Some good news to start the day:
A new disaster is looming, according to a prominent market research analyst.
Meredith Whitney, a financial analyst who runs her own consulting firm and correctly predicted the major debt fallout of Citigroup, warned in a little-reported on interview Sunday that as many as 100 US cities face default on their municipal bonds.
Cities and states issue bonds to pay for public services. The trouble is that municipalities are no longer collecting enough in taxes to meet their budgetary needs. According to a 60 Minutes report Sunday — which received almost no attention by the popular press — US cities have spent nearly half a trillion more than they’ve collected in taxes, and face pension shortfalls of $1 trillion. Video of the CBS piece follows this article.
“Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy,” Whitney told a CBS 60 Minutes’ interviewer Sunday night.
“There’s not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizeable defaults – more,” Whitney added. “This will amount to hundreds of billions of dollars’ worth of defaults.”
Oh my.
ChrisS
Obviously, those wealthy public servants are to blame for taking your taxes and spending on themselves in grand style.
We need to cut taxes and cut spending.
cathyx
@ChrisS: That and the unions.
Redshirt
Something about Republicans in glass houses… but I’m sure the market will take care of everything in its infinite wisdom.
Phil Perspective
I don’t want to be Mr. Negativity but it’s stuff like this that made some of us question “Recovery Summer” and other such pronouncements. Why? Just look at NJ to begin with. Instead of trying to fix the budget hole by imposing a surtax on high earners(among other things), Chris Christie would rather cut services and lay off government workers. Multiply that by all the new Puke governors around the country, and you get the idea.
scav
City employees have been known to have cell phones and eat fancy foods from Whole Foods. Unlike Jesus.
Alwhite
Yes, more tax cuts and bust the unions. Thats the only way out of this mess.
dude
Hooray, more public sector worker bashing.
What these handwringing articles about pensions never mention is how the pensions, just like social security, do not have to pay out all the money at the same time, how the money that is in the funds is always invested long-term low yield meaning they make money, and also too how private sector pensions have become a fucking joke in our modern Reaganite economy.
Odie Hugh Manatee
@ChrisS:
I heartily agree with you, more tax cuts are the solution to this problem. In fact, I hear they are the solution to everything that ails anyone.
Got a cold? Tax cuts!
Need a pencil sharpened? Tax cuts!
Starving and don’t have a penny to your name? Tax cuts!
Yesterday I saw a bumper sticker that made me laugh at the idiot in the car;
If you think health care is expensive now, wait until it’s FREE!
The requisite McCain/Palin sticker was there too. Nothing like advertising to everyone that you are proudly ignorant!
Legalize
But there are some guys on Wall Street who are only getting between $20k and $25k in bonuses this year. So, a little perspective please.
Zifnab
What is it about retirement systems that always want to end in budget-busting failure? GM’s pension plan nearly bankrupted them. Exxon has repeatedly scaled back benefits. 401(k)s are in the dirt. Social Security eeks along, offering poverty level income. And now the municipal pension funds are all going belly up.
Is the money just chronically mismanaged? Do future retirees get promised much better packages than businesses can actually provide? Are the funding just getting ruthlessly raided?
Why is this so damn hard?
General Stuck
And the House wingnuts will see to it that no federal help will be forthcoming in the new congress. Unless, of course, Obama and dems say uncle on HCR. This is the rulebook for the game beginning in a few weeks. Hostages will die, and others will be forced to beg for their lives.
4tehlulz
Also, happy holidays from Moody’s.
Omnes Omnibus
@Legalize: Thank you for bringing a little sanity to the discussion. We do need to think of those who are struggling, especially during this season of giving.
EFroh
@Legalize: yeah, that article cracked me up. Our poor Alphas. Life is so hard for them.
change
The economy will be mired in recession for some time to come, liberals.
Can’t wait for the next jobs report…
New Yorker
@General Stuck:
Why should they help? Cities are full of Fake Americans. Even in Real American states, like Texas, they do things like elect homos to be mayor in Houston.
Zifnab
@Legalize:
I think you must be off by a digit there, buddy. Wall Street bonuses are breaking all records this year.
singfoom
@4tehlulz: When does the general public get to downgrade Moodys to a mouthpiece that doesn’t reflect real risk values?
These idiots blessed all the toxic derivatives as AAA investments. Why are they listened to at all now? The conflict of interest where the people they are grading pay them still exists.
/Financial system FAIL
Omnes Omnibus
@Zifnab: I’ll take ruthlessly raided for $1000, Alex.
Mumphrey
Damn, I was hoping to be the first one to say something funny about cutting taxes. Well, this “Tax cuts heal all wounds” stuff is just too predictable, I guess.
4tehlulz
@change: Hoping for high unemployment and a weak economy.
Yet another form of treason from our friend change.
Crashman
@change: Thanks to the conservatives for burning the house down. You’re like a pyro who keeps coming back to the scene to jerk off over the fire. Get a life.
singfoom
@4tehlulz: @Crashman: Don’t talk to it. It is a fact resistant troll. No reason to engage.
Comrade Javamanphil
@Zifnab: Not for everyone. Some on Wall Street has a sad
Alwhite
A little history lesson on the pension ass fucking of America.
Back in the early 80s markets had had a very good run so many pension funds were way over funded. Rather than follow a conservative investment plan corporations lobbied hard (with a big hand from St. Ronnie & Friends) to be allowed to take those surpluses for themselves. Some of the merger mania of the 80s was generated by companies buying to get their hands on those funds.
When the inevitable crash came in the late 80s funds were gutted so our masters got Congress to change the rules again & allowed companies to switch their plans to ‘defined contribution’ plans.
Keep that in mind when our masters come back complaining about pensions
Somerville
A commenter on Brad DeLong’s blog has a ‘slightly’ different take on the matter
Svensker
Everyone sneered at me here when I said that NJ government employees were getting paid too much and that the taxpayers would not be able to support that. In the little town where we were — prolly least crime in the US — cops make close to a $100K after a few years, and then get pensions based on that, plus gold-plated medical insurance. All the towns around us are like that. The cop is prolly married to a middle-school teacher making $60K a year with a really good medical plan, as well.
What? say the BJ readers, don’t you WANT cops and teachers to be paid well? What are you, a tea-bagger? ! No, not a tea-bagger, just a self-employed person and tax payer who has to pay the salaries, the pension and the medical benefits for that cop and that teacher, and who can’t afford to do it anymore at those rates. We lived in a small house in a “starter” neighborhood because that’s what our budget was, but our property taxes went up $2000 in the last 3 years. And our health insurance went up $4000 in the last 3 years. But our incomes fell in the last 3 years…and the teachers are bitching about not getting a 2% pay increase and having to pay $50 co-pay for health insurance. They don’t get any sympathy from me. We looked at what was going on, saw it as unsustainable, and moved.
A good friend of ours is a retired cop. He’s 50 and trying to write a novel — he gives himself 2 years to sell something and then if he doesn’t, he’s planning on going back to school to finish a degree. While he’s making all those lovely plans he’s living on a beautiful pension and getting his medical paid for in full. He’s a great guy and all, but it frosts me to be working my butt off well past 50 so that he can take 2 years to write a novel. But then, who knew back in the day that the sure route to financial success was to become a small town employee?
4tehlulz
@singfoom: I’m not engaging him. I’m just pointing out that he wants the country to fail so he and his GOP can live his fascist power fantasies.
El Cid
As Governor Christie said, since so many people outside government have lost jobs and their pensions and retirement funds, it’s time that government workers share that pain.
This is America. If one person is suffering or hurt, and if we that person suffering is decent and worthwhile, then we need to make someone else hurt and suffer. If one family loses the pensions they received in lieu of wages, then another should too.
If someone gets laid off from a job at a warehouse or store or office, then some city or country government worker should lose a job too.
Not to mention that it’s time we learned how to live for ourselves without having all this nanny-state cobbling by big government soshullists, who must destroy our desire to fend for ourselves in order to keep us as their slaves.
Sure, some of us possess firearms which give us the reassuring idea that we are going to protect ourselves from crime, but very few of us have ever thought about getting training to put out house fires in an effective manner, or creating the water reserve and pump pressure necessary to do so in our own yard.
And, really — was it so bad when in the Western world’s most densely populated big cities, people dumped their wastes out the window? I mean, it didn’t kill them. I don’t see why we have to be so squeamish.
MikeJ
@Comrade Javamanphil: And those sad, sad people already had their salaries doubled to make up for going without a bonus.
Alwhite
2 other pension stories of note:\
NJ has not made the required contribution to its worker pension fund in 13 for the last 17 years. For them to now try to pretend that it is the unions fault should be illegal.
The Post Office has been forced by Congress to over fund its pensions. Current surplus is $140 BILLION. USPS would be in the black if they were not forced to over fund this way. My guess is that we will only hear about how the unions caused them to lose money while that surplus is stolen by Congress to pay for more tax cuts.
agrippa
@change:
Nice rant. next time try to keep it shorter.
Zifnab
@Comrade Javamanphil: Lulz. Maybe they should unionize.
Omg, I just threw up in my mouth.
Odie Hugh Manatee
@change:
The difference between people who give a shit and people like you is that the former looks at a bad unemployment report and thinks of the people who are impacted by it, desiring a solution to the problem, while the latter looks at the report with glee because they perceive that they will benefit from it in some way. They don’t give a shit about those affected, they only want to gloat or play it up as some kind of victory for their ‘side’. It takes a pretty twisted mind to enjoy something like that.
I really hope you are a spoof because if you are for real then you are really sick.
Disraeli
I’m sure it comes as a shock to some but
Paved streets cost money
Sewers cost money
Buses cost money
Cops cost money
Drinking water costs money
In fact all of the stuff that we all use everyday costs money.
And if we don’t pay for it today, we will have to pay for it tomorrow.
Qu’elle suprise – who knew.
NonyNony
@MikeJ:
You clearly don’t understand the mentality of the average trader.
I worked with some of these guys off Wall Street – guys who work in a certain very large Midwestern insurance corporation in Columbus Ohio and guys who work for a state-run pension system also in Columbus Ohio. The money is only part of it – the ego stroking from the money is probably bigger. They earned their bonuses, you understand? They earned them by being smarter and better and riskier and whatever than anyone else. Every penny of them they earned.
And in the years where things were bad and they didn’t perform so well for the company, well, that was just bad luck. Could have happened to anyone. Look, there was a general market downturn and they performed almost as well as the index funds – don’t you see how impressive that is? Don’t you understand how smart they are? How much money they saved the company by being so smart as to not lose as much money as a lot of the other schmucks out there?
It’s all ego – and these guys have the largest and fragilest egos on the planet. From what I’ve heard the guys on Wall Street actually have it WORSE than the guys I worked with because the guys I worked with at least had the “well, I chose to live in the Midwest for job security” excuse to fall back on – the guys on Wall Street need their egos stroked constantly. And they whine pitifully when anyone dares to wonder why they think they’re so great (or when they don’t get their giant bonuses that acknowledge their greatness).
Corey
Off topic: McMegan makes another elementary math error; when comparing bankruptcies in Massachusetts vs. the rest of the US post-Romneycare, she uses filings per state rather than per capita filings per state: http://www.theatlantic.com/business/archive/2010/12/will-health-care-reform-reduce-medical-bankruptcies/68304/
Maude
@El Cid:
Christie lost $400 mil in Race to the Bottom here in NJ (other states it was Race to the Top) and then around $250 to $300 mil for the tunnel.
Following his reasoning…
Duane
I never heard Gov. Christie talk about cutting his own pension or that of the other politicians. I also seem to recall that austerity was not high on the agenda for Gov Christie when he was a free spending US Attorney….. I imagine that he deserved to stay in all those fancy hotels and such….
burnspbesq
It’s way too early in the day for a Siouxie and the Banshees reference.
Cat
@Zifnab:
A) The fund managers will overestimate the returns on the retirement fund to pad their bonuses.
B) The CEOs who authorize the transfers into the pension fund will overestimate future profitability so they can not pay into the fund to pad their current year profits to reap bonuses this year.
B) The Gov’t who authorize the transfers into the pension fund will overestimate future tax revenue so they can not pay into the fund to give out tax cuts/engage in graft to consolidate their political power.
Its not hard, Its just the incentive to cheat the system is to strong to resist the short term gains. The fallout is never felt by the people making the decisions and even if it is they can just play the greedy unions card get away with it.
Cain
@Mumphrey:
It is the new faith healing! They smack them on the head and scream “tax cuts” and magically they are cured of whatever ails them. Woo! Except nobody catches them when they fall backward and instead land on the fucking floor.
cain :)
brendancalling
this is going to be a disaster for Philadelphia, where i live. we’re already in the hole, and I’d bet my bottom dollar we’re on that list of 100 cities.
I have a gut feeling that 2011 is the year of riots in the US. Just a hunch.
Church Lady
@Svensker:
You, sir, are obviously no longer a man of the people. For shame.
Mnemosyne
@Svensker:
Crabs in a bucket.
I really don’t understand why people think the solution to the fact that their company raided their pension fund is to make sure that no one else gets a pension, ever. If private sector salaries have stagnated because company executives are giving themselves multi-million dollar bonuses every year, the solution is to cut the salaries of public sector workers so they make as little as private sector workers.
Seriously, I don’t get it. Why are you angry at the guy who gets a pension and not at the employers who have underpaid you so drastically?
Rick Massimo
Yup – nothing a few more tax cuts won’t fix.
J.A.F. Rusty Shackleford
@burnspbesq:
But it’s never too early for Siouxsie Sioux.
Cat
Did the article mention which side of the trade she’s on?
She could be right even if she’s just talking her book, but there is no need to start panicking.
John Cole
No one sneered. We just pointed out that you can’t renege on past promises to employees. Your politicians promised them those benefits and pensions.
Cat
@Mnemosyne:
People are petty assholes. “Its unfair the system screwed me out of my pension, so its unfair the system protects the other guys pension.”
Even though its systems fault they blame the other guy since they other guy has a face and a name and the system is unassailable.
John Cole
@Church Lady: He’s a woman.
And anyone want to guess what Church Lady’s default position on taxes is? And her solution to not enough taxes being collected?
Think Red State.
burnspbesq
@change:
Taking pleasure in the suffering of others?
You really are a piss-poor excuse for a human being.
And if you consider yourself a Christian, I suggest you take a look at Matthew 25:40-41. The Kingdom of Heaven does not await you.
El Cid
@Maude: He didn’t lose this money. He saved his state from being coddled by the nanny-state, and trapping his people in soshullist bondage.
As he pointed out in his 60 Minutes interview, those tunnel jobs would number over 6,000 people, but they wouldn’t last forever, and so eventually they’d disappear, and then they’d have to find new jobs that weren’t there.
See? It really wouldn’t be worth it to have 6,000 well-paid jobs, many with good benefits, now, because they wouldn’t exist forever.
Why can’t any of you libtards have the clear moral and economic foresight of this man? Why on Earth would anyone want a good job now if it’s not going to last forever? It’s just better to not have such jobs at all.
Maude
@El Cid:
Well, shame on me.
Did you know that after he died, Henry the Eighth exploded? Gee, I wonder if that could happen while the NJ gov is alive?
If he were skinny, I’d go for spontaneous human combustion.
Zifnab
@Svensker:
So… wait. You’ve got folks in the public sector working full time jobs and being compensated fairly for it. You venture out on your own as a self-employed entrepreneur and get bit in the ass by the private insurance market and the weak economy. And then you come running back to whine about other people’s salaries because… what? They aren’t poor enough for your tastes?
Fuck you, buddy. $100k isn’t gold plated in New-fucking-Jersey. It’s comfortable, but it’s not exorbitant by any standard. If this couple wants to put a kid through college, about a quarter to a half of that $160k is going towards paying yearly tuition. And if you hit it big and your business took off, they wouldn’t reap some magical bonus cash because you started bringing in $100k-$200k yourself.
If you’re mad at the market, be mad at the market. If you’re mad at private health insurance rates, be mad at the private insurers. But don’t go bitching at the school teacher because you’re not making $60k / year. If salary means that much to you, get certified and become a fucking school teacher.
But I don’t see you whining about Sam Walton’s pay check or Bill Gate’s salary or what the Knicks are paying their star athletes. Why does the hammer suddenly drop on the public sector? Why not go down to Target or Best Buy and whine about their employees getting paid too much? You’re paying their salaries too.
Suffern ACE
@El Cid: Plus if you build something, you have to fix it from time to time. Since we can’t afford to fix what we have now, why build more stuff?
Davis X. Machina
@John Cole: Which they’ll just go out and raid anyways. Thanks to the 1990 McKernan raid on the Maine State teachers’ retirement system, if I retired at the beginning of the next school year as a result of pending layoffs — which seems likely, since no one is hiring 54-year old teachers — my pension, after 23, years would be $7,708 per annum.
Good luck to those legendary NJ police officers — I’m not writing novels any time soon. I don’t think they’re exactly typical.
brendancalling
@John Cole:
yup. what cole said.
what svensker is falling victim to is one of the oldest tricks in the “Class Warfare Guide for Wealthy Dummies”: turn the workers against each other. “He’s a brown person” falls under that strategy. So does “he gets a pension and I don’t.”
the people to blame are your employers, Svensker.
Svensker
@Mnemosyne:
I’m self-employed.
I’m not mad at the individual state employees — they took what they could get. Who wouldn’t? I am mad at the state legislature and governors of the past who made deals with the unions for political expediency and then assumed an 8% return on investment for pensions. 8%. What’s the rate on money market fund right now? Less than 1% And then more government folks like Christie Todd Whitman who made budget tricks in order to continue to show the pensions as being sustainable. And then more government folks like Jon Corzine who ran on a platform of controlling pension costs and reigning in the budget, and then who caved to the unions because they were his major money and vote support. They all knew it was unsustainable, but they all kicked the can down the road. Now the can is bust and the road is unpaved.
There are lots of folks to blame for this mess. But government employees, at least in my former state, are getting too much. Taxes on the rich need to go up, of course, but benefits and salaries for government folks need to go down.
GregB
These folks will learn soon enough that certain things aren’t guaranteed even if they are supposed to be guaranteed.
Let’s not forget during the stimulus era that unions were forced to take a haircut during the bailouts but the folks on Wall Street? Why those are contracts that must be adhered to or else.(snark)
We are watching the US come apart at the seems bit by bit.
Think about it. Since the big dig in Boston has there been any huge public works project? Nope.
The last decade has been known for destruction. 9/11. New Orleans. The Minnesota bridge.
Drip, drip, drip.
mclaren
@Zifnab:
Let me explain how it used to work, Zifnab, so you can understand why it doesn’t work today.
Once upon a time, cities invested funds in the stock and bond market in order to make their money grow that they could pay to bondholders. Once upon a time, American companies were run by CEOs and boards of directors who told the truth about their balance sheets and paid dividends on their stock and grew their companies. This allowed investors to consistently make money as long as they bought good companies and held them for a long time.
But then, around the time Ronald Reagan got elected president, CEOs and boards of directors stopped telling the truth about their balance sheets. Instead, the balance sheets of U.S. companies turned into a tissue of lies. CEOs fired workers, offshored jobs, sliced up the company and sold it off for its component pieces and made fantastic amounts of money. In 1987 for example Michael Eisner, the Disney CEO, made 175 million dollars — more money than Disney itself made that year. Because CEOs only stayed at a company long enough to vest their stock options and scoot with huge amounts of cash, the CEOs didn’t give a damn about what happened to the company after they left. As a result, American companies stopped paying dividends and had a tendency to go belly-up unexpectedly when all the control fraud got revealed. (“Control fraud” is a technical term which means systematic looting of the company by its management.) Because of this, investors stopped making money. Warren Buffett, for example, has not been able to generate any profit on his Berkshire Hathaway holdings in the last 10 years.
When American businesses stopped making useful products and turned into an orgy of management looting and fraud, investors stopped making money. That means that the cities which had invested their money in hopes of getting an annualized return to pay off bondholders or to pay pensions of retired city employees didn’t make any money, and instead their investments declined in value.
So the short version is that happened to everybody from 2001 to 2007 — losing their life savings in the stock market when the American economy got revealed as a shark-feeding-frenzy of management looting and fraud — also happened to the cities. The cities were really no different from the individuals: they all invested their money in the stock market, they all got defrauded, they all lost their investments.
In a larger sense this has big implications, because right now the U.S. economy is being kept afloat by money from foreign investors. Our entire military budget is paid for by cash flooding in from foreign investors.
But at some point, foreign investors will realize that the U.S. economy has stopped producing useful products and instead is mostly just control fraud and scams. At that point, foreign investors will stop being interested in a Ponziconomy like America and they’ll invest their money elsewhere. At that point, the game of musical chairs ends, and the American economy undergoes a severe shock.
ChrisS
Except that it’s more like saving 6,000 jobs and not really creating them. Unless he thinks that everyone that does construction keeps getting a limitless supply of projects. I wonder what the backlog is for heavy construction in NY/NJ – can’t be that great anymore. Our engineering firm went from a 18-month backlog to a little over 7 months. We’re hoping things start picking up.
On the other side of things, I too would like to know more about why pension funds seem chronically underfunded these days. Is it healthcare for people living longer? Or did they just take the winnings and keep gambling?
Thankfully my 401(k) hasn’t recovered yet to defend the free market from liberal islamofascism. It’s still worth less than I’ve put into it thanks to getting it started while the stock market was blow’d sky high. Thankfully peak oil will be here soon enough to ensure everyone without a private militia is also living on catfood and soylent green.
New Deal democrat
Ugh. You are forcing me to point out the following:
Meredith Whitney formed her own firm in Febraury 2009. She has a financial interest in trolling for new clients on the airwaves.
One year ago she said that
In May of this year she called for a bleak second half in the stock market
Then in June she forecasted the following:
Of all of the above, the *only* thing she got right was the renewed price declines in housing. The stock market continued to climb this year. The economy did not fall back into a double dip recession. Stocks have rebounded about 20% from their early July lows to their highs for the year now. Governments have somehow failed to lay off about 1.9 million of the 2 million employees she foresaw. The consumer is on a tear, with retail spending up at over a 10% rate since midyear.
Is she short muni bonds and hoping to cash out on investors that are scared by her quotes now? She has credibility for this call justifying a blog post exactly how?
Svensker
@John Cole:
Yes, “my” politicians did. They were wrong and making promises with other peoples’ money and pie in the sky interest rate returns. It is not sustainable.
But, we voted with our feet. Came to Canada where taxes are lower than they were in the States for us and we get health care for the taxes we do pay.
PS
@Zifnab: Gates may be an exploitative robber baron, but actually he did it through stock, not salary. Personally, I am more resentful of a top manager with an eight-figure salary and guaranteed golden parachute, the latter being unusual for athletes.
liberal
@John Cole:
Yes, but…
Here in a suburban MD county bordering DC, the Wash Post pointed out a couple years ago that a lot of cops were getting disability payments when they left the force. The system was set up so that pretty much anyone could claim a disability and get a shitton of money in addition to whatever retirement benefits they were owed.
So, for example, one guy went on to become head of some munipical police dept. Another guy joined another force (I think it was in VA) and participated in some kind of supposedly-very-physical bootcamp thing. These individuals were clearly not disabled in any meaningful way.
It’d be one thing if the county were legally prohibited from clawing back these ill-gotten gains from the past. But AFAIK this bullshit abuse of the disability concept is still going forward.
The public employee “issue” is mostly just a right-wing assault on…public employees. But here and there there are definitely abuses.
bkny
i’ve been wondering for a while now that once civil disturbances begin, are the cops/firefighters who’ve been expecting those fat, juicy pensions going to be on the side of the people or the national security state — that is going to be counting on them keeping things in check.
too bad all those national guardsmen are in afghanistan/iraq/and soon to be pakistan….
Svensker
@mclaren:
I agree with you, for once, mclaren. What I would add to this is that in the 80s public employees started getting really good pensions based on magical thinking and Reagan-era voodoo economics (but I repeat myself). The combination of the rigged market exploding combined with unsustainable promises made is where the towns and cities are now.
But I’m self-employed, so what do I know?
All the other self-employed folks I know have gone bust — we haven’t but we moved. Wonder who’s going to be paying those taxes to cover those pensions?
WarMunchkin
To me, it seems like when this happens, it’s basically saying, “the people living here cannot competently govern themselves”. At what point do you say that about a town and conclude that democracy is not a functional form of government? Seriously, I want to know, because I’m doubting that we’re going to emerge from this.
Maude
@mclaren:
Except that the Ponzi schemes in other countries is greater than here. We do manage to get ourselves out of the most awful messes.
It is possible that the US will start making things again.
Poison toys, pet food etc. are not good for offshore labor enthusiasts.
liberal
@Zifnab:
But that’s asserting the claim: is it fair compensation? It might be, it might not be.
Mnemosyne
@Svensker:
I used to get 8% on my passbook savings account, lo these many years ago (aka the 1980s). Interest rates are artificially low, thanks to Republicans and Randites. So, no, I can’t blame them for that.
Are you sure that Whitman wasn’t playing the usual governor’s game of raiding the pension fund so she wouldn’t have to raise taxes and then pretending that it was those bad ol’ unions who insisted that she put the money she stole back in?
Companies used their pensions for years to fund executive bonuses and buyouts of their competitors, and when that money ran out, they sorrowfully announced that pensions just aren’t sustainable and switched everyone to 401(k) accounts. Governments did the same thing. But it’s the unions’ fault that governments spent their pension money?
Kenneth
@Maude:
You don’t get it. THIS COUNTRY IS BEYOND FUCKED McLaren is right the Empire will collapse at any moment.
Buy gold, and invent offshore.
jwb
@Phil Perspective: Yes, it’s more likely to be summer from hell than recovery summer. And I hope that our always politically astute leftist activists can take a little time out from bashing on Obama for selling us out to prepare for the summer, because if the economy starts to collapse under a government shut down and massive cuts at the state and local governmental level we are likely to see the teatards start making the transition to real fascism rather than the theater of the political absurd they’ve been giving us so far.
Martin
@Svensker: Well, don’t assume all the narrative you read out there is representative. There’s a lot happening in the middle that simply isn’t getting any traction in the news cycle.
The reason everyone assumed 8% is that everyone was getting 8% until recently – this went for decades. My pension was overfunded as recently as 8 years ago and they only first called on increasing employee contributions 5 years ago. Even now the funds are getting 6%, so things aren’t quite as dire as the numbers would suggest. Those unfunded liabilities are over 50 years, after all.
But the folks in my pension plan have agreed to increase employee contributions significantly and have changed the formula for new employees, kicking back the full retirement age to 65 and the early to 55, but maintaining the same service credit rate. They’ll have just as good a pension as I do, but will have to work (and pay in) a bit longer to take advantage of it. If they overfund again, they can offer early retirement plans, to shift costs off of payroll. The expectation is that the funding level of the plan will improve by 1% each year for 20 years.
Following this initial move, the same group is working on plans to pre-fund the pension, so that we don’t need to rely on pay-as-you go, but they’ll probably start by pre-funding the health plan for retirees and then looping back around to the pension plan.
So, this public sector has worked out an initial solution with a commitment to improving it over the next few years. Others are as well.
mclaren
The other important point to remember is that foolish austerity measures like those Chris Christie is pushing through are actually the same failed and counterproductive economic measures Herbert Hoover tried to use in 1930 and 1931 and 1932.
Hoover’s response to a huge economic downturn was austerity. Cut the size of government, balance the budget, reduce deficits. The problem in a huge economic downturn is that this process turns into a vicious cycle. Cutting the size of government reduces the number of people with jobs, which reduces aggregate demand, so prices fall. With less money coming in, businesses must lay off more employees, which in turn further reduces aggregate demand and cuts the tax base. With less tax revenue the govenrment must cut even more, firing even more employee, so the vicious cycle gets worse and worse and worse.
Chris Christie and other governors like him are cutting their own throats by reviving the failed and long-disproven “austerity” response of Herbert Hoover and it’s going to destroy the New Jersey economy in a downward spiral. What always happens in these cases is that, counterintuitively, instead of closing the budget the deficit, the budget deficits actually increase because firing all those people depresses business in the state, which in turn reduces tax receipts even more than the comptroller thought, so state government get trapped in a continuous death spiral of cuts which lead to a continuous death spiral of reductions in the tax base.
On the macro level, this failed and long-disproven austerity policy of Herbert Hoover is now being vigorously pursued by national governments in Europe via national austerity programs. These crazy and counterproductive austerity programs will have the same disastrous effect on national economies that austerity has had on state economies.
For the poster child of the failure of neo-Hooverism austerity, take a look at California. No matter how much they cut their budget, the deficits keep getting larger. Why? Because each time California cuts more government services and more government employees, more state workers get fired, which means that businesses in that state make less sales and must fire their employees, and take in less money to pay taxes with. Fired employees can’t buy houses or rent aparments so they don’t pay taxes and the tax receipts in California keep going down and down and down at an accelerating rate.
Unless corrected, this kind of crazy neo-Hooverism (disproven as a valid economic response to a major economic downturn by John Maynard Keynes in 1936) results in a death spiral of deflation and eventually, total collapse.
jwb
@Zifnab: It’s easier to make promises for future compensation than to pay more in the present. Then, too, those making the promises know they will almost certainly not be around when those promises come due.
Judas Escargot
@Odie Hugh Manatee:
I really hope you are a spoof because if you are for real then you are really sick.
At this point, there are only three kinds of ‘Movement Conservative’ left: The sick (the ones who either don’t care, or actively want others to suffer); the stupid (the ones who don’t know any better); and the would-be intellectual retainers (the ones fluttering their hankies on their blogs as they agonize over the state of their ‘Movement’).
Jeff
Just needed a good place to repost this. Lady Jane wrote this one week ago.
I love how she never has to eat all the times she’s been wrong. Everyone just moves on.
twiffer
@Mnemosyne: granted, as he said he was self-employed, he’d have to be angry at himself.
El Cid
I’m getting sick of all these people thinking they deserve to have any income whatsoever when they retire. Including Social Security, which is going to be bankrupt and nothing but a Ponzi scheme which only by accident or something has lasted since the 1930s.
Money’s tight. We can’t afford what we used to. If you can’t save enough money in the bank to pay for yourself when you’re “too old to work” (another liberal platitude), you don’t even sound like the kind of person who should be clogging up our economy right now any way.
Omnes Omnibus
@El Cid: You are waaaayyyy too good at channelling the right wing.
Linda Featheringill
@jwb:
At last! Somebody addressed the question of what will happen when local governments start to fail.
A reactionary swing to fascism is a real possibility. I hope it doesn’t happen, but hoping doesn’t seem to influence events much.
ruemara
@Zifnab:
Pensions invest in secure markets that are rated safe. Like energy and real estate funds. We know there are no shenanigans played with those funds, right? Plus, at least here in CA, many municipalities cut tax rates and marginally saved during the bubble. Now, even liberal, hippie type cities run on “overpaid city workers with too many benefits”.
jwb
@General Stuck: I don’t think this plays out in any predictable way—too many moving pieces in too many political jurisdictions—and I don’t think the goopers really understand the dangers of the game they have set in play.
singfoom
@El Cid: Indeed SIR! And the poorhouses? Are they full up? What about the orphanages?
Jesus Christ on a cracker. There’s this thing called empathy. Mayhaps you could use some?
And as for your first point, I fucking deserve income once I retire. I paid into Social Security and I expect to get that money back at some point. Sure, I’ve got an IRA and I’m putting money into it, but I expect a return on the money I’ve put into SS. As to whether some things might have to change over time in terms of benefits or taxes, etc….that’s fine.
It’s not a ponzi scheme and it’s not an accident that it has lasted. You are talking completely out of your ass.
singfoom
@El Cid: Dammit, I actually started writing a response to your wingnut comment. Well played, sir.
ruemara
@burnspbesq:
It’s never too early for Siouxie and the Banshees.
Maude
@Kenneth:
Do you mean it’s time to light a cigarette?
General Stuck
@jwb:
This is a leading candidate for understatement of the new century. And it is easy to also underestimate the fear and loathing they have for the HCR Obama passed. It is politically primal for them, and ideologically as well as electorally existential in the lizard brain — you can see it in their words and body language when they talk about it. And it is nothing short of a recipe for disaster.
Woodrowfan
I refuse to slam public employees for still being paid a decent middle class wage. The problem isn’t that they’re paid too much** but that we’ve redefined what is an acceptable wage downwards until “barely getting by” is acceptable. This republican war on the middle class will not end well for the country..
** there are exceptions, and any public employee who games the system and commits fraud deserves to be nailed hard by the law
Elizabelle
@Svensker:
I agree with Svensker.
And if you are self-employed or an entrepreneur, you are hailed right and left for your independence and face a world with precious few safety nets.
jwb
@Svensker: My, oh, my, your resentment level is running high. You claim to hate the politician not the worker, but who is it that you want to shaft by cutting their compensation? And why? Because you resent paying them a salary commensurate with their skills.
Berial
For what its worth Beat the News has a rundown on that 60 Minutes story.
And apologies but I cannot get the block-quotes to work right. Go to the link and read it yourselves.
singfoom
How dare these local governments pay their staffs a living wage *AND* with decent benefits too?
Seriously, the anger is misplaced here. While there may be bad apples in local governments and with any organization, there will be amounts of fraud and waste, it makes the head a’splode when the anger is directed at employees of the public sector.
The private sector has given up on any pretense of the good ole social contract that was in existence in the 50s-70s. Normal workers can be replaced with machines or cheap child labor overseas in a dictatorial state.
“Living Wage” should be a clarion call to action for Democratic politicians, pushing that message over and over and over again, highlighting the preferential treatment of the rich and the shaft the rest of us are getting.
Oh wait, the politicians are part of the rich. Nevermind, we’re fucked.
Maude
@Woodrowfan:
Divide and Conquer.
numbskull
@John Cole:
I may have sneered, and for exactly the point you make.
And btw, it’s not like pensions are free money. An agreement is made between two parties. Around here, we call that a contract. Also around here, these contracts require that both parties pay into the pension fund. On what planet is it allowable that some time in the future, one of those parties gets to take the money to fix unrelated problems that that party created?
I guess the answer is: Planet America.
El Cid
@jwb:
It won’t matter a god-damned tiny microscopic bit what “leftist activists,” astute (in either a serious or snarky sense) or otherwise do. It would not affect such developments any more than a collapsing bridge would be slowed by a couple of popsicle sticks and wood glue.
They could take to every street and stand and jump out there 24 hours a day singing praised to Obama in harmony and all they’d get out of it is at best rotten garbage thrown at them and more likely baseball bat beatings.
It won’t matter what they do; it would only matter how good one or more popular sub-fascist leader or leaders would be. (“Sub”, because they’re not in it for the whole uniformed nation-wide disciplined state takeover, and also because they’re not a force on their own but flacks for other powerful sorts.)
And there would be no worthwhile counter-organizing on any other side, liberal, center-liberal, labor, whatever the fuck, that would be anything more than a pathetic joke — because no such things exist any more and only a tiny slice of our citizenry would ever join up in such naive, unsophisticated efforts — but maybe there will be harsh denunciations of professional leftist bloggers.
ChrisS
Can’t outsource government work, so those wages are protected from overseas competition. Everyone else not so much – so resentment grows for the person not getting shafted by the great grift.
I love class warfare.
Rommie
You know, I’m actually feeling OK about living in Michigan, because this state has been in recession for TEN #$%#@$# YEARS. If it gets worse, it’ll be the full-blown collapse of state and local government. We’re kind of dull to the pain now.
That’s just the 10 million or so people here. If the wolf is at the door of all these other states and cities in 2011, that’s gonna be 100 to 200 million people hit, and that might just get a reaction that everyone will notice. If DC doesn’t step in, you won’t have to worry about overpaid civil servants with nice pensions anymore. Grover will get another flag on the side of his bathtub.
Michael
I’m going to talk about the elephant in the room – the value and security of deferred compensation for the middle class.
The middle class laborer is to give up his labor and his health for the promise of some measure of security in old age. Meanwhile, company shareholders take out their compensation in the here and now as dividends and corporate officers get their compensation in the here and now as stock options, fat contracts and executive bonuses. For middle class public sector employees, while outsourced contracts get paid in the here and now and wealthy taxpayers enjoy lower rates in the here and now, said middle class employees get to wait for their compensation.
And what is the final reward for the middle class employee whose labor qualms has been bought off with promises of pension rights and healthcare? A gutting of those pensions and accusations of greed, long after the consideration was paid.
I blame FDR.
El Cid
@numbskull:
The planet on which employees have zero power to stop that, and on which there doesn’t seem to be either the power or will for governments or courts to do much at all about that.
jwb
@El Cid: If you believe that, then you also believe the left is completely powerless. You may well be right, but it’s not really a belief I could hold and be able to get out of bed in the morning.
Barb (formerly Gex)
@Zifnab: Because the people at the top of the ladder don’t trust us to just pay us our worth. They are going to “save” it for us so we can have it in retirement. They’d rather that system than social security because that comes from everyone’s taxes. Then they keep robbing from the till or they cheat by making the vehicles the pensions invest in completely worthless. Then when they are completely underfunded, they can point out how much those lazy union workers want beyond what is in the fund. It’s great how they basically give workers delayed pay and when workers ask for the pay tax payers think they’re being grifted.
It’s not that it can’t work, if this country had any kind of respect for workers instead of Galtian heroes. But instead, we keep finding ways to give our money to the top 1% and complain that the people below us take too much.
ETA: This is what Americans seem to want. My roommate has a diploma and a job in a glass warehouse. They’ve had several rounds of layoffs and now there’s mandatory overtime. She never stops bitching about it. The only thing she hates more than her shitty working conditions are unions.
Cat
@Svensker:
You are utterly wrong. The current government pension system has been around since the 50’s or 60’s I think.
What happened is the raiding of those pensions in the 80’s and the Unions then fighting to get their pensions fully funded and the Politicians agreeing but then giving taxpayers taxcuts forcing the next politician to raise taxes or cut services and then scapegoating unions rather then call out taxpayers being stupid and electing short sighted politicians.
Zifnab
@El Cid:
People ultimately cede the power to the government. If the government and the courts don’t act, the people are complicit.
Now, if the people were unionized and organized, they could do all sorts of things to compel government and business to behave. The NFL is preparing for a strike next year, because players think their managers are getting ready to give them a raw deal.
So, I think you’re right, in that any one individual is helpless. But collective action remains a powerful tool, when people get around to using it.
Michael P
Grunch:
https://self-evident.org/?p=870
https://self-evident.org/?p=876
https://self-evident.org/?p=877
The TLDR on the above links is that Whitney gets wrong and hysterical conclusions from some correct and truthfully troubling facts.
Odie Hugh Manatee
@brendancalling:
The magical money game of musical chairs is pretty much over, the music is discordant and winding down. Only a few people are already sitting down, the Masters of Our Universe, because they always win. Just wait until people realize the music has stopped and that there are no chairs left. You can bet that shit is going to hit the fan because this is what they have been working towards. Good times or bad, rich people always find a way to profit.
When the rich profit in bad times, people die. Lots of people.
brendancalling
@Odie Hugh Manatee:
like I said, man: riots. lots of them.
bet there’s a famine too, in many parts of the country.
El Cid
@jwb: I wouldn’t say that ‘the left’ (meaning, I guess, liberals and labor and various community support and other fairly issue- and electoral-focused organizations) has no power, just that in the face of the situation suggested above it would not have the power to halt such a reaction, and probably not much in the willpower of most of their members.
I’d prefer to feel that I was wrong, but I don’t see any evidence of the sort of organizational strength or willingness for personal commitment and risk which would be needed. Something much more intense than marches and donations and letters and blogs and meetups and the like.
Barb (formerly Gex)
@Corey: What a dipshit. I’m guessing she came to the conclusion that CA and NY have much bigger raw numbers than WY and SD or something similar.
El Cid
@Zifnab:
Well, yes, logically and theoretically, and occasionally historically, but, again, I don’t see any sign that such has been happening, that it is likely to happen, or that there is emerging organizational strength or a dawning of understanding that these sorts of things are possible.
You never know. Sometime things arise pretty quickly in unexpected ways. Cross your fingers.
Svensker
@jwb:
Sorry, I don’t think a 34 year old cop in a tiny safe NJ suburb “earns” a $100K salary with his great “skills”. Yes, the cops where we lived were very responsive and really nice guys. But their “skills” outside government would get them a job at WalMart if they were lucky.
Yes, I resent paying them that much money.
This is one area where I think liberals wear blinders and where there is no discussion possible. “Workers” = good, no matter what. Even if the working folks being taxed to pay their wages make half the salary and none of the benefits. It’s screwed up.
Barb (formerly Gex)
@Svensker: Those past deals were in lieu of current pay. They trade income for pensions and then later people like you want to take the pensions too.
http://www.youtube.com/watch?v=01UipbZL3ww
Svensker
@Cat:
Thanks for the correction. As far as tax-payers electing short-sighted politicians, well, yuh. Are there any other kinds?
mclaren
@El Cid:
This has become common wisdom and it’s completely incorrect. Social security is actually in good shape. A few minor tweaks, like removing the income cap for which FICA tax gets collected and reducing the benefit payouts for people with incomes above say 75K, and very slightly raising the retirement age to, say, 66 or 67, renders the social security trust fund safe and secure as far as the eye can see, for at least 30 or 40 years. It’s not worth planning beyond that time horizon because, really, how can you? The world is likely to be such a different place in 2050 that trying to plan government budgets that far in advance doesn’t make any sense.
The big problem is medicare, not social security. Medical costs are skyrocketing and this is what forces medicare payments up.
Svensker
@Barb (formerly Gex):
In what world does my 34-year-old cop making $100K trade income for pensions? Or the toll-takers who are getting $150K — how are they trading income for pensions. What, they should be getting $200K or $250K? Where I’m sitting, they get big salaries, fat pensions, and great health benefits. It’s a trifecta of wonderfulness.
Yes, I’m perfectly happy to put the blame for all of this on the Masters of the Universe and their blowing up the economy. But I still think unionized govt employees, at least where we lived, get too much. Sorry.
El Cid
This over-fattened dedication to keeping all these government employees who need to share our pain are primarily local government employees, and the vast majority of those appear to be public schoolteachers.
Cut those by half or more and the money saved is huge. Plus now you have a bunch more freedom-oriented children who aren’t being indoctrinated by Progressive ideology.
Second, much of the non-temporary (i.e., Census) federal employee growth has been in Homeland Security. Since there are more private contractors working there than federal government employees, we can get rid of all of those public employees because they’re not efficient and have never really worked for a living.
With about 2.7 million employees, if you shut down all departments like the Department of Education and the EPA and the anti-free market food & drug regulation programs and the interfering FCC and so on and so forth, maybe we could get that down to under 1.5 million.
Barb (formerly Gex)
@Svensker: Just because you weren’t part of the negotiations and you resent people who get paid a salary when you’ve decided to go it on your own, doesn’t mean that the negotiations that lead to these contracts were all driven by the workers. The fact is that companies wanted to defer compensation to increase current bottom lines. And now they want to reneg, and you are on their side.
Not my fault that you bought into the lie of the American dream. The myth is that if you are talented and work hard you can make it. But “pro-business” politicians are pro big business and they are the ones making it difficult for small businesses. Upward mobility is all but dead in this country and has been for a while. Why you need to grease the rails for the slide down, I don’t know.
Really, cops? You want to go after people who on a day to day basis might have to deal with someone opening fire on them? What kind of risks do YOU take for your pay?
RareSanity
I’m just going to leave this here…
The whole article is worth the read. I have added this to my daily reading. The author, Dean Baker, basically takes obvious examples of “lazy journalism” and eviscerates it, daily.
He also threw in that if the Federal government had given these same municipalities, trillions in below market rate loans (like they did with the banks with TARP), that they could of then turned around and re-lent, they wouldn’t be dealing with shortfalls (in fact, would have made a profit) and the Federal government would have also been able to claim a profit on the endeavor (just like TARP).
El Cid
@mclaren: Snark. Even without an informed background on SS, it would make little sense to call something a ‘Ponzi scheme’, characterized not simply by its instability but its fairly rapid tendency to fall apart, lasting 70 years.
Other types of schemes, maybe, but on such long terms I think we’d probably use some other term than ‘scheme’ — i.e., arguments by soshullist economists that capitalism inevitably tends toward over-financialization after years of stagnation in the underlying capitalist economy, followed by the appearance of some new type of hyperactively embraced speculative investment, and with those leading to crises via bubble collapses.
Others disagree , and believe that this should be contrasted with a more directly Marx & Lenin-based analysis. This view holds that the financialization of the economy is a product of the separation of ‘capital’ from the use of capital for production, presumably including services, to the use of the over-accumulated capital for riskier and more untouchable and ever more speculative financial gambling and back to a rentier character — thus causing financialization and its attendant inevitable collapses and costs and suffering imposed not upon the speculators but on the wider society.
Cat
@Svensker:
I’ll just start here. We’ll assume he’s been a cop for 12 years, got a CJ degree from the local community college and went to the police academy.
I imagine his base pay for a cop with 10+ years is 65k. Seems reasonable for a college graduate with 10 years work experience.
He then will make overtime because the local municipality can’t afford to hire new cops because of the cost of training, insurance, equipment, and pension a new body entails. So its either actually cheaper to pay overtime or appears cheaper on paper, but either way, he works extra hours and gets paid overtime.
He then gets extra pay for days he testifies in court. Why I dont know, but they do.
100k seems within the ballpark of what someone would earn given the structure of a Cops worklife.
I would be earning 2x what the proverbial Cop does if my pay was similarly structured, but with out the pension or people shooting at me.
Oh and the fucking stress.
I think your tollbooth collector story is complete fiction or the crazy outlier people use to justify firing teachers, social workers, and people working at the DMV when in reality most government workers are paid inline with their educations.
cynickal
@Svensker:
Now you’re just pulling numbers out of your ass.
Bosco
@New Deal democrat:
Huh. That’s odd, because most people I know are triple-fucked in more or less the manner described. I guess things are booming, after all.
joe from Lowell
@Svensker:
A cop earning $100,000 is working a lot of private-sector-funded overtime. You don’t earn $100,000 as a cop working your regular shifts, but by working the equivalent of a second job – which a lot of them do.
You’re just making shit up now.