Excellent Economist Mag. article on CA’s Gov. retiree Pension problems

[Shadowfax]

[quote=Allan from Fallbrook]Shadowfax: As I read the Rolling Stone piece, I couldn’t help but think how much an independent, investigative media would help expose shit like this.

Its not just enforcement agencies that have been gutted. Pick nearly any major metro paper of your choosing and look at how lean their staffing is. When’s the last time you read a really good piece of muckracking journalism (outside of Taibbi and the Rolling Stone)? Chances are its been a while. We know to the minute what Lindsay Lohan and Kim Kardashian are up to, but don’t have a fucking clue when it comes to meaningful reporting. Its sad and a major part of the reason that we, as a country, are where we are.[/quote]

Yes, the failure of our free press is another depressing topic. I think in general Americans are lazy and complacent and as long as they receive a steady dose of entertainment, they don’t really give a shit whether the walls tumble down around them–but they will complain all day about how bad they have it.

And all the while Fox Spews emits such garbage under the color of “information” and so many people swallow that poison like it’s the truth, what else can we expect of our electorate?

[markmax33]

[quote=gandalf]The financial industry caused pension insolvency by a wide margin.

How come the people who demonize public employees and pension insolvency aren’t protesting fraud on Wall Street with Occupy?

Was that whole Tea Party thing just for show?

Another Republican-run scheme?

What are you ‘selling’ next?[/quote]

The financial industry AKA “the fed” caused the pension insolvency. If they hadn’t fixed interest rates so low, the interest rates would have increased as the home loans go riskier and the market would have self adjusted. I encourage everyone to place the blame on the enablers.

[Allan from Fallbrook]

[quote=Shadowfax]
Yes, the failure of our free press is another depressing topic. I think in general Americans are lazy and complacent and as long as they receive a steady dose of entertainment, they don’t really give a shit whether the walls tumble down around them–but they will complain all day about how bad they have it.

And all the while Fox Spews emits such garbage under the color of “information” and so many people swallow that poison like it’s the truth, what else can we expect of our electorate?[/quote]

Shadowfax: Look, before you tear into the Box ‘O Wine, I think there is hope. Between a galvanized electorate in Ohio, the OWS movement and, yeah, even the Tea Partiers, you’re seeing a groundswell in this country. While the OWS movement is rudderless, it does represent an angry electorate and an electorate that’s re-learning how to participate in their own democracy.

This is good stuff. We are going to figure this shit out because, ultimately, the foundations of this great republic are too firmly rooted to allow collapse.

My old man was a Marine veteran of WWII and Korea and taught me to love my country but fear the government. Regardless of our political beliefs or affiliations, we ALL love our country. And that’s enough.

[poorgradstudent]

Econ 101 pretty much tells us that long term, in order to keep talent, if critical government jobs cut benefit plans, they’d have to raise salaries, basically making it a wash in terms of taxpayer benefit. I personally know several people who work for the State for wages lower than they could take elsewhere specifically because of the benefits.

There’s room for reform, and the Brown plan seems fairly reasonable. My understanding is a lot of new hires don’t enjoy nearly the same luxurious benefits some of the old timers qualified for, benefits that it would be illegal to strip now and the state pretty much just has to wait out and let those folks die. But reforming the public sector unions is not a silver bullet to California’s revenue problems. Prison reform would probably have a bigger, longer lasting effect.

[Anonymous]

Even if the press had done more reporting on the shenanigans of the bubble years, I’m pretty sure it would have fallen on deaf ears.

As someone pointed out up-thread, nearly everyone was benefiting from the bubble, or had the opportunity to do so. When the market was up, the bulk of the benefit went to ordinary people: homeowners, real-estate professionals, construction workers.

It’s human nature to dismiss bad news – no matter how logical ans well-supported it is – when times are good for you. No matter how loud anyone screamed “bubble,” almost no one was going to listen.

This is how bubbles are made.

Ever read “An Enemy of the People?” It captures the situation quite well:
http://en.wikipedia.org/wiki/An_Enemy_of_the_People

[Shadowfax]

[quote=poorgradstudent]Econ 101 pretty much tells us that long term, in order to keep talent, if critical government jobs cut benefit plans, they’d have to raise salaries, basically making it a wash in terms of taxpayer benefit. I personally know several people who work for the State for wages lower than they could take elsewhere specifically because of the benefits.
[/quote]

The irony is that the character qualities that many people exhibit in taking a government job–sacrificing a larger salary now for a reward paid out later in benefits–is usually admirable. Kind of like those who are frugal and save their money instead of being the consummate consumer. But suddenly, they are all being villainized for being reasonable and responsible!

I agree that some of the benefits being paid out are out of hand, but for the majority I don’t think the benefits are out of hand.

This discussion wouldn’t be happening if the fund and pension managers hadn’t bought the lie. If they’d kept the pension funds invested in safe, moderate return facilities. Now comes the MBSes and the funds lose tons of money and now there is nothing left to pay out to retirees. It’s not their fault–most of them don’t even have control over what the pension invests in–but now they are the villains?

[Anonymous]

[quote=gandalf][quote=pri_dk]So the Mexican drug cartels have all the pension funds.[/quote]

Setting aside the sarcasm, we have this thing called a ‘Drug War’ and law enforcement routinely seizes assets from drug busts. The FBI runs an investigation a couple of years ago and learns there’s nearly $400 billion dollars worth of cartel drug money getting laundered through Wachovia Bank in the United States. As it turns out, the drug money is the only thing keeping Wachovia solvent. Holy fuck, huh? So the Obama Administration’s DOJ buries the case and settles out of court with a minor fine and no admission of wrongdoing.[/quote]

Setting aside the complete lack of credible source, if one drug cartel is moving $300 billion, then Americans are spending as much on drugs than they are on their homes.

[quote]By my calculation, that’s $30B right off the top from the drug cartels. Probably another $70B could have been squeezed out of the bank and sent back to depositors and ordinary American investors through bankruptcy and restructuring — “Sorry, China. Sorry, Goldman-Sachs. Sorry, Sheik Ali Dick Wad (funding Islamic terrorism). Get in line. Oregon Municipal Employees are getting paid first.” The rest of the bank’s operations and assets would work their way through bankruptcy proceedings. On top of all this, Wachovia executives would likely be rotting in jail.[/quote]

Ignoring the rule of law, due process, and the and the legitimate legal claim of the thousands of ordinary investors (including pension funds), consider this:

Even if your fantasy scenario were to play out, we’ve only solved the problem for ONE pension fund, in ONE state. Now what about all the other pension funds in all the other states and municipalities?

What about private pension funds?

And does anybody get anything back in their 401Ks?

Or is this plan only intended to take care of the public sector only?

[quote]Average local public employees union is the least of our problems.[/quote]

The money that the State of California has promised them is THE problem.

[SK in CV]

[quote=pri_dk][quote=gandalf][quote=pri_dk]So the Mexican drug cartels have all the pension funds.[/quote]

Setting aside the sarcasm, we have this thing called a ‘Drug War’ and law enforcement routinely seizes assets from drug busts. The FBI runs an investigation a couple of years ago and learns there’s nearly $400 billion dollars worth of cartel drug money getting laundered through Wachovia Bank in the United States. As it turns out, the drug money is the only thing keeping Wachovia solvent. Holy fuck, huh? So the Obama Administration’s DOJ buries the case and settles out of court with a minor fine and no admission of wrongdoing.[/quote]

Setting aside the complete lack of credible source, if one drug cartel is moving $300 billion, then Americans are spending as much on drugs than they are on their homes.

[/quote]

It actually did happen, although I don’t remember the amount of laundered cash. But “buries the case” isn’t quite accurate. They paid $160 million in fines and forfeitures, the largest ever assessed under the Bank Secrecy Act. The admission of wrongdoing would have been moot since there were no individual criminal charges, and the bank had already been sold almost 2 years before the settlement to Wells Fargo, who immediately ceased doing business with the Mexican exchange houses.

[(former)FormerSanDiegan]

[quote=gandalf]
Do I think public employee compensation needs reform? Yes.

AFTER financial industry executives go to jail for running a fraud scheme, gambling away money that wasn’t theirs and tanking the U.S. economy. [/quote]

Won’t that cost us even more taxpayer monmey to house all these criminals? plus, then we’d have to pay for the the additional public employees whose pensions would then be invested in the firms of the next generation of future criminals we would then need to incarcerate. Vicious cycle.

[an]

[quote=FormerSanDiegan][quote=gandalf]
Do I think public employee compensation needs reform? Yes.

AFTER financial industry executives go to jail for running a fraud scheme, gambling away money that wasn’t theirs and tanking the U.S. economy. [/quote]

Won’t that cost us even more taxpayer monmey to house all these criminals? plus, then we’d have to pay for the the additional public employees whose pensions would then be invested in the firms of the next generation of future criminals we would then need to incarcerate. Vicious cycle.[/quote]
We should just ship all the criminals to an island and call it New Australia and be done with it.

[gandalf]

[quote=pri_dk]
Setting aside the complete lack of credible source[/quote]

You’re uninformed.

http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html

[quote=pri_dk]
The money that the State of California has promised them is THE problem.[/quote]

No. You’re wrong again.

It is not THE problem. It is part of the problem, and as a matter of proportion, it is a smaller issue than financial industry misconduct, which led to the underfunding in the first place.

[Arraya]

The vast majority of drug money winds up in US banks and some gets pumped into the stock market. It is a half trillion dollar industry. I assume it’s a pretty vital liquidity stream.

Drug money saved banks in global crisis, claims UN advisor
http://www.guardian.co.uk/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims

[CA renter]

[quote=gandalf]That doesn’t make sense. The average employee contributing a portion of their paycheck to pension for 25 years had very little to do with the investing decisions between CitiBank and the State and County Employees of Wherever.

Investment bankers, investment officers on the pension side, rating agencies and the Fed, corrupt politicians bought by deregulating lobbies, the originators of fraudulent crap undocumented loans like Countrywide, the appraisers of crap loans — and don’t forget all the douchebag get-rich-quick in real estate millionaires from the past 15 years…

These parties are primarily responsible for the worst financial crash in our lifetime. The parties on Wall Street made the majority of the profits off what they knew to be a swindle. That is why my ire is directed at ‘Wall Street’. Because the sophisticated parties in this arrangement knew the system was ultimately a leveraged fraud. They should go to jail.

Hardly any of people whining about Joe Carpenter’s pension benefits are outraged about the primary cause of this debacle — Wall Street investment bankers, bank lobbies and GOP deregulation, fraudulent originator banks, rating agencies riddled with conflicts of interest, irresponsible federal reserve policies. These people were sophisticated parties and 99% of them knew it was a bubble and knew it going to crash at some point.

That’s why I think most of the outrage over penion benefits is just more GOP-sponsored outrage-of-the-week talking point crap.

Do I think public employee compensation needs reform? Yes.

AFTER financial industry executives go to jail for running a fraud scheme, gambling away money that wasn’t theirs and tanking the U.S. economy. Were it not for the Wall Street, there would be no pension insolvency. ‘Financial engineering’ (what the fuck is that?!) ENABLED pensions to underfund in the first place.[/quote]

Excellent post, gandalf. Thank you.

[CA renter]

[quote=pri_dk]The question moving forward really isn’t “Public sector employee or Wall Street?”

The question is “Public sector employee or Taxpayer or Public services?”

Some combination of the latter three are going to have to bear the cost of the generous promises that have been made.[/quote]

You forgot the ONE party that SHOULD be paying for this mess — those who caused the crisis — the financial sector.

We need to enact a transaction tax on all trades so that all the high-frequency traders get slammed. Take them out of the market and use whatever money is generated by the transaction tax to help cover some of the pension shortfalls. I’d also like to see some prosecutions and the confiscation of ALL assets owned by those who were responsible for the crisis. After this is done, THEN you can come after everyone else.

[CA renter]

[quote=Shadowfax][quote=Allan from Fallbrook]
My point is that municipalities and states will always spend to their level of income and that these various Treasurers, Controllers and Comptrollers have NO business being in the business of investments that they don’t understand. The reason I gave the investment “opportunity” a miss, was that I didn’t understand a friggin’ word this guy was telling me (and I suspect he didn’t know fuck-all about the investments, either) and it seemed too good to be true. When you have CalPERS predicating pension payouts on an annualized 8% rate of return EVERY year, well, at some point the chickens come home to roost. And here we are.[/quote]

One thing future polititians should look at is how to incentivize savings within government. I surmise that there is not much incentive for a given department to not spend up to their level of income because then they have a surplus and they know that surplus will be cut or transferred away in the next budget cycle. The “saving for a rainy day” concept doesn’t seem to even enter the picture. There will always be other areas that need funding, so if education has a surplus one year and CalTrans doesn’t, then the education funds will be wiped out to pay for road fixes. I don’t have any answers but I think this is one idea that needs careful consideration.[/quote]

Absolutely spot on.

[Author]

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