Watching a train wreck unfold and pissed

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Submitted by waiting hawk on July 18, 2007 - 2:45pm

My wife is a teacher and has to pay into the Teachers Pension Fund. On June 1st I told my wife that CA was throwing away the $140 Million dollar gamble on CDO's in Bear Sterns fund. Reckoning day came not even 2 months later.

"June 1 (Bloomberg) -- Bear Stearns Cos., the fifth-largest U.S. securities firm, is hawking the riskiest portions of collateralized debt obligations to public pension funds.
The California Public Employees' Retirement System, the nation's largest public pension fund, has invested $140 million in such unrated CDO portions, according to data Calpers provided in response to a public records request. Citigroup Inc., the largest U.S. bank, sold the tranches to Calpers."

Submitted by SD Realtor on July 18, 2007 - 2:50pm.

Hawk you are not the only one... While we all cheer (myself included) for the housing market to go belly up... and then cheer more as hedge funds go under, nobody thinks about the collateral damage... Those who say I can't wait for a recession are pretty self centered because in reality everyone will feel the effects. State and county pensions, teachers pensions, all kinds of collateral damage...yes in the long run it will help the housing market but there is a cost that everyone here on Piggington quietly does not discuss.

SD Realtor

Submitted by blue_sky on July 18, 2007 - 3:01pm.

There's a cost either way. If real estate doesn't come back down we create a substantial burden on an entire generation who ends up in debt up to their eyeballs just so some other people get rich. I know which way I think is fair.

Submitted by waiting hawk on July 18, 2007 - 3:06pm.

I really think they were dying to throw it away. Who would actually invest in that mess? I hear you SD R as I say (almost daily) to "bring on the recession already". If we need to have it I'm game as I saved 03-07 while the majority not only didnt save, but debted it up.

I told the wife last night, "someone can't sleep right now and is hanging on as long as possible in our house we are goina buy". Sick ey?

Submitted by SD Realtor on July 18, 2007 - 3:20pm.

I do the same thing hawk...As for who would invest in that mess... and other messes just like it? Aye caramba... I think if we saw the list of entities that made investments in these vehicles it would make us all laugh or cry.

SD Realtor

Submitted by jennyo on July 18, 2007 - 3:41pm.

Teachers actually pay into State Teachers Retirement System (STRS) which is totally separate from PERS. So your wife's pension is not affected directly by anything that PERS does. Not to imply STRS doesn't have its own problems--but there is a difference between the two... Now I, as a PERS member, should be crying.

Submitted by drunkle on July 18, 2007 - 4:14pm.
Submitted by waiting hawk on July 18, 2007 - 4:18pm.

Cool thx Jen ;)

Drunkle I hope that is still the case since that was 26/07/2005.

Submitted by Chris Scoreboar... on July 18, 2007 - 5:21pm.

My best friends brother runs a small MBS fund that is doing fine. He is very picky about the notes he buys, and as a result experiences very low fallout. Even with that being the case, I still declined when he asked me to put some $$ in during the beginning of 2006. These big guys that have to take on alot of crap to get the good stuff are paying for it now, as we all knew they would.

There are never enough chairs when the music stops.

Submitted by DaCounselor on July 18, 2007 - 6:46pm.

"Drunkle I hope that is still the case since that was 26/07/2005."

Actually, it's no longer the case. The fund is now much larger, with a current market value of $248 billion.

Also, it's probably worth recalling that Calpers lost about $20 billion - that's right I said billion - in '01-'02 as the market went south. They lost about a billion on Enron alone.

Just a little perspective.

Submitted by HereWeGo on July 18, 2007 - 6:26pm.

There's definitely a bear market in housing, a lot of rich folks lost money betting on the prospect of mass indentured servitude, no doubt about that. I don't see evidence of a recession though, at least not at this point.

Chris, I know you own CAT (sure wish I could say the same,) what are your thoughts heading into Friday? Is CAT going to run to 100, or was the UBS guy right?

Submitted by drunkle on July 18, 2007 - 6:56pm.

yeah, all the talk about pension funds being awash in these bad investments may be overblown. i thought it'd be a mess too, but thinking about the actual number "140 million" made me wonder how much exactly is calpers worth. turns out, billions so this loss is just... roadkill... wipe out the whole thing, it's a 5% loss on the portfolio, but considering how much they made on the ride up...

i guess the real question is: what is the pensioner's return on his "investment"?

edit: nevermind 5%... .5% now? i wonder how much of that value is due to asset appreciation and how much due to increased contribution...

Submitted by jennyo on July 19, 2007 - 11:58am.

CalPERS is worth oodles of billions, so $140 mil is a drop in the bucket. As for return on investment, the state witholds 5 percent of salary from employees for the PERS contribution. The "employer contribution" varies annually based on a calculation set by PERS. In years where PERS has done well, the employer contribution (which comes directly out of the state budget) has been as low as zero. In "bad" years, it goes up. For 2006-07 it was around 17 percent (30 percent for law enforcement). The "return" depends on how long retirees live after retirement. If I retire at 55 and live to be 95, I get a pretty good deal at 50 percent of my highest year of salary plus annual COLAs for the rest of my life. If I die at 57, taxpayers get good deal.

Submitted by waiting hawk on July 19, 2007 - 12:31pm.

Here is the email they sent me after my very negative email sent to them:

"In response to media reports about risky collateralized debt obligations
(CDOs), or packages of securities backed by bonds, mortgages and other
loans. There have been related news stories about borrowers defaulting
on loans to put these investments at risk. At least one article
suggested that banks who sold these securities to CalPERS were trying to
put something over on us.

Here is our response:

CalPERS owns $140 million in CDOs. The facts are:

1. None of these CalPERS investments are tied to the sub-prime market
that is having problems.

2. These investments are top-rated bank loans that are doing extremely

3. Our CDO investment represents less than .1 % of CalPERS assets. There
are plans to expand our investment in this area in about 1-2 years. It
requires a big quantitative effort which we hope to build over the next
few years. We have purposely kept this program small until we get those
capabilities. We are collecting data and will forward information as it
is completed.

4. We are well protected and not at risk. We are not exposed to the Bear
Stearns meltdown.

Clark McKinley
Information Officer
CalPERS Office of Public Affairs
916/795-4196; fax: 916/795-3507"

Submitted by lonestar2000 on July 19, 2007 - 12:43pm.

SD Realtor,

I think it is fair to say that most of us just want a house we can afford, nobody is serious about wanting a recession. Most of us here have no idea just what that means overall.

Home prices are several multiples over what they should be for the average household to purchase today. We're simply looking for the correction that will put them back into the realm of possibility.

Submitted by kewp on July 19, 2007 - 12:56pm.

I'll second that, Lonestar.

For us savers, we've been living in a self-induced recession for the last decade. It's about time the overconsumers went on a diet.

Submitted by SD Realtor on July 19, 2007 - 1:17pm.

Lonestar I agree with you and am in the same boat. However I have seen more then one post with some fairly cavalier statements about the recession. Things like bring it on, and I can't wait for it.

Statements such as these are obviously made with little thought.

SD Realtor

Submitted by waiting hawk on July 19, 2007 - 1:23pm.

"self-induced recession"

Wow I love it. That is what we have been in last 3 years. I am moving on Saturday (remember the cops out front photo with the idiot next door guy) and bought new furniture. Nobody was buying furniture while we were and got some great deals. Damn it felt good buying when nobody else was. I spent a few thousand and almost had a heart attack. I am very cheap but I had the same furniture from 11 years ago and it should have been thrown away 11 years ago.

Submitted by ibjames on July 19, 2007 - 1:55pm.

ha ha
some classic posts in this thread

Submitted by Reality on July 19, 2007 - 5:11pm.

I have seen more then one post with some fairly cavalier statements about the recession. Things like bring it on, and I can't wait for it.

Statements such as these are obviously made with little thought.

SD Realtor

Recessions are inevitable. They happen from time to time whether we want them or not. I'm no fan of recessions, but in my opinion one would be a small price to pay for the much needed housing correction.

Submitted by Coronita on July 19, 2007 - 11:56pm.

Lonestar I agree with you and am in the same boat. However I have seen more then one post with some fairly cavalier statements about the recession. Things like bring it on, and I can't wait for it. Statements such as these are obviously made with little thought. SD Realtor


I would say that a big recession would probably hurt most of the piggington's on this board. The only exceptions would be those that don't depend on jobs but are independently wealthy and have what I call enough F.U. money. Although I know a lot of other people would get hurt before us,I'm not hoping for a big correction,The point is, everyone (almost) will get hurt. Anyway, be careful what you wish for.


Submitted by temeculaguy on July 20, 2007 - 1:16am.

In the grand scheme of things we all benfit from good economic times and are hurt by bad economic times but we can all lessen our hurt and increase our benefit by understanding the cycles. If you install an air conditioner in the dead of winter do you pray for a heat wave, no, but you do pat yourself on the back for correctly guessing the cycle. Nobody wants a big earthquake or fire but if you make the preparations of insurance, water, food and develop a disaster plan you feel good if it doesn't happen but validated if it does. If you saw a storm or hurricane brewing and heeded the warnings by evacuating early you wouldn't be happy if others became victims, just better because you made the preparations and heeded the signs. In fact you feel pity and anger at the same time toward those who ignored the warnings. The point is that there will always be ups and downs in stocks, R/E, employment, etc. Listen and learn, pay attention to people who are older and wiser (and don't stand to profit from you following their advice) and you too will survive anything that happens.

That's all many of these people are doing, they see the warning signs, this has happened before and will happen again, they even go out of their way to warn others to prepare and tell them how. Their frustration with those who ignore the signs of a recession or a R/E downturn aren't wishful thinking they are warnings based on wisdom and frustration when others ignore the signs.

Submitted by jeeman on July 20, 2007 - 11:18am.

"I'm no fan of recessions, but in my opinion one would be a small price to pay for the much needed housing correction."

You don't need a recession to have a declining housing market. In the 90's, the recession lasted from late '91 to mid '92, and yet housing in CA declined for another 4 years.


Submitted by Reality on July 20, 2007 - 11:33am.

You don't need a recession to have a declining housing market. In the 90's, the recession lasted from late '91 to mid '92, and yet housing in CA declined for another 4 years.

I didn't mean a recession was needed. Some seem to think though that a housing correction will cause a recession. I'm all for the housing correction (not that it matters what I want, it's coming anyway), and if a recession results so be it. Recessions happen every decade or so anyway.

Submitted by jeeman on July 20, 2007 - 11:55am.

"Recessions happen every decade or so anyway."

I agree with that. We are due for one in the next couple of years. I think the actual cycle is 6 years growth, 1-2 years recession.

Submitted by lonestar2000 on July 20, 2007 - 12:44pm.

"We are due for one in the next couple of years."

Funny, they say the same thing about the earth quake on the San Andreas fault. I do hope they're wrong.

Submitted by PerryChase on July 20, 2007 - 1:25pm.

The biggest scam is privatization of public pensions. The private sector gets to make huge profits managing the pensions but when things don't work out, the taxpayers are asked for a bail out.

I think that public employees should get 401Ks like everyone else.


Yeah, I agree we are due for a recession.

Savvy families should manage their lives as follows:
1) fall in love during the boom.
2) get married and buy a house during a recession.
3) save and move-up during the next recession.
4) but a vacation home during the next recession.
4) buy a retirement/rental house during the next necession and rent it out.
5) Sell the main residence during the next boom and retire. Move to the retirement house. Keep on enjoying the vacation home.
6) Sell the vacation house during the next boom, and fully retire.

Submitted by Ash Housewares on July 20, 2007 - 4:00pm.

The housing decline will almost certainly lead to a recession:
"The International Monetary Fund analyzed home prices in a number of countries from 1970 to 2001, and found 20 "busts" – when real prices fell by almost 30 percent. All but one of those busts led to a recession."

"Japanese property prices have fallen for 14 years in a row, by 40 percent from their peak in 1991, and consumer spending has been weak, leading The Economist to conclude, "Americans who believe that house prices can only go up and pose no risk to their economy would be well advised to look overseas.""

Submitted by robson on July 21, 2007 - 10:28am.

i found it interesting you compared it to an earthquake because a quake is nothing more than a release of building tension and gets worse the longer it builds

Submitted by LA_Renter on July 21, 2007 - 12:33pm.

I once heard somebody say it's a recession if you have a job, it's a depression if you don't. I had to look for a job in a mild recession once and trust me I do not wish that on anybody. I totally agree with Temeculaguy and the hurricane analogy. It's not like I'm sitting at the beach thinking "man, I wish there was a big hurricane that would hit this place and rip it to shreds". It's just the fact that these things (hurricanes, earthquakes, recessions, etc) happen. There is a distinct difference between being a realist and a pessimist.

Submitted by JWM in SD on July 21, 2007 - 1:24pm.

Wow Perry, you just outlined my scheme for the wife and I!!! Is that your plan too??

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