Posted July 26, 2015 12:54 pm by WirePoints
By: Mark Glennon*
Nobel Prize winning economists aren’t the hyperbolic type. They usually speak in measured tones, careful to protect the precision of their academic viewpoints. Two of them have spoken openly about public pensions, including one about Illinois pensions. They are uncharacteristically harsh.
First, there’s William F. Sharpe, a Stanford professor who won 1990 Nobel Prize for Economics for his work in developing models to aid investment decisions. The Financial Analysts Journal interviewed him last year. Here’s what he said:
Is this a disaster? You bet…. It’s a crisis of epic proportions…. [Pensions] value liabilities at 7.5% or 8% on the grounds that they are pretty sure they’ll earn that in the long run. This is crazy. It gets even worse. Because they want to minimize the reported value of the liabilities, they want to use a high discount rate, and in order to justify it, they have to build really risky portfolios. Consequently, they believe that one of the great hings to do is put money in private equity, or maybe a hedge fund, because then they can assume an extra 300 or 400 bps of expected return for an iliquidity premium (or just because hedge fund managers are so smart). So, the tail wags the dog.
Idiotic accounting drives even worse investment decisions. This is the classic case of an organization that borrowed money while issuing purportedly guaranteed payment and then used the money to invest in risky securities. Where have we recently heard that this is not a good thing?
Of course, you can point to the politics to see why politicians might give benefits that are very large to employees, especially those who may be
able to influence elections in various ways. By making sure the benefits are mostly in the future, politicians can pretend that they cost a lot less than they’re going to cost. It’s a very bad situation. [Emphasis added.]
N.J. Senate President Sweeney calls for $1 trillion in US loans to save pensions
JULY 29, 2015, 11:24 AM LAST UPDATED: WEDNESDAY, JULY 29, 2015, 3:14 PM
ASSOCIATED PRESS
https://www.northjersey.com/news/n-j-senate-president-sweeney-calls-for-1-trillion-in-us-loans-to-save-pensions-1.1382539
And Obama received the Nobel for peace.
don’t tell unions or the public sector employees & pensioners that the pension and health care math makes no sense… it crimps their style and is upsetting for current employees who won’t get a pension or keep platinum health care like current retirees… when you over promise on unsustainable benefits to win union votes, you can’t tell the truth either. Simple math will bear out how unsustainable the pensions and health care are, and you can’t just keep raising taxes on the most heavily taxed Americans as it is
To add to 2.16pm comment, which is accurate, they have their members convinced that the problem is all all to do with politicians taking their pension funds and using it elsewhere.
Put the money in that is supposed to go in and more reasonable returns will be okay. But years of not putting the money in based on these unreasonable returns has caused the problem. Where did the money go that wasn’t put in for all of those years? It was given to taxpayers. Now you want the pension recipients to pay for the money you were given back. Pay your bills and stop stealing from the pension.
well then the police and fire should not be able to go be for 55.
I see 3:18 has bought in to the bullsh&t lie from his union that Declan highlights about the underfunding problems because of politicians “stealing” the money… if the money was given to taxpayers, why are my state & local tax rates the highest of any state & county in the country? We all pay those taxes so don’t tell us that we need to pay our bills and stop stealing from your pension. That’s pure BS. Look at American Dream Meadowlands or Xanadu or whatever it is called now in the Rutherford swamp, and also in the wallets of all of the union labor drinking in the local watering holes there if you want to see where your money went. Ask the contractors working on state roads why they charge 3X the next highest state for every mile of state road work they do in NJ if you want to find your money. Ask the early PFRS retirees who’ve been on full pensions since their late forties and early fifties with platinum health coverage where your money is. But don’t blame taxpayers and tell us to pay more. The fact is that the benefits promised were too good, and unsustainable. You got promised the moon, but we’ll never get there with this turkey.
Exactly, did the Transportation Trust Fund run up an $18B debt because politicians were stealing? No. Does the state have a $53B “PayGo” liability for future health care coverage costs and bills for retirees because politicians were stealing? No. Are our state & local taxes already the combined highest in the country? Yes.