Pensioners Will Feel the Pinch from Illegal Mortgages and Foreclosures

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Editor’s Comment:

There are many people whose opinion produces the resistance of government to rip up the banks that got us into this economic mess. They all say government is too big, that we already have too much regulation and that Obama is the cause of the recession. Their opinions are based largely on the fact that they perceive the borrowers as deadbeats and government assistance as another “handout.” 

But when it comes down to it, it’s easy to make a decision based upn ideology if the consequences are not falling on you. Read any news source and you will see that the pension funds are taking a huge hit as a rsult of illegal bank activities and fraudulent practices leaving the victims and our economy in a lurch.

The article below is about public pensions where the pension funds and the governmental units took a monumental hit when the banks sucked the life out of our economy. TRANSLATION: IF YOU DEPEND UPON PENSION INCOME YOU ARE LIKELY TO FIND OUT YOU ARE SCREWED. And even if you don’t depend upon pension income, you are likely to be taxed for the shortfall that is now sitting in the pockets of Wall Street Bankers.

Think about it. If the Banks were hit hard like they were in Iceland andother places (and where by the way they still exist and make money) then your pension fund would not have the loss that requires either more taxes or less benefits. And going after the banks doesn’t take a dime out of pulic funds which should (but doesn’t) make responsible people advocating austerity measures rejoice. They still say they don’t like the obvious plan of getting restitution from thieves because the theives are paying them and feeding them talking points. And some of us are listening. Are you?

Public Pensions Faulted for Bets on Rosy Returns

By: Mary Williams Walsh and Danny Hakim

Few investors are more bullish these days than public pension funds. While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul, a practice that Mayor Michael R. Bloomberg recently called “indefensible.”

Now public pension funds across the country are facing a painful reckoning. Their projections look increasingly out of touch in today’s low-interest environment, and pressure is mounting to be more realistic. But lowering their investment assumptions, even slightly, means turning for more cash to local taxpayers — who pay part of the cost of public pensions through property and other taxes.

In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent, which would be one of the sharpest reductions by a public pension fund in the United States. But that change would mean finding an additional $1.9 billion for the pension system every year, a huge amount for a city already depositing more than a tenth of its budget — $7.3 billion a year — into the funds.

But to many observers, even 7 percent is too high in today’s market conditions.

“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.” Public retirement systems from Alaska to Maine are running into the same dilemma as they struggle to lower their assumed rates of return in light of very low interest rates and unpredictable stock prices.

They are facing opposition from public-sector unions, which fear that increased pension costs to taxpayers will further feed the push to cut retirement benefits for public workers. In New York, the Legislature this year cut pensions for public workers who are hired in the future, and around the country governors and mayors are citing high pension costs as a reason for requiring workers to contribute more, or work longer, to earn retirement benefits.

In addition to lowering the projected rate of return, Mr. North has also recommended that the New York City trustees acknowledge that city workers are living longer and reporting more disabilities — changes that would cost the city an additional $2.8 billion in pension contributions this year. Mr. North has called for the city to soften the blow to the budget by pushing much of the increased pension cost into the future, by spreading the increased liability out over 22 years. Ailing pension systems have been among the factors that have recently driven struggling cities into Chapter 9 bankruptcy. Such bankruptcies are rare, but economists warn that more are likely in the coming years. Faulty assumptions can mask problems, and municipal pension funds are often so big that if they run into a crisis their home cities cannot afford to bail them out. The typical public pension plan assumes its investments will earn average annual returns of 8 percent over the long term, according to the Center for Retirement Research at Boston College. Actual experience since 2000 has been much less, 5.7 percent over the last 10 years, according to the National Association of State Retirement Administrators. (New York State announced last week that it had earned 5.96 percent last year, compared with the 7.5 percent it had projected.)

Worse, many economists say, is that states and cities have special accounting rules that have been criticized for greatly understating pension costs. Governments do not just use their investment assumptions to project future asset growth. They also use them to measure what they will owe retirees in the future in today’s dollars, something companies have not been permitted to do since 1993.

As a result, companies now use an average interest rate of 4.8 percent to calculate their pension costs in today’s dollars, according to Milliman, an actuarial firm.

In New York City, the proposed 7 percent rate faces resistance from union trustees who sit on the funds’ boards. The trustees have the power to make the change; their decision must also be approved by the State Legislature.

“The continued risk here is that even 7 is too high,” said Edmund J. McMahon, a senior fellow at the Empire Center for New York State Policy, a research group for fiscal issues.

And Jeremy Gold, an actuary and economist who has been an outspoken critic of public pension disclosures, said, “If you’re using 7 percent in a 3 percent world, then you’re still continuing to borrow from the pension fund.” The city’s union leaders disagree. Harry Nespoli, the chairman of the Municipal Labor Committee, the umbrella group for the city’s public employee unions, said that lowering the rate to 7 percent was unnecessary.

“They don’t have to turn around and lower it a whole point,” he said.

When asked if his union was more bullish on the markets than the city’s actuary, Mr. Nespoli said, “All we can do is what the actuary is doing. He’s guessing. We’re guessing.”

Vermont has lowered its rate by 2 percentage points, but for only one year. The state recently adopted an unusual new approach calling for a sharp initial reduction in its investment assumptions, followed by gradual yearly increases. Vermont has also required public workers to pay more into the pension system.

Union leaders see hidden agendas behind the rising calls for lower pension assumptions. When Rhode Island’s state treasurer, Gina M. Raimondo, persuaded her state’s pension board to lower its rate to 7.5 percent last year, from 8.25 percent, the president of a firemen’s union accused her of “cooking the books.”

Lowering the rate to 7.5 percent meant Rhode Island’s taxpayers would have to contribute an additional $300 million to the fund in the first year, and more after that. Lawmakers were convinced that the state could not afford that, and instead reduced public pension benefits, including the yearly cost-of-living adjustments that retirees now receive. State officials expect the unions to sue over the benefits cuts.

When the mayor of San Jose, Calif., Chuck Reed, warned that the city’s reliance on 7.5 percent returns was too risky, three public employees’ unions filed a complaint against him and the city with the Securities and Exchange Commission. They told the regulators that San Jose had not included such warnings in its bond prospectus, and asked the regulators to look into whether the omission amounted to securities fraud. A spokesman for the mayor said the complaint was without merit. In Sacramento this year, Alan Milligan, the actuary for the California Public Employees’ Retirement System, or Calpers, recommended that the trustees lower their assumption to 7.25 percent from 7.75 percent. Last year, the trustees rejected Mr. Milligan’s previous proposal, to lower the rate to 7.5 percent.

This time, one trustee, Dan Dunmoyer, asked the actuary if he had calculated the probability that the pension fund could even hit those targets.

Yes, Mr. Milligan said: There was a 50-50 chance of getting 7.5 percent returns, on average, over the next two decades. The odds of hitting a 7.25 percent target were a little better, he added, 54 to 46.

Mr. Dunmoyer, who represents the insurance industry on the board, sounded shocked. “To me, as a fiduciary, you want to have more than a 50 percent chance of success.”

If Calpers kept setting high targets and missing them, “the impact on the counties won’t be bigger numbers,” he said. “It will be bankruptcy.”

In the end, a majority decided it was worth the risk, and voted against Mr. Dunmoyer, lowering the rate to 7.5 percent.

12 Responses

  1. Pension funds reported wipe out long ago:

  2. I have two parties trying to find more Stephen Broviak docs if anyone has his docs please inform me. I have two I can share with you.

  3. much of the public-funds thefts archived here:

  4. I simply recount best as i could understand the allegations of several attorneys general. I did not knowingly add any gloss–the claims are not theft but civil fraud–perhaps the difference is in some way related to your suggestion that its ordinary business practice??? I do not know what is or is not ordinary business practice in such instances—in dealings between banks and pension trusts—however it would certainly not be so as between parties with equal knowledge and bargaining power—-corporations worry about each basis point–they dont leave money lying carelessly on the table–or under it.

  5. @dcbreidenbach,

    Settling at the worst numbers for the day is standard procedure .. by getting the suckers involved in the same game they are playing they are able to put the bad trades on the customer and keep the good ones for themselves… or in the case you cite they simply sold at a reasonably good price and told their customer they got a far worse price and pocketed the difference,, simple theft.

  6. @DCB

    Isn’t the whole financial industry a “fixed table”?

  7. The Ohio AG is suing one big bank for civil fraud. the bank induced the Ohio Teachers and Police/firefighter’s pension trust to bet on foreign exchange indexes –which is casino ganbling to begin with. That was not enough–gabling against a fixed table. This bank had to squeeze a little more. Rather than making a trade when instructed by the pension trust–the bank caused the trade to be recognized at the worst possible rate for the day. Presumably in order to make the millions alleged by the AG, the bank must have made the trade when instructed or preplanned on its own account—and then settled up with the pension funds at the worst rate of the day–thereby getting a nice margin in addition to any regular fees.

    What is really scary though is that this bank is the largest trustee for US municipal debt issues–ergo public finances and financial fees are solidly in the grasp of this entity. This gives it a nice edge when it comes to promoting investments such as the foreign exchange deal. so if one were a real cynic–she might be thinking about looking over all the affairs of this outfit—and its fee structures. But the last thing a state or local treasurer money manager ought be thinking is “why are we doing business with this outfit?” If that question is not being asked–then the state employees’ unions should be examining the relationship between the fund manager and state treasurers etc and this outfit. Do they like to have conferences in Hawaii–with benefits? Every reader that has been “touched” by the banker-trustees on MBS –and their representative serviers knows very well what the limits [or lack thereof] of the actions taken by these sorts of people. So each of you that knows how low they can go probably has a couple people they know who are state and local employees or other captive pension funds. These are the “investors” we so often hear about that lose a bundle from the conflicts of interest of servicers who love a good crooked complex litigation–because they get rich fighting foreclosure defendants—every punch they land –every kick in the groin–every knife in the back—creates new rewards for the collection agency and its attorneys. The irony is that the same people–or their cousins are holding the purse for pensioners–including tea partiers. But im sure that they use a much higher standard of ethical responsibility when they are holding that fat purse–than they are when they are skimming off the monies in foreclosure service fees. But it should be fairly easy to see how controlling both sides of the deal—the foreclosure and investor interest creates “financing efficiencies” and “profit optimization” potential for these people. PT Barnum said “there is a sucker born every day” and these guys happily embrace the princple. Something about a fool and his money too….

  8. been sayin it for years…i used to do defined benefit pension plans with an actuary…the % assumption change to the contribution requirement was HUGE…haha…as the % approaches 0 (zero) the required annual contribution to meet obligations approached INFINITY…lolzz…

  9. There was a sixtyminutes program that touched points on this subject last night on CNN-N I beleive. It was the sixty minutes TV program, with Lynn Szymoniak on it, discussing the fraud and the pensions, and the cuts the city mayors have no choice to make due to the bank fraud. Now the mayors and AG’s can call the city enitites dead beats. Illinois I believe has been having problems with the gas stations turning away the state patrol gas cards, due to not being paid for the gas.. The states are in big trouble. Personally I feel all of this could have been avoided if they had all honored the rule of law, and fudiciary duties
    protecting the taxes payers and sent a lot of crooks to jail. The government has chopped off the head of the mouths feeding them. The tax payer. All the billions and trillions of dollars stolen from the people including the decaying houses, they have not figured out the well was going to run dry if they protected the crooks. Their jobs are next. They will be in line for unemployment and there wont be any funds for the unemployment. As Chis Christy says in this program, they are done, they have no choices anymore, but to commit political suicide and do what is needed. Will that be the end? Unless they put the real crooks in jail and stop sending the money to the monsters creating the problem, they are all falling down the rabbit hole together. How much does it take for them to wake up? I have tried to find the show on the web and have been unsuccessful. It should be showing up soon.

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