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The Next Crisis: Public Pension Funds - Ny Times

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http://www.nytimes.com/2010/06/27/magazine/27fob-wwln-t.html?ref=business

Ever since theWall Street crash, there has been a bull market in Google hits for “public pensions” and “crisis.” Horror stories abound, like the one in Yonkers, where policemen in their 40s are retiring on $100,000 pensions (more than their top salaries), or in California, where payments to Calpers, the biggest state pension fund, have soared while financing for higher education has been cut. Then there is New York City, where annual pension contributions (up sixfold in a decade) would be enough to finance entire new police and fire departments.

Chicken Little pension stories have always been a staple of the political right, but in California, David Crane, the special adviser to Gov. Arnold Schwarzenegger, says it is time for liberals to rally to the cause.

“I have a special word for my fellow Democrats,” Crane told a public hearing. “One cannot both be a progressive and be opposed to pension reform.” The budgetary math is irrefutable: generous pensions end up draining money from schools, social services and other programs that progressives naturally applaud.

In California, which is in a $19 billion budget hole, Calpers is forcing hard-pressed localities to cough up an extra $700 million in contributions. New York State, more creatively, has suggested that municipalities simply borrow from the state pension fund the money they owe to that very fund.

Such transparent maneuvers will not conceal the obvious: for years, localities and states have been skimping on what they owe. Public pension funds are now massively short of the money to pay future claims — depending on how their liabilities are valued, the deficit ranges from $1 trillion to $3 trillion.

Pension funds subsist on three revenue streams: contributions from employees; contributions from the employer; and investment earnings. But public employers have often contributed less than the actuarially determined share, in effect borrowing against retirement plans to avoid having to cut budgets or raise taxes.

They also assumed, conveniently enough, that they could count on high annual returns, typically 8 percent, on their investments. In the past, many funds did earn that much, but not lately. Thanks to high assumed returns, governments projected that they could afford to both ratchet up benefits and minimize contributions. What a lovely political algorithm: payoffs to powerful, unionized constituents at minimal cost.

Except, of course, returns were not guaranteed. Optimistic benchmarks actually heightened the risk, because they forced fund managers to overreach. At the Massachusetts pension board, the target was 8.25 percent. “That was the starting point for all of our investment decisions,” Michael Travaglini, until recently its executive director, says. “There is no way a conservative strategy is going to meet that.”

Covered by Mish quite a lot, now making it's way into the mainstream press.

The ponzi fraud is slowly being revealed to the masses.

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http://www.nytimes.com/2010/06/27/magazine/27fob-wwln-t.html?ref=business

Covered by Mish quite a lot, now making it's way into the mainstream press.

The ponzi fraud is slowly being revealed to the masses.

What will they do about it?

There is only one fair solution imo. And that is to look first of all at how much pension should be being paid out by these schemes. And then go through them all, on a case by case basis, and cut the awarded pension until the scheme is brought back into balance.

And that means cuts for those already drawing their pensions.

I know that there might be all this stuff about right of contract and making sure that pensioners arent hurt etc. But this is all tosh as far as I am concerned. These huge pension awards are unfair, and the liabilities were foisted onto an unawares, and often unborn, taxpayer. They need to be ended, and the pain should be felt by those who are gaining an unfair advantage over everyone else. And that in the main are those who have retired already.

Until we start facing facts, and putting the workers first, we are just going to go further down the road towards state bankruptcy, be it in the US, the subject of this story, or in the UK.

Private working taxpayers come first. Everyone else has to fight for what is left, pensioners, benefit claimants, public sector workers, must all make do with what the private sector can provide. Too much has been promised from that private sector pie, just like too much was promised from the Equitable life pie. That ended badly with the judges putting the cost first onto some of the members, rather than sharing the pain, and then the Ombudsman seems to have pinned it on to the taxpayer. They will no doubt try and pin all of the pension scheme losses onto the taxpayer as well, and then the dam will break. Pensioners will end up with nowt of value.

Buy gold.

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What will they do about it?

There is only one fair solution imo. And that is to look first of all at how much pension should be being paid out by these schemes. And then go through them all, on a case by case basis, and cut the awarded pension until the scheme is brought back into balance.

And that means cuts for those already drawing their pensions.

I know that there might be all this stuff about right of contract and making sure that pensioners arent hurt etc. But this is all tosh as far as I am concerned. These huge pension awards are unfair, and the liabilities were foisted onto an unawares, and often unborn, taxpayer. They need to be ended, and the pain should be felt by those who are gaining an unfair advantage over everyone else. And that in the main are those who have retired already.

Until we start facing facts, and putting the workers first, we are just going to go further down the road towards state bankruptcy, be it in the US, the subject of this story, or in the UK.

Private working taxpayers come first. Everyone else has to fight for what is left, pensioners, benefit claimants, public sector workers, must all make do with what the private sector can provide. Too much has been promised from that private sector pie, just like too much was promised from the Equitable life pie. That ended badly with the judges putting the cost first onto some of the members, rather than sharing the pain, and then the Ombudsman seems to have pinned it on to the taxpayer. They will no doubt try and pin all of the pension scheme losses onto the taxpayer as well, and then the dam will break. Pensioners will end up with nowt of value.

Buy gold.

well weve seen the blueprint in Argentina and about to be implemented in Hungary and that is the Nationalisation of private pensions which can kick the can a bit further, not sure if that would be socially possible in the states but it would be far more likely to get through in Europe.

I often wonder if thats why Qrops was possibly introduced to give the smart money the chance to get out

Edited by Tamara De Lempicka

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And we all wonder why a large number of people view property as a perfectly reasonable pension vehicle.

You have the public pensions, all made on a promise with no money put aside. Rather vulnerable to a future generation refusing to honour the promises made by their parents.

You have private pensions, bribed with tax advantages, invested in good blue chip companies like BP, er, RBS, Lloyds, Land Securities. Oh yes, and quite a lot of it has to be invested in gilts that are paying rather less than inflation now. Then there is the political risk of real government interference - unlikely, but possible.

Then you have pensions invested in property. As long as you haven't bought stupidly (crappy flats post 2005), then you're sitting on gains that would make the average stock picker weep, and you're probably looking at, what, a 20% loss in the next few years? Maybe 30% if the views of the armageddon mob here are correct. Compared to the other disasters, this seems pretty tame.

Now I go for spread, and property happens to be in the portfolio, along with a lot of other things, on and off shore. At the moment, the property bit is looking like the winner. Sad, but true.

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Explain to us why it would be wrong to Nationalize ALL pensions? I have mulled this for a while and think it has merit. The current situation is a huge distortion of ethics and justice with Corporations and Public Servants put in a position where they can rape the rest. As an example, go look at the accounts for the major oil companies. They've had shortfalls by the billion - what did they do? They took the shortfall out of your pockets at the petrol pump and in doing continued with the fanstasy that that average mid level oil company manager should be provided with 2/3rds of 85k pa for the rest of their lives. We are facing a demographic crisis and half of the population is cheating the other. IT'S NUTS..... you're all sitting there taking it up the jacksie and wondering what is happening.

well weve seen the blueprint in Argentina and about to be implemented in Hungary and that is the Nationalisation of private pensions which can kick the can a bit further, not sure if that would be socially possible in the states but it would be far more likely to get through in Europe.

I often wonder if thats why Qrops was possibly introduced to give the smart money the chance to get out

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I know that there might be all this stuff about right of contract and making sure that pensioners arent hurt etc. But this is all tosh as far as I am concerned.

Yep- it's a well known fact that the only contracts that are inviolate are those governing the pension rights and pay structures of Bankers- lesser mortals are fair game.

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What will they do about it?

There is only one fair solution imo. And that is to look first of all at how much pension should be being paid out by these schemes. And then go through them all, on a case by case basis, and cut the awarded pension until the scheme is brought back into balance.

And that means cuts for those already drawing their pensions.

Yep completely agree.

You can't just cut future benefits of those paying, those who are getting paid out via inadequate contributions need to have a cut.

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Yep completely agree.

You can't just cut future benefits of those paying, those who are getting paid out via inadequate contributions need to have a cut.

I think it would be better to just refund the contributions public sector employees have paid towards their pensions. They can survive on the state pension like everyone else.

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Explain to us why it would be wrong to Nationalize ALL pensions? I have mulled this for a while and think it has merit. The current situation is a huge distortion of ethics and justice with Corporations and Public Servants put in a position where they can rape the rest. As an example, go look at the accounts for the major oil companies. They've had shortfalls by the billion - what did they do? They took the shortfall out of your pockets at the petrol pump and in doing continued with the fanstasy that that average mid level oil company manager should be provided with 2/3rds of 85k pa for the rest of their lives. We are facing a demographic crisis and half of the population is cheating the other. IT'S NUTS..... you're all sitting there taking it up the jacksie and wondering what is happening.

Im not sure you understand the ramifications of Nationalizing, The purpose of Argentina etc nationalizing private pensions is that it effectively gives them immediate access to a pool of money that can be used straight away to pay off current retirees, that is all, as i highlighted it is a method to kick the can a bit into the future, its just a way of gaining access to more money immediately

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Guest sillybear2

Explain to us why it would be wrong to Nationalize ALL pensions?

Contract law, even if they do manage to steal all private pensions the state will simply use the funds to cover the aristocracy that is public sector pensions, or simply use the money for other purposes. Argentina is not a good example, their government also keeps trying to rob their own central bank of hard foreign exchange. Also, once the state can disregard private property rights then everything is fair game, nobody will want to do business in such an environment.

Edited by sillybear2

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Contract law, even if they do manage to steal all private pensions the state will simply use the funds to cover the aristocracy that is public sector pensions, or simply use the money for other purposes. Argentina is not a good example, their government also keeps trying to rob their own central bank of hard foreign exchange. Also, once the state can disregard private property rights then everything is fair game, nobody will want to do business in such an environment.

Yes. Better to go through bankruptcy. A nice fresh start.

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Guest sillybear2

Yes. Better to go through bankruptcy. A nice fresh start.

The private sector pension schemes are already bankrupt, most have been robbed over the years with tax changes and robbed via The City with fee's and levies, also many are in the lap of state with the Pension Protection Fund (also insolvent). I'm not sure how the government will deal with the public sector timebomb, I guess they'll just rig the RPI and print lots of money then lie about the true level of inflation (another Argentinan trick), or maybe levy lots of income tax in a progressive fashion to drag the money back.

Look at that NY Times article, they based these schemes on unending 8% investment returns, Madoff only promised 10%. Look at the demographic profile in the West, existing 'official' national debts and the fact we're running out of cheap energy, there's no way these unfunded liabilites can ever be met, the best they can hope to do is keep the plates spinning for as long as possible, just like the CDO merchants tried to do with NINJA loans then synethetic crap.

Edited by sillybear2

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The private sector pension schemes are already bankrupt, most have been robbed over the years with tax changes and robbed via The City with fee's and levies, also many are in the lap of state with the Pension Protection Fund (also insolvent). I'm not sure how the government will deal with the public sector timebomb, I guess they'll just rig the RPI and print lots of money then lie about the true level of inflation (another Argentinan trick), or maybe levy lots of income tax in a progressive fashion to drag the money back.

Well if people have entrusted their retirement to the city they really only have themselves to blame. The city exists to separate fools from their money. You can't really blame them. It still makes me laugh when I hear people talking about their pension 'pots'. They buy into any old crap. Makes them sound good though when they parrot it.

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Madoff only promised 10%.

Clearly this is the solution to all of our problems. Madoff should be released from prison and put in charge of Pension schemes worldwide.

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Guest sillybear2

Clearly this is the solution to all of our problems. Madoff should be released from prison and put in charge of Pension schemes worldwide.

Madoff is absolutely no different from the actuaries that run these public pension schemes, either they belong in jail along side him or Madoff deserves a $220k pension and a peaceful retirement of his own.

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Clearly this is the solution to all of our problems. Madoff should be released from prison and put in charge of Pension schemes worldwide.

His mistake was to promise 10% rather than the actual 8% that's clearly achievable.

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Guest sillybear2

His mistake was to promise 10% rather than the actual 8% that's clearly achievable.

:lol:

The Massachusetts pension board promise 8.25% because they're better than the rest. Get to the answer you want then work backwards!

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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