Illinois Teachers' Retirement System Imploding - first of many more to come

[mamboni]

Illinois Teachers' Retirement System Enters The Death Spiral: AIG Wannabe's Go-For-Broke Strategy Fails As Pension Fund Begins Liquidations
Submitted by Tyler Durden on 08/24/2010 19:44 -0500

AIGAmerican International GroupCredit Default SwapsFailIllinoisOTCOTC DerivativesToo Big To Fail


Two few months ago we disclosed how the Illinois Teachers' Retirement System (TRS) was doing all it can to become the next AIG. In addition to, or maybe precisely due to, its deplorable fundamental condition, which can be summarized as being 61% underfunded on its $33.7 billion in assets, with a performance record of down $4.4 billion in 2009 and 5% in 2008, the fund, courtesy of a detailed analysis by Alexandra Harris of the Medill Journalism school at Northwestern, was found to be on its way to trying to become a veritable self-made TBTF: as was described then, "TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default." In other words, TRS was selling substantial amounts of derivatives, which held the fund's other assets as hostage in case the collateral calls started coming in, as should the market broadly decline, the value of the downside derivatives would "increase" and the seller (in this case TRS) would need to pledge ever more collateral against these wrong way bets. Not only that, but the Fund is currently getting annihilated on its curve exposure: "TRS appears to be betting that long-term Treasury yields will greatly increase" we wrote back then. So as a result of i) its massive underfunded fundamentals and ii) a bet that the market would turn bullish, i.e., spreads would drop (they are rising), and treasuries would plunge (we all know where they are today), which was supposed to happen by now but isn't as the economy is now officially double dipping, the fund has basically thrown in the towel and is proceeding with liquidations. The problem there is that due to its derivative exposure, liquidations now become self-reinforcing, as more cash needs to be pledged as collateral in a declining market, and the AIG death spiral we all know and love, follows. The only thing missing is for Goldman to raise its overnight variation margin requirements and it's game over, as we get a brand new AIG on our hands. And since Goldman is among the 60 or so asset managers that actually decide how the fund invests its meager assets, it is fully aware of its precarious position, and it is a sure bet that Goldman is currently deciding when to pull the plug on the TRS life support.

http://www.zerohedge.com/

[Phoenix]

http://www.bloomberg.com/news/2010-08-20/schwarzenegger-said-to-seek-2-billion-from-calpers-for-california-budget.html

Schwarzenegger Said to Seek $2 Billion From Calpers for California Budget
By Michael B. Marois - Aug 20, 2010 11:06 AM PT

Aug. 20 (Bloomberg) -- Bloomberg's Margaret Brennan reports on major newsmakers in today's Movers & Shakers. (Source: Bloomberg)

California Governor Arnold Schwarzenegger has privately proposed counting savings from reducing public worker pensions toward helping erase a $19 billion budget deficit.

Schwarzenegger, a Republican, wants the California Public Employees’ Retirement System to credit the state with $2 billion this year, according to a state official who was briefed on the proposal and isn’t authorized to discuss it publicly. He would count that as an advance on the roughly $74 billion he estimates in savings during the next 30 years from his proposals to roll back pension benefits for government workers.

California began its fiscal year on July 1 without a spending plan after Schwarzenegger and Democrats who lead the Legislature remained deadlocked over how to fill the deficit. He’s vowed not to sign any final budget unless it’s accompanied by legislation to permanently cut the state’s cost to finance retirement benefits for government workers.

The state must pay $3.9 billion this fiscal year to Calpers to finance retiree costs, up from $145 million a decade earlier. In 1999, lawmakers and then-Governor Gray Davis approved benefit increases that Schwarzenegger says the state can’t afford and he wants them rolled back for new hires. He has supported proposals to require public employees to work longer to qualify for pensions and to pay more toward benefits.

Calpers spokeswoman Pat Macht declined to comment today. Pension plan employees have the day off because of unpaid furloughs ordered by the governor. Rachel Arrezola, a spokeswoman for Schwarzenegger, declined to comment.

The Sacramento Bee reported the loan proposal earlier today.

[Book]

Taxpayers going postal over public employee pensions, perks

June 4, 2010 1:44 pm

By PETER SCHEER—For public employee unions–those representing police, firefighters, teachers, prison guards and agency workers of all kinds at the state and local level–these are the worst of times.

Despite record high membership and dues, and years of unparalleled clout in state capitols, public sector unions find themselves on the defensive, desperately trying to hold on to past gains in the face of a skeptical press and angry voters. So far has the zeitgeist shifted against them that, on one recent weekend, government employees were the butt of a Saturday Night Live skit, followed, the next day, by a New York Times magazine cover article proclaiming the “Teachers’ Unions’ Last Stand.”

Public unions’ traditional strength–the ability to finance their members’ rising pay and benefits through tax increases–has become a liability. Although private sector unions always have had to worry that consumers will resist rising prices for their goods, public sector unions have benefited from the fact that taxpayers can’t choose–they are, in effect, “captive consumers.”

At some point, however, voters turn resentful as they sense that: (1) they are underwriting, through their taxes, a level of salary and benefits for government employment that is better than what they and their families have; and (2) government services, from schools to the DMV, are not good enough—not for the citizen individually nor the public generally—to justify the high and escalating cost.

We are at that point.

In California, government sector unions, once among the most entrenched and powerful labor groups in the country, mainly have themselves to blame. For most of the post-war period, they were a force for progressive change, prospering by winning over public support for their agenda.

In the 1970s and 80s they backed laws like the Public Records Act and Brown Act to make state and local government more transparent. Because unions enjoyed broad-based political support, efforts to enhance government accountability and responsiveness to voters were seen–correctly–as benefiting the unions and their members.The public interest and public employees’ interests were aligned.

But the unions switched strategies. Although the change was gradual, by the 1990s California’s government unions had decided that, rather than cultivate voter support for their objectives, they could exert more influence in the Legislature, and in the political process generally, by lavishing campaign contributions on lawmakers. Adopting the tactics of other special interest groups, government unions paid lip service to democratic principles while excelling at the fundamentally anti-democratic strategy of writing checks to legislators, their election committees and PACs.

While not illegal (in fact, such contributions are constitutionally protected), the unions’ aggressive spending on candidates puts them on the same moral low ground as casino-owning tribes, insurance companies and other special interests that have concluded that the best way to influence the legislative process is to, well, buy it.

Public unions in California turned distrustful of voters and ambivalent about government transparency. In the mid-1990s unions backed improvements to the Brown Act, California’s open meeting law, but also inserted a provision assuring that the public would have no access to collective bargaining agreements negotiated by cities and counties—often representing 70 percent or more of their total operating budgets—until after the agreements are signed.

What happens when voters and the press have no opportunity to question elected officials about how they propose to pay for a lower retirement age, healthcare for retirees’ dependents, richer pension formulas and the like? The officials make contractual promises that are unaffordable, unsustainable (and, in general, don’t come due until after those elected officials have left office). In the case of Vallejo, in northern California, this veil of secrecy, and the symbiotic relationship it fosters, has led to municipal bankruptcy.

The biggest blow to unions’ public support has come from revelations about jaw-dropping compensation and pension benefits. Police have received unwelcome attention for budget-busting overtime and the manipulation of eligibility rules for “disability pensions,” which provide higher benefits and tax advantages. Other government employees, particularly managers, have been called out for “pension-spiking:” Using vacation time, sick pay and the like to boost income in the last years of employment, which are the basis for calculating retirement benefits.

Such gaming of the system boosts starting pensions to levels that can approach, and even exceed, employees’ salaries. Some examples from the reporting of the Contra Costa Times’ Daniel Borenstein: A retired northern California fire chief whose $185,000 salary morphed into a $241,000 annual pension; a county administrator whose $240,000 starting pension was 98 percent of final salary; and a sanitary district manager who qualified for a $217,000 pension on a salary of $234,000. At a time when most Californians anticipate an austere retirement (if they can afford to retire at all), government pensions are a source of real voter anger.

The harm to the credibility of public employee unions from these excesses is made far worse by the unions’ attempts to hide them. The revelations about pay and pension abuses have surfaced only as a result of lawsuits. (Disclosure: The First Amendment Coalition has been a plaintiff in several of these cases.) Public employee unions, rather than taking the lead to stop abusive compensation practices, have vigorously opposed disclosure of individual employees’ salaries and pension amounts.

Public employee unions need to reboot. The old strategy of cynically buying political influence and excluding the public from decision-making has run its course. Unions can rebuild public support by recommitting to an agenda of open government in the public interest. If they don’t, they will be further marginalized.

http://calcoastnews.com/2010/06/taxpayers-going-postal-over-public-employee-pensions-perks/

[Jersey Thursday]

I must admit I was shocked when I heard that teachers in my district, that have more than 25 years on the job, make over $135K a year.
When did this insanity begin? When I was a kid, teachers had second jobs just to make ends meet. They painted houses in the summer and worked in bowling alleys, etc. in the evenings during the school year. And, that wasn’t that long ago.
Now husbands and wives that are both teachers, in my neighborhood, live better than practically everyone else. They only work 9 months of year, have a second home in Florida and drive nice cars.

[madfranks]

Check Out The Ridiculous Public Sector Pensions In Illinois (http://www.businessinsider.com/if-you-thought-new-york-was-bad-check-out-the-ridiculous-public-sector-pensions-in-illinois-2010-6#ixzz0xdK19Uvj)

This is fucen ridiculous! >:(

http://static.businessinsider.com/image/4c168dff7f8b9aaf2bb00000/pensionsillinois.jpg

[Book]

http://www.themontyminute.com/wp-content/uploads/2009/12/PostalWorker.gif

Imagine what will happen when free Medicare Prozac and their Postal Pension suddenly ends...lol.

:D your check's in da mail Fred!

[wildcard]

Check Out The Ridiculous Public Sector Pensions In Illinois (http://www.businessinsider.com/if-you-thought-new-york-was-bad-check-out-the-ridiculous-public-sector-pensions-in-illinois-2010-6#ixzz0xdK19Uvj)

This is fucen ridiculous! >:(

http://static.businessinsider.com/image/4c168dff7f8b9aaf2bb00000/pensionsillinois.jpg


Hey, Illinois is turning out some of the best and brightest students in the world...and you can't put a price tag on that. Oh wait...

[Twisted Titan]

God I cant wait till NYPD Pensions get whipsawed........

[wildcard]

Ah, it won't matter. They'll just move the thugs into nicer quarters and give their families extra bread line chits.

*it's the "intelligentsia" that get's carted off to the gulag.