Posted: Wed May 21, 2008 1:55 am Post subject: Re: Pensions of Millions Could Vanish
cube, the dirty little secret is that we live in the here and now. the past is gone and the future does not exist. the same goes for our investments. future returns are by their nature uncertain. therefore any retirement plan by definition expects to a greater or lesser extent that the future will look something like the past. as you point out that is an assumption. only through broad diversification can one hope that not all assets will sink in value at the same time and at the same rate. and, of course, if all assets do sink in value then it is better if your's only drop by half, while everyone else's sink in value by three-quarters. wealth is relative. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Wed May 21, 2008 4:44 am Post subject: Re: Pensions of Millions Could Vanish
Roy and Heineken
If you guys follow the discussions on this forum you should have a fairly good idea of where we are heading and where it makes sense to invest.
Oil will need to be pumped, electricity will need to be generated, things will need to be transported etc. Hence, companies that are good at doing these things will not go out of business and will be good places to park your money.
Just my view of where to go with ones retirement portfolio. As an example, railroad. Trucking is in trouble. Railroad will grow and contribute more and more with time. I wouldn't be surprised if in the near future the highway system wasn't modified to enable its use in the rail transport. Just brain storming. _________________ Men argue, nature acts !
Voltaire
"...In the absence of the gold standard, there is no way to protect savings from confiscation through inflation."
Posted: Wed May 21, 2008 6:04 am Post subject: Re: Pensions of Millions Could Vanish
I agree with your views on railroads. You could easily modify 2 lanes of an existing four lane interstate and put a train on it. All you need is a solid base(which you have) and a method to attach rails to concrete. So you really wouldn't need new railroad ROw and the attendant acquisition problems.
Joined: Aug 03, 2006 Posts: 4263 Location: Graceland
Posted: Wed May 21, 2008 7:08 am Post subject: Re: Pensions of Millions Could Vanish
As some of you know I am a retirement plan attorney and deal with both public and private retirement plans.
I don't have time right now to really dig in to many of the issues that have been raised above, but let me touch on a few of them:
- the whole concept of participant directed investments such as in the U.S. 401(k) plan system is a complete disaster. Trusting investment decisions to the individual works well some of the time, but usually produces lower returns over time than professional management as a result of individuals chasing returns and just churning their accounts in general
- traditional private defined benefit pension plans (where the benefit is determined by a formula) are fantastic, except Congress has made it almost prohibitively expensive to start or maintain one. Thus, these are a dying breed, which is unfortunate. The problem with most of these private plans is that they do not provide cost of living increases, which is a big problem
- public sector pension plans are wonderful (non-Social Security plans--military, police, fire, government employees, etc.), primarily because so many of them provide cost of living increases and most are funded reasonably well. However, as this thread has touched on, the cost of these plans depends upon tax revenue that may or may not be available in the future.
- all pension funding (non-401(k) I mean, where the employer is the one deciding how to invest the pension plan's assets) suffers from one ENORMOUS problem, and that is that the way these funds are invested (typically 50-60% stocks) means that right when the company or the government entity can least afford additional contributions (during a recession when business is bad and tax revenues are down) is when huge additional contributions are needed because the same economic conditions that led the company or governmental entity to be in financial distress are also causing the value of the pension assets to decline. This is a HUGE problem and I will see if I can post more about it later, but in a long term economic slowdown this one issue, even for fully funded plans, could be a disaster. Picture the "tail wagging the dog" scenario, except picture the dog's tail increasing to 10 times its normal size while the rest of the dog stays the same (or maybe even shrinks a little). _________________
Joined: May 18, 2006 Posts: 4330 Location: Minneapolis, MN
Posted: Wed May 21, 2008 7:38 am Post subject: Re: Pensions of Millions Could Vanish
Quote:
- public sector pension plans are wonderful (non-Social Security plans--military, police, fire, government employees, etc.), primarily because so many of them provide cost of living increases and most are funded reasonably well. However, as this thread has touched on, the cost of these plans depends upon tax revenue that may or may not be available in the future.
I may be stuck with a fixed 2.5% COLA per year now! And who knows what the future may bring. In the 90's peeps where getting upwards of 10% increases every year. Damn!
Posted: Wed May 21, 2008 9:19 am Post subject: Re: Pensions of Millions Could Vanish
Quote:
Too young to retire, too old to get a new job. That's how many older workers are feeling these days.
While it's not easy to land a job in this weak economy, older workers are in a particularly tough spot. Corporate downsizings are hitting this group hard, with many companies looking to shed the higher-paid positions these employees often occupy. Even worse, older job seekers are discovering the search is even rougher as many employers shy away from hiring those closer to retirement than to the start of their careers.
The downsizings come at a bad time for older workers. Not only can't they afford to retire, but many were counting on beefing up their 401(k) accounts in the years before they exit the labor force. Compounding the problem is the slumping stock market, which has left them with a deflated 401(k) cushion to draw on while looking for a new post.
Source: Out of a job and out of luck at 54 _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Joined: Aug 03, 2006 Posts: 4263 Location: Graceland
Posted: Wed May 21, 2008 9:30 am Post subject: Re: Pensions of Millions Could Vanish
Unfortunately, I would say that perhaps 50% of the problems with the U.S. retirement system (other than Social Security) are STRUCTURAL in nature, and the remaining 50% of the problems are the result of poor decision making in funding and investment of assets.
The trouble is, if I am right, even if everyone got smart tomorrow, 50% of the problem--the STRUCTURAL aspect--would remain in place.
It's a very thorny problem.
For anyone who wants to know the one sweet deal left--ROTH IRAs and ROTH 401(k) CONTRIBUTIONS.
Taxes are lower now than they are possibly ever going to be again. With a Roth, you pay the tax on the contributions now and earnings are tax free forever. It's the best deal out there. This strategy rests on the assumption that going forward the federal government is going to spend more than it can take in in taxes or borrow, requiring tax increases. That is, to me, a very safe assumption to make. There are counterarguments to making Roth contributions, but I do not find any of them persuasive for most peoples' situations, and I believe that this is a window of opportunity that will be closed in the next 5-10 years. _________________
Joined: May 18, 2006 Posts: 4330 Location: Minneapolis, MN
Posted: Wed May 21, 2008 9:38 am Post subject: Re: Pensions of Millions Could Vanish
Too bad I only acquired 6 years service with a "basic" Public pension plan. The fund stopped allowing new members in 1978.
My father had 30 years service under this plan and received 70% of his wage at time of retirement in 1977. The was just a average J6P kind of guy. My 89 year old Mother is still drawing over $1,400 Month from this plan.
Posted: Thu May 22, 2008 7:43 am Post subject: Re: Pensions of Millions Could Vanish
JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County The Law of Good Intentions and Unintended Consequences at work!
Quote:
Seeds of Crisis
The seeds of Jefferson County's debt crisis were planted in December 1993, when three citizens filed a lawsuit against the county commission , alleging untreated sewage was being discharged into the Black Warrior and Cahaba rivers during heavy rains, in violation of the federal Clean Water Act.
The U.S. Environmental Protection Agency in 1994 joined the taxpayers who filed the complaint. In December 1996, the county settled the case by agreeing to build a sewer system for collecting overflows and cleaning the water.
In 1997, the county began selling bonds to raise money for the project. Most of the bond sales, all done without competitive bidding, were arranged by Charles LeCroy, a banker at St. Petersburg, Florida-based Raymond James & Associates Inc.
(continued)
By November 2002, the county had issued $2.9 billion in sewer bonds, with an average rate of 5.25 percent; the cost of building the sewer system doubled from initial projections. Meanwhile, LeCroy had been hired by JPMorgan, taking the county's debt work with him.
``Jefferson County became a cash cow,'' says County Commissioner Shelia Smoot, a Democrat.
In 2002, with municipal bond interest rates near a 34-year low, LeCroy told Jefferson County officials they could save millions of dollars by refinancing their sewer debt. He recommended that the county use a combination of adjustable-rate bonds and interest-rate swaps.
The officials took JPMorgan's advice, and in 2002 and '03 Jefferson County issued $3 billion of adjustable-rate bonds, including $2.2 billion of auction-rate securities, bonds whose interest rates reset at periodic auction sales by banks.
(continued)
Those bonds provided the banks with about $55 million in fees, county records show. JPMorgan sold Jefferson County $2.7 billion of interest-rate swaps, Bank of America sold the county $373 million in swaps and New York-based Lehman Brothers sold the county $190 million more.
The swaps, if they worked as designed, would allow Jefferson County to pay about 4.2 percent on its debt for 40 years.
Jefferson County was so enthusiastic about its sophisticated debt management techniques that in 2003 and 2004 it held ``Investor Relations'' seminars each year in a Birmingham hotel.
The events were sponsored by 32 banks, advisers, law firms, bond insurers and rating companies, including CDR Financial Products, the county's Beverly Hills, California-based swap adviser, Bear Stearns and JPMorgan. County officials solicited sponsorships, including $27,000 from JPMorgan, $15,000 from Bear Stearns and $10,000 from CDR.
``We have so many little municipalities around here that can't afford to go for any kind of training,'' says Linda Goldblatt, the county's investor relations director. ``We thought it would be a good idea to help get them some idea of what's going on out there.''
Source: Default Stalks Alabama County _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Fri May 23, 2008 12:23 am Post subject: Re: Pensions of Millions Could Vanish
MrBill wrote:
JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County The Law of Good Intentions and Unintended Consequences at work!
Source: Default Stalks Alabama County
This is just the second period and the game usually never really starts till the third. So how far would it "upset the whole derivatives apple cart because of what a judge may do in a court case"?
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