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Previously, and sneakily, published here.

The invaluable Wall Street Journal editorialists provide a clear explanation of the kind of free market that the entitled 1% want: one where all risks are on the backs of the people who work for a living while all rewards are reserved for "investors".  Stockton California is moving towards bankruptcy and, grab yer hankies 'cause this is sad:

... leaves the city's bondholders as the likeliest targets. Creditors who thought that lending to cities was a risk-free exercise are learning the ugly reality of modern public union politics

  "Creditors who thought that lending to cities was a risk free exercise" is a phrase that one normally might finish with " are stupid". Why do municipal bonds pay more interest than US Treasury bonds? Because of the "risk premium".  That word "risk" is an important clue. The probability that a small town in California with shaky economics or the Government of Greece or Lehman brothers will not be able to repay debts is higher than the probability that the US Government or the German Government will not be able to repay debts. That's why when the first three entities went to borrow money on the bond market they paid higher interest rates - because investors wanted compensation for higher risk. But in the world of the Wall Street Journal, investors in municipal bonds get higher interest rates - because they are investors. They don't have an obligation to examine the finances of Stockton and decide to possibly not lend it money. That would be too much like work. Instead, these wealth creating investors should be able to make a risk premium without any risk. What an advance. 

So what happens to the risk? Well, in Wall Street Journal Capitalism, the risk should be for the municipal workers whose contracts gave them pensions in place of higher private industry salaries. Apparently, when the Investors chose to lend Stockton money, under Wall Street Journal Capitalism, the workers and pensioners of Stockton selflessly assumed the risk of that investment!.  But, imagine this, the Communist influenced Calpers, the public employee pension fund

"insists that pensions are contracts protected under state and Federal law"

So here's the deal that the Journal thinks is in place: having exempted themselves from most taxes, the investor class is entitled to risk premium inflated interest rates on municipal bonds with first dibs on taxes paid by other people, with risks shifting to firemen and teachers who did not actually participate in the bond transaction and who have contracts that are more like suggestions than contracts.   That's Rupert'Murdoch's Free Enterprise and it should be familiar to anyone who has seen the European Central Bank generously pay off bank bondholders time after time.  

The same theory motivates the despicable business model of vulture capitalists like Paul Singer who buy government bonds at a fraction of their face value and then demand that the US or British governments, at the expense of suckers who pay taxes, act as enforcers and extract the money from poor people in foreign countries. For example Singer is now demanding that the current government of Argentina pay back in full, plus interest, loans that were made to the Argentine dictatorship. Some people were immoral enough to lend the Argentine Dictatorship money to pay for it to torture and murder its citizens, and now the US Courts are being used to make the successor government pay it back. Wealth creators in action! Because nothing builds the national prosperity more than investments in lawsuits.  At least that  is what the Journal's owners and serfs think.

Originally posted to citizen k on Tue Apr 02, 2013 at 02:47 PM PDT.

Also republished by In Support of Labor and Unions and Community Spotlight.

Poll

Firemen in Stockton should be happy to sacrifice their pensions to make bond investors whole because

19%54 votes
14%40 votes
10%29 votes
33%90 votes
5%16 votes
15%42 votes

| 271 votes | Vote | Results

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Comment Preferences

  •  Tip Jar (145+ / 0-)
    Recommended by:
    Deward Hastings, Dreaming of Better Days, Chaddiwicker, Chi, kevinpdx, tardis10, Jim P, hannah, devis1, chuckvw, wilderness voice, Larsstephens, ferment, happymisanthropy, psnyder, TKO333, concernedamerican, LynChi, NoMoreLies, Wheever, yella dawg, Skennet Boch, basquebob, commonmass, Dr Squid, fiddlingnero, virginislandsguy, duufus, GeorgeXVIII, NBBooks, Bryce in Seattle, Australian2, marleycat, JimWilson, golem, caul, OleHippieChick, chemborg, sviscusi, ask, nuclear winter solstice, jobu, RJDixon74135, Actbriniel, semiot, Kristina40, Auburn Parks, Sandino, nominalize, WI Deadhead, ferg, bink, DRo, deha, whoknu, TFinSF, Mentatmark, stevemb, berko, stlsophos, zerelda, Sychotic1, ItsSimpleSimon, dannyboy1, Losty, wader, Siri, pamelabrown, Aaa T Tudeattack, Thinking Fella, jfromga, StrayCat, unfangus, Anthony Page aka SecondComing, cybersaur, Gay CA Democrat, buckstop, flatford39, Joe Bob, OldDragon, radarlady, Joieau, Laura Wnderer, Inland, madgranny, Egalitare, Jeff Simpson, Wolf10, bleeding blue, jaf49, markdd, Sun Tzu, SteveLCo, Youffraita, kenwards, Crashing Vor, puakev, VTCC73, eztempo, roses, ewmorr, blue muon, TheDuckManCometh, greycat, Involuntary Exile, allergywoman, penguins4peace, Moody Loner, Buckeye Nut Schell, cyncynical, Deep Texan, anodnhajo, PatriciaVa, ColoTim, Marjmar, legendmn, cececville, Laurel in CA, kerflooey, Betterthansoap, Shippo1776, tofumagoo, DSPS owl, Nattiq, melo, Simplify, Wood Dragon, RFK Lives, Bob Duck, Clytemnestra, carpunder, yoduuuh do or do not, madhaus, profh, Brian B, Habitat Vic, Robynhood too, DBunn, cv lurking gf, Captain C, Fenric, cynndara, Ironic Chef, mungley, spacecadet1

    self-appointed intellectual cop

    by citizen k on Tue Apr 02, 2013 at 02:47:11 PM PDT

  •  they are the wolves, (29+ / 0-)

    we are the sheep.

    Didn't you get the memo?  Of course it should have been obvious when first Bush and then Obama bailed them out while telling the rest of us to pound sand . . .

    Fake Left, Drive Right . . . not my idea of a Democrat . . .

    by Deward Hastings on Tue Apr 02, 2013 at 02:53:51 PM PDT

  •  the bond selling companies (35+ / 0-)

    refused even to negotiate - the judge was very pointed about that. They refused even after the judge told them that it was required by law. (I have more sympathy for the city.)

    (Is it time for the pitchforks and torches yet?)

    by PJEvans on Tue Apr 02, 2013 at 02:56:31 PM PDT

  •  Bust the unions and their darn pesky pensions (11+ / 0-)

    while we bust our belts.

    Thank you, America.

    "To recognize error, to cut losses, to alter course, is the most repugnant option in government." Historian Barbara Tuchman

    by Publius2008 on Tue Apr 02, 2013 at 02:59:57 PM PDT

    •  This sounds like what NYC did in the seventies (6+ / 0-)

      during its fiscal crisis. Privatize the rewards, socialize the risks: NYC's financial overseers, having tried and failed to get a bailout from the Federal government (immortalized in the famous newspaper headline, "Ford to City: Drop Dead"), instead solved the fiscal crisis on the backs of municipal workers' pensions.

      In many ways, the New York fiscal crisis was the model for broader efforts during the 1980s to reverse the gains of the New Deal and postwar era.

      Nothing requires a greater effort of thought than arguments to justify the rule of non-thought. -- Milan Kundera

      by Dale on Wed Apr 03, 2013 at 09:37:43 AM PDT

      [ Parent ]

  •  To be fair they also think we shldn't get to vote, (26+ / 0-)

    or have representation with that taxation ala Snyder's Michigan.

    It'd be ironic that all those Hayek-lovin' 'free marketeers' are building the road to serfdom if it wasn;t obvious from the start.

  •  This will make for very interesting litigation (19+ / 0-)

    The case will clearly go to the Ninth Circuit and may go to the SCOTUS. The bonds were insured so the investors will do fine. The issue is between the bond insurer and the other creditors, including CALPERS (the state pension providers). The issue is how big a hit do the bond insurers have to take while the pension obligations suffer no losses? This will be important litigation because we have the City of San Bernardino where pension obligations have not done as well as they have in the Stockton reorganization plan. In addition to Stockton and San Bernardino, I expect that many California cities and counties will be going through bankruptcy in the next decade and the current litigation will shape those cases as well. Unfortunately many cities and counties made obligations they can't fulfill, and borrowed money for projects that should have never been built.

    "let's talk about that"

    by VClib on Tue Apr 02, 2013 at 03:13:37 PM PDT

    •  not to mention that Calpers itself (2+ / 0-)
      Recommended by:
      Larsstephens, Sparhawk

      has mismanaged the money it was entrusted with.

      self-appointed intellectual cop

      by citizen k on Tue Apr 02, 2013 at 05:41:29 PM PDT

      [ Parent ]

      •  perhaps they trusted the bond ratings (9+ / 0-)

        bought from S&P and paid for by the bond issuers

        •  then they were dumb (3+ / 0-)
          Recommended by:
          dfarrah, StrayCat, cybersaur

          and the insurer was dumber.  The bondholders should have put their money in treasury bonds if they wanted close to zero risk.

          And God knows, investors who trust the bond raters should lose their money.

          self-appointed intellectual cop

          by citizen k on Tue Apr 02, 2013 at 07:53:58 PM PDT

          [ Parent ]

        •  Those bond ratings showed there was a chance (8+ / 0-)

          they wouldn't be getting their money back.

          Unfortunately, the rich are lousy at risk assesment.  They read that there's a 1 in 1000 chance of complete default and a 1 in 300 chance of a severe haircut to principle, and they think "returns are guaranteed".

          income gains to the top 1% from 2009 to 2011 were 121% of all income increases. How did that happen? Incomes to the bottom 99% fell by 0.4%

          by JesseCW on Tue Apr 02, 2013 at 08:13:08 PM PDT

          [ Parent ]

          •  Well, at least in theory, the bonds are offered (2+ / 0-)
            Recommended by:
            StrayCat, ColoTim

            Based on taxing power. As in the city can simply raise taxes to cover the payments. What could possibly go wrong?

            Thump! Bang. Whack-boing. It's dub!

            by dadadata on Wed Apr 03, 2013 at 03:10:29 AM PDT

            [ Parent ]

          •  There is dichotomy in that group (5+ / 0-)

            between the wealthy who instruct financial managers to "keep what I got" and don't take risks and  bond investors simply looking for yield. Any kind of yield.
            Buying short term bonds that don't keep up with inflation and even medium term bonds doesn't meet that criteria in a ZIRP environment.

            All pension fund managers  have made certain optimistic assumptions of annual ROI for pension funds out many years,  that have left many of them severely underfunded.

            That's why demand for Collateralized debt obligations was so high prior to the 2008 meltdown. The yield was 9-10% along with a BS triple AAA rating. It was too good to be true especially with over-all interest rates floating down towards zero.

            Generally speaking around that time pension fund managers were making assumptions of 8% annual ROI. That was the difference between underfunded and not underfunded. When the CDOs and now Municipal bonds go down the chances of them getting any yield at all diminish which definitely puts Pension funds in danger.

            We shouldn't  underestimate the importance of this. Municipal finance has a big chance of going the way of uninsured junk bonds if they get anybody to buy bonds in the first place. Especially if no one is willing to insure the bonds. Many jobs and retirement funds are dependent on Municipal bond financing key infrastructure build outs that would create income, tax revenue and help fund pension funds.

            Meredith Whitney made a prediction that this would start a year or so too early. But her prediction seems to be coming true as one city after another falls into bankruptcy. As more of them do it, it will feed on itself.

            “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

            by Dburn on Wed Apr 03, 2013 at 06:02:39 AM PDT

            [ Parent ]

            •  Yea, assuming 8% is way too high... (0+ / 0-)

              for the last 10 years, they've only managed 7.5%!!

              Fiscal year to date ended 12/31/2012 7.1%
              3 years for period ended 12/31/2012  8.8%
              5 years for period ended 12/31/2012  1.0%
              10 years for period ended 12/31/2012  7.5%

              •  Which Pension fund (0+ / 0-)

                are we talking about. Also note the last five years which is the real relevant measurement.  They got 8.8% in years 3-5 which probably means it was higher to make up for some nasty losses in the previous two years all the time when outflows were accelerating and inflows were down.

                They are dependant on current inflows plus ROI to meet the all obligations. Compare inflows to outflows now and project 5-10-20 years down the road.

                The better question is: is the fund underfunded or where it should be at.

                The numbers you present are meaningless to me especially with the Boomers retiring which probably started 10 years ago (cit and state pensions) and then went into major high gear as many workers were furloughed or laid off, took pay cuts etc.

                You have no citation there either so I have no idea what to look for ...

                “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

                by Dburn on Wed Apr 03, 2013 at 03:08:51 PM PDT

                [ Parent ]

              •  You have to look at funded ratios (0+ / 0-)

                Here AT Calpers which I suume that;'s where you were looking. They are underfunded over-all by around 30% in five categories. That's a PDF link so the table formatting is correct.

                The ROI is always going to be presented in the most favorable light. That's the same with pension funds as it is with mutuals fund. One crucial measure that they aren't using current inflow to outflow. The next ten years is when all retirement funds will get stretched to the maximum. Calpers is 30% underfunded which equals 10s of billions of dollars . That means that the 8% they forecasted was too low. They should have recalibrated by now and brought more realistic assumptions . Instead we see "Blue Sky" numbers. If more City and state jobs aren't increased or pension funds out flow in not reduced then ROI has to shoot up by at least 400-500 basis points. 12-14% per year is not doable.

                “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

                by Dburn on Wed Apr 03, 2013 at 03:19:16 PM PDT

                [ Parent ]

              •  Not good enough.... (0+ / 0-)

                CALPERS wanted to lower its return expectations from 8.75% to 8.5%...can't remember if it happened, but it caused massive problem/turmoil  because the change would have demanded substantially higher state contributions to CALPERS.

            •  Correction (5+ / 0-)
              All pension fund managers have made been forced to make certain optimistic assumptions of annual ROI for pension funds out many years,  that have left many of them severely underfunded.
              Pensions have been chronically underfunded ever since the 80s, when Republicans changed the actuarial rules governing pensions, lowering required contributions.

              With less seed money to work with, fund managers are forced to take on more risk to meet benefit obligations.

              "What could BPossibly go wrong??" -RLMiller "God is just pretend." - eru

              by nosleep4u on Wed Apr 03, 2013 at 09:52:06 AM PDT

              [ Parent ]

          •  ROI in rock solid areas (1+ / 0-)
            Recommended by:
            yoduuuh do or do not

            The interest rates or at least the coupon rates for these bonds are not out of line with other areas that would be rock solid like North Dakota. But there is this, if they are trading on the secondary market they could go higher than Par which reduces yield. If they are selling below par the yield will go up on the secondary market. By and large the long bond coupon for a tax-free bond is 4-6% in mostly solid states .

            The rest of California has about the same rates except for isolated differences. In other words a large pension fund is not going to be able to fill it's protfolio with a shit load of bad bonds as the amount the bonds raise for cities to use is a fraction of what a large pension fund has in assets.

            Then there is the ratings. Ratings change as circumstances change. That goes back to issue date. We don't know what the average issue date is on these bonds.

            I didn't realize that Municipal Bond ROI is so high compared to Govt bonds. I remember last looking when times were good and there doesn't seem to be any change.

            “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

            by Dburn on Wed Apr 03, 2013 at 06:41:48 AM PDT

            [ Parent ]

        •  Nope... (0+ / 0-)

          ...They were just plain stupid....
          top ticked every market you could imagine - dot com, real estate....

    •  Explain CALPERS claim please. (0+ / 0-)

      Did they have a position in Stockton muni bonds or is their claim for pension contributions that were unpaid? The former would be a case of idiocy like a sizable position of your employer's company's stock in your own retirement funds. While the latter is only par for the course for pension providers.

      Time makes more converts than reason. Thomas Paine, Common Sense

      by VTCC73 on Wed Apr 03, 2013 at 10:24:38 AM PDT

      [ Parent ]

      •  VT - here is my understanding which may not be (0+ / 0-)

        accurate.

        The Stockton public employees are members of the California Public Employees Retirement System (CALPERS) which collects contributions from members and their employees, manages the investments, and pays out retirement benefits based on the contractual relationship between the employer (a city, county or the state) and employee, and the contributions and investment performance of the CALPERS fund. CALPERS was established so that each city and country would not need to have separate investment departments to manage pension fund assets. What I don't know is the real specifics regarding the contractual relationships between the parties and how that impacts scheduled benefits.

        "let's talk about that"

        by VClib on Wed Apr 03, 2013 at 11:37:17 AM PDT

        [ Parent ]

        •  Thanks for the answer. (1+ / 0-)
          Recommended by:
          VClib

          That is a very thoughtful arrangement that can be quite beneficial due to the size of the retirement plan. The efficiencies you mention can benefit everyone if the plan is well managed. It's the "well managed" part where it always falls apart. Thanks again, I was hoping to get some insight into what part of "well managed" failed this time. Maybe I'll stop being lazy and try to dig it up myself.

          Time makes more converts than reason. Thomas Paine, Common Sense

          by VTCC73 on Wed Apr 03, 2013 at 09:04:56 PM PDT

          [ Parent ]

  •  The workers did no due diligence, not bothering (32+ / 0-)

    to find out if investors were 100% guaranteed that their investment would never sour on them. Clearly, the workers should pay.

    It's long been a mistake to let paychecks and pension income go directly to workers in the first place. Such should go into a single account, where Investors have rights to draw as they will. The workers allowed a modest stipend to cover food and cable tv.

    Until then, our precious Investor Class, who all Asia knows to be job-creators, will be exposed to unreasonable risks. That is to say, any risk.


    If Republicans said every 3rd person named "Smith" should hang, we'd bargain them to every 7th. Then we'll see apologia written praising this most pragmatic compromise. There's our losing formula.

    by Jim P on Tue Apr 02, 2013 at 03:42:48 PM PDT

  •  higher private sector salaries? (4+ / 0-)
    Recommended by:
    FG, nextstep, VClib, MGross

    maybe for some employees, but average cost for a cop was something like 150k.

    •  There are ads on BART for BART cop jobs. They (1+ / 0-)
      Recommended by:
      johnny wurster

      mention 160-180k salary.

      http://bartpoa.com/...

    •  Until recently... (3+ / 0-)
      Recommended by:
      nextstep, Sparhawk, MGross

      Employees had to work six months and then had lifetime medical insurance.

      And unlike bond issues, these benefit packages were not approved by the voters.

      Don't really think there are any heros in this play.

      •  i'm not defending Stockton - which was mismanaged (6+ / 0-)

        for sure, I'm only concerned here with the idea that the bond investors should have a risk free return. The bond investors were supposed to have run the numbers on Stockton - none of those pension benefits were secret.

        self-appointed intellectual cop

        by citizen k on Tue Apr 02, 2013 at 05:55:23 PM PDT

        [ Parent ]

        •  The problem is that... (4+ / 0-)
          Recommended by:
          caul, Rich in PA, Dburn, MGross

          ...if it's now clear that union contracts supersede bond investors in bankruptcy court, it will be more difficult (maybe far more difficult) for California cities to get bond loans in the future.

          Not just that, but the people getting screwed are going to tend to be pension funds and people like that.

          (-5.50,-6.67): Left Libertarian
          Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

          by Sparhawk on Tue Apr 02, 2013 at 06:58:07 PM PDT

          [ Parent ]

          •  Hey, we looted our pension funds! (2+ / 0-)
            Recommended by:
            blueoasis, madhaus

            Why can't y'all loot your pension funds?  You're making us look bad!

            Your end of the Constitution is sinking.

            by happymisanthropy on Tue Apr 02, 2013 at 07:30:16 PM PDT

            [ Parent ]

          •  which is the correct outcome (11+ / 0-)

            Stockton should not have been able to borrow money and should have dealt with its problems earlier.  But since the foolish bond investors let greed for return overcome prudence, they need to lose their money - or perhaps the foolish insurance company needs to pay. Nobody forced the bondholders to buy those bonds or the insurance company to issue coverage.  

            self-appointed intellectual cop

            by citizen k on Tue Apr 02, 2013 at 07:51:56 PM PDT

            [ Parent ]

            •  My only concern is... (4+ / 0-)
              Recommended by:
              nominalize, WI Deadhead, Dburn, MGross

              ..."what does the law say?"

              That's the side I come down with here. I don't personally favor either the town's pension recipients/workers, or the bond buyers. All of those people "should have done their homework".

              Whatever the law says should go.

              (-5.50,-6.67): Left Libertarian
              Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

              by Sparhawk on Tue Apr 02, 2013 at 08:18:13 PM PDT

              [ Parent ]

              •  So what homework (2+ / 0-)
                Recommended by:
                cybersaur, Samer

                did you expect the pension recipients/workers to have done exactly?

                Do you really think they have any say in management decisions?  

                The banks have a stranglehold on the political process. Mike Whitney

                by dfarrah on Wed Apr 03, 2013 at 06:32:37 AM PDT

                [ Parent ]

                •  They have a union, do they not? (0+ / 0-)

                  The solvency of the town and its pension funds should be of major interest to them. They could always have refused pensions and demanded 401ks.

                  (-5.50,-6.67): Left Libertarian
                  Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

                  by Sparhawk on Wed Apr 03, 2013 at 07:04:21 AM PDT

                  [ Parent ]

                  •  The diary is (3+ / 0-)
                    Recommended by:
                    cybersaur, Rick Aucoin, madhaus

                    about some bondholders who may lose their investment.

                    I'm not seeing how employees doing some homework about a debt issue would have anything to do with the current fiscal status of the city.  It seems that when management wants more funds, it is going to shove debt down everyone's throats without any consideration of the future impact on the cities, city employees, and city taxpayers.

                    You're veering off onto another topic competely - raising the issue of how retirement plans should be handled.  

                    Unless you can demonstrate, dollar for dollar, how much of the debt was used to fund retirement plans versus other uses [construction, new hiring, raises for the top executives, equipment, etc], then I don't see why you keep harping on retirement plans.  Did most of the debt go into the retirement plans?

                    The banks have a stranglehold on the political process. Mike Whitney

                    by dfarrah on Wed Apr 03, 2013 at 07:35:25 AM PDT

                    [ Parent ]

                    •  This diary... (1+ / 0-)
                      Recommended by:
                      MGross

                      ...is about all the people to whom the city owes obligations, and what obligations the city is going to not pay.

                      The employees' union knew they were going to be creditors of the city (same as the bondholders) and were as reckless and entitled as you think the bondholders are being.

                      In all cases, it is incumbent on someone who is going to be owed money to evaluate the solvency of the debtor and to legally understand where your place might be in bankruptcy line.

                      (-5.50,-6.67): Left Libertarian
                      Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

                      by Sparhawk on Wed Apr 03, 2013 at 08:03:00 AM PDT

                      [ Parent ]

                      •  The diary is clear (3+ / 0-)
                        Recommended by:
                        radmul, Rick Aucoin, madhaus

                        a certain segment of the comments, not so much.

                        Clouding the issue by blaming any of the victims is a fool's errand. No matter how many different ways it's worded.

                        It is time to #Occupy Media.

                        by lunachickie on Wed Apr 03, 2013 at 10:28:21 AM PDT

                        [ Parent ]

                        •  consider the source (2+ / 0-)
                          Recommended by:
                          madhaus, lunachickie

                          and be not surprised :)

                          Remember, when in doubt, blame the unions. It's always their fault.

                          The "extreme wing" of the Democratic Party is the wing that is hell-bent on protecting the banks and credit card companies. ~ Kos

                          by ozsea1 on Wed Apr 03, 2013 at 11:22:46 AM PDT

                          [ Parent ]

                          •  Oh yeah (0+ / 0-)

                            and all those people who didn't ask their employer's HR dept. to be sure they're doing a thorough job vetting the keepers of the company pension plan? Their fault too...  

                            Who's had that conversation at work? Really?

                            It is time to #Occupy Media.

                            by lunachickie on Wed Apr 03, 2013 at 07:26:16 PM PDT

                            [ Parent ]

                        •  the only victims in this (0+ / 0-)

                          Are the residents of Stockton. Everybody else is a perpetrator.

                          --Shannon

                          "It is better to die on your feet than to live on your knees." -- Emiliano Zapata Salazar
                          "Dissent is patriotic. Blind obedience is treason." --me

                          by Leftie Gunner on Wed Apr 03, 2013 at 04:47:26 PM PDT

                          [ Parent ]

                      •  part (1+ / 0-)
                        Recommended by:
                        madhaus
                        In all cases, it is incumbent on someone who is going to be owed money to evaluate the solvency of the debtor and to legally understand where your place might be in bankruptcy line
                        That's correct to a point - but it is particularly correct about the muni bond investors that according to the WSJ were entitled to believe their investments to be absolutely risk free.

                        self-appointed intellectual cop

                        by citizen k on Wed Apr 03, 2013 at 12:16:21 PM PDT

                        [ Parent ]

                        •  The law determines the order... (0+ / 0-)

                          ...of preference in bankruptcy, and the law is not settled here (apparently).

                          (-5.50,-6.67): Left Libertarian
                          Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

                          by Sparhawk on Wed Apr 03, 2013 at 12:27:06 PM PDT

                          [ Parent ]

            •  I don't think so... (1+ / 0-)
              Recommended by:
              Sparhawk

              There are three constituencies (at least) here.
                  Bond holders
                  Pension Funds
                  Residents of Stockton

              I see no reason why two should get screwed in order to preserve the Pension Funds.  Not trying to protect anyone in this unholy mess....they all should take it in the shorts.  

              But to protect the Pension Funds and screw the residents of the town, who have to live with dramatically reduced services so someone who worked for six months can have medical coverage for life....not good.

          •  Someone will either step in or invent a new bond. (0+ / 0-)

            Or instead of loaning free money to Wall Street, our elected reps can direct it be sent toward towns and cities. By free I mean near-zero interest.

            Thump! Bang. Whack-boing. It's dub!

            by dadadata on Wed Apr 03, 2013 at 03:06:32 AM PDT

            [ Parent ]

          •  That's Only A Minor Problem (1+ / 0-)
            Recommended by:
            Losty

            All that will happen is that the bonds will have to pay a higher risk premium on their interest rate to cover the increased (perceived or actural) risk. You know, how things work in an actual free market, as opposed to the crony-capitalism corruption championed by the WSJ.

            On the Internet, nobody knows if you're a dog... but everybody knows if you're a jackass.

            by stevemb on Wed Apr 03, 2013 at 06:26:12 AM PDT

            [ Parent ]

          •  Sparhawk - I don't think it is clear (4+ / 0-)
            Recommended by:
            Sparhawk, nextstep, PatriciaVa, madhaus

            The issue of seniority of pension obligations in municipal bankruptcy will be litigated, likely to the SCOTUS. This is not yet settled law.  

            "let's talk about that"

            by VClib on Wed Apr 03, 2013 at 07:23:34 AM PDT

            [ Parent ]

      •  Skeptical... (3+ / 0-)
        Recommended by:
        happy camper, Reepicheep, Sychotic1

        I'm sorry, but I flat out don't believe that you could work for six months and earn lifetime medical insurance.

        That just doesn't make any sense, so I'd have to see a link or citation before I'll take it seriously.

        Political Compass: -6.75, -3.08

        by TexasTom on Wed Apr 03, 2013 at 06:13:22 AM PDT

        [ Parent ]

      •  Six months? I don't believe it (0+ / 0-)

        I am a California State government worker and that just doesn't fit with what I know.

        "I watch Fox News for my comedy, and Comedy Central for my news." - Facebook Group

        by Sychotic1 on Wed Apr 03, 2013 at 06:47:30 AM PDT

        [ Parent ]

      •  This is wrong. It is retirees that get lifetime (2+ / 0-)
        Recommended by:
        Rick Aucoin, llywrch

        medical and you cannot work for government for six months and retire.  You have to be vested.  So the question is, how long do they have to work for Stockton before they are vested?  Once you are vested, you also have to be 50 to retire...at a minimum.

        "I watch Fox News for my comedy, and Comedy Central for my news." - Facebook Group

        by Sychotic1 on Wed Apr 03, 2013 at 07:43:41 AM PDT

        [ Parent ]

    •  There have been numerous studies (1+ / 0-)
      Recommended by:
      Joe Bob

      that show that at the lower levels, government work pays better (including both salaries and benefits), at the midlevels, they pay fairly evenly, with Government work paying less but having higher benefits to make up the difference.  At the highly skilled levels (MBAs, Lawyers, Doctors, Engineers) private industry makes considerably more.

      "I watch Fox News for my comedy, and Comedy Central for my news." - Facebook Group

      by Sychotic1 on Wed Apr 03, 2013 at 06:46:08 AM PDT

      [ Parent ]

      •  Links to those "studies?" Do you get credit for (0+ / 0-)

        how "industry" has been so successful at keeping wages flat or declining over the last 50 years, so that real family income is less than it was when my father was "in the workplace?" And then you can use those depressed wages (of course, the libertarians would say that was the "arm's length" -- if grossly asymmetrical -- deal) to show that government workers, some of whom are sort of protected by union organization, are "overpaid?"

        Riiiigghhtt...

        "Is that all there is?" Peggy Lee.

        by jm214 on Wed Apr 03, 2013 at 07:22:40 AM PDT

        [ Parent ]

  •  This isn't about the bonds holders vs. pensions... (1+ / 0-)
    Recommended by:
    Sparhawk

    It is about residents of a city vs. pensions.   Of course the bond holders are going to get whacked....and they should.

    But even if they take a big loss, you still have a city that cannot afford to provide basic services if it fulfills its pension obligations.

    Who takes that hit?

    •  the case is the bond insurers versus the city (2+ / 0-)
      Recommended by:
      Larsstephens, NoMoreLies

      and the city has cured most of the worst pension abuses.

      self-appointed intellectual cop

      by citizen k on Tue Apr 02, 2013 at 05:39:19 PM PDT

      [ Parent ]

    •  Why should they get hit? (2+ / 0-)
      Recommended by:
      Sparhawk, Sychotic1

      The city needed money and selling bonds was the way to do it. I guess that won't be an issue anytime soon since no one will buy the bonds of cities in CA so the unfounded pension problem and bankruptcies will come quicker with more severe impact. But if it makes you feel good, good for you. Oh, and for what it's worth, many pension funds and 401k plans invest in municipal bonds because they're generally safe.  Those 'fat cats' will get soaked too.

      •  nobody should have bought those bonds (1+ / 0-)
        Recommended by:
        cybersaur

        since the city was not going to be able to pay them.

        self-appointed intellectual cop

        by citizen k on Tue Apr 02, 2013 at 07:09:46 PM PDT

        [ Parent ]

        •  Extend the question: WHY wasn't the City (0+ / 0-)

          going to be able to pay the vig on those bonds? Lots of blame being assigned here, with some reference to what "the law" is -- but not all the parties are in the case caption, like all the developers and mortgage scammers and city contractors and elected reps getting campaign money from here and there, on and on, the whole bunch of the "greed is good" crowd that has put all of us into this corner.

          And of course for all the true believers in "The Law," "the law" has been jiggered by the parties who are the worst actors in this little drama. the Bankruptcy Code and contract law and the various criminal codes and the rest are not what they were when I went to law school, loaded against the little folks who can't lobby against all those favorable-to-the-haves legislative and rules changes, not to mention the exercise of unreviewable (or just will-never-be-reviewed given who the judges are) prosecutorial discretion. So please do not make noise about recourse to "the law" as an inevitably fair way of resolving the hottest points of friction in our grinding social machinery.

          "Is that all there is?" Peggy Lee.

          by jm214 on Wed Apr 03, 2013 at 07:46:03 AM PDT

          [ Parent ]

      •  At the right price there's always a buyer (2+ / 0-)
        Recommended by:
        JesseCW, radmul

            Even "junk bonds" are bought for a deep enough discount.

        •  and the deal is very clear (6+ / 0-)

          The buyer gets a higher interest rate BECAUSE THE BOND IS RISKIER.
          If the bonds should be zero risk, as the WSJ insists, then why is there any risk premium at all?

          self-appointed intellectual cop

          by citizen k on Tue Apr 02, 2013 at 07:49:02 PM PDT

          [ Parent ]

          •  It really depends on when the bonds were issued (0+ / 0-)

            When Meredith Whitney made her call that Municipal Bonds were in danger and nothing happened right away. People of course mauled her because very few cities had ever filed for bankruptcy which meant that the municipal bond market was as safe as anything else out there.

            Just to accent to the point, there were 30 year bonds issued by the US Govt in 1981 and 1982 that paid 20% interest. They expired in 2011 and 2012.

            The interest rate on municipal bonds for Stockton sounds about right if they were long bonds meaning they were purchased well before the "bad moon started rising" . It also depends on what category they were issued for ; i.e. Revenue, Water-sewer,Road construction, schools etc.

            As we can see here they were insured. So buyers really are only out the annual yield unless the insurers only insure the bonds at a Mark-to-Market price which would be about "par" for an insurance company. :-) . The bonds are probably still selling but at a huge discount to par in the hopes that any haircut they may have to take would be less than what they paid for them .

            Either way it goes, this isn't a good day for anyone. They have long been the cornerstone of financing local infrastructure projects, schools and even general revenue.

            “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

            by Dburn on Wed Apr 03, 2013 at 06:21:33 AM PDT

            [ Parent ]

            •  absence of work on part of investors/insurers (0+ / 0-)

              seems evident here.  All municipal bonds are not the same. The problem in stockton of shrinking tax base and hand-in-the-till government should have been noted by the investors and insurer.  But nobody did their job and now they want CaLPERS and the residents of Stockton to bail them out

              If you spend a little time looking a the muni market, you can see this is a widespread problem. School districts in TX that have ZERO probability of being able to pay back absent a bailout are getting AAA ratings for their bonds.  And they are doing this for Cap Appreciation bonds which are themselves red flags.

              self-appointed intellectual cop

              by citizen k on Wed Apr 03, 2013 at 07:20:28 AM PDT

              [ Parent ]

              •  The other class of bonds... (0+ / 0-)

                Are there also bonds tied to a special tax as well?  I recall several school bonds when I was a kid for building stuff that got passed and added $50 or so to property taxes dedicated to the bond.  It seems like those bond issues should be pretty safe regardless of other problems in the municipality.  Although, I guess when the bottom falls out of the real estate market it is possible even these taxes might stop getting paid or go down a lot, and put those bonds at risk.

  •  Remember Silverado Savings & Loan? That was when (14+ / 0-)

    the Republicans had put through a law that said, "if you gamble with your customers/members' money and win, you get to keep the profits.

    "If you gamble with your customers/members money and lose, the US Government (i.e. people who actually pay taxes) will cover your losses."

    What a system!  The Republicans support it to this day.

    Fiscal conservative: a Republican ready to spend $5 to save a dime--especially if that dime is helping a non-donor.

    by Mayfly on Tue Apr 02, 2013 at 06:21:24 PM PDT

    •  That was more about Neil Bush (1+ / 0-)
      Recommended by:
      Mayfly

      Than it was a statement over the S&L crisis. No general law was made that I'm aware of. Neil Bush's business partner borrowed 100 million from Silverado of which he was a board member.  Silverado failed. At the time it was a doozy at 1.3 billion. Taxpayers were on the hook for the entire S&L failure but the big difference ( other than Bush) is a crap load of people went to jail. We didn't go through a major depression . In terms of overall cost, it was far cheaper to close them than to use Taxpayer money to bail them out.

      This is just business as usual. It seems like every President except Obama has had problems with family members.

      Neil Bush was a member of the board of directors of Denver-based Silverado Savings and Loan during the 1980s' larger Savings and Loan crisis. As his father, George H.W. Bush, was Vice President of the United States, his role in Silverado's failure was a focal point of publicity. According to a piece in Salon, Silverado's collapse cost taxpayers $1.3 billion.[3]
      The US Office of Thrift Supervision investigated Silverado's failure and determined that Bush had engaged in numerous "breaches of his fiduciary duties involving multiple conflicts of interest." Although Bush was not indicted on criminal charges, a civil action was brought against him and the other Silverado directors by the Federal Deposit Insurance Corporation; it was eventually settled out of court, with Bush paying $50,000 as part of the settlement.[4]
      A friend who also donated funds to the Republican set up a fund to help defer costs Neil incurred in his S&L legal defense.[5]

      “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

      by Dburn on Wed Apr 03, 2013 at 06:53:04 AM PDT

      [ Parent ]

  •  I don't think they understand what capitalism (8+ / 0-)

    is supposed to be about.

    Adam Smith would be rolling in his grave.  

    When merchants and private investors would pool money to finance sailing ventures hundreds of years ago, they understood that any number of things could happen, from the ship sinking in a storm, to cargo spoiling from a delay in loading or unloading.  The investors took a calculated risk, understanding that risk was necessary in any such venture.  Over time (one hoped) the profits accrued through a series of such risky investments would yield a tidy sum of capital.  

    What the investors in Calpers seem to want is a very different scenario.  Did the ship in which you invested sink in a storm?  No problem!  Just make the surviving sailors pay for it by garnishing their wages!  

    That's one more thing to add to my long list of small problems. --my son, age 10

    by concernedamerican on Tue Apr 02, 2013 at 07:56:34 PM PDT

    •  I don't think you meant to make that point.. (1+ / 0-)
      Recommended by:
      Sparhawk

      But exactly....Calpers dramatically mismanaged their investment portfolio, and can't meet their obligations.

      And are terrified that cities will be successful in reversing some of the egregious pension obligations that were implemented.

      Was that your point?

      •  You take a risk when you invest. The portfolio (5+ / 0-)
        Recommended by:
        happy camper, jm214, kenwards, llywrch, madhaus

        could be mismanaged.  It could yield splendid, surprising benefits.  It could yield steady growth.  It could result in your losing a lot of money.  But you assume a degree of risk when you do any financial investing beyond savings bonds or fixed-yield CDs.  The idea that innocent pensioners should have to lose money from their pensions, so as to return to risk-taking investors money that they lost through their investment in the pension system, is absurd.  It is not the pensioners who should have to pay anything back to investors, if there's to be any restitution for losses incurred through risk.

        That's one more thing to add to my long list of small problems. --my son, age 10

        by concernedamerican on Wed Apr 03, 2013 at 05:13:59 AM PDT

        [ Parent ]

        •  The problem runs deeper with pensions (3+ / 0-)
          Recommended by:
          Balto, Sparhawk, llywrch

          Pension Fund managers are in a corner when they have to project ROI out many years . Politicians don't want to hear that underfunded pensions have to be made up through general revenues. So the Bond Managers typically are far more optimistic in projecting ROI. I imagine that some of the thinking there walks hand in hand with other short term thinking: "I won't be around to see this baby bite the dust , so sure I'll tell what they want to hear in exchange for [intsert big compensation here] .

          “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

          by Dburn on Wed Apr 03, 2013 at 06:26:45 AM PDT

          [ Parent ]

      •  "CALPERS dramatically mismanaged:" one wonders (0+ / 0-)

        who "advised" the deciders, and what they were "advised," and whether maybe those people who facilitate the issuance of muni bonds for a pretty good slice of the action might have maybe tilted the table a little bit, told some big lies, used various quasi-traditional, sorta-winked-at-legal "incentives" to persuade the deciders to do what they did -- advisers and persuaders who are also "Wall Streeters," also part of the scam. A

        nd city employees are taxpayers too, along with the other folks who just live there, have no possible awareness of the great bond scam market, and in the end, the last recourse to keep the whole mess going is to THEIR ability to generate new real wealth to fill the freakin' voids left by the beaks and tentacles of the Vampire Squids with the full bellies scooting off behind their clouds of black ink...

        "Is that all there is?" Peggy Lee.

        by jm214 on Wed Apr 03, 2013 at 07:54:30 AM PDT

        [ Parent ]

    •  Yes, but (1+ / 0-)
      Recommended by:
      concernedamerican

      Back then, people actually lost fortunes through investment!  Can't have that happen, now can we... but what we CAN do is pay investors higher salaries for being such "risk-takers".  

      --end snark--

      Conservatives need to realize that their Silent Moral Majority is neither silent, nor moral, nor a majority.

      by nominalize on Wed Apr 03, 2013 at 06:04:17 AM PDT

      [ Parent ]

    •  I think you meant to say Stockton and not (1+ / 0-)
      Recommended by:
      concernedamerican

      Calpers.

      "I watch Fox News for my comedy, and Comedy Central for my news." - Facebook Group

      by Sychotic1 on Wed Apr 03, 2013 at 06:49:54 AM PDT

      [ Parent ]

  •  Fox has taken over the WSJ (8+ / 0-)

    This sort of assertion is more idiotic than anything I've ever heard on the left in a long time.  It basically says that, "we've made good money on municipal bonds for the last 50 years, now we're rich and prosperous, and you have an obligation not to take that away from us."  Hey, guys, how about all those pension funds you sank?

  •  Hah. (1+ / 0-)
    Recommended by:
    kenwards

    Previously, and sneakily, published here.

    Hah.

    I'm guessing Zero Hedge and Naked Cap don't have much concern with the proles of Stockton.

  •  you want risk free? (4+ / 0-)
    Recommended by:
    dfarrah, Sychotic1, ybruti, llywrch

    that's what savings bonds are for,
    or a bank account that pays .25%*

    *up to what, $150,000, then there's risk.

  •  I love it when free-wheeling free-market caveat (8+ / 0-)

    emptor capitalism reveals its filthy ugly immoral hypocritical core to show that it's nothing more than a scam for a tiny few to get fat and happy off the work of the great mass of folks toiling away just to carve a tiny niche of a decent life for themselves and their families.

    And to the WSJ editorialists:  Really, guys, blow it out your ass.

    Is it courageous to propose tax cuts but not identify a single tax expenditure to rein in? Is it courageous to target your deepest cuts on the poorest Americans, who vote in lower numbers and provide little in campaign contributions?

    by caul on Wed Apr 03, 2013 at 02:52:53 AM PDT

  •  Very well written diary (2+ / 0-)
    Recommended by:
    Sychotic1, ybruti

    Before I comment, I have today that this is a very well written dairy. I like how you are able to stick to the point while expanding on it. I love the concision and balance that you use here.

    You take a somewhat complex issue and boil it down. Your premises support your thesis well. I also love how you are able to take the large, abstract, macro economic issue and bring into very real and concrete terms.

    You really have written an excellent piece from a writing mechanics standpoint. This should be a good example of how a diary should read.

    Kudoes on the writing.

  •  And the beat goes on (0+ / 0-)

    I have always thought that the whole thing about investors are nervous about government regulation boiled down that if they were really worried that if they screwed up that they would not get bailed out.

    I still have to ask why is it that no one who brought about the get crash has faced jail time?

  •  The Roland Arnall example (9+ / 0-)

    So who was Roland Arnall you might ask?

    He was head on Ameriquest and had controlling interest in Countrywide mortgages.

    He was CEO and directed many of the schemes that destroyed the American economy: huge mortage deals, robo-signing and foreclosures crisis etc, etc, etc.

    So after doing his level best to ruin the economy and countless lives how does the Senate and power structure decide to punish him?

    Jail time? Nope?

    Suspend his license? Guess again?

    Have probing hearings that humiliated him publicly? Not really but,

    The Senate did deal with him after that. They approved him for becoming ambassador to the Netherlands.

    That is right after engaging in destruction of the housing industry and wreaking havoc on peoples lives on a grand scale, Ameriquest paid a judgement and then within a short time their CEO became Ambassador to Holland.

    By the way there was not one peep of dissent or question from the Democrats on this. Everyone in Washington had no problem not punishing this guy and giving him a nice plumb ambassadorship.

    If this does not illustrate how corrupt and clueless the power structure is then, I do not know what does?

  •  If it is risk free, why the credit rating? (1+ / 0-)
    Recommended by:
    Inland

    I mean, if loaning to the State of California, or Stockton, or New York was risk free, why have a credit rating at all?

    Kabuki anyone?

    "I watch Fox News for my comedy, and Comedy Central for my news." - Facebook Group

    by Sychotic1 on Wed Apr 03, 2013 at 06:39:48 AM PDT

  •  That's funny. I want risk free investments too. (6+ / 0-)

    And as a public employee, I think my risk free investment should be my pension...but I'm sure that's not what the WSJ has in mind.

    Cake or DEATH? Oh, I'll have cake, please.

    by wmtriallawyer on Wed Apr 03, 2013 at 06:49:06 AM PDT

    •  Good (1+ / 0-)
      Recommended by:
      MGross

      Then your pension should be invested in bank CDs and T-bills that make ~2%, and your retirement payout should be calculated based on that.

      (I.e. pension payouts should be sharply lower).

      (-5.50,-6.67): Left Libertarian
      Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

      by Sparhawk on Wed Apr 03, 2013 at 09:52:29 AM PDT

      [ Parent ]

      •  You know what? (0+ / 0-)

        I'd be fine with a lower pension estimate at retirement if it meant my investment was safe.  As a State employee, I have a mandatory 7% contribution to my pension (State picks up another 14%).  That's before any savings I do in supplemental plans.  If it meant that my investment (and the State's) were totally safe at 2% return, so be it...just update what my estimated benefit is and I'll make up the difference in my personal savings.  At least there would be something there at retirement, rather than having the rug pulled out later by political whims and what not.

        Cake or DEATH? Oh, I'll have cake, please.

        by wmtriallawyer on Wed Apr 03, 2013 at 10:22:17 AM PDT

        [ Parent ]

        •  But the state doesn't actually pay 14% (3+ / 0-)
          Recommended by:
          wmtriallawyer, madhaus, melo

          See, that's where guys like Sparhawk are missing the boat.

          That inflated ROI that pension fund managers are speculating on, all of the time?  It's because the city/state/whoever isn't actually putting IN their 14%.

          They are counting on the interest that YOUR money is bringing the Fund to make up as much as possible of that 14% that they are obligated to contribute.

          And you're still lucky if they kick in the balance, in many cases they don't.

          So not only do you NOT get the 14% your employer is obligated to pay in, you lose the interest on YOUR money as well.

          And this is somehow just and fair, because, you know, fuck you?

          Yes, there are unions that have overreached and managed contracts that harm the financial stability of the company/government that agreed to them.  But these are FAR less common than the EVERY DAY damage that investors and insurers and city councils and city managers are doing to those communities/companies financial strength.

          *The administration has done virtually nothing designed to reward its partisans. - Kos 8/31/10*

          by Rick Aucoin on Wed Apr 03, 2013 at 11:57:55 AM PDT

          [ Parent ]

  •  If the pension fund in CA is (3+ / 0-)
    Recommended by:
    Joe Bob, llywrch, madhaus

    anything like the pension fund in Kansas, workers have no choice about money going into that fund.

    Our pension contribution is automatically deducted from our paychecks, along with taxes and insurance premiums. I cannot withdraw money from the pension fund until I retire. I cannot roll the pension money over into an IRA unless I stop working for the county.

    The State Legislature is in control of what percent of my paycheck goes into the fund. In 2014 my contributions will go from 4% of my paycheck to 6% of my paycheck.

    Pensions aren't like rich kids' trust funds, where the money is put there by mommy and daddy. The money comes from the paychecks that public workers earn by working.

    "YOPP!" --Horton Hears a Who

    by Reepicheep on Wed Apr 03, 2013 at 07:02:03 AM PDT

    •  I don't think most people get this. (2+ / 0-)
      Recommended by:
      Reepicheep, madhaus

      So few people get pensions anymore I think most don’t know how they work. They think it’s just a plush benefit and they aren’t aware that employees have money withheld from their paychecks to fund the pension plan. The word pension doesn't convey the fact that the benefit is in part a form of deferred compensation.

      Also, if you’re a public employee whose compensation is based on a negotiated contract those pension benefits are something you agreed to accept in lieu of something else, like cash wages. If your employer is in financial trouble it’s not like they can assert they couldn’t really afford to pay you what they did and then go into your checking account and take back some money.

      Take this whole trend to its logical conclusion and we will reach a point where any employer’s promises of future benefits are assumed to be untrustworthy. In other words, get your money up front in the form of a larger paycheck.

      Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. - Groucho Marx

      by Joe Bob on Wed Apr 03, 2013 at 09:27:11 AM PDT

      [ Parent ]

  •  As a former financial analyst and advisor, I (3+ / 0-)
    Recommended by:
    Reepicheep, Joe Bob, llywrch

    approve this message. The average broker probably sold it as risk free, making this even more amusing and sad at the same time. The investor can and should legally be screwed every single time. There is no obligation to pay them first, unless the investment contract makes them preferred creditors. The problem isn't those complaining and fighting (that is their right and responsibility to make money), it is the corrupt judges in our country that take the aw into their own hands to help these idiots. No wonder investors seem to think they only deserve profits, never failures...

    •  not always though (1+ / 0-)
      Recommended by:
      ybruti

      as the bondholders in e.g. Baine Cap companies often found out.

      Judges are remarkably unsympathetic to debtholders of PE managed bankruptcies.

      In fact, one of the big changes in recent corporate bankruptcies is that the Obama admin has been aggressively objecting to sweethard management deals. For example, the American Airlines bankruptcy would have gone very differently with a GOP executive

      http://www.nytimes.com/...

      self-appointed intellectual cop

      by citizen k on Wed Apr 03, 2013 at 08:22:13 AM PDT

      [ Parent ]

  •  Investors can and should diversify their portfolio (3+ / 0-)
    Recommended by:
    Rick Aucoin, Catte Nappe, llywrch

    ...so no investor with a lick of sense is going to  be rendered homeless if Stockton defaults.  On the other hand, it's awful hard for an employee to diversify her pension.

    I don't know what's been trickling down, but it hasn't been pleasant---N. Pelosi

    by Russycle on Wed Apr 03, 2013 at 09:37:10 AM PDT

    •  That's a rationale they use for privatizing (0+ / 0-)

      They will say that if the future retiree just had access to invest her money as she sees fit she would make better choices and would not end up losing her retirement security.

      "No one life is more important than another. No one voice is more valid than another. Each life is a treasure. Each voice deserves to be heard." Patriot Daily News Clearinghouse & Onomastic

      by Catte Nappe on Wed Apr 03, 2013 at 12:05:23 PM PDT

      [ Parent ]

  •  Ok if you want riskless investments we want (0+ / 0-)

    jobs that you can NEVER be fired or furloughed or layoffed from.   shit heads...

    "WAR IS PEACE FREEDOM IS SLAVERY FOX NEWS IS JOURNALISM"

    by FakeNews on Wed Apr 03, 2013 at 09:47:50 AM PDT

  •  Flip side is- pension should not be risk-free (1+ / 0-)
    Recommended by:
    Sparhawk

    neither. You made a fair point about bondholders needing to suck it up. But the flip side is- we have promised public employees a risk free pension, when in fact that pension invests in the very risky stock market. That is the problem with defined benefits pensions. Public employees need to absorb some of the risks as well.

    •  that's a defined benefit pension plan (0+ / 0-)

      There is nothing wrong with them.

      self-appointed intellectual cop

      by citizen k on Wed Apr 03, 2013 at 12:08:50 PM PDT

      [ Parent ]

      •  There is something wrong with it (0+ / 0-)

        Namely- you are making promises based on assumptions about future stock market earnings. Assumptions which could turn out to be wrong.

        •  you don't have to invest in the stock market (0+ / 0-)

          In fact, there is  great article from the NYT years ago about how when mafia guys ran the Teamsters pension fund they did safe real-estate, mortgage, corporate bonds and did pretty well and when professional financial managers were handed the fund after the Feds busted the mafia, the professional investment managers pissed it all away in the stock market in a few years.

          self-appointed intellectual cop

          by citizen k on Wed Apr 03, 2013 at 02:55:49 PM PDT

          [ Parent ]

          •  real estate, mortgage, corporate bonds (1+ / 0-)
            Recommended by:
            Sparhawk

            are not necessarily safe neither, as you no doubt recall from 2008. The truth is there is no such thing as a sure return on investment. Bond holders need to accept it, and pensionsers need to accept it.

            •  no (0+ / 0-)

              That's not the purpose of pensions and a society in which everyone is assumed to be a financial investor makes no sense.

              The Mafia Teamsters fund did quite well through  a number of recessions. They invested for value and didn't leverage.

              self-appointed intellectual cop

              by citizen k on Wed Apr 03, 2013 at 06:11:54 PM PDT

              [ Parent ]

    •  Pension is lower risk... (1+ / 0-)
      Recommended by:
      SingleVoter

      The thing is a pension with a large amount of money that is professionally managed can be much more highly diversified and achieve lower risk than an individual investor.  An individual investor makes one wrong investment decision and it can significantly hurt their ability to retire.  A large pension makes a wrong investment decision it is likely a small portion of the total fund and the result is a very minor hit to final return and if the actuarial numbers are good etc... then the possibility of bad investments has been accounted for in the long term return and on average everything evens out.  In addition costs should be lower for a pension than an individual investor.

      The idea is that risk is on an organization better able to handle that risk.  So, CALPers is about the risk of retirement income being on the large organization consisting of the State of California and all municipalities that participate.  I don't know how bankruptcy should impact the pension, but when we talk about investment risk in the pension the question is whether the employer should bear the risk or the employee.  In my opinion the point of a pension is that the risk should be born by the organization better able to manage that risk.  Which is not the employee.

      Of course many pensions are poorly managed with the tacit approval of the government via poor accounting standards that presume unrealistic returns given the risk level pensions should be managed to.  Given those unrealistic returns pension managers chase higher risk to try to meet those unrealistic returns.   Of course they don't really make it, so the pension promises made exceed the actual capabilities of the the pension and everything goes to hell in bankruptcy.

      I think an additional problem with private pensions is that when pension results exceed estimates the employer can contribute less, effectively showing pension returns as profits.   When pension returns are poor they must contribute more and thus pension losses and lower returns show up as lower profits. Interesting, when you think about it, this is positive feedback loop.  Because pension investments will tend to do well when the economy is good, which means the company is probably also doing well and profits increase.  Versus the other way around when the economy is doing poorly, the pension does poorly and the company is also probably doing poorly.  I wonder what would happen if it were set up as a negative feedback loop.  Higher pension returns and better company results should result in higher contributions and lower pension returns and lower company returns should allow lower contributions to the extent that there were higher contributions in the good times.

  •  It's worse than that... (3+ / 0-)
    Recommended by:
    nosleep4u, llywrch, madhaus

    The Firefighters, Police and other government employees invested their LABOR and TIME in order to get their pensions.  They did it under contract.  The bond holders only invested capital - not their time or labor.  Once again, those who own are valued higher than those who work.

    'Where free unions and collective bargaining are forbidden, freedom is lost' - Ronald Reagan, Communist

    by RichM on Wed Apr 03, 2013 at 10:42:31 AM PDT

    •  The money to buy bonds (0+ / 0-)

      is very often earned by bond buyers.

      The amount earned was often shown on W-2s and taxed, generally at both the state and federal level.

    •  Pension apartheid (0+ / 0-)

      should be eliminated.

      All public employees should only be guaranteed Social Security/Medicare level amounts as per the 14th Amendment requirement for equal protection of the law.

      Anything more should be subject to the same "risk" or reward as that of private sector employees using things like 401-Ks or IRAs.

  •  Hadn't heard about the Singer/Argentina case (0+ / 0-)

    Interesting that it pits Ted Olsen and David Boies against each other. Wjonder if they'd meet after court dates on this case to talk about their SCOTUS strategy. Interesting mental compartments lawyers have to have.

    "No one life is more important than another. No one voice is more valid than another. Each life is a treasure. Each voice deserves to be heard." Patriot Daily News Clearinghouse & Onomastic

    by Catte Nappe on Wed Apr 03, 2013 at 11:59:12 AM PDT

  •  Looks like the cost to municipalities for (1+ / 0-)
    Recommended by:
    Sparhawk

    borrowing is going to go up. Which makes the problem even worse.

    Never argue with an idiot. They will drag you down to their level and beat you with experience.

    by thestructureguy on Wed Apr 03, 2013 at 12:18:27 PM PDT

  •  Just like Obama and Social Security.... (0+ / 0-)

    We didn't play so why should we pay for the banks?

    What we need is a Democrat in the White House.

    by dkmich on Wed Apr 03, 2013 at 01:23:40 PM PDT

  •  I couldn't read the WSJ article because it's (1+ / 0-)
    Recommended by:
    madhaus

    behind a pay wall, but I found other articles on the same subject and am impressed by the way this diary dealt with the subject.  Many thanks.

    The spirit of liberty is the spirit which is not too sure that it is right. -- Judge Learned Hand, May 21, 1944

    by ybruti on Wed Apr 03, 2013 at 02:45:45 PM PDT

  •  As an investor (0+ / 0-)

    am getting damned tired of losing money for ANY reason.

    I'm spending money now so I can't be cheated out of it.

    I want executives to be legally bound to live in poverty for the rest of their days if I lose money on their stock.

    I want ALL city workers to get only Social Security level payouts if a city bond issue goes bad.

  •  Supreme Court Case: Flemming vs. Nestor (0+ / 0-)
    TO ENGRAFT UPON THE SOCIAL SECURITY SYSTEM A CONCEPT OF "ACCRUED PROPERTY RIGHTS" WOULD DEPRIVE IT OF THE FLEXIBILITY AND BOLDNESS IN ADJUSTMENT TO EVER-CHANGING CONDITIONS WHICH IT DEMANDS.  SEE WOLLENBERG, VESTED RIGHTS IN SOCIAL-SECURITY BENEFITS, 37 ORE.  L. REV.
    299, 359.  IT WAS DOUBTLESS OUT OF AN AWARENESS OF THE NEED FOR SUCH FLEXIBILITY THAT CONGRESS INCLUDED IN THE ORIGINAL ACT, AND HAS SINCE
    RETAINED, A CLAUSE EXPRESSLY RESERVING TO IT "THE RIGHT TO ALTER, AMEND, OR REPEAL ANY PROVISION" OF THE ACT.  SEC. 1104, 49 STAT. 648,
    42 U.S.C. SEC. 1304.  THAT PROVISION MAKES EXPRESS WHAT IS IMPLICIT IN THE INSTITUTIONAL NEEDS OF THE PROGRAM.
    http://www.ssa.gov/...

    The Supreme Court may also decide there is an implicit right to "alter" or "amend" state and local pension plans.

    The fact that workers contribute to the Social Security program's funding through a dedicated payroll tax establishes a unique connection between those tax payments and future benefits. More so than general federal income taxes can be said to establish "rights" to certain government services. This is often expressed in the idea that Social Security benefits are "an earned right." This is true enough in a moral and political sense. But like all federal entitlement programs, Congress can change the rules regarding eligibility--and it has done so many times over the years. The rules can be made more generous, or they can be made more restrictive. Benefits which are granted at one time can be withdrawn, as for example with student benefits, which were substantially scaled-back in the 1983 Amendments.
  •  And? "Entitlements" is what you use to sneeringly (0+ / 0-)

    dismiss any claim the hoi polloi may have to some of the money that all rightly belongs to the titans of finance and commerce. When the wealthy are seeking such opportunities to exact rentier rates of return on safe investments, it's called "the job-creators' due" or "incentives to create jobs".

    Sheesh, get with the program already - it's not like President Obama hasn't!

    "Violence never requires translation, but it often causes deafness." - Bareesh the Hutt.

    by Australian2 on Thu Apr 04, 2013 at 12:37:20 PM PDT

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