How will unfunded "pensions" affect the local economy?

User Forum Topic
Submitted by phaster on September 1, 2014 - 7:48am

Here is a simple question, how do you think unfunded pensions affect the economy, specifically RE prices?

To illustrate specifically what I am concerned with, below is an outline of a local unfunded public pension issue....

*** WHAT YOU NEED TO KNOW ABOUT PUBLIC PENSIONS IN SAN DIEGO ***

A recent wall street journal article essentially said the SD county pension system was using derivaties to manage their portfolio.

"Simply put, it could have a market exposure of $20 billion despite only managing half that amount."

http://online.wsj.com/articles/san-diego...

To show why the current SD county pension "operations" is a bad idea, google "buying stocks on margin" and check out the first search result.

The math is pretty simple to understand (just add "000,000" to the following $ figures):

A Buying Power Example
Let's say that you deposit $10,000 in your margin account. Because you put up 50% of the purchase price, this means you have $20,000 worth of buying power.

http://www.investopedia.com/university/m...

Returning to our example of exaggerated profits, say that instead of rocketing up 25%, our shares fell 25%. Now your investment would be worth $15,000 (200 shares x $75). You sell the stock, pay back your broker the $10,000, and end up with $5,000. That's a 50% loss, plus commissions and interest, which otherwise would have been a loss of only 25%.

Think a 50% loss is bad? It can get much worse. Buying on margin is the only stock-based investment where you stand to lose more money than you invested. A dive of 50% or more will cause you to lose more than 100%, with interest and commissions on top of that.

http://www.investopedia.com/university/m...

A good basic math education, is all that is needed to understand the "downside" risk of a margin account (but all the reports in the media so far do not show this simple "downside" math).

Adding the "options" account variable complicates matters, but kinda explains the lackluster single digit portfolio returns of the SD county portfolio (i.e. the various options w/in the portfolio of "puts for downside protection and "calls" to try and win big on the upside" cancelled each other out - so far, in a market that has gone up), the big unknown is how the "options" are structured within the portfolio and how it react if there is sudden and dramatic turbulence.

Consider all it might take for the "local" house of cards to fall is some kind of foreign black swan event that drops the market towards 10% down, and because of leverage things could suddenly get ugly for the local economy (for example LTCM, which happened in a less complex world, now one has to factor in some thing akin to high speed robo traders, that will sell off a position because of a trigger event, thus converting a "paper" loss into a real loss for the pension portfolio??).

10 billion dollars placed into a margin account to play the options market IMHO is "insane" if anyone was investing their own money, but think I uncovered the motive.

The reason the county pension board might have taken such drastic action is the change in accounting rules which put public pensions on the balance sheet next year.

Few even in the investment community know that:

PUBLIC "Pension liabilities must be included on the balance sheets of the agencies responsible for funding their employees' pensions. Until now liabilities have been buried in arcane footnotes that few read and even fewer understood"

http://articles.latimes.com/2014/apr/09/...

NOTE if San Diego's pension board margin-option strategy fails, the tax payer is on the hook!

One other thing, there is a youtube video (starting at 3:24), where san diego is mentioned at the being at the top of the list (for being the deepest in the hole overall for unfunded pensions and having an unfunded health care plan)

https://www.youtube.com/watch?v=BRr49iAgI9g

If pensions and health care costs have to both be included on the balance sheet, the bond markets are in for a real shock which will ripple through the economy and affect everyone on main street.

If you want understand why there is a problem with pensions in San Diego, read the history of pensions at the state level (which started out well managed and over the years turned corrupt and mismanaged):

http://www.city-journal.org/2013/23_1_ca...

The local(s) (city and county) basically followed the CalPERS model, and what might be telling is the former CEO of CalPERS just plead guilty to a fraud, corruption charge

http://www.latimes.com/business/la-fi-ca...

Submitted by CA renter on September 8, 2014 - 12:10am.

Local and state governments have been spending freely on other things, too. The point is that pensions are only ONE small part of the puzzle. In the case of California, pension contributions represent approximately 3-5% of the state's expenditures. On a local level, it's quite a bit higher, though it still varies greatly, depending on the location (high RE prices/taxes, vibrant economy with higher income and sales taxes).

Some local agencies will be in a particularly bad spot because the communities they serve present a double whammy for them: low taxes (property, sales, and income) and a much higher public service burden. These are communities where the houses cost less or where more of the homes are owned by old-timers or landlords who are paying the old Prop 13 taxes, so the property taxes are lower. They also tend to have lower income taxes, where applicable, and lower sales taxes if the community, in general, is poor and there's not enough high-end commercial RE to boost sales tax revenues. It's these communities that will also tend to have a much higher crime problem, requiring more cops, often at a higher cost than in more affluent communities (because most cops will move to a nicer area, all else being equal).

And their fire departments will require more personnel and more equipment because these communities will have more crime victims, overdoses, and more patients who will call 911 for medical care vs. going to a doctor and utilizing preventative care measures, etc. They will also have more buildings that have been illegally altered and added onto...resulting in more fires, etc.

It's a pickle for the govt leaders who try to "do the right thing" by their constituents by providing the necessary services, while also trying to manage a smaller and more volatile budget, as revenues and spending in these communities tend to be affected more by general economic trends than agencies in more affluent areas are.

Submitted by CA renter on September 8, 2014 - 12:08am.

harvey wrote:
Tony "Mack" Rodriguez, a retired sergeant on the Desert Hot Springs police force describes how the situation came about. "The union told us that the revenue estimates were unrealistic, and we should do something about it. We were talking about deferring some raises, or maybe cutting back overtime. We had a plan."

But Rodriguez said the union proposal never made through because of interference from a number of investment firms. "Our plan never got too far. These Wall Street guys came in and made us take raises. They increased the pension payouts and lowered the retirement age. They were ruthless, there was no stopping them."

Now Rodriguez , 51, is not working but is forced to receive 90% of his prior salary of $132.000. "I'm stuck with these paychecks, for life" he said. "I could live till I'm eighty-five, and I'll have to deal with this for the next thirty years."

The situation has required him to fill his garage with motorsport vehicles he rarely uses. He recently was forced to purchase a fifty foot RV. "We had to buy a bigger house because of all this stuff" lamented Rodriguez. "I even had to get a disability tax break because the Wall Street guy told me that my knee hurts."

FYI, it was indeed the Wall Street/financial geniuses who convinced public leaders that they could enhance pension benefits during the internet/stock market bubble *at no additional cost.* While the boots-on-the-ground workers certainly didn't oppose the benefit enhancements (would you?), the unions more certainly DID warn public agencies that reducing the pension contributions to zero during the bubble years would result in underfunded pensions down the road when the market corrected. They were right.

And why didn't govt leaders want to fund the pensions during the good times? They did it so that they could take care of other stakeholders, like public contractors (a HUGE problem in local governments) and advocacy groups who wanted their various pet projects completed since all of that "extra money" was just sitting around doing nothing. This is why it's almost impossible for government leaders to save for a rainy day: every stakeholder is watching the funds and will demand, on a daily basis, that the money be spent on their personal projects and ideas.

Submitted by harvey on September 8, 2014 - 6:36am.

Wow. Not a hint of compassion in your posts.

There are lot of Macks out there, on the golf courses, in the RV parks and marinas -- yes they're out there. They can be easy to miss -- their youth masks their retiree status -- but they're out there. Victims, all of them.

What about Mack? Who will rescue Mack from Wall Street?

Submitted by phaster on September 8, 2014 - 8:59am.

CA renter wrote:
Many have defined benefits, and DB plans were the norm a few decades ago...you know, when the middle class and the economy were at their strongest.

That era back in the 1950's and 1960's was IMHO an anomaly in world history, because the USA was the only super power in terms of military and manufacturing.

Consider that Japan and Germany back then had no manufacturing base, so DB were a way to instill worker loyalty (or said another way, DB came about because of a good economy, DB for the "middle class" didn't create a good economy).

Now with workers in the USA having to compete with workers in not only Germany and Japan, one also has to contend with workers in China, Brazil, etc., so it makes sense that pensions in the private sector for USA workers are no long possible (its the double edge sword of a capitalistic economy). In other words it was inevitable that living standards of people around the world would rise, but since the USA was no longer the only game in town for manufacturing, the standard of living for those with more brawn than brain would fall.

Was reading someone mentioned the dangers of the military industrial complex, actually the concept should be updated IMHO.

Specifically what was once the danger of nepotism w/ the military and their contractors, is paralleled all around the nation (not just here in CA WRT pensions), I just think its going to hit SD first because it has all the right conditions for an economic implosion of biblical proportions!!

The entrenched problem is the "political-legal welfare system" which is the tendency of politicians to pander to public employee unions for political support in a bid to get into or retain an office. The "Quid pro quo" in this instance is a literal "sweet heart deal" payoff when it comes time labor talks. In economic terms, the idea of a public employees union is bad because the interests of politicians and public employees is the same (they are seeking shelter form the "real world" where global competition is now the norm, and DP in the private sector are history)

FDR long ago recognized the problem w/ public employee unions when he said:

"The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations."

http://www.politifact.com/wisconsin/stat...

From what I understand of economic, unions in the private sector work because there is alternatives which over the long run makes the product better and lowers the cost (i.e. products like cars and computers).

Now consider what has happened to public services here in SD, have the roads been kept up or are they in disrepair? WRT public schools, what I've read is the traditional "factory" one size all school is giving way to new "organic" centers of learning, like high tech high in point loma, albert einstein charter school in golden hill, etc.

CA renter wrote:
The worst employees tend to leave before benefits vest to any large extent. That doesn't mean that some dead wood isn't hanging around after too many years -- and I absolutely support making it easier to fire truly bad employees.

could not agree more, and think this concept should be extended to entrenched politicians (both on the left and right) because it seem they enable lots of the problems:

http://patrick.net/forum/?p=1247288&c=11...

Submitted by CA renter on September 8, 2014 - 3:15pm.

harvey wrote:
Wow. Not a hint of compassion in your posts.

There are lot of Macks out there, on the golf courses, in the RV parks and marinas -- yes they're out there. They can be easy to miss -- their youth masks their retiree status -- but they're out there. Victims, all of them.

What about Mack? Who will rescue Mack from Wall Street?

Bullshit. Very few can retire at 50 with full benefits because they'd have to start at 20 to do so.

And talk about a lack of compassion. You think nothing at all about taking away someone's compensation that was already earned over many years. If you think that's a good idea, great; you can step up to the plate and reduce your own pay and donate that to a public agency of your choice...you know, to help out the poor taxpayers and all. That's what you're asking these public employees to do, so you should be happy to serve as a role model, right? IIRC, you didn't favor clawing back compensation of the people who caused the mess in the first place -- the Wall Street scum who've made *far more* than any cop, firefighter, or teacher in the U.S.

Submitted by CA renter on September 8, 2014 - 3:28pm.

phaster wrote:
CA renter wrote:
Many have defined benefits, and DB plans were the norm a few decades ago...you know, when the middle class and the economy were at their strongest.

That era back in the 1950's and 1960's was IMHO an anomaly in world history, because the USA was the only super power in terms of military and manufacturing.

Consider that Japan and Germany back then had no manufacturing base, so DB were a way to instill worker loyalty (or said another way, DB came about because of a good economy, DB for the "middle class" didn't create a good economy).

Now with workers in the USA having to compete with workers in not only Germany and Japan, one also has to contend with workers in China, Brazil, etc., so it makes sense that pensions in the private sector for USA workers are no long possible (its the double edge sword of a capitalistic economy). In other words it was inevitable that living standards of people around the world would rise, but since the USA was no longer the only game in town for manufacturing, the standard of living for those with more brawn than brain would fall.

Was reading someone mentioned the dangers of the military industrial complex, actually the concept should be updated IMHO.

Specifically what was once the danger of nepotism w/ the military and their contractors, is paralleled all around the nation (not just here in CA WRT pensions), I just think its going to hit SD first because it has all the right conditions for an economic implosion of biblical proportions!!

The entrenched problem is the "political-legal welfare system" which is the tendency of politicians to pander to public employee unions for political support in a bid to get into or retain an office. The "Quid pro quo" in this instance is a literal "sweet heart deal" payoff when it comes time labor talks. In economic terms, the idea of a public employees union is bad because the interests of politicians and public employees is the same (they are seeking shelter form the "real world" where global competition is now the norm, and DP in the private sector are history)

FDR long ago recognized the problem w/ public employee unions when he said:

"The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations."

http://www.politifact.com/wisconsin/stat...

From what I understand of economic, unions in the private sector work because there is alternatives which over the long run makes the product better and lowers the cost (i.e. products like cars and computers).

Now consider what has happened to public services here in SD, have the roads been kept up or are they in disrepair? WRT public schools, what I've read is the traditional "factory" one size all school is giving way to new "organic" centers of learning, like high tech high in point loma, albert einstein charter school in golden hill, etc.

CA renter wrote:
The worst employees tend to leave before benefits vest to any large extent. That doesn't mean that some dead wood isn't hanging around after too many years -- and I absolutely support making it easier to fire truly bad employees.

could not agree more, and think this concept should be extended to entrenched politicians (both on the left and right) because it seem they enable lots of the problems:

http://patrick.net/forum/?p=1247288&c=1114955#comment-1114955

You are totally wrong about politicians and unions being on the same side of the table. Nothing could be further from the truth. Some politicians are labor-friendly, and others have a vitriolic hatred for unions. I have personal experience with contract negotiations, and there is NO truth to your statement that politicians automatically pander to unions.

Unions are no different from any other group that supports politicians who will further their particular interests. That goes for public contractors (or those who hope to be public contractors); businesses who want special infrastructure that will benefit their businesses or who want special tax breaks or financial incentives; "taxpayer advocates" who are looking to reduce taxes for special interests (think Prop 13); interest groups who push for things that will place a heavier burden on public agencies without a commensurate benefit to the population at large (immigration reformers; citizens who want special projects, infrastructure, tax breaks/credits; landowners who want roads, bridges and other infrastructure specifically built to increase the value of their holdings, etc.). The list goes on and on. Every one of these groups cost taxpayers money. Every single one. Again, public employees are one piece of the puzzle (and a very small one in some instances).

And unions work because they allow employees to bargain collectively. Public unions benefit private employees, too, because private employers have to compete for the same pool of candidates.

Right now, corporate tax revenues, as a percentage of GDP, are near an all-time low, and profits are at an all time high. At the same time, labor participation rates, and all other metrics used to determine the well-being of labor are at or near all-time lows. Coincidence? Not at all. Again, we desperately need unions for ALL workers, and very politically active ones at that.

http://research.stlouisfed.org/fred2/gra...

-------

Regarding the charter movement? That began in public schools, and it was supported by unions.

The charter school idea in the United States was originated in 1974 by Ray Budde,[10] a professor at the University of Massachusetts Amherst. Albert Shanker, President of the American Federation of Teachers, embraced the concept in 1988, when he called for the reform of the public schools by establishing "charter schools" or "schools of choice."[11] Gloria Ladson-Billings called him "the first person to publicly propose charter schools".[12] At the time, a few schools already existed that were not called charter schools but embodied some of their principles, such as H-B Woodlawn.

http://en.wikipedia.org/wiki/Charter_sch...

-------------

But before you get too excited about charter schools, most of which are now publicly-funded private schools, you should look at how they compare to traditional public schools.

http://credo.stanford.edu/documents/NCSS...

Submitted by CA renter on September 8, 2014 - 6:43pm.

As for globalization? Yes, that's a huge problem for U.S. workers. IMO, we need to enact tariffs to offset any discrepancies between labor and environmental protection in the U.S. and other countries. Additionally, if a corporation is making most of their profits overseas and doing most/all of their production overseas, then they aren't U.S. companies, and they shouldn't be entitled to the protections and benefits (military protection of sea lanes, infrastructure, IP/private property protection, legal, etc.) provided by U.S. taxpayers.

Submitted by harvey on September 8, 2014 - 5:08pm.

CA renter wrote:

And talk about a lack of compassion. You think nothing at all about taking away someone's compensation that was already earned over many years. If you think that's a good idea, great; you can step up to the plate and reduce your own pay and donate that to a public agency of your choice...you know, to help out the poor taxpayers and all. That's what you're asking these public employees to do, so you should be happy to serve as a role model, right? IIRC, you didn't favor clawing back compensation of the people who caused the mess in the first place -- the Wall Street scum who've made *far more* than any cop, firefighter, or teacher in the U.S.

I've never said that public employee compensation should be reduced. Never.

There you go again, just plain tellin' lies.

BTW: Our new friend phaster gets it. Welcome to Piggington!

Submitted by CA renter on September 8, 2014 - 6:39pm.

harvey wrote:
CA renter wrote:

And talk about a lack of compassion. You think nothing at all about taking away someone's compensation that was already earned over many years. If you think that's a good idea, great; you can step up to the plate and reduce your own pay and donate that to a public agency of your choice...you know, to help out the poor taxpayers and all. That's what you're asking these public employees to do, so you should be happy to serve as a role model, right? IIRC, you didn't favor clawing back compensation of the people who caused the mess in the first place -- the Wall Street scum who've made *far more* than any cop, firefighter, or teacher in the U.S.

I've never said that public employee compensation should be reduced. Never.

There you go again, just plain tellin' lies.

BTW: Our new friend phaster gets it. Welcome to Piggington!

Oh hell yes you have, ad nauseam. When you suggest that public sector employees should have their vested benefits reduced, you are saying that their compensation should be reduced. Defined benefit pensions are a form of deferred compensation. You should know that since you claim to be a financial expert.

So, not only have you repeatedly advocated for reduced compensation for public employees, you've suggested that we should reduce the compensation *that they have already earned.*

Just keep on lying...as always.

And I can show post after post where you've lied your ass off. If you're going to call me a liar, you'd better be able to find ONE post where I've lied. Go ahead and try to find one.

Submitted by spdrun on September 9, 2014 - 12:07am.

Their pensions should be capped at their salary upon retirement, adjusted for inflation. I might feel sorry for teachers and firefighters, a bit. Cops. Nah, not really.

Submitted by harvey on September 9, 2014 - 6:57am.

CA renter wrote:
Oh hell yes you have, ad nauseam. When you suggest that public sector employees should have their vested benefits reduced [...]

I have never suggested that anyone's compensation should be reduced.

Can you provide proof of your claim?

Submitted by livinincali on September 9, 2014 - 8:24am.

CA renter wrote:

When you suggest that public sector employees should have their vested benefits reduced, you are saying that their compensation should be reduced. Defined benefit pensions are a form of deferred compensation. You should know that since you claim to be a financial expert.

I would consider reduced deferred compensation as a cut in total compensation, but I realize that's the inevitable outcome. The math says it's pretty much impossible for that deferred compensation to be paid in full. Whether you want to blame wall street, politicians, unions, tax payers, the fed, demographics or whatever it doesn't change the mathematical equation.

Essentially it's just far to risky to offer guaranteed deferred compensation that will be paid out 40, 50 60 years after a person starts working based on events that are unknown. When that police officer started 30 years ago making $20K and 30 year treasury rates where over 10% did the actuaries have any idea that the officer was going to work a ton of overtime those last couple of years earn $150K/year and get a defined benefit of $100K year with 30 year interest rates at 3.5%. People couldn't believe 30 years interest rates would get to to 4% 5 years ago, let alone 30 years ago.

The one benefit of defined benefit contribution plans, retention, isn't worth the risks, the frauds, the vote buying, and everything else it enables. That's the bottom line. The rewards (reduced training costs retention, etc.) don't outweigh the risks and therefore they should be scrapped. They were lies to the employees receiving them. The private sector came to this conclusion a long time ago. Private sector pension plans went bust all the time. The benefits were renegotiated all the time. Most businesses don't last 50-60 years, even fewer grow and thrive for 50-60 years.

There was a very small period in history where defined benefit retirement plans were offered and many of them failed to deliver. Public sector plans are no different, they will fail to deliver as promised even with laws and implied tax payer backstops. The money isn't there.

Submitted by CA renter on September 10, 2014 - 3:50am.

livinincali wrote:
CA renter wrote:

When you suggest that public sector employees should have their vested benefits reduced, you are saying that their compensation should be reduced. Defined benefit pensions are a form of deferred compensation. You should know that since you claim to be a financial expert.

I would consider reduced deferred compensation as a cut in total compensation, but I realize that's the inevitable outcome. The math says it's pretty much impossible for that deferred compensation to be paid in full. Whether you want to blame wall street, politicians, unions, tax payers, the fed, demographics or whatever it doesn't change the mathematical equation.

Essentially it's just far to risky to offer guaranteed deferred compensation that will be paid out 40, 50 60 years after a person starts working based on events that are unknown. When that police officer started 30 years ago making $20K and 30 year treasury rates where over 10% did the actuaries have any idea that the officer was going to work a ton of overtime those last couple of years earn $150K/year and get a defined benefit of $100K year with 30 year interest rates at 3.5%. People couldn't believe 30 years interest rates would get to to 4% 5 years ago, let alone 30 years ago.

The one benefit of defined benefit contribution plans, retention, isn't worth the risks, the frauds, the vote buying, and everything else it enables. That's the bottom line. The rewards (reduced training costs retention, etc.) don't outweigh the risks and therefore they should be scrapped. They were lies to the employees receiving them. The private sector came to this conclusion a long time ago. Private sector pension plans went bust all the time. The benefits were renegotiated all the time. Most businesses don't last 50-60 years, even fewer grow and thrive for 50-60 years.

There was a very small period in history where defined benefit retirement plans were offered and many of them failed to deliver. Public sector plans are no different, they will fail to deliver as promised even with laws and implied tax payer backstops. The money isn't there.

Many of those private pension funds went bust because of reasons completely unrelated to the pension funds' ability to pay out the promised benefits. Funds were mismanaged and used as piggy-banks for corporations, bloated executive pensions, and the way they intermingled funds between the funds of regular employees and executives blew many of them out of the water. UCGal has recommended a book a few times here:

http://www.amazon.com/Retirement-Heist-C...

I highly recommend it.

-----------------

As for the retention issue, San Diego is dealing with this problem right now.

San Diego’s police force faces an uncertain future, with about half of its officers eligible for retirement in the next few years and younger officers leaving for other agencies that have better pay and benefits. San Diego officers have seen their healthcare costs soar and are paying more into their pensions than officers from most other police agencies.

“We can’t ignore the market,” said Carol Kim. “How can we expect to retain our officers when they can go to other law enforcement agencies in the area and get considerably better compensation packages?”

Kim is particularly troubled by the millions of dollars the City spends to train officers, who leave for other agencies. “It’s a bad deal for taxpayers,” she said. “We need to be competitive if we want to reap the benefits of our investment.”

Kim proposes re-investing one-third of the projected budget surplus that was identified in Mayor Kevin Faulconer’s most recent budget into increased police salaries; her plan calls for a 5% raise in salaries per year for each of the next four years, resulting in a 20% increase in police salary.

Councilmember Ed Harris, who represents District 2, attended the forum and was extremely supportive of the plan. “It’s refreshing to see a candidate who is ready to tackle this crisis and offer concrete, fiscally responsible solutions,” he said.

“We can’t afford to be paying $190,000 to train police officers, only to have them leave for other departments,” said Kim. “It’s time we start re-investing this money into the SDPD to protect both our officers and our communities.”

----------------

Also, there are a number of things that can be changed that would make the public pension funds completely, or nearly, whole. Many of these fixes are already law; they include changes (reductions) to benefit formulas, hybrid pension plans for new hires, increased employee contributions, capping benefit amounts, redefining (reducing) pensionable compensation, eliminating spiking, etc. Also want to clarify that overtime is not usually used to calculate pensions, though you'll see claims of this in various blogs and forums. Each agency has it's own agreement with different employee groups, but most municipal employers do use O/T in their formulas.

The point is that ALL stakeholders need to come to the table to fix the problems that were created -- and are still being created -- by the Federal Reserve and Wall Street. The burden should not be born entirely by public sector employees.

Submitted by harvey on September 10, 2014 - 7:10am.

Good research CAR! Some hard "facts" from Carol Kim!

Yes, the Carol Kim!

Uh ... who is Carol Kim?

She's a city council candidate endorsed by - surprise - public sector unions!

http://www.carolkimd6.com/endorsements

And what about her budget numbers?

[...] these statements are misleading.

We fact checked the union’s claim that each new officer requires a $190,000 investment last March. The association relied on the Police Department’s cost analysis for that number, as did Kim’s campaign. Cate’s campaign couldn’t be reached for comment.

http://voiceofsandiego.org/2014/09/08/a-...

Yup, an independent fact check concluded the numbers were "Misleading":

http://voiceofsandiego.org/2013/03/22/ke...

But the fact checking above is just an article from the Voice of San Diego ... what do those guys know about the economy?

http://voiceofsandiego.org/author/richto...

The real problem here is that we have politicians who are so cozy with the people they pay. It's an incestuous relationship that encourages the downward spiral: Unions support politicians, politicians get elected, politicians give union members raises (hiding the true cost in the form of deferred benefits) and the unions have more money to support politicians.

Carol Kim has chosen to play right along, using the police department's propaganda word-for-word in her platform.

CAR, you need to step out of the echo chamber, or just admit you're just a shill for the unions.

(BTW, we are still waiting for an example where I said public-sector compensation should be reduced ... or at least the name of one socialist country in Europe!)

Submitted by NotCranky on September 10, 2014 - 8:47am.

Why does it take 190k to make a basic cop who can then relocate?
If that number is legit....there's your compensation. What other ordinary person get's their career prep paid for to the tune of 190k?

Submitted by livinincali on September 10, 2014 - 9:41am.

CA renter wrote:

Many of those private pension funds went bust because of reasons completely unrelated to the pension funds' ability to pay out the promised benefits. Funds were mismanaged and used as piggy-banks for corporations, bloated executive pensions, and the way they intermingled funds between the funds of regular employees and executives blew many of them out of the water. UCGal has recommended a book a few times here:

Just like politician used those funds as piggy banks for various project. That's the problem. It's the risk factor for people to misuse those funds. When you have a big pot of money over there that isn't needed for 20 years into the future it's very tempting to borrow from it especially when you won't be on the hook when it goes bust.

Retention might in an issue in some areas of the city work force but clearly a defined benefit pension (the police still have one) isn't solving the problem is it. If that was the solution then we wouldn't be having retention issues.

The problem is that if you saved 10% of you income over the past 30 years and invested it safely i.e. treasuries and then relied on income from an annuity you would have nothing close to the defined benefit that public sector employees currently receive. People love defined benefit contribution plans because they are too good to be true.

Submitted by CA renter on September 10, 2014 - 6:03pm.

livinincali wrote:

Just like politician used those funds as piggy banks for various project. That's the problem. It's the risk factor for people to misuse those funds. When you have a big pot of money over there that isn't needed for 20 years into the future it's very tempting to borrow from it especially when you won't be on the hook when it goes bust.

Retention might in an issue in some areas of the city work force but clearly a defined benefit pension (the police still have one) isn't solving the problem is it. If that was the solution then we wouldn't be having retention issues.

The problem is that if you saved 10% of you income over the past 30 years and invested it safely i.e. treasuries and then relied on income from an annuity you would have nothing close to the defined benefit that public sector employees currently receive. People love defined benefit contribution plans because they are too good to be true.

Agree with your first paragraph. And most public pension funds cannot be accessed by politicians. Of course, you can have problems with these funds, like when politicians used the money that *should have been going toward pension fund contributions* for other purposes...based on what they were told by the "financial experts" from Wall Street and their lackeys who worked for the public pension funds.

Retention is still an issue here because the total compensation package is poor compared to other agencies. Without DB pensions, it would be far worse.

The employees pay around 9% of their income toward their pensions, and the employer covers another part that is determined periodically by actuaries (usually updated every 1 to 3 years, depending on the agency and benefit formula offered, along with investment returns, etc.). The majority of the money used for benefit payments comes from investments. I agree that pension funds should be much more conservatively invested, and that contribution amounts and benefit formulas should be adjusted accordingly. Unfortunately, I am not in charge of these decisions.

Submitted by harvey on September 10, 2014 - 7:01pm.

CA renter wrote:
The majority of the money used for benefit payments comes from investments.

So the majority of pension funds come from Wall Street?

The hero and the villain change with every paragraph...

The cause and effect is completely backwards in CAR's arguments.

In the early part of the 20th century, pension benefits were very modest and retirement ages were high so that they typically only had to be paid out a few years. This was the original intent of pensions - as protection against poverty for the elderly. The system had little risk and it worked.

In the 1960s, the unions began to gain power and retirement benefits grew substantially. Over the years as private sector retirement ages increased to reflect demographic realities, public sector retirement ages decreased. By the late 1990s, pension benefits were astronomical, amounting to a seven-dight jackpot for a large number of employees who could retire in their mid-early fifties.

http://www.city-journal.org/2013/23_1_ca...

As benefits increased, so did pressure to pay for them by boosting CalPERS’s investment returns. The shift started in 1966 when voters approved Proposition 1, a measure, promoted by CalPERS, that let it invest up to 25 percent of its portfolio in stocks. The timing wasn’t ideal, since the long economic stagnation of the late sixties and seventies had left equity markets struggling for gains. But by the early eighties, markets were roaring again, and CalPERS asked for permission to invest up to 60 percent of its portfolio in stocks. Voters rejected that ballot initiative but approved another, Proposition 21, in 1984, which likewise let CalPERS expand its investments —and didn’t specify a percentage limit. Instead, Prop. 21 supposedly protected taxpayers with a clause that held CalPERS board members personally responsible if they didn’t act prudently. The proposition received the enthusiastic backing of government unions and CalPERS board president Robert Carlson, former head of the powerful California State Employees Association. CalPERS’s conservative investment approach, Carlson and other supporters argued, was shortchanging the state’s taxpayers. After all, the better the investment returns were, the less state and local governments would need to pay into the pension fund.

It was the unions and CalPERS that championed the shift in investment strategy.

And why not? If the more aggressive portfolio doesn't work out, the taxpayers will have to make up the difference.

When it's defined benefit you are gambling with someone else's money.

Solution?

So simple: Switch to defined contribution plans.

No need to change anyone's compensation. Paychecks are the same. Retirement contributions, whether form employee or employer are the same. Just eliminate the unrealistic promise of guaranteed payouts decades later.

CA renter wrote:
Unfortunately, I am not in charge of these decisions.

If you had a 401K, you would be!

Submitted by CA renter on September 12, 2014 - 12:24am.

Wall Street was behind those changes, Pri. That's what was going on behind the curtain. Just as they were behind the changeover to defined contribution plans instead of more conservative DB pension plans for private sector workers. Just as they're behind the push to privatize Social Security. Notice who the *real* winners are behind these changes. It's not govt retirees (who are being scapegoated for Wall Street's excesses, and the politicians who've enabled them), and it's not the private sector workers who've been shafted by Wall Street in their private retirement portfolios. It's the financial sector that has benefited most from all of these changes.

Also, read the first paragraph in by above response to livinincali for my perspective on risky investments and how I believe pension funds *should* be managed.

Submitted by CA renter on September 12, 2014 - 12:26am.

harvey wrote:
Good research CAR! Some hard "facts" from Carol Kim!

Yes, the Carol Kim!

Uh ... who is Carol Kim?

She's a city council candidate endorsed by - surprise - public sector unions!

http://www.carolkimd6.com/endorsements

And what about her budget numbers?

[...] these statements are misleading.

We fact checked the union’s claim that each new officer requires a $190,000 investment last March. The association relied on the Police Department’s cost analysis for that number, as did Kim’s campaign. Cate’s campaign couldn’t be reached for comment.

http://voiceofsandiego.org/2014/09/08/a-...

Yup, an independent fact check concluded the numbers were "Misleading":

http://voiceofsandiego.org/2013/03/22/ke...

But the fact checking above is just an article from the Voice of San Diego ... what do those guys know about the economy?

http://voiceofsandiego.org/author/richto...

The real problem here is that we have politicians who are so cozy with the people they pay. It's an incestuous relationship that encourages the downward spiral: Unions support politicians, politicians get elected, politicians give union members raises (hiding the true cost in the form of deferred benefits) and the unions have more money to support politicians.

Carol Kim has chosen to play right along, using the police department's propaganda word-for-word in her platform.

CAR, you need to step out of the echo chamber, or just admit you're just a shill for the unions.

(BTW, we are still waiting for an example where I said public-sector compensation should be reduced ... or at least the name of one socialist country in Europe!)

Perhaps you didn't read the information from your own links...or perhaps you're still struggling with that reading comprehension problem, as noted in your constant requests for information about socialism in Europe (already gave that to you, in spades).

http://piggington.com/2012_edition_what0...

...

The information in your own VOSD link breaks down the costs.

• Pre-employment vetting: $4,200-$4,300

This covers testing, a background check by the San Diego Police Department and psychological and medical evaluations.

• Salary and benefits: $93,600

This includes both salary, benefits and pension costs. The officer’s total compensation during the six-month academy is $39,600. For the remainder of the year it’s $44,000. Police also add an estimated $10,000 in overtime to reach the $93,600 total. Zimmerman said the overtime is based on the average amount of extra work expected for critical incidents or court hearings on days off.

• Equipment and Academy Tuition: $14,500

This includes an officer’s duty pistol, laptop, radio, protective vest and other supplies. In most cases, officers must return these items if they leave the department. This cost also covers tuition at the San Diego Regional Public Safety Training Institute at Miramar College.

• Instruction: $25,385

This covers academy instruction costs, as well as management of the department’s shooting range and training provided by the Police Department.

• Training in the field: $54,000

After an officer graduates from the police academy, he’s assigned to a series of veteran officers who evaluate his performance and provide on-the-job training. At least four senior officers assist each newcomer for a one-month period and those officers receive additional pay for their efforts. Those additional amounts, as well as a portion of the officer’s regular salary, are incorporated into the estimated investment cost.

Two of those categories are problematic. Both the rookie and veteran officers still patrol city streets and make arrests during on-the-job training. And the more experienced officers would collect a paycheck even if they weren’t offering guidance to new officers.

...

I agree that the new officer's regular salary should not be included in the cost to recruit, hire, train, and equip a new officer because the city is getting a service in return for this cost. OTOH, I disagree with the VOSD regarding the extra money paid to the mentor officer, as that pay is over and above his/her regular pay and the only reason for that cost is the training of the new officer. The portion of that officer's regular pay that is used in this calculation probably should not be included, IMO.

They don't break down the mentor's pay to detail how much is strictly a result of the mentoring vs the portion of his/her regular pay that is applied to this number...I'm assuming that the portion of regular pay is significantly less than the portion fully dedicated to mentoring, so am leaving that cost in my number. If you back out the new officer's pay of $93,600, you still end up with a cost of $93,885 for a new recruit.

Now, if you consider the fact that a more senior officer costs more, the cost of turnover (hiring a string of new recruits) is reduced a bit. A more senior patrol officer makes around $72,924 vs. $46,356 for a new patrol officer. If we reduce the cost of a new recruit by that amount, we get a cost of $67,317 to recruit, hire, equip, and train a new recruit. Not $190,000, but still a very high cost which the employers would prefer to avoid. Also, a high turnover rate negatively affects morale and the operations of the department.

----------

And your assertion that politicians have a "cozy relationship" with unions is completely ignorant of the facts, as always. Politicians can be pro-labor, anti-labor, or somewhere in between. In general, the number of anti-labor politicians over the past ~15-20+ years (depending on region being represented) has been greater than pro-labor politicians, as is evidenced by the changes in tax, trade, and labor laws that have gone into effect over that time. Just look at the campaign contribution numbers that were included in your very own link from an earlier post.

Submitted by harvey on September 12, 2014 - 7:30am.

Bottom line:

The pension debate is not about total compensation. It's about the folly of defined benefit plans.

The compensation question is a separate debate. That debate is necessary also, but today's compensation is so obfuscated by deferred benefits that nobody even knows what the final numbers will be.

Pensions are such a huge and unknown component of state and municipal budgets that we don't even know what our public services really cost.

Today's pubic sector defined benefit plans are a gamble as big and as dangerous as anything "Wall Street" has ever dreamed up. All for no good reason.

Defined benefit plans are not necessary for retention. They are not necessary, period.

There are other ways to compensate and retain that do not involve decades of extreme risks to our communities.

Submitted by livinincali on September 12, 2014 - 10:10am.

CA renter wrote:

The employees pay around 9% of their income toward their pensions, and the employer covers another part that is determined periodically by actuaries (usually updated every 1 to 3 years, depending on the agency and benefit formula offered, along with investment returns, etc.). The majority of the money used for benefit payments comes from investments. I agree that pension funds should be much more conservatively invested, and that contribution amounts and benefit formulas should be adjusted accordingly. Unfortunately, I am not in charge of these decisions.

Here's a table of the math. I made the following assumptions. You currently make 80K after 30 years of service. You started back in 1985 at just about $20K. I think those reasonable for some average worker. We could changes the starting and ending number but it won't make much difference because defined benefits typically use the last year or last couple of years of compensation as a benchmark and usually 30 years of service is going to get you at lease 50% of that amount maybe 60 or 70% spending on the position.

Lets assume this hypothetical employee gets $48K in defined benefit compensation (60% of 80K). That's probably reasonable. Let's also assume that we save 10% of this employees pay every year and put it into a conservative investment portfolio. We'll do the most conservative 30 year treasuries. I'll give you the benefit of compounding that interest rate too. So you buy a 10% year bond back in 1985 I'm going to go ahead an let you reinvest dividends at that same rate because I don't want to complicate the math.

So what do you end up with after 30 years. I came up with $360K or so. For the private sector you take that $360K buy an annuity because you want to be secure in retirement. Guess what that gets you just about $21K per year for a 6% annuity excluding fees. Even if you were to draw down some of that money each year it doesn't get you anywhere close to the defined benefit. You want to be conservative and offer a defined benefit retirement plan, then for an $80K year salary it needs to be much closer to $20-30K per year. Not close to $50K or even higher in some cases.

Year Salary 10% Savings 30 year Interest Rate Total (Compound Interest)
1985 $19,436 $1,944 11.21 $42,342
1986 $20,407 $2,041 9.34 $24,866
1987 $21,428 $2,143 7.48 $15,025
1988 $22,499 $2,250 8.42 $18,408
1989 $23,624 $2,362 8.84 $19,637
1990 $24,805 $2,481 8.46 $17,419
1991 $26,046 $2,605 8.21 $15,991
1992 $27,348 $2,735 7.77 $14,187
1993 $28,715 $2,872 7.21 $12,390
1994 $30,151 $3,015 6.22 $10,079
1995 $31,659 $3,166 7.69 $12,937
1996 $33,242 $3,324 6.02 $9,521
1997 $34,904 $3,490 6.8 $10,680
1998 $36,649 $3,665 5.8 $9,033
1999 $38,481 $3,848 5.09 $8,103
2000 $40,405 $4,041 6.49 $9,745
2001 $42,426 $4,243 5.54 $8,552
2002 $44,547 $4,455 5.43 $8,402
2003 $46,774 $4,677 4.85 $7,875
2004 $49,113 $4,911 4.97 $7,977
2005 $51,569 $5,157 4.59 $7,723
2006 $54,147 $5,415 4.68 $7,807
2007 $56,855 $5,685 4.93 $7,963
2008 $59,697 $5,970 4.35 $7,707
2009 $62,682 $6,268 3.6 $7,481
2010 $65,816 $6,582 4.51 $7,852
2011 $69,107 $6,911 4.57 $7,902
2012 $72,562 $7,256 2.93 $7,688
2013 $76,190 $7,619 3.17 $7,861
2014 $80,000 $8,000 3.62 $8,000
$361,152
6% annunity $21,669.12

Submitted by CA renter on September 12, 2014 - 3:36pm.

Livinincali,

Yes, I understand the math. You're forgetting about the employer-paid portion of the pension contributions (much like Social Security or a 401k plan). Right now, the employer contributions can run anywhere from 100% of the employee portion to about 200%. Again, it depends on the particular financial situation of the employing agency, and their benefit formulas.

And, yes, the benefit amount would be somewhat less than what it is today in most cases. I have no problem with that as long as everyone knows about it up front.

What I have a problem with is the claim that we should retroactively change an employee's compensation -- long after they have earned it, and after everyone agreed to the terms of the agreement.

Submitted by CA renter on September 12, 2014 - 3:44pm.

harvey wrote:
Bottom line:

The pension debate is not about total compensation. It's about the folly of defined benefit plans.

The compensation question is a separate debate. That debate is necessary also, but today's compensation is so obfuscated by deferred benefits that nobody even knows what the final numbers will be.

Pensions are such a huge and unknown component of state and municipal budgets that we don't even know what our public services really cost.

Today's pubic sector defined benefit plans are a gamble as big and as dangerous as anything "Wall Street" has ever dreamed up. All for no good reason.

Defined benefit plans are not necessary for retention. They are not necessary, period.

There are other ways to compensate and retain that do not involve decades of extreme risks to our communities.

Pri, not long ago, you didn't even know how these pensions worked -- not a clue about how the formulas worked or how the plans were funded. You have no experience with public employment. You've never been involved with contract negotiations between politicians and public unions. You're clueless about the costs and about the transparency of public employee compensation (it is all public record, BTW). And yet, you claim to be an expert about these things, and will argue incessantly with people who do have knowledge about and experience with these issues.

I'll just leave it at that.

Submitted by harvey on September 12, 2014 - 5:19pm.

CA renter wrote:
You're clueless about the costs and about the transparency of public employee compensation (it is all public record, BTW).

Yes, I am clueless.

Everyone is clueless. That's the problem.

Simple question:

How much will San Diego's police services cost this fiscal year?

How do we know?

When will will we know?

Answer:

We won't know for decades. Only after the officers starting on the force today are retired - even later - when they've passed away (and perhaps even their spouses have passed away.) ... after the shortfalls and surpluses and lawsuits and debates over the endless complexities of the compensation formulas.

Only when the last dollar of the pensions of every officer on the force is paid will we really know how much it costs today to have a police force. That will be decades from now.

We won't know the fiscal 2014 cost until ... maybe 2050 or so. Most of us will be dead. Let's hope our children can afford to pay for the services we are receiving today.

How do I know this is true? Because of all the evidence both sides have posted here. Because of all the conflicting data about how much pensions are costing us today - for services that were provided decades ago.

No one should need to be an "expert" at anything to answer my question. Yet there is wide disparity among even those who are experts as to what the answer is.

So tell us, "expert" - since the information is all public record, this should be easy enough:

How much will San Diego's police services cost this year?

How long before the 2014 books are truly reconciled?

Submitted by no_such_reality on September 13, 2014 - 7:32am.

http://transparentcalifornia.com/pension...

I find the publishing of the names to be tacky. Unfortuately, it's probably the easiest way for people to relate it to what they know and experience.

The amount of non-compliance in reporting by the government agencies is insulting.

Overall it's enlightening. The majority are just taking a straight up retirement, a well compensated retirement, but clearly weren't 'gaming' the system. A sizable component though aren't.

The lump sum payments are stunning.

I like some of the notes like on #3 from LAPD. Pension includes one time payment of $652,269.93

I'm assuming #1, from San Deigo has something similar in getting over $785K in a single year.

Submitted by SK in CV on September 13, 2014 - 8:57am.

no_such_reality wrote:
The lump sum payments are stunning.

I suspect much of these "one time payments" are their own money they're getting back. My brother retired after 33 years with the SDPD last year, and would have been 4th on the list if the search criteria would have been different. But more than 2/3 of what he got was his money that he elected to defer. More than 90% was eligible for rollover. His ongoing pension, while healthy isn't astronomical, and is much less than he earned while working.

Edited to add: I DID change the search criteria, and sure enough, he came up with a huge pension payout. Not quite as much as I thought, but I know to the penny what he got, and for some reason it doesn't include everything. But it does include both his DROP payment and most but not all, of his deferred comp.

Submitted by bearishgurl on September 13, 2014 - 1:17pm.

SK in CV wrote:
no_such_reality wrote:
The lump sum payments are stunning.

I suspect much of these "one time payments" are their own money they're getting back. My brother retired after 33 years with the SDPD last year, and would have been 4th on the list if the search criteria would have been different. But more than 2/3 of what he got was his money that he elected to defer. More than 90% was eligible for rollover. His ongoing pension, while healthy isn't astronomical, and is much less than he earned while working.

Edited to add: I DID change the search criteria, and sure enough, he came up with a huge pension payout. Not quite as much as I thought, but I know to the penny what he got, and for some reason it doesn't include everything. But it does include both his DROP payment and most but not all, of his deferred comp.

Once again, thanks for pointing out the nitty gritty, here, SK. The general public really does not understand the concept of a public employee funding part of their own retirement. The truth is often not as glamorous-sounding as no_such_reality's carefully-worded soundbyte.

I personally know of several former members of local law enforcement agencies (incl SDPD) who retired in the last five years and have already died (age 57-63). None of these deaths were due to being out of shape or an alcoholic ... far from it. They were all due to heart disease exacerbated partly from uncontrolled or unknown high blood pressure and stroke danger. Some who met the fate of an early demise couldn't get out fast enough. That's what constant stress of being in the force will do to you. So I don't think all this worry about the perceived drain on taxpayers of future "Class C" (law enforcement) pensions is warranted. Not only does the typical CA law enforcement officer work 8+ years longer than the year which they are able to retire, a portion of them don't last very long after retirement. Not ALL are still married at the time of retirement and some never married so not ALL elected to have survivor benefits upon retirement. In any case, their very costly survivor benefit premium is deducted from their monthly retirement check. their survivor benefit amounts to 1/4 to 1/2 of their pension check for their beneficiary, should they die first.

There's a lot of misconception out there about what a public pension award actually consists of (actual % of employee contributions + % of employer contributions + investment proceeds + possible deferred comp) such a the DROP program which SK mentioned. Note that SK's brother worked 33 years before retiring. There is absolutely no financial incentive to work past 30 years in any level of government. I would venture that 99-100% of SD employees who participated in DROP did so only because they were begged by their superiors to stay beyond their retirement age for a fixed number of years and the DROP program was used to sweeten the pot at the time (the program doesn't exist anymore). I have a neighbor who was offered DROP to stay with City of SD past 30 years (back in the late 90's) and he told them to pack sand .... he was retiring (he's still alive, btw). The DROP incentive didn't always work to keep all of an agencies' valuable intellectual property (in the form of longtime employees) from walking out the door.

Submitted by phaster on September 14, 2014 - 2:46am.

CA renter wrote:
phaster wrote:

CA renter wrote:
The worst employees tend to leave before benefits vest to any large extent. That doesn't mean that some dead wood isn't hanging around after too many years -- and I absolutely support making it easier to fire truly bad employees.

could not agree more, and think this concept should be extended to entrenched politicians (both on the left and right) because it seem they enable lots of the problems:

http://patrick.net/forum/?p=1247288&c=1114955#comment-1114955

You are totally wrong about politicians and unions being on the same side of the table. Nothing could be further from the truth. Some politicians are labor-friendly, and others have a vitriolic hatred for unions. I have personal experience with contract negotiations, and there is NO truth to your statement that politicians automatically pander to unions.

Unions are no different from any other group that supports politicians who will further their particular interests.

There is a perception (which I happen to share) that public unions have a great deal of control over the careers of their negotiating counterparties (i.e. politicians). Said another way its an old boys club, same as what happens in wall street, where the basic instinct is to protect their own. Bottom line is, politicians and public employees are part of a club, the "public at large" isn't part of.

You most likely have lots of stories you know and want to share about $hit that happens on wall $t, but the same thing happens between public employee union members and politicians.

Recall the before SD made the national news headlines that we had a groper for a mayor (who was forced to resign), there was a similar pervert problem w/in the SDPD. Seem there is an "old boys club" attitude, because the reporter from the "reader" stated:

It was surprising to see the lengths that the City Attorney's office went to try and get this case dismissed.

http://www.sandiegoreader.com/weblogs/ne...

I have my own sad example when I encountered the "old boys club,", that is kinda how I stumbled onto the issue of public "pensions," basically I followed the money motive trail...

http://TinyURL.com/EnronByTheSea

I have a feeling there is something akin to a watergate type mentality w/ local politician (goldsmith and gloria) who are being sued for wanting to delete eMails from both their personal and official city accounts.

http://www.utsandiego.com/news/2014/aug/...

I think these officials are trying to hide public employee sins of the past that have something to do with software that allows building permit fraud and tax dodges possible with properties labeled as "historic"

Jim Mills, a former state senator from San Diego who pushed for the law's creation in 1972, said he is surprised by how the financially strapped city has embraced the program during a time when it has had to close swimming pools, reduce library hours and delay sewer and water projects.

“I have to admit what I had in mind was significant buildings and houses, and I now see houses being covered by the Mills Act that were not what I had in mind,” Mills said.

http://www.utsandiego.com/uniontrib/2008...

Imagine you’re a developer with a pal who handles permits for the city of San Diego. And say you thought the permitting fees were a little too high. Not to worry, your pal says, and he knocks down the price for you.

http://www.kpbs.org/news/2012/jul/03/cit...

Another "moral/ethical" reason if I were king, I would eliminate public employee unions is, because I read they:

PUBLIC EMPLOYEE UNIONS "hurt the overall interests of the working poor."

http://www.thedailybeast.com/articles/20...

I'd guessing if there were some kind of public vote, I'd bet a majority of people would have to wonder if the "public employee economic self interest" more often than not is biased inward toward "the old boys club" rather than to the public at large.

CA renter wrote:
Many have defined benefits, and DB plans were the norm a few decades ago...you know, when the middle class and the economy were at their strongest.

Ya don't seem to understand basic cause and effect, like when I pointed out the reason DB pensions came to be associated with so called "middle class" jobs in the USA is because of unique global economic conditions that existed in the 1950's and 60's.

Anyway I'd further argue the big deal made about "middle class" in the USA, was done as part of an "unofficial" cold war hearts and minds propaganda effort directed toward those in the USSR.

For example in high school I was told the USA included adding the words "in god we trust" to the US dollar bill in the late 50's (to show those "godless" communists, we in the west have freedom of religions),

Then there was the "nixon" kitchen debate, to show those "poor" communists, the capitalist economic system can make guns as well as butter....

http://teachingamericanhistory.org/libra...

CA renter wrote:
I don't get distracted by non-economic issues where politics are concerned. That's not to say that these issues are unimportant, but that they pale in comparison to economics.

If you're just starting off on your own journey to think like an "economist," perhaps you might consider its a good thing to have low corporate taxes (because that is where jobs are). Like when I first did experiments and the associated math in quantum mechanics, thinking like an economist has its own counterintuitive to normal everyday life logic one has ponder just a bit before things make sense.


Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people.

http://www.npr.org/blogs/money/2012/07/1...

As to why labor participation rates are low, consider "thinking like an economist" and you might see it might be due to the fact that technology lessens the demand for those with just "brawn" to offer the market, combined with the fact that with population growth there is a "skills" mis-match.

http://www.cbsnews.com/videos/are-robots...

It might not feel right that conditions change, but fact is, things in life do change...

Submitted by phaster on September 14, 2014 - 2:59am.

spdrun wrote:
Why worry? If rates reset and we end up with a lot of short sales slamming prices down, it will be an opportunity to pick up cheap(er) r.e. before the gov steps in again and kicks the can further down the road.

FWIW I don't know how many more times the problem can kept on being kicked down the road. I have not figured it out but the various scenarios I game out are chaotic. Basically its a question of the fed being a one trick pony of printing more and more money, but each iteration seems have less and less bang for the buck (and then there is the question, how does this play out in say the dollar "oil" market)

Helocs (Home equity lines of credit) and HAMP (Home Affordable Modification Program) interest rate resets, bought time for many who managed to keep their homes after the first big wave wiped out many who had "liar loans."

TPTB (a few years ago) I guessing had hoped the "recovery" would be further along (currently), but I'd bet many in the general public don't feel things are getting better (unlike those at the top whose balance sheets have more than recovered).

Basically I see several trends like the loan resets, new pension accounting rules, etc., all converging and will build upon one another to produce the next economic downturn.

The economy as I see it, is not built on a sustainable foundation and changes in public pension accounting rules are all necessary steps to that end! BUT IMHO there is going to be unavoidable economic pain on the way to reaching that goal.

BTW here is another rule that will in the long run will dampen bubble behavior like "flipping" but in the short run might very well be a drag on the economy:

The Federal National Mortgage Association, more commonly known as Fannie Mae, will extend its mandated waiting period to qualify for a conventional home loan after a short sale from two years to four years.

http://www.bizjournals.com/denver/blog/real_deals/2014/08/new-fannie-mae-rule-could-hamper-colorado-home.html?page=all

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