Growing Deficits Threaten Pensions

– One aspect of the Perfect Storm Hypothesis that is particularly hard to convey is the collateral damages part of it. A problem in one area is not typically an isolated event. In a complex world like ours, everything basically connects to everything else at some level.

– The currently unfolding economic situation in the U.S. economy is one such. It may have started with the Sub-Prime melt-down but other dominoes are still continuing to fall as the consequences roll through the system. The melt-down, itself, was made worse by other preexisting problems. The deep U.S. trade deficit, the shifting of manufacturing and technical jobs offshore, the huge amounts being spent on the Iraq War. All of these have served to ‘weaken the patient’ in advance of the Sub Prime debacle.

– The article I’m reporting on here, “Growing Deficits Threaten Pensions” is one of the follow-on consequences of a weakening economy. And, if these pensions fail to deliver what all the folks who’ve spent an entire working career assuming they would deliver, then what? Then what?

– People at the end of their career suddenly finding out that they have no retirement? People who’ve done their half of the pension bargain at every step of the way – only to find out that the other side isn’t going to do theirs?

– I’ll make a prediction here… When it turns out that pensions funds fail and everyone starts asking who is responsible, there’s going to be a lot of talking heads, lawyers and fund managers explaining how it wasn’t their fault and, in the end, no one will be responsible. But, just watch and see if any of those ‘explainers’ got caught up in the damage – or did they walk away richer than they began?

– Sorry to be such a cynic but in an age of failing pension funds for the ‘little people’ and golden handshakes for the fund managers, I am a bit soured on it all.

– There was a piece of ‘humor’ the other way on one of the financial Blogs I follow. It was meant to be a tongue-in-cheek word problem for those aspiring for a financial career. It went like this:

In a given year, the Dow Jones Industrial Average rises 8.3 percent, the NASDAQ rises 7.6 percent, and the S&P 500 rises 7.9 percent. If, in that same period, you manage a $29 billion hedge fund that loses 11.6 percent, how large a year-end bonus are you entitled to? (Round to the nearest $10 million.)

– Funny, eh?

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Accounting Tactics Conceal a Crisis For Public Workers

The funds that pay pension and health benefits to police officers, teachers and millions of other public employees across the country are facing a shortfall that could soon run into trillions of dollars.

But the accounting techniques used by state and local governments to balance their pension books disguise the extent of the crisis facing these retirees and the taxpayers who may ultimately be called on to pay the freight, according to a growing number of leading financial analysts.

State governments alone have reported they are already confronting a deficit of at least $750 billion to cover the cost of the retirement benefits they have promised. But that figure likely underestimates the actual shortfall because of the range of methods they use to make their calculations, including practices that have been barred in the private sector for decades.


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