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They Broke it, We Own it
Via Drudge comes the latest horrific numbers out of state and local pension funds:
State governments from Rhode Island to California have run up estimated pension-fund losses of $865.1 billion, forcing some to cut benefits for new hires.
Assets for 109 state funds declined 37 percent to $1.46 trillion over the 14 months ended Dec. 16, according to the Center for Retirement Research at Boston College. [...]
After Philadelphia's fund lost $650 million in the first nine months of last year, [Mayor Michael] Nutter joined the mayors of Atlanta and Phoenix in writing a letter to Treasury Secretary Henry Paulson seeking financial help for U.S. cities. Their November letter cited investment deficits and rising pension costs.
The $865 billion in losses, which exceed the $700 billion Troubled Asset Relief Program that Congress approved in October, comes as states face budget deficits totaling $42 billion.
Remind me to use the phrase "investment deficits" next time I come home from Vegas. This bailout-begging quote is also rich:
"We can't make enough on investments to drive out of this hole if all you do is depend on investments," said Mike Burnside, executive director of the Kentucky Retirement Systems in Frankfort.
And buried within Bloomberg News' info-packed story is this nugget that every lawmaker should read before agreeing on a federal bailout for local irresponsibility:
Excluding Social Security, public employers' pension costs are three times the retirement costs of their private counterparts, according to a June 2008 report by the Washington- based Employee Benefit Research Institute.
Hmmm, I wonder why that could be? Let's consult Jon Entine's great February cover story, "The Next Catastrophe":
Traditionally, public investments and union-based corporate pension funds were managed according to strict fiduciary principles designed to protect workers and taxpayers. For the most part they invested in safe government securities, such as bonds or U.S. Treasury bills. Professional managers oversaw the funds with little political interference.
But during the last 30 years, state pension funds began playing the market, putting their money into riskier and riskier securities—first stocks, corporate bonds, and foreign investments, then real estate, private equity firms, and hedge funds. Concurrently, baby boomers whose politics were forged in the 1960s and '70s began using those pension funds to advance their social visions. Investments designed for the long-term welfare of retirees began to evolve into a political hammer. Some good occasionally came from the effort, as when companies were pushed to become more accountable in their practices. But advocacy groups often used their clout to direct money into pet social projects with dubious fiduciary prospects. Sometimes the money went to the very companies and financial instruments that, in the wake of the market meltdown, are now widely derided.
Jordan|1.13.09 @ 11:59AM|#
Is there anything that the Baby Boomers can't fuck up? Seriously guys, if I wanted to live in Argentina, I'd move there.
|1.13.09 @ 11:59AM|#
I don't see how this is really a problem. There isn't even
really a need for layoffs.
...taxpayers are geese that lays golden eggs. Nobody know why. They
just do.
TallDave|1.13.09 @ 12:04PM|#
Here's a crazy idea: don't pay people money you don't have. If
your investments don't do well, guess what: you have less
money.
These pension plans are way too generous anyway. How many private
companies offer a pension any more?
Does my IRA get a bailout? Fuck no. Why are they special?
LurkerBold|1.13.09 @ 12:08PM|#
Joe has been telling you that this crisis has been coming for a
lot longer than I have but all you guys did was deny it.
Now your corrupt corporate world is collapsing and you still deny
it or blame it on government.
The solution IS government. Get used to it.
|1.13.09 @ 12:10PM|#
I think we will need two mantras to get through the coming
years. In addition to:
Aint. Gonna. Happen.
I believe we will also be putting:
We. Are. So. Fucked.
to good use.
|1.13.09 @ 12:10PM|#
Of course you realize this will be spun as a failure of state and local govts and thus reason to centralize all of this under the Obamassiah. Govt failure just means we need further centralization so The Smart People can be in charge.
|1.13.09 @ 12:12PM|#
"But during the last 30 years, state pension funds began
playing the market, putting their money into riskier and riskier
securities-first stocks, corporate bonds, and foreign investments,
then real estate, private equity firms, and hedge
funds."
"Riskier" is a funny word. "Riskier" squared is hilarious.
Not diversifying your investments is also risky. I don't know that
any given real estate deal is less risky than a treasury,
especially given that rents typically rise with inflation. I
suspect it's risky not to hedge your portfolio in case of a sudden
downturn, and betting all your eggs on the U.S. Dollar? That's
risky.
There's this idea that seems to be floating around in the back of
everyone's heads about the inevitability of bailouts and about how
that inevitability gives everybody's brother the right to question
everyone else's investment decisions.
But the present situation wasn't inevitable, even given the past as
it was--we didn't have to bail everyone out. ...and the future of
bailouts, no matter what it is, isn't inevitable either. Even if
it's government employee pension funds--we don't have to bail these
people out.
|1.13.09 @ 12:15PM|#
...So, I guess what I was trying to say is..
Let's not blame our politicians willingness to bailout the
deadbeats on poor investment decisions.
ed|1.13.09 @ 12:15PM|#
Concurrently, baby boomers whose politics were forged in the
1960s and '70s began using those pension funds to advance their
social visions
So all boomers share the same (implied) leftist political
philosophy? And they're the only "generation" influencing
public-pension investment policies? Wow. I did not know that.
Bad, bad boomers!
It's a typically collectivist mistake to arbitrarily affix a
generational label to people born during a certain period, and to
assign them attributes more fitting to a herd of cattle. There's no
such thing as a "generation." People are born every day of every
year, and all of them are individuals.
cunnivore|1.13.09 @ 12:18PM|#
Ken Schultz,
When a first grade teacher gives one of the 30 kids in her class a
piece of candy, it isn't logically inevitable that she's going to
give candy to the other 29 kids as well.
But trust me, it is inevitable, until the teacher runs out of
candy; and so it is with the bailouts. These eloquently-reasoned
pieces about why this or that entity now needs a bailout are just
the more mature version of "NOT FAIR, ME TOO!!!!!".
LurkerBold|1.13.09 @ 12:18PM|#
It's a typically collectivist mistake to arbitrarily affix a
generational label to people born during a certain period, and to
assign them attributes more fitting to a herd of cattle.
You people are all alike.
|1.13.09 @ 12:19PM|#
"It's a typically collectivist mistake to arbitrarily affix
a generational label to people born during a certain period, and to
assign them attributes more fitting to a herd of cattle. There's no
such thing as a "generation." People are born every day of every
year, and all of them are individuals."
That applies to a lot of people.
...except the hippies.
|1.13.09 @ 12:21PM|#
Oh Yeah, treasuries are where it's at man. I'm putting all my investments into gov bonds -- well, after gold and ammo. The rest go into bonds.
cunnivore|1.13.09 @ 12:22PM|#
Anyone else interested in having an H&R weekend in Vegas full of gambling, (legal) hookers, and interstate commerce ingestion? Might as well blow all our money now, since either we're inexorably doomed and have nothing to lose or Obama will bring a new dawn of peace and prosperity and we'll be OK anyway.
|1.13.09 @ 12:23PM|#
"But trust me, it is inevitable, until the teacher runs out
of candy; and so it is with the bailouts. These eloquently-reasoned
pieces about why this or that entity now needs a bailout are just
the more mature version of "NOT FAIR, ME TOO!!!!!".
Right, but what I was trying to say (I tried to say it in the next
comment) is, using your analogy, let's not blame the candy!
People are using investment decisions as a red herring. It's part
of the reason they're talking about more regulation...
...because people's investment decisions weren't the cause of the
bailout. The bailout was caused by politicians and our willingness
to tolerate their bailout.
Bailout over here. Investment decisions over there. Not the same
thing. ...but in some people's minds, when I read them online or
hear them on TV, they treat them like they're one in the same
thing. ...but they're not.
|1.13.09 @ 12:23PM|#
Jordan|1.13.09 @ 12:25PM|#
I think we will need two mantras to get through the coming years. In addition to:
Aint. Gonna. Happen.
I believe we will also be putting:
We. Are. So. Fucked.
to good use.
Come on now! All you need is "Hope and Change!" Oh, and don't
forget "Yes we can!"
Jordan|1.13.09 @ 12:26PM|#
I don't know about the rest of you suckers, but I'm investing in Cyberdyne Systems.
|1.13.09 @ 12:31PM|#
"But the present situation wasn't inevitable, even given the
past as it was--we didn't have to bail everyone out. ...and the
future of bailouts, no matter what it is, isn't inevitable either.
Even if it's government employee pension funds--we don't have to
bail these people out."
I would like to see taxpayer groups, maybe, start using something
like animal rights publicity tactics or maybe even start picketing
like unions.
Hell, I really would have liked to have seen taxpayer groups
picketing unions when we were bailing out the auto-industry.
They'll eventually come back for seconds, so maybe it'll still
happen yet.
cunnivore|1.13.09 @ 12:35PM|#
because people's investment decisions weren't the cause of
the bailout. The bailout was caused by politicians and our
willingness to tolerate their bailout.
It was actually caused by both. Politicians weren't offering
bailouts until Wall St's investments went south. There's plenty of
blame to go around.
Mr. B|1.13.09 @ 12:48PM|#
I wonder how many states were diverting "excess profits" from these funds during the boom years to fund political pet projects.
Taktix®|1.13.09 @ 12:48PM|#
I don't know about the rest of you suckers, but I'm
investing in Cyberdyne Systems.
Aren't they recieving Defense Department subsidies?
|1.13.09 @ 12:49PM|#
"It was actually caused by both. Politicians weren't
offering bailouts until Wall St's investments went south. There's
plenty of blame to go around."
There's this thing called an economic cycle. Big problems and
mistakes in the financial sector are often seen on the downside of
the tops...
When our politicians are done stopping the economic cycle, what are
they going to do next? Stop the birds from flying south for the
winter?
...and blame the falling temperature?
If they tried to do something like that, I'd blame our politicians
and the gullibility of their constituents. ...not winter.
Spambot|1.13.09 @ 12:49PM|#
"I wonder how many states were diverting "excess profits" from
these funds during the boom years to fund political pet
projects."
50?
|1.13.09 @ 12:52PM|#
I understand the argument that, since FDIC was there, we needed to keep FDIC funded. ...but that's not what I'm talking about when I'm talking about the bailout.
marc h.|1.13.09 @ 12:55PM|#
If you actually wondered why that could be, instead of just
being interested in answer that would go best with your
pre-existing ideological biases, couldn't you consult EBRI, the
source of the data, rather than a past article? Considering your
reporter's piece misuses "fiduciary"-- a word that has a very
specific meaning in a retirement context-- and conflates risky
mortgage-related investments with investments in "pet social
projects," it doesn't seem very credible.
Getting news some place other than Drudge would probably help,
too.
LurkerBold|1.13.09 @ 12:59PM|#
There's this thing called an economic cycle.
And, if we are going to continue with this madness that you embrace
called capitalism, we should be paying down the debt during the
upward portions of the cycle.
Taktix®|1.13.09 @ 1:02PM|#
So let me get this strait: The people who pass laws to regulate
our investing -- and are now freaking out about market regulation
-- are the same people who invested their pensions in a risky
way.
I guess since they can't control themselves, they need to pass laws
to control not only themselves but everyone else.
WTF? Can someone tell me anything that was done well over the last
10 years? Anything? I'd settle for moderate customer satisfaction
for the USPS at this point...
|1.13.09 @ 1:02PM|#
I don't know about the rest of you suckers, but I'm
investing in Cyberdyne Systems.
Personally, I'm looking into the Tyrell Corporation, Yoyodyne
Propulsion Systems and Weyland-Yutani.
|1.13.09 @ 1:03PM|#
Ken I agree. Everyone should not stop working and therefore no taxes for the bailerouters.
BDB|1.13.09 @ 1:04PM|#
"domoarrigato | January 13, 2009, 12:58pm | #
LurkerBold = Lefiti?"
No, Lefiti is amusing sometimes.
Paul|1.13.09 @ 1:05PM|#
People are born every day of every year, and all of them are
individuals.
I'm not.
Paul|1.13.09 @ 1:06PM|#
I would like to see taxpayer groups, maybe, start using
something like animal rights publicity tactics or maybe even start
picketing like unions.
It's illegal for taxpayers to strike.
|1.13.09 @ 1:08PM|#
It's illegal for taxpayers to strike.
But we can picket! If UAW members can picket auto factories, why
can't taxpayers picket UAW halls?
|1.13.09 @ 1:13PM|#
"Taxpayers to Union Fatcats: Get Out of My Paycheck!"
Do you think that would all fit on a picket sign?
Paul|1.13.09 @ 1:13PM|#
It was actually caused by both. Politicians weren't offering
bailouts until Wall St's investments went south. There's plenty of
blame to go around.
Nope, just politicians. For instance, if I don't pay my car
payment, it should have no effect on your day. But when the
government comes 'a knockin' on your door and says "Your neighbor
didn't make his car payment, if you could just get us a cashier's
cheque by next week to help rescue his market failure, that'd be
greeeeeaat".
|1.13.09 @ 1:18PM|#
BDB, The trolls on this site are getting more frequent and insistent, less funny and further left by the millisecond.
JW Gacy|1.13.09 @ 1:20PM|#
LurkerBold: Libertarians don't always blame the workers. They
also blame the corporate piggies lining up at the government
trough, as well as the the government that enables such
behavior.
The enemy is not "workers," as we're not interested in your insane
class war. Rather, the enemy is collectivism, often embodied by the
anti-democratic and anti-individualist institutions that we call
unions.
LurkerBold|1.13.09 @ 1:21PM|#
JW Gacy, that was just a list of scare words that make no sense together.
|1.13.09 @ 1:21PM|#
"BDB, The trolls on this site are getting more frequent and
insistent, less funny and further left by the
millisecond."
Cavanaugh used to take care of that. In the meantime it's DFTT.
|1.13.09 @ 1:22PM|#
Corrupt Union bosses and politicians running a program where they have every reason to pump up current benefits with all the effects of it being felt long after they have gone. What could possibly go wrong?
|1.13.09 @ 1:24PM|#
Bailouts are the final market efficiency realized, direct from the printers why spend all the effort in between.
JW Gacy|1.13.09 @ 1:25PM|#
LurkerBold, if you can't keep up, I suggest that you find a forum that's more on your intellectual plane.
GILMORE|1.13.09 @ 1:28PM|#
re: state budget deficits = I believe the actual # is actually
higher in 2009-2010. I think the 42bn quoted by Drudge is just
*new* deficit added to the existing #...
"States are facing a great fiscal crisis. At least 44 states faced
or are facing shortfalls in their budgets for this and/or next
year, and severe fiscal problems are highly likely to continue into
the following year as well. Combined budget gaps for the remainder
of this fiscal year and state fiscal years 2010 and 2011 are
estimated to total more than $350 billion.
States are currently at the mid-point of fiscal year 2009 - which
started July 1 in most states - and are in the process of preparing
their budgets for the next year. Over half the states had already
cut spending, used reserves, or raised revenues in order to adopt a
balanced budget for the current fiscal year - which started July 1
in most states. Now, their budgets have fallen out of balance
again. New gaps of 42 billion (9% of state budgets) have opened up
in the budgets of at least 41 states plus the District of Columbia.
These budget gaps are in addition to the $48 billion shortfalls
that these and other states faced as they adopted their budgets for
the current fiscal year, bringing total gaps for the year to nearly
14 percent of budgets.
The states' fiscal problems are continuing into the next two years.
At least 38 states have looked ahead and anticipate deficits for
fiscal year 2010 and beyond.[1] These gaps total almost $80 billion
- 17 percent of budgets - for the 30 states that have estimated the
size of these gaps and are likely to grow as gaps are re-estimated
in the next few months.
i>
|1.13.09 @ 1:41PM|#
I contend, again, that there's no way the trolls are leftists. Anyone believing that stuff would never make themselves look so ridiculous.
LurkerBold|1.13.09 @ 1:54PM|#
James Ard, I agree that the trolls are not true leftists. We of the non-trolling Left are the real deal.
Other Matt|1.13.09 @ 1:55PM|#
So all boomers share the same (implied) leftist political
philosophy?
It's really that the activist policy is the problem, not the
boomers, but the boomers were the ones around when someone thought
it right to use things like pension funds and other people's money
to advance social causes. Under a liberal philosophy, this isn't
just all well and good, it's a cornerstone. It's also built on the
belief that corporations have endless supplies of money and are
duty bound to transfer that wealth to individuals. As a result, you
get things like California, where you have almost no discretionary
budget power by the Gov, no recourse loans in an overinflated
market for real estate (Surprise! People walk away from a no
recourse loan, and end up with the same monthly payment on more
home, thus screwing us collectively in the process. Recourse loans,
people don't stop payments so readily on), and that whole financial
mess out there.
The problem with this is a liberal activist view that focuses on
results that, if you don't think about it much, seem good, but goes
completely into fantasyland as to "how". It appears that this is a
good thing, though, if you just shout "Change!" loud enough people
won't pay attention to the lack of "how."
It will be an entertaining next four years.
robc|1.13.09 @ 2:00PM|#
Assets for 109 state funds declined 37 percent to $1.46
trillion over the 14 months ended Dec. 16
So, pretty typical losses.
What is the problem? when the market recovers, the funds will
too.
|1.13.09 @ 2:15PM|#
"BDB, The trolls on this site are getting more frequent and insistent, less funny and further left by the millisecond."
Cavanaugh used to take care of that. In the meantime it's DFTT.
I appreciate that this site is more free speech oeiented than most
others on the web, but gratuitious trolling with absolutely zero
intelligble content should get the ban hammer. I said it before but
I guess it needs repeating, responing to the childish antics of
these socially maladjusted and cognitively challenged dweebs merely
encourages them.
There is no debate to be had with the intellectual sloths.
Fluffy|1.13.09 @ 2:15PM|#
Marc,
You're right that there's more to this story, but it makes the
local governments being criticized here look even worse.
The simple fact of the matter is that government pensions are too
generous. Rather than cut back on those pensions, or tax the
citizenry what it would actually cost to maintain those pensions
[which would lead to the pensions being cut somewhere down the
line, since the public wouldn't stand for the taxation level that
would be required] state and local governments spent the last two
decades gradually moving into riskier investment classes in search
of higher yields. Those higher yields allowed the existing pension
structures to remain in place. Now that the "risk" side of the
equation has come home to roost, state and local governments want
to protected from the losses that were a direct result of their
decisions.
They wanted high yields to protect them from having to make tough
decisions on government employee pay and benefits. Now they want a
bailout to protect them from having to make tough decisions on
government employee pay and benefits. Well, fuck them, and fuck
their government employees.
Reinmoose|1.13.09 @ 2:29PM|#
Retirement is such a modern concept as it is. People are living
longer yadayadayada, but they flip if benefits are delayed for a
year or two.
One of the things that was brought up wrt libertarian paternalism
was making the default that people would contribute to a 410K or
other retirement account and that they had to opt out of it if they
decided they didn't want to. Would some change in default like this
lead to a more sound retirement system? I doubt it. People, just
like with Social Security years ago, would assume that they were
covered because they'd been paying in to the system. It does not
breed enough vigilance in making sure that you are going to reach
your life goals.
Mike M.|1.13.09 @ 2:32PM|#
I wonder if any state and/or local governments invested any money in Bernie Madoff's "funds".
Bingo|1.13.09 @ 3:08PM|#
Mike M:
I believe some town on the East Coast is already on the record
saying that they have.
|1.13.09 @ 3:22PM|#
"There is no debate to be had with the intellectual
sloths."
I'd understand if they were protesting, you know, the way us
libertarians are running everything.
You know how public policy, from fiscal to foreign policy... It's
all being run by libertarians right now. ...which is why the Drug
War's been called off, etc.
I mean, if anybody making public policy were listening to us... Is
there anywhere in public policy that libertarian views are winning
right now?
Listening to the trolls, you'd think we were dangerous.
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