$1 Trillion shortfall for state and local pensions
Few people are talking about an enormous federal bailout that appears inevitable.
(Bloomberg) -- U.S. state and local government pensions are underfunded by $1 trillion and may need to seek federal guarantees for their debt, according to Orin Kramer, chairman of New Jersey’s Investment Council.
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Pension underfunding eventually will make it impossible for some governments to raise money in bond markets and will require federal intervention through explicit or “implied guarantees” of municipal debt, Kramer, 64, said in an interview today at Bloomberg News headquarters in New York.
“The collective deficits should not be and will not be overcome by an aggressive investment strategy,” Kramer said. “I think that actually, ultimately, the severity of the problem will become publicly visible and you’ll have more entities that will have difficulty accessing the bond markets.”
To put the shortfall into perspective, U.S. public-employee pension fund owned $2.8 trillion in assets before last year's meltdown, and $2.2 Trillion afterward.
how much of this
is due to being sucker punched with various derivatives and MBS?
Quite a bit!
With approximately 80% (according to that GAO study) of pension funds with $5 billion or more heavily invested in private equity firms and their super funds and funds of funds, financially structured to be as super-leveraged as possible, i.e., structured through collateralized fund obligations (CFOs) and various CDOs, synthetic CDOs, and other types of credit derivatives (and, as always, an extra healthy dose of credit default swaps), it is pretty much a given.
taxpayers already underwriting pension funds
I believe that taxpayers are already underwriting pension funds indirectly through government support of the stock market.
The billions (trillions – whatever) of dollars that are generally said to be going to “Wall Street” (i.e. the stock market) from FED and/or Treasury are causing the stock market to increase. Thus, pension funds that own substantial amounts of stocks are increasing their asset value. The higher the market goes, the less risk to pension plan insolvency and need for direct government support.
In the 1950’s it was common to hear: “What’s good for General Motors is good for the country.” It seems now we are thinking: “What’s good for Goldman Sacks is good for the country.” Just as there was some truth in the 1950’s about GM, there may be some in truth today about Goldman.
It is an historic truism: When the rich get sick, the poor die. Accordingly, we had better keep Goldman et. al. healthy unless and until there evolves a political economy never seen before in history. Sad – but, true! History is unequivocal in this respect.
Taxpayer may do it directly very soon.
where I live it is required by law, and is probably the case in many other localities, if the pension fund falls below a certain funding level or can't meet obligations then that must be covered by a tax levy such as a hike in property tax.
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