, its not the pension funds fault for making a stupid investment? And that qualifies as third-party looting? Damn you are dense.

    Moreover, the solvency of these pension funds is worse today than it was two years ago and that is in spite of the larger market having recovered most of the equity value lost. Why is that? Could it be because the dip in equity values in 2008 was never actually the boogeyman (only a made up one that disingengenous legislators told useful idiots like yourself who bought the line hook, line, and sinker) and because they'd never actually funded the pensions ("deferred" funding; RTFA above) and they've never accurately accounted for the pension fund liabilities.

    Fucking accounting, how does that work?

  • ||

    "its not the pension funds fault for making a stupid investment"

    In other words, there is no such thing as fraud.

    Ha ha.

    I have link after link to state and local pension lawsuits of investment banks and plaintiff settlements over these "fluctuating in value" securities (securities that everybody not sporting a financial industry dick in their mouth is simply calling "fraudulent").

    You have...what again?

    Oh yeah, you have -

    - used the wrong word. Ratings agencies form a oligopoly, not a monopoly. Maybe you'll get it right next time, Shaggy 2 Dope.

    - used your misrepresentation to suggest that the government is somehow responsible for fraudulent ratings when the fact is the ratings agencies were and remain deregulated to the point that they are allowed to hold the securities they rate, a conflict of interest so huge that is visible from space -- just not from planet Libertaria, apparently.

    - ignored the continual collateralization of future earnings state pensions have had to resort to prior to the fraud of 2008, and have no choice but to extend in the current death spiral.

    - claimed that legislators are lying about being defrauded, yet lawsuit after lawsuit after lawsuit is piling up from every corner of the country. The law firms representing the plaintiffs would like to know: why don't you believe in laws of supply and demand all of a sudden? The market is rational, right? How could they take on all that contingency work unless the cases had merit?

    - nicely reaffirmed the status of glibertarians as the Juggalos of economics: suck ass apologists for corporate rape and assholery.

    Ha ha.

  • The Gobbler||

    ^^This is what a stupid fucker sounds like

  • sevo||

    Orel Hazard|3.8.11 @ 2:41PM|#
    "I have link after link to state and local pension lawsuits of investment banks and plaintiff settlements over these "fluctuating in value" securities (securities that everybody not sporting a financial industry dick in their mouth is simply calling "fraudulent")"

    Of course you do, asshole. Now take your meds and tell us about the grassy knoll again; it's always a good story.
    Hint, asshole: Incompetence costs money, and I'll bet you're deep in the hole.

  • ||

    "The law firms representing the plaintiffs would like to know: why don't you believe in laws of supply and demand all of a sudden? The market is rational, right? How could they take on all that contingency work unless the cases had merit?"

    You really are a stupid motherfucker, aren't you? Somewhere north of 90% of contingent legal work in this country is done not with the expectation of winning a judgment at trial, but with the expectation of arriving at a settlement under which the defendant spares himself the nuisance of a lawsuit by paying the plaintiff a sum of money to shut up and go away, of which his attorneys take half.

  • ||

    "Somewhere north of 90% of contingent legal work in this country is done [...] with the expectation of arriving at a settlement [...] of which his attorneys take half."

    Ha ha. Your implication is that most or every lawsuit is settled for the plaintiff regardless of merit. What a childish and/or retarded concept of the tort legal system you have. Are you sure you're not high right now?

    More relevantly, you also think that somehow means the pension funds weren't defrauded by their MBS packagers.

    Ha ha. You have no evidence for these goofy claims. Here, have a couple more lawsuits brought be pension funds to Wall Street pigs. These links are from the real world - ever been there?

    http://www.investmentfraudlawy.....ehman.html

    http://articles.latimes.com/20.....s-20100506

    Ha ha.

  • sevo||

    Orel Hazard|3.8.11 @ 5:28PM|#

    Ha ha.
    More relevantly, you also think that somehow means the pension funds weren't defrauded by their MBS packagers.

    Ha ha.

    Here, have a couple more lawsuits brought be pension funds to Wall Street pigs. These links are from the real world - ever been there?
    http://www.investmentfraudlawy.....ehman.html
    http://articles.latimes.com/20.....s-20100506
    Ha ha."

    You idiot! Did you read your own links, asshole?
    One from an ambulance chaser trying to drum up bizz and a news article on crooked CalPERS officials!
    Oh, look! CalPERS (government) officers accepting free stuff! The free market must be doing that!
    What an ignoramus! How much did you blow on get-rich-quick schemes?

  • ||

    Ha ha. Look at the whiny glibertarian complain about the free research and education he's getting. Greedy little guy!

    Thanks for fact-checking my links, though.

    Here, have some more from the huge pile of lawsuits from pension funds against the financial industry settling in the nine figures over fraudulent securities and practices.

    http://www.reuters.com/article.....D420090715

    http://www.lexisnexis.com/Comm.....Funds.aspx

    You're welcome!

  • sevo||

    Oh, oh! I missed the first two:
    "Calpers sues rating agencies over losses"
    And:
    "Marsh & McLennan Reaches $400 Million Settlement With Ohio and New Jersey Pension Funds"
    OH, OH!
    Asshole finds one "settlement" in 8 tries!
    Way to go, asshole!

  • sevo||

    Orel Hazard|3.8.11 @ 7:00PM|#
    "Ha ha. Look at the whiny glibertarian complain about the free research and education he's getting. Greedy little guy!"

    Stupid little shit thinks "research" = digging up irrelevant links. Stupid little shit.

  • ||

    "Your implication is that most or every lawsuit is settled for the plaintiff regardless of merit."

    That's not my implication. That's your inference. I can't help it if you're too retarded to comprehend what you read.

    One more time: somewhere north of 90% of civil litigation in this country is undertaken with the expectation of reaching a settlement, not winning a judgment on the merits. This is the result of a variety of factors which aren't really important to this discussion. What *is* important to this discussion is an appreciation of the fact that the "does the underlying case have merit" is not the principal consideration of a lawyer working on contingency; the principle consideration is "what is the likelihood of a favorable outcome," where "favorable outcome" is defined in terms of filthy lucre, not high principles.

    What a childish and/or retarded concept of the tort legal system you have.

    Yeah. It's not as if I'm a practicing lawyer or anything, and might have a clue what I'm talking about. Obviously I should defer to some illiterate cunt on the Internet.

  • ||

    "where "favorable outcome" is defined in terms of filthy lucre, not high principles."

    Ha ha. No fucking kidding. Who claimed these cases weren't being considered on the basis of monetary outcome? Not me. I know the market for these cases is driven by the payoff expectation, which is to a great degree elevated by the fact that anybody with eyes can see MBSs weren't and still aren't well-understood by buyers. Discoveries and journalism have shown repeatedly that the banks, raters and servicers constantly lied about them at nearly every step - from the robosigning of mortgages to the suppression of information from the ratings agencies toward creating safe-looking bundles to the plummeting lending standards. It's a very target-rich environment for litigation and entirely justifiedly so.

    Next time, when someone says "merit", work with the word used as it is used, and don't ascribe a bunch of bullshit to it, okay?

  • sevo||

    Orel Hazard|3.8.11 @ 7:47PM|#
    "Next time, when someone says "merit", work with the word used as it is used, and don't ascribe a bunch of bullshit to it, okay?"

    No, asshole. Learn what a word means before you use it. Okay?

  • ||

    Ha ha. Look at the angry glibertarian adding nothing to the discussion about the HUGE number of lawsuits and huge settlements extracted from Wall Street over securities fraud looting pension funds.

    Learn what a word means before you use it.

    Already there, little guy:

    mer·it
    n.
    1.
    a. Superior quality or worth; excellence: a proposal of some merit; an ill-advised plan without merit.

    As in "Yeah, let's take this case - chances are we'll get a fat check."

    Now, about my compensation for your vocabulary development education: as you know, nothing is free, so kindly PayPal $25 to orelhazard@rothbardwasadouche.com

  • sevo||

    Orel Hazard|3.8.11 @ 8:21PM|#
    Ha ha. Look at the angry glibertarian adding nothing to the discussion about the HUGE number of lawsuits and huge settlements extracted from Wall Street over securities fraud looting pension funds."
    Translation from stupid-shit:
    'I made a claim which was a lie and got busted'.

    "Now, about my compensation for your vocabulary development education: as you know, nothing is free, so kindly PayPal $25 to"
    Why would I bail out your sorry ass?

  • sevo||

    Oh, and:
    Orel Hazard|3.8.11 @ 8:21PM|#
    Learn what a word means before you use it.
    Already there, little guy:
    mer·it
    n.
    1.
    a. Superior quality or worth; excellence: a proposal of some merit; an ill-advised plan without merit.
    As in "Yeah, let's take this case - chances are we'll get a fat check.""

    No, asshole:
    "in the legal context, merit refers to a claim which has a valid basis, setting forth sufficient facts from which the court could find a valid claim of deprivation of a legal right."
    http://definitions.uslegal.com/m/merit/

    Sorry, little shithead, you're nowhere close.
    I'd ask for a check, but you're probably ain't worth more than your IQ.

  • ||

    Ha ha. You get tons of evidence, plus a $400MM settlement, and you're still going to claim the pension funds aren't suing successfully.

    Then you try and debate what is is.

    Ha ha.

    I'd ask for a check, but you're probably ain't worth more than your IQ.

    That's right: I'm probably ain't.

    Put some shoes on, Cletus.

  • sevo||

    Orel Hazard|3.8.11 @ 9:01PM|#
    "Ha ha. You get tons of evidence, plus a $400MM settlement, and you're still going to claim the pension funds aren't suing successfully."

    Stupid little shithead, there is *NO* evidence for your claims, stupid little shithead. Not to mention your ignorance about the term "merit", stupid little shithead.
    Sorry, you need and audience as stupid as you to buy that, stupid little shithead.

  • sevo||

    And:
    Orel Hazard|3.8.11 @ 9:01PM|#
    "I'd ask for a check, but you're probably ain't worth more than your IQ.
    That's right: I'm probably ain't."

    Oh, oh! Stupid little shithead found a TYPO! How...........................
    infantile.

  • ||

    When you are talking about the "merits" of litigation, you don't get to lean back and pretend that you were using the term in a generalized qualitative sense, you goddamn imbecile.

  • sevo||

    Orel Hazard|3.8.11 @ 2:41PM|#
    "its not the pension funds fault for making a stupid investment"
    In other words, there is no such thing as fraud."

    You stupid shit, learn to read.

  • ||

  • ||

  • sevo||

    More horseshit from the asshole.
    #3 "Pension Fund Sues Goldman Over Bonuses"
    #4 "Second Pension Fund Sues Goldman Over Pay"
    Yep, reals smoking gun there, ignoramus.
    Stuff it up your butt, asshole.

  • sevo||

    More horseshit from the asshole.
    #1 says somebody is suing somebody; yippee.
    #2 "The state of Alaska has sued Mercer, a unit of Marsh & McLennan Cos. (MMC), for $1.8 billion in damages, alleging that the company, which was the actuary for two of its pension funds, miscalculated liabilities of the schemes in the face of booming health-care costs."
    What an asshole.

  • ||

    Prove that "Wall Street loot[ed} state pension funds to the tune of trillions".

    Allegations of misrepresentations made by a bankrupt state entity do not constitute proof.

  • sevo||

    Orel Hazard|3.8.11 @ 1:35PM|#
    "Whew! Boy, I'm glad I'm not an illiterate!"

    We're sorry you *are* an illiterate.

  • Old Mexican||

    Wall Street loots state pension funds to the tune of trillions a mere two years ago[...]


    What did I tell you?

    "When the public pension system blows up in OUR faces, the pundits are quick to blame... the free market - somehow."

    Ha! Was I right or wasn't I? Huh? Was I? Wasn't I?

  • ||

    Shame! You completely forgot the concluding ha ha.

  • sevo||

    "Ha! Was I right or wasn't I? Huh? Was I? Wasn't I?"

    This is a set up, right?
    I mean if the ignoramus known as OH didn't exist, you'd have had to..........
    Well, wait for an equally ignorant brain-dead to come along. And it wouldn't take long.

  • ||

    I have no idea how you ghouls sleep at night.

    On a bed made of money.

  • ||

    I like to sleep wearing nothing but a monocle and a silk top hat.

  • The Gobbler||

    I I go to sleep wearing nothing but a cashmire sock on my johnson.

  • ||

    I sleep in a teddy made of the pelts of poor people...

  • Red Rocks Rockin||

    Ha ha. Yeah, good thing Obama and the Democrats re-instituted Glass-Steagall with lightening speed, and have racked up a veritable prison's worth of bank executives. Ha ha.

    I have no idea how you ghouls sleep at night.

    Pretty damn sound knowing you're having an aneurysm over something that both parties were involved in.

    Face it, the only reason you're pissed off is because the bankers figured out a more efficient way to steal from taxpayers than you have, and they managed to do so with the help of the very people you voted into office.

    When a government promises to "take care of everybody," it's the height of stupidity to not realize that "everybody" includes big business and the ultra-rich. Sooner or later you'll get that through your thick skull. Ha ha.

  • Stretchy||

    Since there is all this money and, state pension funds are actually quite solvent how does this sound?

    Transfer all assets and liabilities to the public sector unions. Pass a law forcing the state to pay for future pension obligations as they accrue. Directly deposit all of those pension contributions to the union run pension scheme, bypassing the employee. Most importantly, explicitly prohibit any kind of bail-out.

    Basically, put the union in charge of all pension assets and liabilities and see how the union members feel about that.

  • Concerned Citizen||

    Oh man, I'd love to see this idea floated in the MSM. Would the unions embrace this, or would they, out of fear, find a way to reject it?

  • some guy||

    They would say that managing pensions is the job of the employer, not the union.

  • Realist||

    The sack of shit with big ears will bail them out.

  • ||

    Apologize for the threadjack. But I tacked this on the end of this morning's links thread, and it was so late I was afraid no one would see it. Your morning nut-punch, since Radley was asleep at the wheel:

    http://reason.com/blog/2011/03.....nt_2172069

  • X||

    I wonder what effect all those pension funds having to entirely liquidate their positions will have on the market and returns while at the same time retiring private sector boomers are liquidating too.

  • johnl||

    The 15 year T-Bill is too low of a benchmark to represent the risk free rate of return. The T-Bill has such a low rate not only because it's low risk but because it's liquid. Of course 8.5 is unrealistic. The correct benchmark would be whatever the inferred rate would be from what Buffet would sell an annuity for.

  • Paul||

    I cannot find the article, or even a reference to it, but a few years ago Washington discovered a literal math error in a benefit calculation for its public sector unions which boosted benefits exponentially or logarithmically-- something insane... and Christine Gregoire (if I recall) shrugged and essentially said they'd have to deal with it later. Needless to say the Unions dug in their collective heels saying "a deal's a deal".

    I've tried dozens of google searches. Anyone who knows or remembers anything on this, I'd sure like to know.

  • ||

    That's why I pulled my money out of NY's retirement system when I left for a college in North Dakota. Invested most myself, and I'm taking a killer ski trip to Montana next week.

  • sevo||

    Here's the claim:
    Orel Hazard|3.8.11 @ 12:56PM|#
    "Ha ha. Wall Street loots state pension funds to the tune of trillions a mere two years ago..."

    After all afternoon, in eight tries, the illiterate asshole finds one (1) case which reached settlement, not judgment.
    Looks like illiterate asshole is, well, a lying illiterate asshole.

  • ||

    Ha ha. Look who can't discern between a) the amount lost to MBS fraud in the whole and b) the amount of a single nearly half-billion dollar settlement.

    See, Cletus, not every number you read refers to the same thing. Not even when the number references dollars.

    Let me know if there's anything else you need explained.

  • sevo||

    Orel Hazard|3.8.11 @ 9:06PM|#
    "Ha ha. Look who can't discern between a) the amount lost to MBS fraud in the whole and b) the amount of a single nearly half-billion dollar settlement."

    Stupid little shit head attempts to wave arms and claim some imagined extrapolation for the evidence that stupid little shithead can't supply.
    See, stupid little shithead, claims needs to be backed, and stupid little shithead has yet to back one.
    Let me know if there's anything else you need explained, stupid little shithead.

  • ||

    Cletus, I agree with what you typed:

    Claims needs to be backed.

    Indeed they do. Which is why this thread is filled with links to lawsuits and settlements totaling in the billions on behalf of state pension funds trying to get back any of the money Wall Street looted. That these suits are just the beginning is practically assured.

    I presented the evidence because this article pretends that evidence doesn't exist. Such "oversight" no doubt due mainly to the fact that Reason exists almost solely to jack off big business.

    About that: since Reason takes so much funding from corporate sources, I can understand why it does what it does, but I have to admit I don't see why a shoeless, unpaid goober such as yourself would try to deny Wall Street's proven culpability in state budget and pension shortfalls.

    What, exactly, do you get out of it?

  • sevo||

    Orel Hazard|3.8.11 @ 9:38PM|#
    "Cletus, I agree with what you typed:
    Claims needs to be backed.
    Indeed they do. Which is why this thread is filled with links to lawsuits and settlements totaling in the billions on behalf of state pension funds..."

    Stupid little shit, here's your claim:
    Orel Hazard|3.8.11 @ 12:56PM|#
    "Ha ha. Wall Street loots state pension funds to the tune of trillions a mere two years ago..."

    Prove it, stupid little shit. No more eduction from me, stupid little shit, prove your claim.

  • ||

    Well, Cletus, you got me. I made it all up. Wall Street didn't sell fraudulent MBS securities to states and state pension funds. Hundreds of billions of public dollars and deferred compensation for state workers didn't flow into Goldman Sachs and Citi and Wachovia et. al. as a result. These banks never radically dropped their lending requirements in order to feed the short-term gain monster of MBS packaging. Not a single mortgage or foreclosure is tainted by the illegal technologies used to process paperwork. And the MBSs they sold were not fraudulent in the slightest, and did not become toxic assets on pension fund balance sheets when the real estate bubble they inflated popped in 2008. And no huge lawsuits on behalf of state pension funds seeking repayment of losses against the investment banks, servicers, raters and insurers were ever filed and no gigantic nine-figure settlements were ever won. I made up all those links. I set up a bunch of fake news websites just to say all of this. There won't be any lawsuits in the future, either.

    Ha ha.

  • sevo||

    Orel Hazard|3.8.11 @ 10:43PM|#
    "Well, Cletus, you got me. I made it all up. Wall Street didn't sell fraudulent MBS securities to states and state pension funds."

    Well, stupid little shit, prove your claims or STFU. Is that clear?

  • ||

    Whatever you say, Cletus.

  • sevo||

    Orel Hazard|3.8.11 @ 11:07PM|#
    "Whatever you say, Cletus."

    Do I stutter?
    Well, stupid little shit, prove your claims or STFU. Is that clear?

  • ||

    Yes, whatever you say, Cletus.

  • sevo||

    Orel Hazard|3.8.11 @ 11:21PM|#
    "Yes, whatever you say, Cletus"

    Stupid little shit, prove your claims or STFU. Is that clear?
    STFU, is that clear?

  • ||

    I hear you, Cletus. Whatever you say.

  • sevo||

    Orel Hazard|3.8.11 @ 11:30PM|#
    "I hear you, Cletus. Whatever you say."

    No, obviously you don't "hear" me, nor can you read.
    You've been proven to be a liar and somehow you now find solace in posting ignorant drivel.
    You deserve to be shown as an ignorant liar, since that's what you are.
    Enough, shithead.

  • ||

    We both know no such thing has been proven. I posted plenty of valid evidence of significant lawsuits and enormous settlements. Anybody can read it - but you can believe whatever you want, Cletus.

    Hey, serious question: are you a cop? I've noticed you've got the requisite traits: a barky authoritarian tendency, a cavalier attitude toward evidence, plus you seem a little on the thick side.

  • Red Rocks Rockin||

    Hey, serious question: are you a cop? I've noticed you've got the requisite traits: a barky authoritarian tendency, a cavalier attitude toward evidence, plus you seem a little on the thick side.

    Hey, serious question--are you a government desk clerk? I've noticed you've the got requisite traits: a lack of knowledge in inverse proportion to your sense of self-regard, a cavalier attitude towards rigorous research, plus you seem to be a complete waste of carbon molecules.

  • sevo||

    Oh, and that one (1) settlement?
    "Marsh & McLennan Reaches $400 Million Settlement With Ohio and New Jersey Pension Funds"
    Yep, to the lying illiterate asshole, that's "TRILLIONS!"

  • readthearticle||

    This certainly is interesting watching you intellectuals swear at each other, but.... someone should read the first article OH linked (the only one where he claims an actual settlement). The settlement is with a company that committed fraud in its basic business practices in 2004 and earlier. That fraud caused the company's stock to go down. It had nothing to do with MBS or any other kind of investment fraud - they were basically stealing from their clients and the govt told them to quit.

    You may now go back to swearing at each other. You may also feel free to ignore anything OH says, because clearly he is just foaming at the mouth.

  • John Calhoun||

    Thanks, sevo's not the best representative for liberty, and Orel's "Ha Ha" schtick alone is enough to not bother to click his links. (Plus his arguments and I believe he's attempted similar crap.)

  • sevo||

    "John Calhoun|3.9.11 @ 4:35AM|#
    Thanks, sevo's not the best representative for liberty,.."

    But he's hell on hammering stupid little shits for trying to weasel out of claims.

  • ||

    Stupid little shit, prove your claims or STFU. Is that clear?
    http://jeffreypipilas.insanejournal.com/
    http://jerseyprice.blog.co.uk/

  • edethghj||

    Figure 3 might be incorrect. I downloaded the source and the table it contained is different.

  • ||

    There is a basic problem with your premise. If a large pension fund such as Calpers was to base their return on investment (ROI) on a risk free return such as Treasury Funds as 4.14% they would need to take about double the current % on payroll. Within a very short number of years their funds would be so full of money the Citizens of California would be saying "What the **** is going on here" and the politicians would be literally salivating over getting their greedy paws on the money.

    For the last twenty years Calpers bet on an ROI of 7.75%. They made 7.79%. I think that was a pretty good assumption. What do I think for the next ten years? I think Calpers should yank down their assumption to maybe 7.00%

    If that is too conservative then they will have a small surplus and they can adjust the numbers.

    In spite of all you hear from the so called gurus of the day, this is guess and by golly. No one is cheating or ripping off the public. They are simply making their best actuary guesses and applying them to the funds. Anything less would be not a competent accounting of public funds.

    Someone somewhere is always mad.

  • RanDomino||

    Funny, Wisconsin's is doing great:
    http://www.jsonline.com/business/120745424.html

  • kelly||

    Whoa...since when did you guys start doing game commentary?

  • nike running shoes||

    so helpful

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    it is perfect

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    This movie has some lebron 9 for sale of the same flaws I saw in another attempt at a faithful adaptation of a work of fantastic literature long thought unfilmable, Zach Snyder’s 2009 version of Watchmen...That is, it lebron 9 china for sale struck me as a series of filmed recreations of scenes from the famous novel

  • xiingguan||

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