Social Security

They Broke it, We Own it

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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.

Whole thing here. Reason on all things bailout here.

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  1. Is there anything that the Baby Boomers can’t fuck up? Seriously guys, if I wanted to live in Argentina, I’d move there.

  2. 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.

  3. Oh boy, a boomer-bashing thread.

  4. 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?

  5. 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.

  6. 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.

  7. 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.

  8. “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.

  9. jsh, do you always use truth and spin interchangably?

  10. …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.

  11. 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.

  12. All government pensions will be bailed out, I gar-on-tee.

  13. 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!!!!!”.

  14. 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.

  15. “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.

  16. 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.

  17. 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.

  18. “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.

  19. 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!”

  20. I don’t know about the rest of you suckers, but I’m investing in Cyberdyne Systems.

  21. “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.

  22. the auto “industry”, something else that should be nationalized.

  23. 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.

  24. Even Cunnivore blames the corporations. Case closed.

  25. I am a tool. Please pay me no mind.

  26. I wonder how many states were diverting “excess profits” from these funds during the boom years to fund political pet projects.

  27. I don’t know about the rest of you suckers, but I’m investing in Cyberdyne Systems.

    Aren’t they recieving Defense Department subsidies?

  28. “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.

  29. “I wonder how many states were diverting “excess profits” from these funds during the boom years to fund political pet projects.”

    50?

  30. GIMME!

    gimmegimmegimmeeee!

  31. 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.

  32. 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.

  33. LurkerBold = Lefiti?

  34. 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.

  35. 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…

  36. 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.

  37. Ken I agree. Everyone should not stop working and therefore no taxes for the bailerouters.

  38. “domoarrigato | January 13, 2009, 12:58pm | #
    LurkerBold = Lefiti?”

    No, Lefiti is amusing sometimes.

  39. U.S. Robotics and Mechanical Men, Inc.

  40. People are born every day of every year, and all of them are individuals.

    I’m not.

  41. 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.

  42. 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?

  43. Why must the Libertarians always blame the workers?

  44. My sign will say, “UAW Unfair!”

  45. “Taxpayers to Union Fatcats: Get Out of My Paycheck!”

    Do you think that would all fit on a picket sign?

  46. 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”.

  47. BDB, The trolls on this site are getting more frequent and insistent, less funny and further left by the millisecond.

  48. 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.

  49. JW Gacy, that was just a list of scare words that make no sense together.

  50. “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.

  51. 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?

  52. Bailouts are the final market efficiency realized, direct from the printers why spend all the effort in between.

  53. LurkerBold, if you can’t keep up, I suggest that you find a forum that’s more on your intellectual plane.

  54. 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>

  55. I contend, again, that there’s no way the trolls are leftists. Anyone believing that stuff would never make themselves look so ridiculous.

  56. James Ard, I agree that the trolls are not true leftists. We of the non-trolling Left are the real deal.

  57. 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.

  58. 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.

  59. “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.

  60. 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.

  61. See? Fluffy is way in the “no Leftist would say that” camp.

  62. 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.

  63. I wonder if any state and/or local governments invested any money in Bernie Madoff’s “funds”.

  64. Mike M:

    I believe some town on the East Coast is already on the record saying that they have.

  65. “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.

  66. 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.

    Wash…rinse…repeat…

    Welcome to ‘dead capitalism’.

  67. We. Are. So. Fucked.

    Hat tip R C, hat tip.

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