Tuesday, March 3, 2009

Public Pensions

It's a strange thing how our economy works against us when we try to do what has been traditionally viewed as "the right thing.' The old Ben Franklin saw about thrift has never made it past the status of a joke in my mind in light of his own inability to live within his means, but thrift is no bad thing. Especially as you grow older.
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My wife and I heard for years how baby boomers like us weren't saving enough for retirement so we made our plans, took jobs later in life with pensions attached, put money from our house sale into decent investments (not the stock market after 2000!) and settled down to a middle age of work and stability, a plan that added to our Social Security benefits for retirement too. I've always thought of us before and after marriage as being two people who lived our lives backwards, traveling and experiencing life as youngsters prior to settling into careers with retirement plans later in life. The decision to be child free made it all a lot easier.
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So here we are, vested in public pension plans, our investments still hanging on, returning less but not devastated, our mortgage large but manageable and our jobs relatively depression-proof. Yet now we learn public pension plans are pretty much broke. Pension plans are supposed to fund themselves but in the last decade or two, observing astronomical gains on the stock market they too joined in. Worse yet they borrowed money by issuing government backed bonds at fixed percentage rates and investing that money. Which is what investors call leveraging, a fancy name for borrowing money to invest (gamble?) with...and now the inevitable result. Public pension plans across the country are deeply in debt and failing the solvency test.
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The good news for those of us planning to count on these retirement plans is that they are guaranteed by the states. The bad news is taxpayers in the states are now on the hook for these duff investment plans. Bloomberg in it's exclusive story on these pensions estimates the loss at around a trillion dollars. And so it goes.
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This fiasco really was a crisis of credit. There was simply too much credit floating around, too much borrowing and not enough oversight and regulation and now the whole world pays. I have friends who still look at me peculiarly when I suggest the future will be a lot different. They still think a return to the carefree days of the credit bubble is entirely possible. Perhaps, but only after we've secured the future of my pension plans, please.

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