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User Forum Topic
Submitted by flu on July 18, 2013 - 6:54pm

Submitted by no_such_reality on August 5, 2013 - 1:00pm.

They'll just hide the interest rate in capital appreciation bonds. And places like CalPERs will still buy them.

Frankly, I hope they stick it to the bondholders.

If they don't, I hope they stick it to the employees.

The worst thing IMHO will be if they don't stick it to anybody and they keep kicking the can down the road. The best thing for everyone is if it's really clear who's holding the bag when the music stops.

Trying to make it so everybody gets cut a little bit is the worst case scenario as it encourages everybody to keep going and just pump up for a bigger pay day so they're still whole when they get the little cut.

I'd love to see them keep the employees whole so we can watch cities die as they get stripped of services to fund the retirement gaps.

Or survive. Either way, die cause too much funding is going to cronyism and retirement and the tax base abandons it, or keep it whole and survive, but we need some high profile examples.

Submitted by The-Shoveler on August 5, 2013 - 1:33pm.

So you got City Pensions buying City Bonds so they can afford to pay the city pensions,

Just kidding, but it looks a little like the fed buying treasuries LOL

Submitted by livinincali on August 5, 2013 - 1:38pm.

The-Shoveler wrote:
So you got City Pensions buying City Bonds so they can afford to pay the city pensions,

Just kidding, but it looks a little like the fed buying treasuries LOL

For now. Just wait until pension funds are net sellers rather than net buyers in the not too distant future.

Submitted by The-Shoveler on August 5, 2013 - 2:01pm.

Or it's their turn getting Sc###! in the next BK round,

Submitted by CA renter on August 5, 2013 - 5:37pm.

livinincali wrote:
CA renter wrote:

Mind you, CalPERS used to manage almost everything in-house and had tight restrictions WRT what they could invest in -- almost exclusively Treasuries with some smaller allocations to very highly-rated municipal and corporate debt. Wall Street lobbied hard both to change their allocations to riskier investments (those lovely "innovations" created by Wall Street, included), and then lobbied to have outside managers and consultants at the public pension funds. If not for those changes -- the PRIVATIZATION movement at work -- the "pension crisis" would be much less significant than it is today, if it were to exist at all.

So...how's that "privatization" thing working for you?

Well it would be really tough to assume a 7.5% rate of return if you had to put most of you assets into treasuries and highly rated debt. Most of that is paying somewhere between 2 and 4% now and has been for awhile. If you have to assume 3-5% rates of return you're screwed anyways.

Because of their long-term horizon, they're able to get into long-term bonds. They have the flexibility to buy longer-term bonds when rates are higher, and shorter-term bonds when rates are lower. Only fools would be buying long-term bonds right now, IMHO.

Of course, this is also where the Fed manipulation comes into play. If not for the Fed keeping interest rates well below where they would be without the interference, returns would be much higher and asset prices would be less volatile, IMHO. Less volatile booms and busts are far more preferable for institutions like pension funds (and people who prefer investing based on fundamentals instead of trying to time the next bubble).

FWIW, if the pension funds had been in bonds all along, they wouldn't have passed some of the pension enhancements (nor enacted the ridiculous pension contribution "holidays" when employers paid little to NOTHING in pension contributions) in the late 90s/early 2000s, which would have kept pension contributions at much more stable and sustainable levels.

Submitted by njtosd on August 5, 2013 - 5:47pm.

spdrun wrote:

If the US is so vulgar, why are you here? I guess you must enjoy it.

Because I have family and some friends here, also live in NY City which has little in common with the rest of the US. Given another few years, unlikely that I'll be spending more than 50% of my time here.

Also, I'm not in the economic position of the average American, but at the same time I have empathy. If I were in the position that the average American is in, I'd likely be in jail a long time ago for popping my boss in the nose.

And yes, I'm pretty content in working 25-30 hours per week avg, sometimes taking a month off, as a well-paid freelancer, sitting on some profitable rental property and not being as productive as I could be nor working to my potential. I wasn't born smart to spend the rest of my life working like a dog, but rather follow the adage "work smarter, not harder."

First - Please tell me that you don't think NY treats its citizens better than the US as a whole treats US citizens. You're posts always seem a little crazy, but not crazy enough to believe that NY is a bastion of good government.

Second - you have probably been reading this website long enough to figure out that most people here are "not in the economic position of the average American." I'm not really sure why you mention that. I'm also not sure why you'd mention that you have tendencies toward violence that you have a hard time resisting. But based on your own confessions, I think that the average American is probably better off when you're on the Continent.

I never asked whether you were content - but since you're content here in the land of vulgarity (some of which you can take credit for) it sounds like you are protesting a bit too much.

And finally, I cannot imagine an adage more trite than "work smarter, not harder." It reminds me of the poster of the kitten suspended from a branch underneath which there is the caption "Hang in There, Baby." Use your copious free time to come up with something a bit more insightful.

Submitted by spdrun on August 5, 2013 - 6:05pm.

(1) NYC is a bastion of good PEOPLE in many ways, nothing to do with good governance. Add to this that 40 or more per cent of the population is foreign-born, and it makes it an interesting and in many ways pleasant place to live.
(2) I exaggerate a bit, haven't given anyone a nosebleed yet, but I'd really be pretty damn pissy if I had to deal with nonsense 50 hours a week, two weeks off per year, with nothing to show for it.
(3) Not really content, but I have family and friends here, so plan to spend at least some time i the Northeast for the forseeable future. If I had no connections, I would probably be in France or further East for keeps right now. Legally as a citizen of an EU country who speaks multiple languages, work permit or starting a business wouldn't be a problem.
(4) Said Edison: "Genius is one percent inspiration and ninety-nine percent perspiration."
Retorted Tesla: "If Edison had a needle to find in a haystack, he would proceed at once with the diligence of the bee to examine straw after straw until he found the object of his search. I was a sorry witness of such doings, knowing that a little theory and calculation would have saved him ninety percent of his labor."

People who brag about working 50-60 hours a week non-stop may be seen as hard-working by the majority of the public. Unless they're engaged in cutting-edge research, I just see them as sad cases... not worth bragging about. Work for the sake of work isn't an end in itself.

Submitted by CA renter on August 5, 2013 - 6:50pm.

The-Shoveler wrote:

Thing is who will want to buy Muni-bonds in the future ?

There is going to have to be much high interest to get people to buy Muni's in the future especially if they take the whole hit me thinks.

I think this is where Stockton's case is still interesting.

Buffett recently got out of the Muni-bond insurance biz by the way.

Yes, interest rates will be higher...and, hopefully, money will be spent more wisely. There is a hell of a lot of pork in most govt spending, and the vast majority of that "excess spending" (the result of massive corruption, fraud, and abuse) has nothing at all to do with public unions.

Submitted by all on August 5, 2013 - 9:03pm.

spdrun wrote:

(4) Said Edison: "Genius is one percent inspiration and ninety-nine percent perspiration."
Retorted Tesla: "If Edison had a needle to find in a haystack, he would proceed at once with the diligence of the bee to examine straw after straw until he found the object of his search. I was a sorry witness of such doings, knowing that a little theory and calculation would have saved him ninety percent of his labor."

The same Tesla that slept for two hours/day and lived in celibacy in order to remain focused on his work.

Submitted by spdrun on August 5, 2013 - 9:18pm.

That was also his choice -- I think he was in it more for enjoyment than for money.

Work isn't "work" in my book if it's done for reasons other than necessity.

Submitted by CA renter on August 6, 2013 - 2:43am.

Yet another good article about the failures of privatization. Some very informed and intelligent commenters have made some excellent points as well.

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

"Some of America's leading news analysts are beginning to recognize the fallacy of the "free market." Said Ted Koppel, "We are privatizing ourselves into one disaster after another." Fareed Zakaria admitted, "I am a big fan of the free market...But precisely because it is so powerful, in places where it doesn't work well, it can cause huge distortions." They're right. A little analysis reveals that privatization doesn't seem to work in any of the areas vital to the American public."

https://www.commondreams.org/view/2013/0...

Submitted by livinincali on August 6, 2013 - 6:33am.

CA renter wrote:

Because of their long-term horizon, they're able to get into long-term bonds. They have the flexibility to buy longer-term bonds when rates are higher, and shorter-term bonds when rates are lower. Only fools would be buying long-term bonds right now, IMHO.

I don't think they have that much flexibility. In the past 5 years CalPRES has probably received about $25 billion in net contributions which makes up about 15-20% of their total portfolio. They obviously can't have 20% of their portfolio tied up in short term bonds earning close to zero and also assume a 7.5% rate of return. They can't just wait for better days if they assume 7.5% returns. They have to invest so they are investing out on the risk curve.

Remember the people making the decisions aren't really worried about bad investment decisions because it's somebody else's money. You personally wouldn't make that choice but they don't care. Wouldn't you rather have control over your money then a promise that somebody else is going to manage a pool of money so that you can get paid someday.

CA renter wrote:

Of course, this is also where the Fed manipulation comes into play. If not for the Fed keeping interest rates well below where they would be without the interference, returns would be much higher and asset prices would be less volatile, IMHO. Less volatile booms and busts are far more preferable for institutions like pension funds (and people who prefer investing based on fundamentals instead of trying to time the next bubble).

The fed's manipulation has actually been good for the total asset value calculation for CalPRES. Remember as rates go lower, older bonds with better yields go up in price. The 30 year bonds that CalPRES bought back in 2000 or 1990 are being held at values far greater than the face value on the bond. So when CalPRES says they have 150 billion in assets with maybe 50 billion in treasuries the face value of those treasuries might be 40 billion.

Submitted by The-Shoveler on August 6, 2013 - 7:33am.

Kind of why I think all the Central banks are desperately inflating the markets in unison, they have no choice. They can’t afford another crash (at least or a while).

Can you imagine what a 50% decline in the market would do right now ?

What's not tolerable will not be allowed to happen IMO.

Submitted by spdrun on August 6, 2013 - 8:30am.

Fortunately, the markets don't always follow the whim of the banksters; in fact, loose policy has been shown to actually increase volatility and the risk of a crash. Tell you what a 50% crash would do -- make me throw a big damn party -- biggest buying opportunity ever if "blood runneth in the streets" once again.

Submitted by livinincali on August 6, 2013 - 11:59am.

The-Shoveler wrote:
Kind of why I think all the Central banks are desperately inflating the markets in unison, they have no choice. They can’t afford another crash (at least or a while).

Can you imagine what a 50% decline in the market would do right now ?

You tell me. What would a 50% decline in the stock market really do to the average person on the street. The housing bubble pop seemed to effect the masses much greater than any stock market crash. I can think of a few things it does.

1) It shrinks the wealth gap. All of those wealthy people invested in stocks would see their fortunes decline.

2) It would give opportunity to people that recognized the feds easy money policy isn't creating growth but instead creating bubbles.

3) In blows up a bunch of pension promises that are likely never going to be fulfilled and really what's the harm in recognizing that now versus later.

Submitted by The-Shoveler on August 6, 2013 - 1:22pm.

#3 Is what the Fed is worried about mostly.

Well that and deflation/depression.

Submitted by spdrun on August 6, 2013 - 1:28pm.

General deflation is bad. Deflation in sectors that were artificially inflated can be a positive thing, despite the mewling of the muppets who bought homes they couldn't afford in the 2000s bubble and are now under water.

Submitted by The-Shoveler on August 6, 2013 - 1:40pm.

spdrun wrote:
General deflation is bad. Deflation in sectors that were artificially inflated can be a positive thing, despite the mewling of the muppets who bought homes they couldn't afford in the 2000s bubble and are now under water.

Which again circles us back to #3,

They can't afford the pension and promised benefits without the inflated home prices.

Submitted by spdrun on August 6, 2013 - 1:50pm.

Not every state has something like Prop 13... in a lot of places, taxes did NOT drop significantly because of lower home values, and valuations are sometimes not even based on purchase price.

(NYC does it by equivalent rent, I believe, some NJ towns use a similar formula to come up with an artificial number based on land area, sq ft, and amenities -- i.e. one bath is worth x dollars -- which is then multiplied by a millage multiplier.)

Really, the inflexible system in CA is CA's own fault, though I'm reaping the benefits so I shouldn't whinge about it.

Submitted by The-Shoveler on August 6, 2013 - 2:27pm.

Well if the stock market went back to the way it was in the 70's (not saying that's going to happen), but if banking suddenly became boring.

I think NY would be in the same boat as they were in the 70's

Not far from Detroit actually,(part of that depression/"lack of wealth effect" type of thing).

For those who remember, or who have seen any number of movies set in NY at the time (Death Wish, etc.): New York City resembled a disutopian vision of a dark future. The city government was so broke the police had to go on strike to get paid. The perception, true or false, that crime and gang activity were threatening the survival of the middle class. Garbage strikes, decayed infrastructure, rat infestation. New York was a mess in a league of it's own.

Submitted by spdrun on August 6, 2013 - 2:34pm.

Don't be so sure. We have a lot of generally smart people, a huge influx of talented immigrants, media/arts/design, architecture/engineering/construction industry, multiple well-known universities, a growing technology/internet industry downtown, one of the more important ports on the East Coast, biotech and pharma (typically outside the city in NJ, but some companies actually moved back into NY), etc. It's a far more diverse economy than you'd think, just like San Diego isn't just squids, sand, and Seaworld :)

The decay of the 70s was actually nationwide, but even then NY didn't have the demographic problems of Detroit (didn't lose anywhere near 60% of its population).

Submitted by The-Shoveler on August 6, 2013 - 2:44pm.

When Godzilla comes into town, you don't see him coming to shore in SD.
OK OK just kidding. (but the wealth effect/depression) would take it’s toll.

Submitted by spdrun on August 6, 2013 - 2:52pm.

The Stay Puffed marshmallow man would kick Gojira's ass. That is all :)

Submitted by SK in CV on August 6, 2013 - 3:04pm.

spdrun wrote:
Really, the inflexible system in CA is CA's own fault, though I'm reaping the benefits so I shouldn't whinge about it.

Aren't you a rather recent buyer? So rather than reaping the benefits, you'd be bearing the more of the burden than long time owners, not less.

Submitted by spdrun on August 6, 2013 - 3:18pm.

The benefit is predictability -- taxes are what they are, and can't increase more than the statutory amount per annum. They can't come to me and say that they're tripling my taxes next year.

Submitted by SD Realtor on August 6, 2013 - 7:08pm.

No moral hazard for municipalities that screw up. Just make sure those pensioners get paid.

Taxpayers to the rescue!!!! Detroit here we come.

Next city up? Chicago perhaps?

Submitted by CDMA ENG on August 6, 2013 - 8:21pm.

CA renter wrote:
Yet another good article about the failures of privatization. Some very informed and intelligent commenters have made some excellent points as well.

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

"Some of America's leading news analysts are beginning to recognize the fallacy of the "free market." Said Ted Koppel, "We are privatizing ourselves into one disaster after another." Fareed Zakaria admitted, "I am a big fan of the free market...But precisely because it is so powerful, in places where it doesn't work well, it can cause huge distortions." They're right. A little analysis reveals that privatization doesn't seem to work in any of the areas vital to the American public."

https://www.commondreams.org/view/2013/08/05

And the rest of us are uninformed clods?

I am not going to engage you in a debate. You tend to go all "borish girl" on us. I am not going to post "facts" as you request either. In fact I read some of the articles that you listed and I think they present pretty good counter arguement against your points and really are more op-eds than studies...

You should read your source material more chartiably.

As to privatition... I am all for it. Why? Because you get rid of unions. If the private sector fails you cancel the contract and you have the option to figure out if you can do it better internally or if another company can.

Simply... You have options.

With a union you have no options.

My company has struggled with these issues for years so yeah... I have experience with this.

CE

Submitted by CA renter on August 6, 2013 - 11:12pm.

CE,

Opinions are fine, but you assert yours as if they are factual. They are not. You have yet to offer up any data, evidence, or logic to back up your claims, no matter how many times I've asked for anything factual or logical that would in any way prove your point.

The reason my posts are long is because I present facts, data, and logic (and there are plenty of facts and data to be found if you would only bother to look, which you don't for some reason). Apparently, you find facts bothersome. Perhaps we should debate using only "opinions," then?

The reason you consistently refuse to debate is because you can't. There is nothing to back up what you've claimed, so you choose to make personal attacks, instead. You lose.

Submitted by CA renter on August 6, 2013 - 11:09pm.

livinincali wrote:
CA renter wrote:

Because of their long-term horizon, they're able to get into long-term bonds. They have the flexibility to buy longer-term bonds when rates are higher, and shorter-term bonds when rates are lower. Only fools would be buying long-term bonds right now, IMHO.

I don't think they have that much flexibility. In the past 5 years CalPRES has probably received about $25 billion in net contributions which makes up about 15-20% of their total portfolio. They obviously can't have 20% of their portfolio tied up in short term bonds earning close to zero and also assume a 7.5% rate of return. They can't just wait for better days if they assume 7.5% returns. They have to invest so they are investing out on the risk curve.

Remember the people making the decisions aren't really worried about bad investment decisions because it's somebody else's money. You personally wouldn't make that choice but they don't care. Wouldn't you rather have control over your money then a promise that somebody else is going to manage a pool of money so that you can get paid someday.

CA renter wrote:

Of course, this is also where the Fed manipulation comes into play. If not for the Fed keeping interest rates well below where they would be without the interference, returns would be much higher and asset prices would be less volatile, IMHO. Less volatile booms and busts are far more preferable for institutions like pension funds (and people who prefer investing based on fundamentals instead of trying to time the next bubble).

The fed's manipulation has actually been good for the total asset value calculation for CalPRES. Remember as rates go lower, older bonds with better yields go up in price. The 30 year bonds that CalPRES bought back in 2000 or 1990 are being held at values far greater than the face value on the bond. So when CalPRES says they have 150 billion in assets with maybe 50 billion in treasuries the face value of those treasuries might be 40 billion.

Absolutely, today's lower rates would artificially (IMHO) inflate the "funded" status of the pension funds. Of course, that's assuming that they are using fair market values, and not "held to maturity" values, but that might not be totally correct (haven't checked into that).

And you are also correct about them having to move out on the risk curve because of the **artificially suppressed** interest rate environment. And when/if interest rates rise, I expect the bond funds to be hit, yet again. This is precisely why I detest the Federal Reserve's excessive manipulation of various markets. They are reducing risk premiums and forcing institutions and individuals to take on far too much risk, and these are often entities that cannot afford to do so.

And no, I'm not at all a fan of DC pension plans. IMHO, DB pension plans can absolutely work, but you have to keep everything in-house (no privatization!!!!), and use extremely conservative assumptions for both expenditures and returns. If that means that employees have to pay more/get less, so be it; but I want that to be decided only after the system is allowed to cleanse and heal itself...which will require a period of rather painful deflation, a shrinking wealth/income gap, and a more efficient/productive (and egalitarian, IMO) reallocation of resources.

Submitted by no_such_reality on August 7, 2013 - 6:41am.

CA renter wrote:

And no, I'm not at all a fan of DC pension plans. IMHO, DB pension plans can absolutely work, but you have to keep everything in-house (no privatization!!!!), and use extremely conservative assumptions for both expenditures and returns. If that means that employees have to pay more/get less, so be it; but I want that to be decided only after the system is allowed to cleanse and heal itself...which will require a period of rather painful deflation, a shrinking wealth/income gap, and a more efficient/productive (and egalitarian, IMO) reallocation of resources.

None of which will really occur. I'm not a fan of DB's for one simple reason, a promise to pay someone starting in 30 years for the 30+ years after that is inherently fraught with risk and abuse. In a DC, your commitment is fulfilled in that year's pay. It has a side benefit of eliminating the need for employees to 'stick it out' to get their max benefit payout.

It would take more money to do a DC. If I need to pay 1000 people $100K a year, I need a much smaller pile than if I need to plan to pay myself $100K a year.

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