Public Pension Fund Blues

Matt Yglesias blogs for the Blue credentialed Center for American Progress, a John Podesta outfit. Podesta headed President Obama's transition team.

Yglesias noted public pension underfunding in several posts. Prior to his diatribes, I noted the one-two punch of underfunded pensions and a new GASB accounting rule on retirement health benefits, effectively requiring they be treated like pensions.

But back to Matt, who had this to say in his first post:

the viability of high-tax political units is driven by a belief among citizens that they are receiving valuable public services in exchange for their taxes. Paying off pension obligations to now-retired public employees, however, doesn’t fit that bill.

Translation, Matt believes government entities should welsh on their pension obligations. That or, dramatically improve returns by swinging for the financial fences. Private equity underwriters shill their latest offering with historical returns of 25-30% return on equity. Is Matt backdoor shilling for the PEU boys or offering a straight up punch to the retirement balls of public sector workers? Neither is promising from a Blue blogger.

Recall the last time CEO's sought to launch every investment pitch out of the ballpark. America got the Wall Street meltdown.

Matt wasn't done, he issued round #2. The first sentence cited:

the habit of giving public sector employees deferred compensation in the form of guaranteed benefit pensions rather than higher salaries, and then under-funding the investment plans that are supposed to pay the money out.

Yglesias referred to historical public sector compensation decisions as a "habit," implying something that can easily be broken. He misses the impact of economic cycles on pension plans, which cycle from overfunded to underfunded. The pension fund was a favorite for corporate raiders, which evolved into the more elegantly named private equity.

Most corporations ditched defined benefit pension funds the last few decades, transitioning to 401k's and 403b's. When times got tough, those same companies ditched the employer match, leaving employees literally on their own to fund their retirement.

Public pensions became majorly underfunded when the financial conflagration happened in 2008. Many own the same toxic junk as banks. How these instruments come back over time and their impact on pension funding status remain to be seen.

CalPERS received $652 million in capital calls from The Carlyle Group, according to Bloomberg. That sum was required for the California pension fund to simply hold onto its Carlyle Group stakes.

An Yglesias poster noted the state of New Jersey used their "overfunded" public pension to finance tax cuts. Elected officials imitated corporate raiders with this move.

Matt returned to take a personal shot at the motivation of public sector workers, implying that malingers would hang on for decades for the rich pension benefit. He said people doing work for purely monetary reasons should go to the private sector, after saying public sector workers should be paid more up front to properly motivate them.

He missed the role of leadership in motivating people. He whitewashed the commitments elected leaders made to public sector pay and benefits. Yglesias greased the skids for the next major dump of employment benefits onto the individual.

According to CBO projections and the latest Census data, 43.3 million Americans will lose workplace health insurance between 2008 and 2019. The one-two punch of underfunded pensions and retiree health care changes will force government entities to cut worker headcount, pay or benefits in the very near future. The public sector will look like the private, where employee job satisfactions sits at an all time low.

It's already playing out in San Angelo. The city cut retiree health benefits, while promising to cut worker health insurance benefits in the very near future.

The Blues are the Reds. The Reds are the Blues. From our hallowed halls of government to corporate board rooms, America suffers from abysmal leadership. Unfortunately, no one has your back.

Aside: Economic Policy Journal reported John Podesta will present at Michael Milken's annual meeting. Junk bond king Michael Milken was active during a period of corporate raiding. He was convicted 98 counts of racketeering and securities fraud. A number of private equity underwriters (PEUs) will also speak at the meeting, including Leon Black of Apollo Management and David Bonderman of TPG.

Uncle Sam Backstopped Derivatives, Geithner Hid Fact from AIG's SEC Filings

I wrote Congressman Mike Conaway in September 2008, concerned about the securities Uncle Sam would back. My letter stated:

I would like to see a list of "mortgage related security" products our federal government plans to prop up. If credit derivatives are on the list, I'm going to be angry. Buying distressed hard assets is one things, buying highly leveraged wagers is plain wrong.

While Rep. Conaway responded to my letter. As usual, he did not answer my question. Today's news indicated Uncle Sam backed credit derivatives. Bloomberg reported:

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008.

The New York Fed was headed by Tim Geithner, now Treasury Secretary. The story pointed to financial innovation, the kind the taxpayer should not be backing:

(According to e-mails) the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.

The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”

The NY Fed blames "lawyers" for non-reporting in SEC filings. Lawyer shopping is a common practice for executives.

Bailout leaders clearly wanted SCDO's out of the limelight.  Lawyers provided the legal cover. Only Tim Geithner can say which leaders helped with the decision. Hank Paulson? Stephen Friedman, buyer of Goldman Sachs stock in the midst of the crisis?

Congressman Darrell Issa obtained the revealing e-mails. Maybe Rep. Issa can help with my Hurricane Katrina questions. Fran Townsend and Andy Card's e-mails are in the millions of "recovered" Bush e-mails. Can Rep. Issa get correspondence from LifeCare Hospitals and The Carlyle Group during and after Katrina? One can always hope.

Update 1-18-10: Geithner, Paulson & Friedman have been asked to testify before a Congressional committee.

Dodd to Step Down from Senate

Connecticut Senator Chris Dodd will not seek reelection this year. His announcement came after North Dakota Senator Byron Dorgan issued a similar statement.

Ten years ago the two men voted differently on Gramm-Leach-Bliley. The bill that opened up huge new territory for America's commercial banks, wiping out Glass-Steagall protections instituted after the Great Depression. Dodd voted for it, Dorgan against. Senator Dorgan issued a prophetic call that America would rue the day. His prediction manifested in September 2008.

Chris Dodd did not indicate his future plans. Byron Dorgan illuminated his interests, including working on energy policy in the private sector. Dodd should have ample opportunities in the financial world, given his catering to Wall Street during his time in Congress. Will he work directly in the financial industry or become a non-lobbyist working for a lobbying firm, like Tom Daschle? Might he become a shadow banker?

Dodd has experience working in the shadows. Who can forget Dodd's low interest home loans from Countrywide, as a "Friend of Angelo" Mozilo, Countrywide CEO? Most of Angelo's friends were of the Democratic stripe.

Chris Dodd will cash in somewhere. It remains to be seen how many cushy seats he'll occupy. His wife is CEO of her consulting firm, while serving on four corporate boards, including the Chicago Mercantile Exchange Group. Do board tables have love seats?

University of Miami Lands 2010 Clinton Global Initiative Meeting

President Bill Clinton looks out for his friends and supporters. His 2010 Clinton Global Initiative University will be held at the University of Miami. University President Donna Shalala worked in the Clinton Cabinet as Health and Human Services Chief.

Miami should be nice in April. Young college aged girls in bikini's, maybe a little Frisbee tossing. It's never too early for students to learn how the power boys play. Here are a few rules:

1. Pick a side, red or blue, and declare your allegiance.
2. Do whatever possible to destroy the other side.
3. There are no other principles, other than #1 or #2.

They won't be covered in such a gauche manner. Clinton will talk around them, using his considerable Arkansas charm. Get ready Miami students, Bill's coming.

Dorgan to Step Down from Senate

Senator Byron Dorgan voted against Gramm-Leach-Bliley, delivering a prophetic warning on loosening regulations on commercial banks. It came true in September 2008. Financial reform won't come close to restoring Glass-Steagall protections. A Senior Treasury official recently said:

“I think going back to Glass-Steagall would be like going back to the Walkman.”

Despite committing to reelection, Dorgan reversed course, throwing a slim Democratic Senate super majority into question. Byron listed many interests he wishes to pursue. One is working on energy policy in the private sector.

It will be interesting to see where he lands in that role. Will he follow John Breaux or Trent Lott into lobbying? Might he end up with an energy oriented private equity underwriter (PEU) or an American branded multinational? Time will tell.

Center for Medicaid Statistician Unaware of Employer Health Insurance Decline

Micah Hartman, economist with the Center for Medicare & Medicaid, referred to private health insurance stagnation since 2004 in a CSPAN program, 2008 Health Care Spending. The presentation looked at national health expenditures in 2007 and 2008. Data showed the lowest rise in 50 years for hospital and physician expenditures. Micah refused to comment on declines in employer sponsored coverage, clear from Census Bureau data over the same time frame.

A 1.1 million decrease in employer coverage in 2008 warranted greater emphasis than a four year stagnation. Other data sources, like insurance company SEC filings, show the carnage continues. I expect a Medicare economist to be able to find his way around a 10-Q.

They could at least look at Census data showing the percent of people covered by employer health insurance:

2002 61.3%
2003 60.4%
2004 59.8%*
2005 59.5%*
2006 59.7%
2007 59.2%
2008 58.5%

*2004 and 2005 data were later revised, dropping over 1 million people from the uninsured rolls.

CMS presented charts showing the health care cost curve bending lower the last few years. This is the stated goal of health reform. I'm puzzled. Why did my health insurance premiums rise over 9% under an already bent curve? One failure of a theory requires its modification.

As for the projected impact of health reform, Micah bailed with a sheepish smile. The gentleman who answered the question talked about the election, well over a year ago.

Not said: Micah's peers in CMS predict a decline of 17 million with employer coverage under Congressional reform plans. That is confirmed by the Congressional Budget Office.

Also not said: A larger shedding from employer rolls is already underway. The number of Americans with employer coverage:

2008 176.3 million
2010 150 million (CBO projections)

A staggering 26.3 million Americans will lose employer sponsored coverage between 2008 and 2010. Another 17 million will lose it between 2014 and 2019. That 43.3 million employer dump is nearly the size of the uninsured, 46.3 million in 2008.

No media asked about these disconcerting facts during the presentation. Seismic shifts are underway and employees sense something is up. The plan is not to bend the cost curve, which is already bending. Health reform is intended to shift the burden of health insurance coverage to the individual. A tapped out Uncle Sam will walk away from its many promises before 2014.

Sleazy, mealy mouthed CMS economists and statisticians are a bad sign. They might as well have read a script. My question is: who wrote it?

"Thorough Investigations" by White House and Congress

On a cold Christmas evening Americans sat in front of their television sets, only to find a known terrorist attempted to bomb a Detroit bound airliner. Officials shared the Nigerian terrorist smuggled enough material onto the plane to take it down. Passengers were saved only by the man's incompetence.

President Obama promised a thorough investigation, followed by an echo from both houses of Congress. This last triple investigation occurred after Hurricane Katrina, when Americans witnessed similar haplessness by those charged with protecting citizens. (Or was it the Thanksgiving week State dinner crashing by the Salahi's and a third person, yet to be revealed?)

Bush's Homeland Security adviser Frances Townsend jumped on a plane to Saudi Arabia as New Orleans hospital patients sweltered in toxic gumbo. When Fran returned from delivering a Katrina letter to the Saudi King, Bush charged her with conducting a "thorough investigation." Fran crafted a whitewash, frequently citing the "unprecedented" nature of the disaster. Her report omitted the hospital with the highest death toll, Memorial Medical Center. It left medical evacuation priorities in limbo.

Congress conducted their own charades. Committees asked for internal documents. The White House refused to share Andy Card's or Fran's e-mails, many of which turned up "missing." Townsend resigned in 2007 citing the fear of subpoena. Three years after refusing to testify before the Senate Homeland Security Committee, Townsend did just that, as a private risk management consultant for Baker Botts. She spoke on the Major Nadal Hasan shooting attack at Fort Hood.

No long serving Senator asked Fran about her Katrina snub, nor did they question her under oath on that long sore subject. My questions grew in number and scope since Fran released her "thorough investigative" Lessons Learned report. None have been answered.

Maybe I should take Fran's most recent advice?

The time for polite diplomacy is long past.

Does a nearly five year wait qualify, Mrs. Townsend? When and how should I get impolite? Please tell me expert risk manager, because I am completely at a loss.

Update: A New Orleans investigation charged someone with covering up despicable behavior during Hurricane Katrina. The story stated "investigators discussed how they could blame their failed investigation on Hurricane Katrina and 'use the storm to help make the entire situation 'go away.'" Dang, it wasn't Frances Fragos Townsend.

Update 2: Karl Rove defended President Bush's "heckuva job" comment to FEMA Chief Mike Brown. "Bush was responding to compliments others had offered to Brown." Who? Fran Townsend? She went to Saudi Arabia before crafting the sorriest investigative report in history. Andy Card? Neither he or Fran would release their "Brownie complimenting" e-mails. Joe Hagin? He ran the White House response, while nearly every top official was on vacation. Few people know the role the junior staffer played and Karl isn't telling.

Rove's "other people said" comment is patently laughable for an aware President, however, it's completely believable for an insulated fool. Karl the Pink insulated. Apparently that role continues. President Obama does his best part to help.