When it comes to the Fed, Congress is mired in hypocrisy. The anti-regulation, de-regulation crowd on Capitol Hill shuts its mouth when it comes to the most powerful regulators of all – you and the Federal Reserve. Meanwhile, Congress goes along with the out-of-control, private government of the Fed—unaccountable to the national legislature. Moreover, your massive monetary injections scarcely led to any jobs on the ground, other than stock and bond processors.
If I had to choose one single institution and one single individual most responsible for the weak, putrid and unbelievably corrupt oligarch-controlled U.S. economy, I would choose the Federal Reserve and Ben Bernanke. Continue reading »
There are limits on what the Fed can do when this bubble bursts, as it inevitably will, as surely as night follows day.
It’s no secret that virtually every pension fund is dead man walking, doomed by central banks’ imposition of low yields on safe investments, i.e. Zero Interest Rate Policy (ZIRP).
Given that both The Economist and The Wall Street Journal have covered the impossibility of pension funds achieving their expected returns, this reality cannot be a surprise to anyone in a leadership role.
Public Pension Funds Roll Back Return Targets:Few managers count on returns of 8%-plus a year anymore; governments scramble to make up funding
Here’s problem #1 in a nutshell: the average public pension fund still expects to earn an average annual return of 7.69%, year after year, decade after decade. Continue reading »
On December 10, 2014 the city of Detroit exited bankruptcy.
It was the largest municipal bankruptcy in US history.
The bondholders were totally screwed in favor of the pensioners (not that I generally like bondholders).
Regardless, everything was supposed to be fixed. It wasn’t.
Continue reading »
407,000 private sector workers are about to lose most of their pensions.
I first wrote about this on April 21, in One of Nation’s Largest Pension Funds (Truckers) Will Reduce Benefits or Go Broke by 2025.
The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across various states applied for reductions under that law.
Currently the plan pays out $3.46 in pension benefits for every $1 it receives from employers. That’s a drain of $2 billion annually.
The plan filed for 60% cuts in pensions. The Treasury Department has the final say. The verdict came in today: “cuts not deep enough”. Continue reading »
One of the largest educator pension funds in the U.K., the Universities Superannuation Scheme (USS) is implementing significant changes to the plan benefits as it becomes increasingly under-funded, just like its peers in the United States. The changes are drastic, and are meant to keep the fund solvent in order to at least pay some benefits rather than none over time. Additionally, the plan, which represents 330,000 members, will transition from defined benefit to defined contribution leaving members at the mercy of the performance of the money managers handling their investments.
* * *
Take the example of two union lobbyists who substitute taught for one-day in the public schools and then started collecting over $1 million of lifetime public ‘teacher’ pension payout – despite a state law expressly designed to stop them. And now take all the other 7,499 educators. The retirees in question paid so little into their own retirement (breaking even on their cost basis within the first 20 months of retirement) that taxpayers now face a $900 million bill just to keep the pension payments flowing!
* * *
New York City’s largest public pension is exiting all hedge fund investments in the latest sign that the $4 trillion public pension sector is losing patience with these often secretive portfolios at a time of poor performance and high fees.
“Hedges have underperformed, costing us millions,” New York City’s Public Advocate Letitia James told board members in prepared remarks.“Let them sell their summer homes and jets, and return those fees to their investors.”
“Hedge funds are charging exorbitant fees for high-risk and opaque investments,” said James.
– From last week’s post: “Let Them Sell Their Summer Homes” – NYC’s Largest Public Pension to Ditch Hedge Funds
One of the largest, most destructive scams I’ve ever come across in the financial sphere (and that’s saying a lot), relates to the purposeful shift of state pension fund assets into opaque, shady, punitive and one-sided relationships with “alternative investment” managers, specifically hedge funds and private equity firms. Continue reading »
– George Carlin: The American Dream (Video):
“…they want your fucking retirement money.
They want it back, so they can give it to their criminal friends on Wall Street.
And you know something? They’ll get it. They’ll get it all from you, sooner or later, because they own this fucking place.”
A short excerpt from the video “Life Is Worth Losing” (2005).
A dark storm is brewing in the world of private pensions, and all hell could break loose when it finally hits.
As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it “projects” it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark.
Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income. Continue reading »
H/t reader squodgy:
“The inevitable economic collapse, should be initiated by Government default, i.e. non payment of debt or even wages for government and military wages.
But logically, to succeed in their plan to have Martial Law & control, the military MUST be paid.Not least because of the smokescreen of war.
That can only be done via stealing our savings, there is no viable alternative for them.
Savings and pensions are therefore unsafe if not fragmented and/or converted.”
According to financial research firm ICI, total retirement assets in the Land of the Free now exceed $23 trillion.
$7.3 trillion of that is held in Individual Retirement Accounts (IRAs).
That’s an appetizing figure, especially for a government that just passed $19 trillion in debt and is in pressing need of new funding sources. Continue reading »
“You know anybody hiring a 73-year-old mechanic? I’m available.”
Dale Dorsey isn’t happy.
After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school. Continue reading »
The vast majority of Americans who expect to retire in the next decade can count on little income other than their Social Security. This is true not only for low-income workers, who have struggled most of their lives, but also for millions of middle-income workers. Although Social Security is a tremendously important program, and provides a solid base that retirees can depend upon, its $16,000 average annual benefit doesn’t go very far. Many if not most can expect to see sharp reductions in living standards. Continue reading »
Strapped for cash and eager to expand social entitlement programs and government dependency, President Obama is proposing to generate hundreds of billions of dollars in new revenues for the government by taxing, of all things, your retirement.
For the past couple of years, some analysts and administration watchers have predicted that the Obama Administration would eventually make such proposals, given its propensity to produce trillion-dollar budget deficits. And now, it seems, those predictions may be about to come true.
As reported by Market Watch: Continue reading »
Late last year, Japanese PM Shinzo Abe effectively forced the $1.1 trillion Government Pension Investment Fund to double its domestic equity allocation. With Kuroda providing perpetual Nikkei plunge protection, and with Abenomics set to bring about an economic renaissance, what could possibly go wrong?……
By now, Illinois’ budget problems are no secret.
Back in May, after the State Supreme Court struck down a pension reform bid, Moody’s move to downgrade the city of Chicago thrust the state’s financial woes into the national spotlight.
Since then, the situation hasn’t gotten any better and despite hiring an “all star” budget guru (for $30,000 a month no less), Bruce Rauner was unable to pass a budget in a timely fashion leading directly to all types of absurdities including everything from the possibility of shortened school years to lottery winners being paid in IOUs.
Now, as Bloomberg reports, pension payments are set to be delayed. Bond payments, apparently, will still be made.
Illinois will delay pension payments as a prolonged budget impasse causes a cash shortage, Comptroller Leslie Geissler Munger said. Continue reading »
Following yesterday’s collapse in the Nikkei, when a 4% drop pushed it red for the year below 17,000, down 20% from a high of 21,000 hit just over a month ago, we had just one question for Japan’s pension fund “fudiciaries” who have been “greatly rotating” out of bonds for the past few years as the primary sources for BOJ debt monetization, dumping trillions in fixed income yen, and promptly buying up equities: equities which have gone nowhere in 2015, and which have posted massive losses in the third quarter. The question was:
What are Japan’s pension fund losses after the Nikkei wipeout from 21k to 17K?
— zerohedge (@zerohedge) September 29, 2015
Less than 24 hours we got the answer, when moments ago Nikkei reported thatQ3 losses at (at least one) pension funds were just under JPY 10 trillion in the third quarter. Continue reading »
– Yuan Strengthens Most Since March, China Unveils New Bailout Source After Rescue Fund Runs Out Of Fire-Power (ZeroHedge, Aug 27, 2015):
Update: China readies new bailout mechanism – pooling CNY2 Trillion of Pension funds for “investment”
A busy night in AsiaPac before China even opens. Vietnam had a failed bond auction, Japanese data was mixed (retail sales good, household spending bad, CPI just right), Moody’s downgrades China growth (surprise!), China re-blames US for global market rout, and then the big one hits – China’s bailout fund needs more money (applies for more loans from banks) – in other words – The PBOC just got a margin call. China margin debt balance fell for 8th straight day (although the short-selling balance picked up to 1-week highs). China unveiled some economic reforms – lifting tax exemption and foreign real estate investment rules. PBOC fixesds the Yuan 0.15% stronger – most since March, but even with last night’s epic intervention, SHCOMP looks set for its worst week since Lehman.
“Greece’s state insurance funds are resorting to external loans to cover their needs as fears grow that the measures of the third bailout will not be enough to cover the rest of 2015’s liquidity needs.”
– Meanwhile In Greece, Pension Funds Tap Emergency Loans (ZeroHedge, Aug 25, 2015):
This has not been a great year to be a pensioner in Greece.
Over the course of the country’s fraught bailout talks, Greece’s pension system was frequently in the troika’s crosshairs. As for PM Alexis Tsipras, pension cuts were generally considered to be a so-called “red line” and intractable disagreements over pension reform quite frequently resulted in the total breakdown of negotiations. Continue reading »
H/t reader M.G.:
“China is using pension funds to try and shore up their failing markets. How would you like your pension funds used by the government to stop the implosion? This tells me they are in deeper trouble than they have admitted…..”
And it is the Chinese people that are in real trouble.
A polluted environment, toxic food and a failing illusion of economic growth & prosperity.
And you don’t want to live in Shanghai when the greatest financial collapse in world history will happen.
– Surprise! 260 million people live in just 15 Chinese cities (CNN Money, April 21, 2015)
– China share slide: Pension fund to invest in stock market BBC News, Aug 23, 2015):
China plans to let its main state pension fund invest in the stock market for the first time, the country’s official news agency, Xinhua, has reported.
Under the new rules, the fund will be allowed to invest up to 30% of its net assets in domestically-listed shares.
China’s main pension fund holds 3.5tn yuan ($548bn; £349bn), Xinhua said. Continue reading »
– In Key Decision, Junk-Rated Chicago’s Pension Reform Bid Ruled Unconstitutional (ZeroHedge, July 25, 2015):
On Thursday, we previewed a critical court ruling involving Chicago mayor Rahm Emanuel’s effort to cut pension expenses and plug a yawning budget gap. Here’s a brief recap of the story so far:
Back in May, the Illinois Supreme Court set a de facto precedent for lawmakers across the country when a bid to cut pension benefits was struck down in a unanimous ruling. Anyone who might have been confused as to the significance of the decision got a wake up call from Moody’s when the ratings agency, citing the read-through for Chicago’s fiscal situation, downgraded the city to junk. This is part of a larger fiscal crisis in the country which has left almost half of US states facing funding gaps for the upcoming fiscal year. All told, the total pension shortfall across states and cities is anywhere between $1.5 trillion and $2.4 trillion depending on who you ask.
– Pension Shocker: Plans Face $2 Trillion Shortfall, Moody’s Says (ZeroHedge, July 18, 2015):
“Moody’s, which in 2013 began using a lower rate than governments do to calculate future liabilities, has estimated that the 25 largest U.S. public pensions alone have $2 trillion less than they need”, Bloomberg reports.
– George Carlin: The American Dream (Video):
“…they want your fucking retirement money.
They want it back, so they can give it to their criminal friends on Wall Street.
And you know something? They’ll get it. They’ll get it all from you sooner or later because they own this fucking place.”
A short excerpt from the video “Life Is Worth Losing” (2005).
– Kiss It Goodbye: 150 Pensions Under Water (Government Slaves, June 26, 2015):
(via CNBC) Some 150 state and local pension funds reported assets under $3 trillion to cover the estimated $4.1 trillion needed to pay benefits.
When it comes to the recent improvement in state finances, one retiree’s pain is another one’s gain.
More than five years after the Great Recession tore a giant hole in their budgets, most states have made big progress in stabilizing their finances. Continue reading »
– Totally betrayed’: Greek pensioners protest against austerity deal (RT, June 23, 2015):
Angry pensioners have hit the streets of the Greek capital, protesting against the reports of a new austerity plan being ushered onto them. It comes as Greece and its lenders debate the nation’s €240 billion debt.
Demonstrators say they feel betrayed by the measures of the upcoming deal, which, according to AP, suggests increasing the contributions that employees pay for pensions, and phasing out the right to early retirement. It does, however, spare any cuts to pensioners’ incomes.
— Theopi Skarlatos (@TheopiSkarlatos) 23 июня 2015
Around 70 buses reportedly arrived in Athens on Tuesday, full of pensioners eager to protest against the proposed deal. Continue reading »
– Why Greek Pensions Have Become The Biggest Hurdle In The Bailout Negotiations (ZeroHedge, June 15, 2015):
By now it has become abundantly clear that the biggest hurdle in the Greek negotiations is the topic of pensions, and specifically whether they should be cut, as the Troika demands, or boosted, as a Greece top court recently did when it reversed a 2012 ruling to cut pensions.
At the heart of this argument is a simple question: is it political, as Greece claims, or simple math, as the IMF and its Troika peers assert.
– Kiss Your Pension Fund Goodbye (Armstrong Economics, May 25, 2015):
I have been warning for some time that government was eyeing up pensions.The amount in private pension funds is about $19.4 trillion. The question that has been debated in secret behind the curtain is how to justify to the people taking that over. I have been warning that if this is seized by government, it will come after 2015.75. Just how that is to be accomplished was finally settled by the Supreme Court without any justification constitutionally.
The US Supreme Court ruled last week in the unanimous, 8-page decision in Tibble v. Edison holding that employers have a duty to protect workers in their 401(k) plans from mutual funds that are too expensive or perform poorly. That is simply astonishing since there is no constitutional requirement for even government to provide social benefits. The Supreme court held in HARRIS v. McRAE, 448 U.S. 297 (1980) it was explained that the constitution is negative not positive. There is no duty imposed upon the state to provide a program for that would convert the constitution from a negative restrain upon government to a positive obligation to provide for everyone. Continue reading »
– Greece “Scrambles”To Make Full Monthly Pension Payments: “Still Missing Several Hundred Million Euros” (ZeroHedge, April 30, 2015):
To be sure, Greece has been “running out of money” for quite some time. Given the incessant media coverage surrounding the country’s cash shortage and the fact that Athens somehow seems to scrape together the funds to make payments both to lenders and to public sector employees against impossible odds, it’s tempting to think that as dire as the situation most certainly is, the country might still be able to ride out the storm without suffering a major “accident.” Having said that, some rather alarming events have unfolded over the past week or so, including a government decree mandating the transfer of excess cash reserves from municipalities to the central bank. As it turns out, that didn’t go over well with local officials and as we reported on Tuesday, the government finally hit the brick wall, coming up some €400 million short on payments to pensioners.
Here’s what we said then:
According to Bloomberg, the Greek government is €400 million short of the amount needed for payment of pensions and salaries this month, citing a Kathimerini report.
Surprisingly, this takes place even as Greece’s IKA, OGA pension funds have been informed by the government that amount needed for payment of pensions will be deposited today, while the Greece’s OAEE pension fund has said payment of pensions won’t be a problem.
In other words, someone is not telling the truth: either there is enough money or there isn’t. And if the latter case is valid, then either the government or the pensions are now openly lying to the population.
– NYC Pension Earns $40 Million Over 10 Years, Pays Fund Managers $2 Billion (The Reformed Broker, April 9, 2015):
“We asked a simple question: Are we getting value for the fees we’re paying to Wall Street?” Mr. Stringer said. “The answer, based on this 10-year analysis, is no.”
The party is over.
At great political risk to his own ambitions (given the local campaign-funding base), New York City Comptroller Scott Stringer took a look at how much the city’s been paying to Wall Street (or Greenwich) to manage its money over the last decade and what they’ve gotten in return.
It doesn’t look good.
via the New York Times (emphasis mine):
over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return…
Until now, Mr. Stringer said, the pension funds have reported the performance of many of their investments before taking the fees paid to money managers into account. After factoring in those fees, his staff found that they had dragged the overall returns $2.5 billion below expectations over the last 10 years.
Over the last 10 years, the return on those “public asset classes” has surpassed expectations by more than $2 billion, according to the comptroller’s analysis. But nearly all of that extra gain — about 97 percent — has been eaten up by management fees, leaving just $40 million for the retirees, it found.
It’s bordering on parody. They report investment returns gross of fees and then add the fee information onto their statements as footnotes. Do you know of anyone who can eat their returns gross of fees and taxes? I don’t.
– Government Admits It Can’t Fully Guarantee 51% Of Insolvent Pension Plans (ZeroHedge, March 12, 2015):
A new report suggests that the government agency in charge of backstopping private-sector pension plans (the Pension Benefit Guaranty Corporation) isn’t entirely optimistic about its own ability to provide an effective safety net for multiemployer plans. In fact, more than half of participants will see their benefits cut if their plans become insolvent and are forced to turn to government guarantees.
From the article:
“We wonder how the increasingly disenfranchised Greeks will react when they find their savings (whatever there is left) are now being directly plundered to fund the nation’s transfer payments (via The IMF) to Ukraine.”
– Greece Passes Law To Plunder Pension Funds (ZeroHedge, March 12, 2015):
Having previously hinted that they might ‘dip’ into public pensions funds for some short-term cash to payback The IMF, and then confirming that the plan is to repo that cash from pension cash reserves (raising concerns about how they will unwind the repo – i.e. pay it back); the Greek government finally signed the bill today that enables them to plunder the Greek people’s pension funds (for their own good).The massive irony of this bill is the bill enables greek deposits to be fully invested in Greek sovereign bonds… which Tsipras and Varoufakis both admitted today is “unsustainable” and “will never be repaid.”
- *GREEK GOVT SUBMITS BILL, ALLOWING USE OF PENSION FUND RESERVES
As Bloomberg reports,
Cash reserves of pension funds and other public entities kept in Bank of Greece deposit accounts can be fully invested in Greek sovereign notes, according to amendment to be submitted in parliament, country’s finance ministry says in e-mailed statement. Continue reading »
– As Greek Default Fears Return, Government Considers “Borrowing” Pensions To Repay IMF (ZeroHedge, March 2, 2015):
Greek short-term default risk jumped over 300bps today putting the odds of a restructuring at 50-50 within the next year as the warnings we issued last week with regard Greece’s imminent default on its IMF loan loom. Seeking to reassure its lenders (and avoid yet more capital flight), Reuters reports the Greek government said it was “exploring solutions,” including delaying payments to suppliers or try to raise up to 3 billion euros by borrowing from state entities such as pension funds. Continue reading »
What could possibly go wrong?
– Teachers’ Retirement Funds Are Piling Into Manhattan Real Estate At Record High Prices (Liberty Blitzkrieg, Jan 28, 2015):
Rather than buying equity interests in buildings, TIAA-CREF and KTCU are seeking to invest in mortgages backed by office towers, retail properties, warehouses and apartments in major U.S. cities. The venture between the two companies, which manage teachers’ savings in their respective countries, is 51 percent owned by TIAA-CREF and 49 percent held by Seoul-based KTCU.
“You invest in a huge office tower in New York because you want a safe place to put your money and a decent return,” over the long-term, he said. “This is more a capital preservation play than it is a capital appreciation play.”
– From the Bloomberg article: Manhattan Towers Lure Koreans in $1 Billion Joint Venture
As soon as I woke up this morning, I saw an email from a very smart friend of mine in the finance industry. He forwarded me an article from the New York Post, about how TIAA-CREF had paid $3,158 per square foot for a building in the Meatpacking area of Manhattan (a record for the area), which isn’t far from where I lived for several years in the mid-2000s.
For those of you who aren’t aware, TIAA-CREF stands for Teachers Insurance and Annuity Association – College Retirement Equities Fund. According to the company’s own website, it: Continue reading »