Georgetown law school professor and bankruptcy expert Adam Levitin in a must read article in Salon parses how municipal workers, who on paper should actually be well protected in the event of a municipal bankruptcy, are likely to be butchered.
Before we get to the legal and negotiating issues, it’s important to deal with some of the ugly myths and jealousies that an organized effort in the 1970s by what then was the extreme right wing has succeeded in making hatred of all things government, including government workers, a mainstream view. I have to say I don’t get it. I live in high tax New York, and I’ve lived in higher tax Sydney. Guess what? Taxes aren’t objectionable if you get services. In Sydney, you got really good infrastructure. Here, one of the bennies is I have a state insurance regulator which I can get to bust the chops of my health insurer when it tries denying claims for dubious reasons or otherwise not honoring contract terms. By contrast, unless you are in a low density area where you can’t provide public services efficiently, low taxes almost guarantee crap services and as a result, public dissatisfaction. It virtually insures a vicious spiral.
Getting various elements of the working classes in petty fight over scraps serves to divert their attention as the wealthy continue their plunder. And no, this depiction is not an exaggeration, just look at the increase in concentration of wealth and income of the top 0.1% over the last 20 years. It’s not an exaggeration to call it rapacious. Admittedly, not all members of the 0.1% were actively involved in either the PR campaign to move the country to the right nor were they all necessarily backers or funders of the policies that facilitates this wealth transfer, particularly changes in tax policies. But they most assuredly have been beneficiaries.
As much as it has become fashionable to pin the blame for municipal bankruptcies on municipal workers, Levitin reminds us that the collapse in tax revenues was the result of the financial crisis. The weaker municipalities may still have gone critical, but less catastrophically. As he points out:
Municipal finance problems are not due only to pensions. The collapse of the housing bubble seriously damaged many cities’ finances. Property tax and income tax revenue suffered, while municipalities were saddled with increased costs of tending to abandoned properties. While the banks that fueled the housing bubble got bailed out, local governments had to bear the costs of the crisis on their own. Now, with cities in their weakened state, the fair-weather pension promises that cities made to their employees are coming home to roost. It seems that unlike banks, cities will not get bailed out. The banks came first in the bailouts, and again they will come first in the bankruptcies.
It is also worth stressing that even though current poster child Detroit has been charged with having rosy forecasts for its pension funds’ performance, it turns out its assumptions fell within private sector norms. In addition, there’s a robust debate as to how sick the Detroit pension funds are, with skeptics saying that the emergency manager is making a bad situation look even worse than it is. From the Detroit Free Press:
Kevyn Orr, the city’s emergency manager, has estimated the underfunding of the city’s two pension funds at $3.5 billion. The pension fund managers disagree, saying the funds are more than 90% funded, meaning that there are adequate resources to pay almost all future liabilities.
The Bond Buyer reported Friday that Morningstar, a major investment adviser, found that the actuarial assumptions made by the two pension funds to come up with their more optimistic assessment were in line with industry practice…..
The Bond Buyer reported Friday that Detroit’s pensions funds have long been considered relatively well funded, at around 91%, largely because of a $1.5-billion pension certificate borrowing in 2005 and 2006.
The question is far from academic. The size of the unfunded obligations has major implications for the bankruptcy case. On Friday, Orr’s legal team was in federal bankruptcy court to argue that the city was insolvent and needed to be allowed to file for Chapter 9 municipal bankruptcy. Creditors can argue that the city is not eligible to file for a number of reasons — among them that the city is not really insolvent.
Another issue for Detroit that we discussed in an earlier post that is likely to come up with other stressed municipalities is that the city did an extend and pretend funding in 2005. That refinancing involved the heavy use of swaps. Guess what? Swaps are secured, and hence senior to a normal bond issuance or bank borrowing. So the swaps counterparties moved themselves to the head of the line in a restructuring or bankruptcy.
Now to Levitin on the pensioner mess. Municipal pensioners aren’t terribly well protected in a municipal bankruptcy because historically they pretty much never happened and contractually, pension holders can’t be crammed down. But we are entering uncharted waters. Levitin explains:
No city has ever reduced its pension obligations in bankruptcy without pensioner consent…Few of the local government units that have filed for bankruptcy since the 1930s have even been true municipalities. Most have been sewer, water and hospital districts plus oddballs like county fairs and NYC Off-Track Betting or the Las Vegas Monorail…
The new wave of municipal bankruptcies — Detroit, Stockton and San Bernardino being the leading cases — are all set to test the question of whether pensions can be cut in bankruptcy, particularly in the face of state laws protecting those pension obligations. If municipal pensions can be cut in bankruptcy, we should expect to see more cities eyeing bankruptcy as a possibility, and other cities using the threat of bankruptcy as negotiating leverage to wring concessions from pensioners and employees.
And the problem is public pensions were based on the assumption that they were inviolate:
Absent special protection in state law, pensioners are already behind most other creditors in municipal bankruptcies. Banks that enter into derivates transactions with cities, such as interest rate swaps, get paid first. Then come most of the bondholders. Most bondholders hold so-called revenue bonds rather than “general obligation bonds.” Detroit, for example, has $6.4 billion in revenue bonds outstanding, but only $650 million in general obligation bonds. These revenue bonds give bondholders first dibs on particular municipal revenue streams, such as tolls or sewage taxes. General obligation bonds are a generic unsecured claim against the city. Pensioners have to compete with general obligation bondholders for repayment after the swaps and revenue bonds get paid.
Pensioners are not well positioned for this contest. They have little negotiating leverage. Bondholders can threaten the city with higher borrowing costs going forward or even being shut out of capital markets if they aren’t repaid as promised. There is a lot of bluster to bondholder admonitions, but pensioners cannot credibly make similar threats of withholding labor.
And here is the real kicker (emphasis mine):
What really distinguishes the impact of bankruptcy on public pensions from private sector pensions is that the
public pensions are uninsured, whereas there is a solid pension insurance system for private sector guaranteed-benefit pension plans. Since 1974, federal law has required private employers with defined-benefit plans to maintain certain funding levels for their pension plans and to pay insurance premiums to a federally run insurance fund called the Pension Benefit Guaranty Corp. (PBGC). In exchange, the PBGC provides partial insurance of the private sector defined-benefit pension obligations — up to nearly $57,500 annually for a 65-year old retiree. The PBGC provides a critical safety net for pension obligations (although not for other retiree benefits, such as healthcare). The lack of PBGC insurance for municipal employees is particularly acute because many do not participate in Social Security; their retirement security rests solely on their uninsured pensions.
Levitin argues for expanding PBGC coverage to municipal employees. Thats a great idea going forward, but since the municipalities haven’t participated heretofore, it’s not a remedy for existing obligations.
It’s going to be an interesting next few months. While conventional thinking is that the pension-holders will lose their court fight, if they were get a favorable ruling (that their pensions indeed can’t be raided), I have to say I’m going to very much enjoy the spectacle of Wall Street going on tilt. But regardless of how these struggles resolve, it’s simply astonishing to see the bland acceptance in the media of major cities hitting the wall financially. This is yet another reflection of how the US has descended into third-world status, and yet somehow our domestic religion of American exceptionalism hasn’t shown much in the way of losses of adherents.
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Another defensible view might be this: the unions representing the municipal employees thought they had been very successful at extorting extravagant pensions from the taxpayers. Unfortunately they neglected to ensure that those pensions were properly funded and safeguarded.
Still, I dare say that the union apparatchiks often have separate pension provision. I was a union member for all my working life and was much impressed by the extent to which the union’s officers were more dedicated to advancing their own interests rather than mine.
It’s funny, before I had refreshed and saw this new post, I was writing, and submitted a comment on the “Congress and Jobs” thread on this very subject, relating to Stockton.
Not only in Stockton, but many cities, the local governments agreed to the pension contracts but then never contributed the money to fund them, as they had agreed. They assumed the booming times with 8% guaranteed growth was permanent so they could catch up later. It’s the same kind of rationale as Uncle Sam using the SS surpluses to fund deficit spending. I don’t know about the public sector, but in the private sector, bulging pension funds were also raided to pay executive bonuses. The temptation of all that money just sitting there, beckoning….
After all, whocouldaknown the GFC was coming around the corner?
What happens to those public pensioners in bankruptcy whose pensions replaced social security, thus are ineligible for SS benefits, if pensions are forced to absorb the losses? Municipal workers don’t seem a likely demographic to have well-funded retirement savings.
Uh…that might be defensible if the average pension for a Detroit municipal employee were more than $19,000/yr. (see here) Extravagant? Hardly. City employees are demonstrably not the one’s engaged in extortion of taxpayers…that would be the banks.
Try again.
Maybe this will show you the error of that line of reasoning:
22 Year Old Detroit Bankruptcy Consultant makes $275/hour
But, oh those greedy municipal employees, extorting the taxpayers…ha.
Re: Detroit and the coming tsunami of municipal bankruptcies, here again is a pertinent link.
http://www.opednews.com/articles/Detroit-is-Not-Broke-by-Scott-Baker-130805-986.html
“Average” is always a very misleading statistic.
Also what struck me about the article you linked is how many of the retirees quoted had put in less than 30 years of work before retiring.
Are you serious? I can’t name a single person in the private sector (save my unionized doormen, my union-member brother and one guy at my local ice cream store, who I suspect is a part owner) who is on a payroll has been with his current employer for more than ten years.
You are assuming these municipal workers joined right out of college. Yet you have no evidence for that claim. And policemen and firemen typically are expected to retire (or take a desk job, and there aren’t that many police desk jobs) after 20 years. The jobs take a certain level of athleticism, and guys in their 50s are seen as over the hill.
Animal Farm once again proved to be an astute summary of human nature. Doesn’t mean the cities are not complicit in welshing on their promises to workers. Why should cheating on working class people be less of an issue than cheating on promises to megawelathy bondholders?
…when economics were rapaciously rising to the delight of 1%, bargaining contracts were allowed pension benefit in lieu of wage rises commensurate with
1% measurement…
..it is no surprise to see unions now blamed by rightwing extremists for what those very (Wall $treet) right-wingers perpetrated.
The response of the rightwing (ala Condi-911) is, “who could have known”…yet another LIE; it was they who allowed credit card lobbyists to re-write bankruptcy law years prior to Wall $treet economic disaster…
We knew by 2004…and discussed with friends…what did you think when credit card lobbyists were allowed to re-write bankruptcy law?? We thought millions of Americans were going to be placed in bankruptcy…
It is LIES which have destroyed credibility of those making decisions in this society…and only a few of those making these decisions are in government, the right-wing’s prominent “other” scapegoat…
Thanks for bringing a smile to my face, dearieme. I don’t mean to be disrespectful, but what’s the obverse of your position? If public sector workers labored under the expectation of generous pensions while mysteriously accepting below market wages during an economic boomn, how would you characterize the situation, say, in legal terms?
If you think that pension agreements were constructed in a manner that could not have been satisfied at their outset, you might have a leg to stand on. Is that what you’re saying? If so, I’d recommend better informed commenters work out the yearly deficits in any given municipality because to simply assume they were insurmountable strains credibility.
Letting cities fail and pensioners go without is a political choice, plain and simple. Detroit’s outstanding liabilities would cost less than the Big Dig in Boston. Detroit is being allowed to fail.
The question then is obvious – why were not the banks allowed to fail?
Campaign contributions (and other forms of corruption).
Next!
Well here’s to seeing a silver lining of what’s coming to a town near you in America; hopefully this will hit all the fascist police too. The attack dogs of the elite are going to find out that the elite don’t find them useful all the way to the grave.
I don’t think the police will be as hard hit–they’ll make separate deals with them as the did in Wisconsin. Or we’ll see the rise of private police with full police powers one way or the other the oligarchs will keep their security services.
They are not getting the pensions they were promised.
And cops are being laid off all over the country.
Rent a cop does not pay nearly as well.
Walker has recently talked of expanding his 2011 anti-union initiatives to police and firefighters.
http://www.huffingtonpost.com/2013/07/31/scott-walker-anti-union-restrictions_n_3682957.html
In Stockton, 25% of the police and fire workers have been laid off. Pensions were still up for grabs in the bankruptcy, but I suspect it won’t end any better for the public workers in Stockton than in Vallejo’s bankruptcy, 90 miles to the west, where pensions were reduced to 20 cents on the dollar, averaging $3600/year, down from $18,000.
The notion of extravagant pensions has been greatly exaggerated. I recall verifying the amount of teacher pensions (and salaries…. average salary plus benefits in 2010 — $74,000…….. hardly over $100K as reported by WSJ, and average for all private sector was $66K, most which did not have college degree, much less masters’ as 52% of WI teachers) in Wisconsin after reports of largesse were coming in. Teachers had pensions averaging ~$2000/mo., and were not eligible for SS. More than that, Wisconsin’s pension fund was considered a model for the nation, being almost fully funded (85% funding is considered well-funded, IIRC pension fund in WI was upper 80’s, low 90’s) and payouts above a minimum level are contingent upon current returns of the pension fund. Yes, some pension funds in this country are seriously underfunded; but despite reports to the contrary, the pensions faced no shortfalls in Wisconsin. It was strictly political theatre for Walker, who had slashed corporate taxes and was looking for other places to recoup the lost revenue.
http://lbstat.dpi.wi.gov/lbstat_newasr
http://online.wsj.com/article/SB10001424052748703408604576164290717724956.html
Pensions are 50% cheaper to administer, they have more flexible investment options, and have a steady stream of new contributing members, thus enabling them to pay higher benefits than defined contribution plans.
The Police will get special treatment while everything of value is being looted. When there is nothing left to guard, the “Police Tool” will be discarded.
We really are seeing a real-life version of the second RoboCop movie – but without the cyborg hero.
On a side note, this is another page in “crush the union” thinking. Who will want to work for a city pension any more? This means privatization to companies such as Academi—previously known as Xe Services LLC, Blackwater USA and Blackwater Worldwide. I expect homeowners will be allowed to purchase “premium” coverage packages from the local private police force.
The Snow Crash scenario. Wonderful, bracing science fiction, but not a world I’d like to live in.
The police are MeatBorgs following state machine programming.
Fleshy robots are cheaper than full Cyborgs and they have no lingering system integration issues that could persuade them to attack their corporate overlords like Robocop did.
It’s sad that people who thought they were secure in fact possess little more than empty promises.
But the harsh reality is nobody is innocent in this. This is what the militarization of society does. This is what racist policies like the drug drug war accomplish. This is what misallocation of resources leads to. This is what happens when nobody asks why there are so many prisons and so few wealthy people in them.
When pensions are underfunded, when police budgets are out of control, when healthcare costs explode, when housing costs exceed private sector wages, somebody ends up with the pain. Concentration of wealth and power simply doesn’t work.
If comfortable liberals had reformed things a decade or two ago, this could have been avoided. Now, we are approaching some sort of event horizon or inflection point in the process where defaulting on promises is increasingly the only way out. After all, most younger workers would be ecstatic to have 30% of the pension of a police chief.
Everybody hates the 1% and the bankers but a decade ago when I talked about the looming pension problems and overpriced real estate to people of any economic class, they would laugh and call me a pessimist. In Canada, they still think I’m full of baloney!
Most people wanted to believe in unicorns and now they are looking for a scapegoat.
Unions negotiated pensions as part of a total wage package. They took lower pay, in return for pensions. Not paying a pension is like refusing to pay someone’s wages. I realize that contractual agreements no longer mean anything, but this is really horrifying.
We are looking at retired working people, who will end with nothing: no pension, no social security. This is like Greece, where James Galbraith saw old people picking through the garbage for food.
Here in Canada, I don’t know of many civil servants who took lower pay for better pensions. Apart form the very top jobs, most pay much better wages than in the private world.
So the workers in the private market get lower wages and no pensions. This contributes to higher corporate profits which benefit the DB plans of the public civil servants which still manage to be grossly underfunded.
Too may promises made based on 5 workers per retiree and forgeting that it would drop to 2.5/1 at the exact time these promises would need to get paid out.
Apart form the very top jobs, most pay much better wages than in the private world.
Never seen any evidence that this is in fact a true statement, when controlled for qualifications and experience.
Too may promises made based on 5 workers per retiree and forgeting that it would drop to 2.5/1 at the exact time these promises would need to get paid out.
Retirees per/worker is an irrelevant metric without considering worker productivity/total dependency ratio/employment participation rate etc.
Hedonics in jobs too? How about all those graduates working as baristas? Maybe they should be paid 50$/hour because they have a PhD or MBA.
A large % of today’s jobs don’t need the knowledge from degrees. Most degrees a just a barrier to entry or a rite of passage.
Find me a productivity measure I can trust. Productivity is a nice theoretical concept but in practice it has been bastardized.
We might be doing a lot more than 40 years ago but how much of this was based on using an overvalued currency to exploit emerging markets… or more energy intensive endeavours which will prove themselves to be unsustainable over the next few decades?
Productivity increases in an ageing population usually require technology and technology requires energy.
Unless you’ve decided a priori that a person with the same qualifications and experience working in the private sector is doing god’s work and in the public sector is leeching on the teat of society I can’t see why you wouldn’t control for qualifications and experience.
Granted productivity is a slippery concept. And past trends are no guarantee of the future. So present an argument that past productivity gains can’t be maintained and I’ll listen. The simple ratio of employed/retired remains irrelevant.
When I was young, and I’d say until at least the early 2000s, it was true all day that public jobs were lower pay than comparable private jobs. The whole deal was that they were lower pay, less stressful (less fighting over who gets promoted, more predictable hours) and more secure.
Now as private workers have been squeezed more and more, those public workers look like they took the smarter deal (more stability, a lot less pay and upside) and are now the objects of tons of jealousy and attacks.
That is what I see in Canada also. It’s not the public sector’s fault but the wages have crept up and the pension have followed.
Also, most have no idea how pensions work. Many think they deserve their pensions because they contributed more than those in DCs or RRSPs.
I am always stunned when I meet those in DCs who thought they were in a DB.
The system has done a terrible job of making sure people understand how pensions work.
I’m not following this line of thought at all. Don’t they deserve their pensions because it’s part of the compensation they negotiated with their employer? On what other grounds do you claim to deserve your pay? Don’t you expect it to be what was agreed? If your paycheck next month is short a couple of thousand on the grounds that somebody else somewhere was making less than you and therefore you don’t deserve the extra pay, what would you have to say about it?
You can’t get blood from a stone. Many seem to think that there are fortunes just lying around.
If a private DB is underfunded, then the employer is responsible to fund it. If it funds it, earnings are impacted and the stock can drop like a rock or the company can go under and the pensioners get only a fraction of their pension… I think it is guaranteed up to 35%.
If a public DB is underfunded, then the employer needs to fund it. The employer is the government… or more like the general population. Since most people have no DB, this means they will be paying the bailout through taxes or printing which dilutes the value of the currency.
Once again, why should someone without a guaranteed pension bailout someone with an underfunded pension?
EVERYBODY should get a pension bailout if you believed in fairness. However, if everyone gets a bailout, chances are the economy would get even more distorted.
You can also increase employee contributions but if employees are already retired that means working employees would be asked to fund the retirement of the already retired… and if pension assumptions are wrong for a while this means that those still working are funding the retirement of the retirees who did not contribute enough unless the employer increases its contributions.
It’s crazy. The sane reaction to being a private sector worker, and learning that somebody in the public sector is getting what looks like a better deal, is “Hey! Make my private sector employer treat me better!”. Instead, they cry “Hey! Make their public sector employer treat them worse!” Doubly crazy, in that the private sector is competing for labor in a market that includes the public sector. So what do you think they’ll do when you conveniently arrange for the market to shift their way? Cut your wages more, that’s what.
But of course that’s exactly the purpose of astroturfing the meme.
Actually, no.
Pensions for small firms is costly.
As for large firms traded on the market, offering better pensions to their employees would negatively impact earnings, then the BIG DB plan sponsors such as Calpers and Co. would quickly put pressure on them to cut costs.
These DB plans with their big pools of money are the lifeblood of Wall Street.
If you want to bring down Wall Street, unwind the DBs.
The reason for this discrepancy is that starting in 2000 public workers continued to get their 3% plus raises every year even though private workers were taking pay cuts.
I do not know about all across the country but the average public workers in California get paid approximately 200% of the average private worker.
In Newport Beach there are lifeguards who are retiring at 55 with $400,000 a year in pensions. The average police officer in San Jose is retiring at 55 with a pension of $155,000. Parking ticket writers in Redondo are being paid in excess of $80,000 a year and the same for BART train drivers which is almost all automatic.
Oh and let us sing the poor unfortunate city workers of Stockton Calif where if you were one month for the city both you and your spouse will receive life time health care benefits.
Why are pensions so costly in California. Thank Gray Davis. The pension plans were doing so well prior to 2000 that instead of thinking about reducing the taxes in Commiefornia he instead increased the average pension pay out by 50%. Now anyone who knows anything about pensions there is this little problem with funding prior service costs. No problem we all know that the stock market will continue going up over 8% a year.
One of the big problems at least in California and I would assume in Michigan as well as many other states, is that the number of state employees has grown so large that they basically control the political process and vote in people who will pay them outrageous salary increases and benefits.
Then I see the person below is saying why is it that people attack the benefits of city workers when instead they should push to get similar benefits for private workers. Please help me lord. Most people work for small businesses that are barely hanging on. I bet the same person shops on line to find cheaper prices from Amazon than instead of paying a little higher price in a local area to support a local small business owner.
In the last 40 years the median salary has gone up something like 30% while the cost of govt has gone up over 240%. One of the big reasons the US is uncompetitive any more in this world is the size and cost of the govt at all levels.
“Commiefornia” is cute. Rush? Glenn?
Sometimes the truth is painful. Really if you look at the history of California it practically went communist during the 1930’s.
Let’s look at the situation in another way. The city has three problems — debt it can not repay, pensions it can not repay and thirdly it needs money to run the city. It can only do one of the three. I have no problem shafting the idiots who bought the debt thinking that the gov will never let a default occur so that brings us to the pensions and city costs. Well we could basically enslave the citizens of the city and charge them big fees and provide no services so the pension can be repaid but ultimately only the people that have no money will be left and not very long because they will just die off. So you only have one choice default on the pensions.
The people who should be blamed are the union leadership and the city govt (which by the way, Detroit is rated as the number one most liberal city in the US by some survey I recently read). The elected officials promised benefits which they knew could and would never be paid for the workers votes and the unions signed the agreement. In both cases the leadership lived like kings and the workers, just like people who took out NINJA loans, expected something which was totally unaffordable. This really comes down to mathamatics and people getting conned because they thought they were getting a great deal and thought they were the ones doing the conning.
Most Americans have not recognized the truth yet. America in 1945 was on top of the world because it had bombed to the stone age the rest of the world. However, we have squandered this lead by living beyound our means (like a family living in a mansion burnign its furniture to stay warm) over the last 40 years until the last 20 years the only way we could keep up the appearance is through money printing and that is how the banks gained so much power over the situation. Until Americans are ready to reject this situation then it will continue and get worse.
Actually, the people to blame are people who are in the business of destroying government’s ability to function: The neo-liberal project since the mid-70s, and finally coming to fruition today. If Obama had bailed out the states and municipalities instead of the banks, they wouldn’t be in the trouble they are today. (Of course, the rentiers also looted hundreds of millions of dollars in recording fees via MERS, but I grant that’s not a problem of the same scale). The real issue is the lunacy of not having municipal pensions integrated into the Social Security system, since we live in a world now where ideologues can rip up contracts if they decide they don’t like them.
And the commies in the USSR and China just needed to tweak a few things to make Socialism work, right? Sigh.
Government doesn’t work because it is fundamentally based on coercion, a.k.a. the threat of violence, to function. When you threaten people to get what you want, you almost always get the opposite.
When you advocate for the state, ANY state, you are advocating for violence. Violence does not solve problems, hence the centuries upon centuries of one failed state after another.
I suspect you, Lambert, are too incentivized by the status quo to be able to understand this. After all, it is difficult to get a man to understand something when his paycheck is dependent on him NOT understanding it.
Those like you who preach the religion of Statism are all the same; sociopaths who refuse to acknowledge the violence that they are advocating. How very sad to live in a world of illusion. It must be terribly confusing.
I’ll let the ad hominem go, to allow the Statist discussion to go forward. Surely you don’t believe that the state is the only source of violence?
Sociopath was not an ad-hominem, but a word describing your demonstrated behavior and attitudes. Thanks for deigning to let me comment through.
To answer your question:
> Surely you don’t believe that the state is the only source of violence?
No I don’t “believe” that, and didn’t say that, so what exactly is your point? Besides, this isn’t about what I “believe”, but rather facts and evidence. Here are some for you:
http://www.hawaii.edu/powerkills/20TH.HTM
States murdered over a quarter of a billion of their “own people” in the 20th century alone – this is NOT counting wars, which would approximately double that number. Private violence doesn’t hold a candle to the violence of the State (feel free to try to prove me wrong). We need to end the State for the same reason we needed to end slavery; threatening people to steal their income is wrong, period. Does it mean people still are never exploited or coerced? Of course not (see: govenrnments). Does that mean that ending slavery as an institution was a bad idea? No.
Do you deny that violence (or the threat thereof) is necessary for the existence of a State? If not, how do you justify it, and how do you reconcile your own advocation of violence to solve problems? Since you’ve already decided that force is required, why bother having a conversation about it?
How much money do you receive from the State on an annual basis, Lambert? How about your lifetime total? Do you see that asking these types of questions are NOT ad-hominems, but rather an essential aspect to exposing biases of those like you who rehash the same, tired arguments day in and day out?
Hmm. “We need to end the State.” Got a plan? I’m a meliorist, not a revolutionary. As for “how much money do you get from the state,” oh please. Used a first-class stamp lately? A public utility?
Oops, I was wrong about the number killed in wars being double, it would only be one-sixth greater:
> Just to give perspective on this incredible murder by government, if all these bodies were laid head to toe, with the average height being 5′, then they would circle the earth ten times. Also, this democide murdered 6 times more people than died in combat in all the foreign and internal wars of the century. Finally, given popular estimates of the dead in a major nuclear war, this total democide is as though such a war did occur, but with its dead spread over a century.
This is why I call Statists sociopaths; they are indifferent to the suffering and murder of a quarter of a billion of their fellow humans, because acknowledging the horrible crimes committed by the State is inconvenient to them. I don’t think you could come up with a better example of sociopathy.
Wow, way to contribute to the conversation, Lambert. Parsing language is so much more fun than, say, actually engaging in debate and responding to arguments. Is hyper-partisanism the only thing you know how to do? You do know that the whole two-party thing is a complete and utter scam, right? I mean, people get that at this point, don’t they? Why do you continue pushing this paradigm? Do you realize how much it discredits your opinions? Or have you burrowed too deeply into the belly of the beast of the State to retain any shred of objectivity?
Sorry, lost in the rhetorical questions. No?
You are easily lost, my friend. None of the questions were rhetorical. This is just you choosing not to understand something that is inconvenient to you. How expected.
It’s always a pleasure to see how easily some can make friends.
Lies. Prove it.
Private industry in the USA definitely pays much better than public jobs. I was job hunting 5 years ago or so – public jobs paid about 80% of what private industry was paying for my education (college degree) and experience.
moneta,
..Canada is not experiencing public sector-infrastructure bankruptcy, are you? This is due to NOT being involved in U.S.-Wall $treet economic disaster…unions, public employees had NOTHING to do with Wall $treet economic disaster, did they????
This is common scapegoat propaganda, as you are well aware. Can you follow the $$$$?
Circa 2001, Wall $treet “derivatives” valued around $2 trillion, but by 2007, over $600 trillion…today over a quadrillion…95% owned by 6 U.S. “investment banks”, 80% of which resides in “City of London” Wall $treet parallel…
follow the $$$$….
Actually CMHC was used in 2008-2009 to prop up the real estate market during the crisis. I think 90% of our mortgages are how guaranteed in some form.
The conservatives most likely did this to prop up the economy so they could win a majority in the election.
We are in a real estate bubble and I would venture to say that we are around 2005 when compared to the US.
Our infra is falling apart but it is still being masked with increasing real estate prices.
Of course, most Canadians will disagree with my assessment because if they agreed real estate prices would not still be climbing.
moneta,
you were given stats you attempt to avoid-follow the $$$$…where does it lead?? (not to public employees, does it??)
“Too may promises made based on 5 workers per retiree and forgetting[sic] that it would drop to 2.5/1 at the exact time these promises would need to get paid out.”
So now we’re going to second-guess the actuaries? Seriously, why do so many right wingers think that actuaries are incapable of factoring this stuff in when these plans are set up? Or do they just think that politicians pull these numbers out of their asses without professional input?
The actuaries don’t have a real say in the matter. The actuaries know 8% return isn’t obtainable. They are forced to pencil in 8% by those that hire them, so that contributions to pension funds (there are expenses) are minimized.
Actuaries typically look at the past. They are not portfolio managers.
Actuaries use longevity tables for pension calculations but I doubt they use the evolution in national population pyramids.
Maybe it will be “Bring your gun collection to work”-day in Detroit?
“Not paying a pension is like refusing to pay someone’s wages.”
I wholeheartedly agree that is the problem. Instead of meeting pension liabilities with present payments, government officials have spent years hiding liabilities, gambling away existing funds, making ludicrous projections about investment risks or healthcare costs, and promising that future taxpayers will pay for all of this.
Even when those future taxpayers long ago fled the city for both local and national reasons of white flight and the drug war and assault on public education and dismantling of passenger rail and militarization of police forces and all the rest.
“Not paying a pension is like refusing to pay someone’s wages.”
No, it’s much worse, for reasons you point out. If you refuse to pay a working person’s wages they at least have the possibility of looking for other work. Refusing to pay the pension of an 85-year-old retiree is a death sentence.
This disgusts me more than I can say. There is no reason why the feds can’t step in and stop the bleeding other than a lack of will. Hell, we have a Democrat in the White House. He needs to get off his ass and lead his fellow congressional democrats. Use your goddamn bully pulpit for once, Mr President, to help the little people. Step up like Yves has here and frame the discussion in a way that seeks not to demonize workers. Until then the right wing, anti government worker screed, will win the day hands down. Repairing that image will take years, if not decades. In the meantime those government pensioners will have few political allies (unless democrats get off their lazy asses), and thus their only hope will reside with the courts. But fat chance they’ll win there. What happens in Detroit won’t stay in Detroit, so if you are banking on your retirement as promised you better hope that the legal process somehow comes through, because the party of the people has a leader who either is too bought and paid for by Wall Street elites, or is too ingrained with neoliberal think to even give a damn in the first place..
http://www.youtube.com/watch?v=mBB3h09p5SA
…the “house negro” has already provided his answer…
“Hell, we have a Democrat in the White House”
I must argue with contention.
Not that it matters. The “two parties” are a Vaudeville act — the burlesque of American “democracy.” Except all of the stripping is performed ON the American public as entertainment for a few producers in the box seats.
“that contention”
Here’s how much those who once awarded Obama Nobel Peace Prize have altered their perceptions of our “house negro”:
Bradley Manning nominated for Nobel Peace Prize:
http://rt.com/usa/bradley-manning-nobel-prize-410/
…appears actions from yesterday, today count for more than words today or yesterday…(goes for whistleblower Snowden also)
You’re correct, Carla. My bad. This is in no way the party of FDR.
Too many Democrats still believe that Obama is leading the Dem party of FDR. The obvious reality is that Obama is not leading the Democratic party of FDR and anyone who expects his actions to reflect the Dems of FDR will be sadly disappointed.
I realize this doesn’t leave the traditional voter with a lot of choices, but that’s another problem.
Your heart is in the right place but I’m afraid Obama is never going to “do the right thing.” As has been said in so many other forums, the System can’t do the right thing because the System can’t SURVIVE the right thing. So it will do the WRONG thing until it destroys itself. If we’re very lucky, we might be able to build a more equitable system out of the ashes. If not…who knows?
As Martin Armstrong has made abundantly clear, we are ALL going down with this plane because we’re all on it and it has no means to continue flying. We’re on a glide to zero altitude and we just have to face that.
The good news is a lot of the hand wringing over the complacency of Boobus Americanus will be a thing of the past. When this baby goes tits up, I think the reaction against TPTB will be swift, violent and unstoppable. You’ll just want to absent yourself from the scenes of most confrontation until it sorts itself out. You’ll be able to tell when you see bankers and congressmen flying like pennants from the lamp posts.
Don’t worry, everyone can come and live in good old recovering England – we must be recovering because Sky News can roll out three cloned bimbettes to tell us so! Momentum is everywhere! Soon, led by our brave cricketing heroes we will re-establish the Empire on which the sun never sets. Foolish of you colonials to rebel – look now they can’t even pay your pensions. Or have I got this wrong? Surely not!
With all the possibilities our pensions are worth squat (mine is 14% non-funded government underwritten), our deposits might be bailed-in and we have no idea on the extent of liabilities to the financial curse, economic news is about celebration of house price increases.
We surely have the fundamentals wrong and a populace that only knows when the wet-fish comes home to slap it in the face. It’s probably time to move to a redistribution spreadsheet. But how can we get that on the agenda when people can’t see one has been in force since 1980 to th detriment of most?
Obama bailed out the banks but not the states or municipalities. And here we are. Coincidence, I’m sure.
By bailing out the banks Obama necessarily destroyed the cities and states. Much of the “debt” supposedly afflicting cities and states is, after all, debt to banks (swaps derivatives and other compound interest products). And That debt Must Be Paid Uber Alles.
2 sides of the same ploy.
Yeah, swap derivatives based on LIBOR, right?…which we know the banks have rigged, right?…Gawds, I love our country! As the Lady said, Them that’s got shall get…
..some have been noting since long prior to 2004; Milton Friedman “Chicago Boys” “free (deregulated) market” economics is “boiling the frog slowly”…
follow the economic policy: “Confessions Of An Economic Hit Man” (Perkins):
http://www.thriftbooks.com/searchresult.aspx?searchtext=confessions%20of%20an%20economic%20hit%20man&searchby=title&intsortby=1&intsortorder=0
“The Shock Doctrine-Rise of Disaster Capitalism” (Klein):
http://www.thriftbooks.com/viewdetails.aspx?isbn=0676978002
…for but two documentations of many…
I feel bad for those who are losing their pensions but I feel just as bad for those without one.
Why should a retiree with an underfunded DB get a full pension while the others with no DBs suffer bad market returns?
A quick calculation shows that with same pay and contributions those with a DC will have a portfolio of around 500K while those in DBs a pension “valued” at 1-1.5M using optimistic ROR and discount rate. If they used proper assumptions, the values would probably drop closer to 500K.
IMO, we should convert all these underfunded DBs into DCs or pay those retirees without DBs an amount equal to the unfunded amount the retiree with an underfunded plan is getting.
Unfortunately the pension system is broken and every time we pay a full pension to the employee in an underfunded plan, we are asking those without DBs to fund their retirement.
moneta,
yet again, follow the $$$$….your “quick calculations” have nothing to do with Wall $treet economic destruction of U.S. $6.5 trillion per year economy, over
7 years ago, which you and other right-wingers are attempting to gloss over, which actually CAUSED the economic disaster now leading to “shock doctrine=disaster capitalism”…
nor do you wish to investigate parallel disaster capitalism historically forced upon South-Central America, 70’s, 80’s, by Milton Friedman disaster capitalism…which I am able to document thoroughly, as opposed to your tome’
Your “why should” reminds me of the old joke about a Russian peasant. A genie appears to him, and grants him one wish. After careful consideration, the Russian peasant says: “I would like my neighbor’s cow to die.”
Goat, not cow.
Oh, OK, now I get it. It didn’t make sense with “cow”. sarc/
I think this is all kabuki theatre leading up to a bailout. There is no way Detroit and any other cities to follow, are not getting bailed out. Yes, yes, they will make them go through all the court hoops giving it a veneer of due diligence etc. When it is all said and done a few years from now two things will be certain–100’s of attorneys will make tens of millions and the union workers will get every dime while crying the blues that they now have to contribute to their dental plans. Meanwhile we will all get to gnash our teeth and pretend it won’t happen.
If that’s the case, those without DBs should quickly unite and start making pensions requests asking for the same amount as the bailouts would provide.
more moneta scapegoating of VICTIMS of Wall $treet economic disaster…
got history??
That sounds like a GREAT idea…
…but, wait. Wouldn’t that be one of those evil Union thingies?
Oh, now I get it. Contracts don’t matter when one of the signatories is a union. Understood.
‘What really distinguishes the impact of bankruptcy on public pensions from private sector pensions is that public pensions are uninsured, whereas there is a solid pension insurance system [PBGC] for private sector guaranteed-benefit pension plans.’
Precisely! The root of this problem is what one might call ‘sovereign narcissism.’ When ERISA was passed in 1974 to impose funding standards and insured backup for pensions, all levels of government (including Social Security) were exempted.
Why? Well, government bankruptcies were rare, for one thing. Another was the notion that unlike the private sector, governments can always hike taxes. Most pernicious of all was the fantasy that the fedgov can simply print the currency to paper over its obligations.
How to fix the current municipal pension mess, I have no clue. But the long-term remedy is clear: stop letting governments exempt themselves from the strict prudential rules imposed on the private sector.
‘Sovereign’ don’t mean ‘special.’
I suppose if you repeat “fantasy” often enough, somebody will believe you. It certainly worked for the neo-classicals.
“Most pernicious of all was the fantasy that the fedgov can simply print the currency to paper over its obligations.”
Actually, that is EXACTLY the case, and has been since 1971. It’s called a fiat currency, and a government can never default on its obligations so long as they are denominated in its own sovereign fiat. You would perhaps prefer the gold standard, so the government could default?
Printing fiat currency amounts to a protracted, soft default.
Obviously a hard default is more traumatic.
The question, though, is whether an ‘elastic currency’ in fact encourages fiscal recklessness. I believe it does.
In the gold standard era, fiat currency was a temporary resort during wartime. Now we have permanent fiat and permanent war. More of the same is supposed to make things better?
“Printing fiat currency amounts to a protracted, soft default.”
Life is always easy when you can just redefine your terms!
Jim,
You have your good days but today isn’t one of them based on your comment.
Hint: Moses was 120 years old when he died and was PERSONALLY buried by the LORD HIMSELF* and “Although Moses was one hundred and twenty years old when he died, his eye was not dim, nor his vigor abated.” Deuteronomy 34:7 [bold added]
In other words, the Lord keeps His tools well maintained? But gee wiz, it must be frightful to approach old age alone.
*I’d bet He used His bare hands and maybe sweated too.
Printing fiat currency amounts to a protracted, soft default.
No, it doesn’t. History shows that “printing money”, loose money, tends to be somewhat less inflationary than the hardly different “printing bonds”, tighter money. Good deficit spending, like New Deal spending is not inflationary at all. An MMT/JG policy would have the hardest money the world has ever seen. Not printing money, forcing people to be unemployed is inflationary. Again, “printing money” to halt the destruction of colossally valuable assets – the labor power of the unemployed – is not inflationary – why on earth should it be?
The question, though, is whether an ‘elastic currency’ in fact encourages fiscal recklessness. I believe it does. Well, yes, it encourages recklessness on spending for welfare for the insane rich, on their insane projects. But even worse is the reckless not-spending on common sense, on working people who create the wealth that the insane rich misdirect – like criminally defaulting to retirees, like not having a JG, like not having more efficient and effective “socialized medicine”.
In the gold standard era, fiat currency was a temporary resort during wartime. Now we have permanent fiat and permanent war. More of the same is supposed to make things better? Fundamentally, the gold standard era never existed. Gold was only so valuable because governments would spend their valuable fiat money on it. All money is fiat money, which is millennia old.
A gold standard is fiat money backing gold, not vice versa. If the worlds central banks got rid of their gold, the price would plummet. Thinking that gold is an objective measure, that there can BE a measure other than sane government policy, is a crazy fantasy that thankfully the world has moved beyond.
Easy solution going forward- no more defined benefits for public workers. And if the funds and insurance for the present ones fail, then so be it. The workers should have been demanding and receiving cash in hand, not promises of politicians who wouldn’t be on the hook for delivering on them in the future.
I just love how Yves fails to account for the effect of overly optimistic projections because they are within the norms practiced in private plans, but both sectors are pretending the risk of shortfalls doesn’t exist, and are both trying to pretend that no one has to pony up the amounts of hard cash today. I would say that Orr’s estimates are probably too low for the Detroit shortfalls. There isn’t going to be 7-8% return year after year, so his critics are already full of it.
Not merely easy, but final!
So be it, Yancey? What does that mean? Let those pensioners who lose their pensions and have no social security benefits starve to death? How about a bailout commensurate with what the Wall Street cronies recieved? How bout that as a starting point or do you get off on seeing working folks suffer?
If there is no bailout for pensioners with DC plans generating returns <7%, why should there be a bailout for underfunded DBs?
That's the problem in the US, the entire system is failing and totally unfair.
I had a DC, and I am not getting bailed out. Neither should DBs.
Why? Because you cut a bad deal, everybody else should be brought down to your level?
* * *
Of course, if we had a first-world pension system that the banksters hadn’t looted with 401ks and other scams, we wouldn’t even be having this discussion. But here we are.
The pensions would have to be kept fully funded without pretending to make out-sized returns. Yes, this could be done, but it would make the two parties to the negotiation put up real cash on an ongoing basis instead of promises that neither is capable of keeping long-term. Much better to just be open about the risk and go to a DC. Like it or not, a retiree funds his/her own retirement, whether they know it or not. DBs are pernicious because they obscure this reality, and when the plans get underfunded, it is just the recognition that the retirees didn’t fund enough while they were working.
“Why? Because you cut a bad deal, everybody else should be brought down to your level?”
A contract isn’t a contract because a Union is one of the parties? That’s what you’re saying, underneath all the evasion.
If I have no pension or a DC only offering real life returns, why should I pay taxes to bail out underfunded DBs that are still using optimistic assumptions?
How about a bailout commensurable with what Wall Street cronies will receive?
That’s the question I’d like answered. We can’t adequately fund Social Security with years of wrangling but TARP gets passed in a long weekend. We don’t have money for education, universal health or infrastructure but we can have a defense budget fit for a Death Star. We can prosecute a black teen with a baggie of pot but Jon Corzine is eating lobster as I type.
I’m not ready to give up ANYTHING coming to me until there is a rebalancing for EVERYONE. And that doesn’t mean I get to deflate down to subsistence wages/DC in the private sector mercantile market. That means the Wall St. SOBs who looted America at-will get flushed right along with everyone else. If they don’t, I’ll fight for my “generous” public benefits that I’ve worked for.
This “tough love for thee and a warm place for me” when it comes to the pirates who have swarmed the rigging doesn’t work for me…at all.
…I just love right-wingers attempting to scapegoat VICTIMS of Wall $treet economic disaster…
2001, “financial services” composed 19% of U.S. economy….by 2007, 41%…today over 50%…
$peculators driving economics get a free (market) pass from right-wingers…
and that’s long been the prevalent condition-here’s one documentation:
http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html#.Ugpcu5hpBaU
..right-wingers love to hate WikiLeaks, official U.S. diplomatic cables exposing
their LIES…
But the general obligation bonds always get paid in full (look at Rhode Island), while the pensioners get slammed. Bondholders knew the risk when they invested, while pensioners are essentially losing wages for work they already performed. That’s called thieving.
Sometimes, GO bonds get paid in full- it depends on the specific bankruptcy, but contract/bankruptcy law assigns who has priority in bankruptcies in any case. I know people like to claim that the bankruptcy is robbing the pensioners, but that was the risk they took when they took the promise of a DB- the workers and the unions never had to take a DB in the first place. I have no sympathy for people who think there should be no risk in retirement benefits.
Yancey, you’re just wrong. Union workers were bound by the dictates of their collective bargaining agreements. DB pension contributions were part of those agreements. There wasn’t an opt out clause. And in many instances these DB’s excluded SS payments and thus the accruing benefits. If you had a DC plan then you’ll still be getting SS benefits, especially in the private sector work force, and you’ll still have your DC pension. That’s not to say I don’t sympathize with the plight of those not on DB plans. I do very much, and I’d like to see those on them compensated for losses not due to their own negligence. On the other hand folks on DC plans need to push for blunting of risk and organize and demand something akin to a national DB plan, such as the social democratic models in Germany and Sweden. Retirement should not be left to the vicissitudes of the market.
Given present realities, however, you really need to stop blaming the victim. Yes, these pensioners are victims—of largely fucked up economic mismanagement at the national level. If you think shiting down the throats of workers is going to benefit you, a worker too, then you’re going to be in for a rude awakening. What affects main street affects us all.
Maybe the government, in the name of justice will need to confiscate all plan assets (DBs and DCs) and pay out SS benefits to all.
This has been happening in more than 1 country.
Not pretty but when all sides are screwed with the current situation…
Why is this “not pretty”? This is a good idea, recommended by MMT economists. No more inefficient and overpaid Wall Street pension fund managers. Fold pensions into Social Security, which can never be in trouble, except from Big Lies. The more generous and universal SS is, the harder it is for the Big Liars to repeat the success of the 1982 Greenspan Commission Big Lies.
Confiscation of private money is a HUGE deal!
Go look at the countries that have done it, not inspiring.
“Confiscation”? The MMT plan is to Replace the shaky pension fund with a rock solid SS plan. Win, win for everyone. Companies and workers don’t have to worry about retirement plans. Returning to a higher level of technology – the 1930s-40s-50s Keynesian level in economics has a magical way of providing free lunch win-wins.
The only conceivable problem is real. And that is a sick joke. Because the world’s current problems, the economic problems of the last 40 years have next to nothing to do with “the real world”, the “material world”. But everything to do with the decision to abandon accounting, arithmetic, addition and subtraction and the colossal “free lunches” those new-fangled communist inventions provided, and adopt imbecilic “economics” that would have embarassed a caveman.
Rock solid? I’ll believe it when I see it.
The problems we are going through are not just monetary, they are structural. We have just spent 40 years investing in what we did not need destroying the planet and exploiting emerging markets. So if we just instantly start printing away and distributing the money to everyone, it does not instantly make the economy produce what we truly need. It will create even more distortions.
MMT is based on a free lunch and there are no free lunches forever for an entire population. The Western world just got 40 years of free lunches, now it’s payback.
Retirement benefits is the one place there shouldn’t be any risk, as there’s nothing you can do about it once you’re old enough to retire. That’s why we have Social Security. And we should have a stable, secure retirement system–not a 401k or similar venture–for all workers. It’s not the fault of government workers that private sector workers had 401ks foisted on them, and it’s now clear that those don’t provide retirement security, or even retirement, for most workers. We can only hope that the 401k dies the death it so richly deserves.
“Retirement benefits is the one place there shouldn’t be any risk, as there’s nothing you can do about it once you’re old enough to retire.” Ding!
If pensions are risk-free, that means investing in low risk securities with low returns that would lead to no retirement for nearly everyone.
If pensions are pay-as-you-go, that means the current generation of workers pays for the retirees. That works well as long as the population is growing. However, we are entering a situation where, thanks to a baby boom followed by a baby bust, the generation picking up the baton is a bust. This means a risk that the pension burden will be too heavy for that group.
There are no guarantees in life. The last 40 years have bamboozled the West into believing that there are free lunches for everyone when in reality, only a few can enjoy them.
If pensions are risk-free, that means investing in low risk securities with low returns that would lead to no retirement for nearly everyone. Nonsense. Just fold everything into SS, a state pension plan.
If pensions are pay-as-you-go, that means the current generation of workers pays for the retirees.
That is how it MUST be always, no matter how you play around with finances, in real terms. Real terms are the only ones that count. On this level, the finance is just bullshit. And people worry financially when in real terms, there is no problem at all.
That works well as long as the population is growing.
No, it works fine as long as their is no Black Death. No collapse of technology/civilization. No asteroid hitting the Earth. And then the problem is not SS, a retirement bulge. Which will be a GOOD THING, enriching all cohorts! But the asteroid/Black Death etc. Different generation cohort sizes? A joke!
However, we are entering a situation where, thanks to a baby boom followed by a baby bust, the generation picking up the baton is a bust. This means a risk that the pension burden will be too heavy for that group. Nonsense. This demographic / generational gibberish is everywhere. But it is still gibberish. Why not read uhhh – DEMOGRAPHERS on demography. Like Joel Cohen, in his How Many People Can the Earth Support. Who laughs at such Big Lie arguments. Quoting from 20 year old memory: “If a society can afford a generation as children, it can afford them as oldsters.” The fact that there was a baby bust means that resources will be directed toward improving society’s productivity and capital, and not toward a baby boom. There will be a lot of adults and few children and oldsters. This will create a lot of real wealth, which will sustain the big generation in its old age. That’s the way it has worked for millennia. You really think that a baby boom / bust is a New Thing, Never Before Seen? HA!
There are no guarantees in life. The last 40 years have bamboozled the West into believing that there are free lunches for everyone when in reality, only a few can enjoy them. Completely the reverse of the truth. The last 40 years have been the few imposing moronic economics on the many, degenerating “social technology” to match/ outpace the progress in “material technology.” Doesn’t matter that everyone has a chicken in every pot. And we do! If the elite convince everyone to eat their shit. These last 40 years have been the worst material progress for the bottom 90% of the USA, since before 1776! Worse than the Great Depression, because it was bracketed by good growth!
In short, decades of stupendous destruction of free lunches, followed by a Great Recession INCREASING the destruction, a desperate-but-successful attempt of the elite to create poverty midst plenty. For the sole aim of impoverishing the 99%, while the 1% gets poorer (than that of the 1% in a sane world), but relatively richer than the 99%.
The problem with assumption is when you say better for everyone and do not account for the lag effect.
To the first point, there are still 20% to 30% who currently enjoy MUCH more than what a redistribution for everyone would give them. That is a real friction point. In their eyes, your proposal will not be better for them until they have lost what they have.
To the second point, you seem to assume that all we need to do is snap our fingers and the system will be fixed up instantly. The reality is that even if we went ahead with your proposals, we would still see huge economic upheaval for quite a while. Any huge systemic change will require a generation’s sacrifice. If you have ever cleaned up a mess, you will understand. And many of those who are currently in the top 20-30% would suffer a great deal. So once again, you are not going to get their support until they are also broke.
Your theories might be good but in practice, implementation would be a big pill to swallow for many.
I agree that there is enough for everyone but ONLY if the top 20-30% accept to live a much smaller material life.
However, this goes against every fibre of American culture. America will use everything in its power to get the energy it needs to keep it material lifestyle.
For your vision to become reality, you will need a paradigm shift before this happens. IMO, this paradigm shift can only happen if the top 20-30% loses a lot.
IMO, if MMT were to get accepted, it would not be used for the general population but just to maintain America’s might to the detriment of the lower classes.
“I know people like to claim that the bankruptcy is robbing the pensioners, but that was the risk they took when they took the promise of a DB- the workers and the unions never had to take a DB in the first place.”
One of the most asinine theories I have seen to date; congratulations on this surfeit of surrealism.
It’s called DEFINED because the contract species contributions and benefits. The defined risk was never presented as the risk of contractual default while Wall St. pirates who had walked off with the treasury get 100% protection.
Please tell me you are being paid to write this tripe. No one in their right mind would attempt a spin this big unless they were hired to do it.
Well, these small, post-USSR breakup-style decreases in life expectancy add up, after all, and will ultimately increase the actuarial soundness of Social Security. So let’s look on the bright side.
Rather than trying to replying to each poster, I’m gonna present what I think is a pretty accurate overall take on the issue. In so doing, I’m going to say up front that I’ve been (in one case still am) a proud member of three private sector unions. For the last 25 years of her working life my mother was a municipal employee who retired with a combination of a modest CalPers pension and Social Security from her earlier private sector employment.
Yes, the banksters played a part in the disaster through everything from predatory swaps to exorbitant fund management and consulting fees? Likewise, the GFC drastically reduced government revenues at state and municipals levels.
With those facts accepted, there is still plenty of blame to go around for the other parties.
First, until somewhere around 2006, GASB rules did not requite public entities to fund their future pension obligations on an accrual basis. So if my local city was assessed $1 mil for the current fiscal year pension contribution, the city did not have to prepare for the (known) fact that in three years that assessment was going to jump to $4 mil. And since, unfortunately (or perhaps, fortunately), the city is limited in raising revenues, WHAM!, three years later a $4 mil CalPers assessment can only be funded by cutting current city services.
Then there was the duplicity of the Pension Board, which in CA is dominated by reps of the employee unions. (Along with four state wide officials who are predominately pro-union Dems dependent on union backing to get elected.) Despite years (even decades) of only earning 1-3% ROI, the board continued to use a ridiculously rosy ROI projections of 8% a year. Why? Because the alternative was either raise revenues (something unpopular with voters and difficult to do) or reduce pensions. Nobody (in power on the board) wanted to admit that the state could not afford what the politicians were promising.
Third we come to the idiocy of the Legislature, Gov. Davis, and the public safety unions in getting the pension formula changed from 2% of highest salary x number of years served to 3%. So suddenly we had public safety personnel retiring at age 50 or 55 at 90% of the current salary (3% x 30 years) PLUS annual COLAs, AND extension of their current health care coverage until the retiree reached Medicare eligibility at age 65. (And if I understand things correctly, after 65, the state health plan covers that portion not paid by Medicare, meaning retirees don’t have to enroll in a Medicare Advantage plan.)
The day that act became law (and it applied retroactively with respect to years served) a $30K pension became a $45K pension, a $40K pension became a $60K pension, an $80K pension became a $120K pension, and so on.
Fourth, even those this increase in the benefits formula originally only applied to public safety personnel, pressure from unions in other public employment sectors resulted in the new formula being applied there as well.
Fifth, there was no cap on pension bennies. One former Fire Chief in my little suburb of 66,000 residents gets a $220K annual pension. One of his predecessors squeaks by on only $176K, which is $14,660 a month. His MONTHLY pension check is about the same as the average SS recipient’s ANNUAL benefit. No wonder he can afford a fleet of 13 vintage hot rods and muscle cars.
Although it was the leadership of the unions that collaborated and conspired with elected officials to create this disaster, the union rank-and-file also bears responsibility. They were only too happy to ignore warning signs and dismiss predictions of catastrophe. I have no use for either political party and certainly am no fan of the right wing, but those conservative economists and actuaries back in the 1990’s who predicted the dire situation many public pension plans now find themselves in were right.
Jess,
Plz follow the $$$$ and SHOW us how much you are attempting to scapegoat-blamegame on unions, (your “plenty of others”), pensioners, state employees, etc., etc.?
U.S. economy is roughly $6.5 trillion per year. It has been destroyed for over 7 years already, on the way to what Gore Vidal (RIP) described as another 20, never to be the “same”.
SHOW US-follow the $$$$-document your “plenty of blame to go around”???
All of us here KNOW what Wall $treet has perpetrated-apparently you don’t, or are attempting to DENY where that $$$$ went?? Do so please, or admit you are not up to the task.
There is simply no way in the world your theory can be proven, is there? On the other hand, Fanni-Freddi contained only around $6 trillion (one year U.S. economy) in mortgages foisted off by banks upon them, and a very small sum involved “subprime” or “liar’s loans”…so it wasn’t fanni-freddi, was it?
Pensions? Really? Unions? Show us how much you can ascribe to them.
Yet again, “derivatives”, 2001, held by Wall $treet banks, amounted to around $2 trillion, but by 2007, $600 trillion-here’s that documentation:
http://www.nextnewdeal.net/wp-content/uploads/2009/10/raj-revised-testimony1.pdf
and explanation of:
http://www.nextnewdeal.net/what-congress-did-not-want-you-read-robert-johnsons-testimony-otc-derivative-market
……………….
Today, “derivatives” held by Wall $treet banks are thought to amount to over a Quadrillion$$$$….95% of which are owned by Wall $treet banks, secreted in “City of London” Wall $treet parallel…
read Shaxton’s, “Treasure Islands” for that story:
http://www.amazon.com/Treasure-Islands-Uncovering-Offshore-Banking/dp/0230341721/ref=sr_1_1?s=books&ie=UTF8&qid=1376420499&sr=1-1&keywords=treasure+islands+tax+havens+and+the+men+who+stole+the+world
meanwhile, your proof is nonexistent…prove me wrong!
CalPERS health benefits are determined by the employer. Some provide a cash subsidy to offset the out-of-pocket costs for retirees. Some allow workers to sign up for the Medicare Advantage Plan run by the insurer (Kaiser, HealthNet etc.) that the employee had when working, with CalPERS subsidizing a portion of the premium. Public safety (police, fire and prisons) get larger subsidies, but that’s negotiated by the unions, and are the ones most likely to get Republican support.
I’m recalling my first job, many years ago, as a ballpark vendor. Pay was entirely on a commission basis; our employer got around minimum wage requirements by firing any employee whose weekly commission was less than minimum wage.
I think that basic idea could be developed into a stone that would kill many birds. So, a modest proposal:
1. All US residents shall be required to present proof of gainful private-sector employment. Those who cannot do so–retirees, politicians, government workers–have the option of payment of a one million dollar bond.
2. Certificates are issued to all residents presenting the required proof, or bond. For simplicity I guess we can call them Right To Life Certificates.
3. Anyway failing to present a valid Right To Life Certificate upon demand is shot on the spot. Obviously, we’d hire private security firms for this function–it’d be an ideal way to let some recent grads obtain the necessary certificate, as their First Person Shooter experience would give them a leg up on the new jobs. Eventually, of course, we’d automate the process with drones programmed to compare on the spot retina scans to the National Right To Life Database, but I don’t think current drone technology is quite up to the task at present.
Immigration, unemployment, entitlements, minorities, the poor, the government…everything my TV tells me is a problem in this country could be solved with one simple piece of legislation.
If someone can get me three minutes in a bond-trading pit and some CNBC cameras, I think I can get this movement off the ground. And while I’m all for seeing my neighbor’s cow die, I think in the present crisis we should probably cut to the chase.
“And while I’m all for seeing my neighbor’s cow die,…”
It was pointed out that bromide only works if it’s your neighbor’s GOAT.
As least, that’s what I took from the post…
..by the way, Jess,
calpers is solvent today…in the black. Gov. Davis, REALLY???
Please don’t revise history. ENRON. Read carefully-George W. stated ENRON debacle (a clue to what was coming on Wall $treet) was “the free market working itself out”…a year later, after ENRON and his buddy imploded, he changed his statement to, “We never could have known” (Condi’s 911 LIE, reiterated). Some months following, the SEC stated, “We knew what was going on all along”…
Who was telling the truth, Jess??
What really happened to California’s economy, Jess?
Follow the $$$$ for us…don’t revise history…
Congratulations, you win three prizes:
– The apples to oranges prize.
– The strawman prize.
– The non-response to the arguments Grand Prize.
There is no doubt that the crash in the CA economy and the losses caused by financial institution predatory practices have exacerbated the pension funding crisis in CA and other states. But that does not change the other facts I cited, and to which you failed to respond. Yes, it’s fun to hate the banks. Doubt you could out-do me in that department. But that doesn’t change the other facts, for example:
Is is true that for years CalPers estimated it’s funding based on an 8% annual year-over-year ROI while in fact earning only 1-3% for year after year after year? The answer to that question would be YES.
Is it true that CalPers, like government entities in Ill and NJ, as well as other states, deliberately underfunded (or did not fund AT ALL) their annual pension obligations for years on end? The answer to that question would also be YES.
Is it true that with a flick of the governor’s pen, workers got 33% retroactive pension credits, and that a typical $30K pension immediately jumped to $45K, even if the retiree was only one day away from filing for retirement? Well what do you know, the answer to that would also be YES.
Is it true that CalPers is “in the black”? Well, yes, if you consider “in the black” to be “capable of paying current year obligations”. However, as you look at the unfunded liabilities of CalPers and other CA pension funds you can see that the only way to STAY in the black is to dramatically increase the contribution (assessment) from municipalities, counties, school districts, and special districts. And the problem with that is: how do you keep increasing these assessed contributions without sacrificing funding for current services? The answer is: Absent new revenues IN EXCESS of what was coming in during the pre-GFC collapse, you DON’T. The actuarial predictions about the pension tsunami were coming in well before the bottom fell out of the economy.
And let me restate something you seemed to have glossed over: My mother had a muni pension. (In fact, for several years she was her city’s employee delegate to CalPers. In one instance she even got credit for calling CalPers attention to a potential fund loss involving a failed insurance company who did business with the fund.) And I’m a union guy, 3 times over. My Dad served on the Exec Board of his union. In fact, my mother and father met at a union hiring hall where he was a member and she was the secretary to the business agent.
I’m not anti-union and I’m very definitely pro Guaranteed Benefit Pensions for both public and private sector. But that doesn’t mean that I’m willing to give unions a pass when they collude to deceive taxpayers. Nor will I give them a pass when public employee pensions for some retirees exceed all basis in fairness.
The fact is, by paying often outrageous pensions, we are paying two people to do the same job. We are paying one guy $65K to do the job now, and we are paying $60K to the guy who used to do the job. This is not only unsustainable, it’s a perversion of the original intent of pensions, which is provide people with a dignified retirement, not to enable them to live like mandarins, as the former fire chiefs in my city do.
no, congratulations to you, for NOT in any way, being ABLE to follow the $$$$ to prove your rightwing nut job…no surprise there, none ever have, and neither will you…prove me wrong…
pathetic
A rightwing nut job? Nothing like frustration to prompt an ah hominen attack.
Qualifications as ightwing nut job. Hmmm, let’s see…
– Volunteered in JFK’s presidential campaign. Check.
– Volunteered in RFK’s presidential campaign. Check.
– Volunteered in McGovern’s presidential campaign. Check.
– Volunteered in Tom Bradley’s campaign to become L.A. first black mayor. Check.
– Lifelong registered Democrat. Check. (Embarrassed to say.)
– Active in local initiative campaigns aimed at limiting development. Check.
– NEVER voted for a Republican for national or state office.
Yeah, looks like I hit all the bases.
..here’s documentation on the “quadrillion” in derivatives, which IS enough to take down a U.S. and world economies for 20 years +:
http://www.nakedcapitalism.com/2013/03/worldwide-derivatives-market-estimated-as-big-as-1-2-quadrillion-as-banks-fight-efforts-to-rein-it-in.html
http://www.dailyfinance.com/2010/06/09/risk-quadrillion-derivatives-market-gdp/
http://beforeitsnews.com/alternative/2013/06/the-horrific-1-5-quadrillion-derivatives-bubble-2-2687352.html
http://therealnews.com/t2/index.php?Itemid=74&id=31&jumival=8820&option=com_content&task=view
http://www.washingtonsblog.com/2012/05/top-derivatives-expert-finally-gives-a-credible-estimate-of-the-size-of-the-global-derivatives-market.html
………………….
..follow the $$$$ to ANY other alternative explanation, right-wingers…you can’t, won’t, never have, never will….
Yves – “Another issue for Detroit that we discussed in an earlier post that is likely to come up with other stressed municipalities is that the city did an extend and pretend funding in 2005. That refinancing involved the heavy use of swaps. Guess what? Swaps are secured, and hence senior to a normal bond issuance or bank borrowing. So the swaps counterparties moved themselves to the head of the line in a restructuring or bankruptcy.”
Follow the money and follow who writes the laws: the slimy banks and politicians.
When the people who changed laws to put themselves at the head of the line, or who underfunded pension plans when they were supposed to be funded are hanging from the highest lamp post, then you can consider hurting people who worked their whole lives – actual workers, not rent seekers.
Tax the shit out of money made purely from investing!
Government?
Meet bathtub.
I would also like to ask:
Why is it fine to berate sellout union leaders like Trumka and Gerard and that former SEIU guy, but it’s not okay to point out when public employee unions have engaged in practices designed to deceive and even loot taxpayers?
Here’s something to consider: During contract negotiations, many of the officials who sit across the table from the public employee union reps are also covered by the same pension plans and stand to personally benefit from granting outrageous and unsustainable pension demands. There is no one sitting at the table who represents and has the best interests of Joe Citizen Taxpayer at heart.
And BTW, iirc, the recent public employee pension reform package pushed and signed by Gov. Brown caps pensions for all new hires at $75K/year. If pensions over that amount are not a problem, why the need to cap new ones? Could it be that the pension for one former fire chief in my city would fund $50K pensions for four average municipal employees?
Jess still can’t-won’t follow the $$$$ to cause of economic disaster-and he never will, will you Jess? Prove me wrong…you can’t-you won’t…
Anyone remember ‘liberal’ Republican governor of New Jersey, Christine Todd Whitman, funding her tax cuts by not making the regular payments to the state pension fund. The ‘returns’ made it unecessary, you see. She was a genius.
I’m not from NJ. Anyone here know how underfunded the NJ state pension fund is? Is Chris Christie making the payments and making up for any shortfall? Or is he taking advantage of the rise in the equities markets? He’s been cutting taxes. I’m curious. Glad I’m not an employee of the state of New Jersey.
At the local level, people can quibble all they want about whether the housing crisis hurt tax revenue, or whether the sub-prime crisis caused banks to pay less in taxes, but cities such as NY have to deal with the budget they have. The reality is that while workers are not excessively paid, their pension benefits are too high relative to the the size of pensions and the abilities of cities such as NY to continue to fund retirement at age 50 when people can live to 90 and use that retirement to work a second job.
It’s gotten out of hand because politicians are put in the position of needing the votes of unions while being on the other side of the bargaining table.
Oh, please. Nobody needs union votes any more; if they did, ObamaCare wouldn’t be destroying the health care plans unions achieved through collective bargaining. Go look under the bed for another bogey man.
The real issue here is that “conservatives” think it’s a good thing to tear up contracts if they decide one of the parties to the contract is the wrong sort of person. How they reconcile that with a desire to have markets that function I can’t imagine, so I can only assume the motivation is irrational hatred for working people and greed, probably in that order.
All this pissing and moaning and seeking to undermine the next guy just goes to show that universal old age pensions should be funded out of US fedgov’s hypothetical bottomless pit and have no relationship whatsoever to anyone’s jahb.
If some old age pensioner was privileged enough to have saved money on the jahb in their youth, then bully for them. Go buy an RV and tour the Finger Lakes.
Life could be a lot more pleasant if we didn’t put such a high premium on punishment, (and then willingly pay for it).
Seriously, I can’t even read this self righteous crap–it’s like I came up on a bunch of Freepers.
The idea that any justice was created anywhere in this work based “retirement” system is baloney of the highest order.
I know. “I didn’t get lucky enough to get one of those kinds of pensions, so just because you were stupid enough to believe the citygov and your union rep, neither should you.”
meanwhile, old folks who don’t qualify for SS (we should outlaw this—ALL should qualify for SS. every single last citizen) face starvation and homelessness.
perhaps we can start a “not for profit” charity-type to suck some gov. funds that will dole out charity to these poor retirees, ala Goodwill. then we can suck some 6 figure salaries out of the deal for ourselves.
the only thing more evil than this is that joke upthread about lining up the non-workers and shooting them. at least, I hope that was a joke. sadly, sure enough some people will agree with the plan. “I worked my ASS off. people who didn’t should die.”
bring on the drones. our society is too wicked to survive.
You wanna get nauseated by reading self righteous crap? Then head over to Market Ticker and read Karl Denninger’s vile spewings on the subject. His whole goal in life is to repudiate all social safety nets. It’s red meat for the sickos who populate his joint. The sad thing is that that kind of thinking is probably the majority report nationwide. Not sure why they are so sadistic, but it’s positively frightening.
Working stiffs have successfully been demonized, but why? Most of us are just that– working stiffs–yet hate our fellow stiffs. A good psychoanalyst would have a field day with that attitude. No doubt there is a level of culturally aquired self hating involved. We’ve learned our lessons well, I suppose. Courtesy of brainwashing of some sort 101?
We CAN’T loath our betters because, well…they’re our BETTERS. But fortunately, we can loath our fellow wage slaves and those who may have gotten a better deal than we did and thus exercise our vitriol gland at frequent intervals.
I wish I were rich and connected so I could sit around and see just how this appears to the SOBs we should be quartering by now. “What a hoot! They want to chop off the hand of the guy who is grabbing crumbs and give the guy who just stole the bread factory a lift out of town…UNFREAKIN’ BELIEVABLE! HAHAHAH.”
Exactly.
All these people who always want to be strengthening other people’s characters give me a pain.
Those who think that there is enough for everyone would love our leaders bail out the pensions and to print their way out of this mess but the way the “entitlements” have been offered without any concern for the future productivity of our workforce, a total disregard for the baby bust picking up the baton and more importantly the finances of municipalities, it is my belief that there is not enough to go around. My analysis tells me that if we bail out these underfunded DB pensions, we will be TAKING even more away from those without guaranteed pensions unless we start offering benefits to those without such pensions.
Therefore, most of those who don’t want these pensions to get bailouts are not looking to punish the plan members. What they see is a total lack of money and if these pensions get bailed that means even less money for them because the funding will be coming out of their pockets!
I believe the pension system should be pay-as-you-go and those who want more can save on their own.
However, instituting such a systemic change at the current time would be extremely painful because it could entail confiscation of private savings. Effectively, it would give those over 50 little time to prepare for the new structure. Getting a monthly benefit might sound like a good idea to those who have not saved but to those who have been very prudent and have sacrificed, losing access to liquidity or control on their assets can be devastating.
now moneta-rightwingers devolve to their REAL bogeyman-government…
but moneta, if you could (you can’t) follow the $$$$ it doesn’t lead to government, does it? Isn’t that exactly the problem-they’re broke??!!??
government is in the business of OVERSIGHT-accountability…which it has not performed under the “house negro”, nor under bush-cheney-paulson’s bait and switch treasury robbery on the way out the door…
government is where the $$$$ lies??? YOU LIE
We KNOW where the $$$$ is…it’s been documented, which you haven’t indulged the temerity to accomplish…
here’s something: what are we going to do when they finally do put the push on to ruin Social Security so that it is in danger of the same kinds of processes that made Detroit’s retirement pensions evaporate?
we will all be in the same boat as those city workers then.
& don’t give me that “you just have to invest wisely, crap. without sufficient pay there is no savings, and if you’ve struggled to save a meager amount you are likely too cautious to be gambling it on investments in the casino financial system.
Yes. That is the lesson of the 401k scam these clowns foisted on us. Took a generation to figure that one out, unfortunately.
Banks overextended and should be allowed to fail. Unions slept with politicians handing over votes for sweet pension deals. How else would a good chunk of Detroians be able to retire at 45 with sweet benefits in Florida while the city burnt to the ground.
There will come a time where tax payers run put of Pennies to steal. It should be fun to see the 5 percenters run for their lives. There will be nobody else but the socialists rotting the GOP and Democratic parties. I can’t wait….
Bapoy,
it isn’t unions who $pend for $$$$ control of “the people’s representative government” sir…compared to Wall $treet-corporations, they are paupers-look it up.
Even with fundamentalist supreme’s rule-Citizens United we can follow the $$$$ more realistically…
but it is fun to watch repubLIEcons blame the victims…(while NEVER following the $$$$)…
The author of this article suffers from limited vision.
Here’s the question that this article failed to ask:
If the federal government and the federal reserve can bail out Wall Street banks to the tune of several trillions of dollars, why won’t the federal government and the federal reserve bail out municipalities and states?
GM and Chrysler received a federal bailout worth billions of dollars, but the City of Detroit gets absolutely NOTHING.
Regarding the author’s point regarding higher borrowing costs for financially strapped states: If the federal reserve can implement a cash for trash program and buy worthless mortgage backed securities at full price without Congressional consent, why shouldn’t the Fed buy municipal bonds to lower the interest rate on city debt obligations?
The state of journalism in this country is abysmal. First, I have to read all of the junk articles about a persistent shortage of STEM graduates necessitating an increase in the quota of H1B visas even though there are countless number of unemployed American-educated tech professionals standing in the unemployment line and working in retail. Now, I have to read this garbage piece that fails to ask all of the right questions. Perhaps, America should consider opening up the journalism profession to workers immigrating to the US on H1B visas and willing to work for one-quarter of the wages an American worker would demand. It’s obvious that if Americans are too dumb to engage in science in engineering, this Salon article demonstrates yet again that Americans are too dumb to engage in quality journalism.