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Post by Doug on Jun 22, 2017 7:36:23 GMT -5
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Post by coachdoc on Jun 22, 2017 7:54:24 GMT -5
Would LJ regain his Indiana citizenship, or would he be safe
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Post by Marshall on Jun 22, 2017 8:23:43 GMT -5
"You have reached your free monthly limit. Subscribe for $1.99 a week"
Sounds like somebody has found the answer to their own budget crisis.
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Post by aquaduct on Jun 22, 2017 8:23:44 GMT -5
Good thing the Cubs won the World Series last year before they become the South Milwaukee Cubs.
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Post by jdd2 on Jun 22, 2017 8:24:21 GMT -5
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Post by dradtke on Jun 22, 2017 8:25:54 GMT -5
It looks like my hometown would be part of Iowa. Melva's hometown would be right on the Iowa/Wisconsin border.
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Post by aquaduct on Jun 22, 2017 8:35:31 GMT -5
Gives Lions fans yet another reason to hate Wisconsin.
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Post by theevan on Jun 22, 2017 8:57:39 GMT -5
Why is the columnist so optimistic?
Entertaining read.
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Post by fauxmaha on Jun 22, 2017 9:31:16 GMT -5
I've not made too much of a study of the particulars of Illinois' situation. As I've mentioned before, my awareness of this started a bit over a year ago when my brother (nursing home operator in Oak Park) started talking about how he was getting squeezed. It's damned ugly from his point of view.
In any case, it seems like a pretty straightforward example of "something that can't go on forever, won't".
Lots of blame to go around, but personally, I fix my crosshairs on the bond rating agencies.
As a general matter, I don't think you can ever trust any government to be fiscally responsible over the long term. The desire for spending is boundless, and they'll always find a way.
There needs to be a mechanism for perpetually enforcing fiscal discipline, and I can think of no better one that hitting them where it hurts: Their ability to borrow money.
The root of this seems complex, but it is actually pretty simple: Politicians figured out a long time ago that they could spend money without spending money by promising (in legally binding contracts) future benefits through defined benefits pension plans. They would establish plans that assumed generous stock market returns, but then put the taxpayers on the hook for guaranteeing those returns. Because of the distant time lines, it all seemed harmless at the time, but it's an example of wanting to "have your cake and eat it too".
You want votes from the police (or whoever). They want money. Giving them a big raise today presents both fiscal and political problems, but giving them fat pensions 30 years from now slips easily under the radar. All it takes is a very modest amount of book-cooking (a difference of less that 1% in assumed fund growth adds up) and PRESTO! The police are happy. You get the votes. And no one has any idea that their grandkids' pockets have just been picked.
(As something of an aside, I do think it's reasonable to have public sector pensions invested in the stock market. I just don't think it's reasonable to have the taxpayers guarantee the returns. If the police etal want retirements based on market growth, that's good. But if you want the growth, you have to accept the risk.)
That's where the bond rating agencies come in. State and municipal bonds tend to be very long term in nature. Those rating agencies have an obligation to their clients to fairly evaluate the future fiscal condition of the borrowers.
The way you square that circle is to have the rating agencies tell the borrowers "If you want to put your pensions in the stock market, that's fine. But you will have to fully fund, in today's dollars, the amount over and above what is available through riskless instruments (ie US Treasuries). If you don't, we will downgrade your bonds."
But the rating agencies didn't do that. Those guys have long operated under the assumption that municipal bonds are all but riskless because the issuer can always raise taxes to cover the debt service. That assumption is another example of "works until it doesn't".
So now Illinois is staring at a great big steaming fiscal shitburger, and everyone wants everyone else to take a bite, but not them.
Is there a solution? Of course. And it's not hard to see what it is. It's just that everyone is dug in and is trying to protect themselves at everyone else's expense.
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Post by jdd2 on Jun 22, 2017 9:43:33 GMT -5
Enlighten me.
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Post by aquaduct on Jun 22, 2017 10:09:25 GMT -5
My guess is it involves somebody not getting paid. |
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Post by fauxmaha on Jun 22, 2017 10:13:27 GMT -5
Nothing particularly complicated: - Increase taxes - Cut spending - Roll over all defined-benefit pensions into defined-contribution plans Those are all things the legislature can do on its own. It would be nice if they could also force current bondholders to take a haircut, but given the state of Federal law, there is no real way of doing that. (It would be interesting if they simply refused to make full interest payments on the bonds. The bondholders would sue in Federal court, and they would win. What would happen if Illinois simply continued to refuse to pay, in defiance of the Federal courts? That I would like to see.) |
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Post by Marshall on Jun 22, 2017 10:30:42 GMT -5
Nothing particularly complicated: - Increase taxes - Cut spending - Roll over all defined-benefit pensions into defined-contribution plans Those are all things the legislature can do on its own. Yup. But every interest group is represented and entrenched, and the legislature would have to vote against their constituent's interests to give everybody the haircut that is required. Is it going to be painful? Yup. Is there enough political willpower to make it happen? Nope. At least not with the present legislature and governor. So the legislature is treading water hoping the next gubernatorial election will usher out the reformer. And they can get back to raising taxes and maintaining spending. That will be 4 years without a budget. Now past Republican governors have made compromises with the D legislature and found a way to limp along. The new guy, Rauner, won't play ball. He thinks he can bully his agenda through. It's a game of chicken. And we won't have a budget for the full 4 years. Too much bad blood is out there. So both parties will campaign and wait for the next election. It's going to get uglier for your brother, Jeff. |
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Post by theevan on Jun 22, 2017 10:37:07 GMT -5
Love that sentence.  |
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Post by RickW on Jun 22, 2017 10:37:18 GMT -5
But Jeff, now you're talking about government regulation, as without it, the lending agencies will just keep lending, for the same reason the policitions keep borrowing; right now is what they are getting judged on for their own remuneration. So they'll make bad loans that push the boundaries of intelligent investment, because they can.
Look at what happened with the financial crash; unregulated housing loans. Same thing happened to Spain.
On a side note, Iceland is doing just fine now. Whatever they did after their stupidity, they seem to have fixed their problems.
As to the public pensions, I go back and forth on that. The problem is that the government is the one putting the money in, so why were they not forced to put the money in? Rhetorical question, really. Because you can't trust anyone, corporations or government, to follow up on obligations that they don't have to, then yes, should probably all be defined contribution plans, where the individuals have their money in locked in retirement funds.
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Deleted
Deleted Member
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Post by Deleted on Jun 22, 2017 11:24:33 GMT -5
I thought that some of the Soundholians were going to build a wall separating California from the rest of the country.
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Post by dradtke on Jun 22, 2017 11:29:56 GMT -5
I can't comment from experience on public pensions, but I've worked two private free-market companies that looked at all that money that was coming out of my paycheck to be deposited in a pension account and thought, "He's not going to touch that money until he retires, and we've got all kinds of things we could spend that money on today. He won't know if we don't make the deposit until later. After all, it's still our money, right?"
That's similar to what happened with the Hostess Twinkie thing. In place of a raise today, the union negotiated larger contributions to their pension account. The company didn't make all of the deposits, and when the new owners declared bankruptcy, the courts decided that the pension fund belongs to the owners. It's not like those union guys ever worked or earned that money, right?
Actually, I do have a little experience with public pensions. The state of Minnesota handles its public employee pension account quite well, makes their required payments on time and manages the investment. They're quite solvent, and when my wife retires we should have a reliable source of income.
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Post by aquaduct on Jun 22, 2017 12:03:26 GMT -5
I thought that some of the Soundholians were going to build a wall separating California from the rest of the country. We're still hoping. |
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Post by fauxmaha on Jun 22, 2017 12:46:20 GMT -5
Yup. But every interest group is represented and entrenched, and the legislature would have to vote against their constituent's interests to give everybody the haircut that is required. Exactly. Personally, he'll come out fine. Worst case scenario is he folds up his business and gets a job. Nothing to worry about, really. His residents are already getting squeezed. That business isn't much for margins as it is. So every time he gets slow-rolled by the state, something has to give, and there's no where for it to give other than reducing the quality of care in some way. I have no opinion on the politics of it. The politics don't matter that much any more. Good guys? Bad guys? What difference does it make? Maybe at the margin some group manages to slightly minimize their haircut vis-a-vis some other group, but no one is getting out of this clean. There aren't any magic bullets that will make this go away. But Jeff, now you're talking about government regulation, I see your point, but I actually think you have it 160 degrees backwards. The various rating agencies, while nominally private, are already regulated. In that way, in addition to whatever due diligence the agencies conduct, the investing public enjoys the "government seal of approval" as well. Which is a mistake. If there's one thing that the Illinois fiasco makes clear, the law protects the bondholders first. That's why there's all this talk about how there is no mechanism in Federal law for a state to declare bankruptcy. If there were, then Illinois would do so, and the bondholders would be forced to negotiate, and in that manner be forced to take their bite of the fiscal shitburger. But failing that, there is no rational reason that a bondholder would accept less than 100% of what is nominally owed to them. If Illinois tries to short pay them, they can demand payment in Federal court and there's no reason they wouldn't win. This is the structural flaw I see in all of this. The interaction between Federal law, the rating agencies, the bond holders and the bond issuers all comes together in a way that protects the one group that least deserves protection. The Jeffco Bond Rating Agency would have issued "Hair On Fire" ratings on any State of Illinois issue ten years ago, based only on the unfunded pension obligations. The problem is, the bond underwriters have a vested interest in retaining a rating agency that will give a positive rating, and the State has a vested interest in finding a bond underwriter that will do so. The whole system is stacked against honesty. Which is why I think the real problem here is in the rating agencies. "You had one job" and all that, and their job, their only job, is to fairly analyze the fiscal condition of the issuers. And if they had, then Illinois would have been forced to confront this problem years ago, when they still had some room to maneuver. Instead, they kept papering over the crisis with new debt until things finally came to a head. Now they are well and truly fucked. That's the problem, right there. They are putting money in. Just not nearly enough. The only things that would force them to fully fund a defined-benefit pension are either (a) the rating agencies downgrading them if their pensions go below 100% funded or (b) if the State itself passed a Constitutional amendment clarifying that "balanced budget*" means "all forward looking obligations must be fully funded". These public sector defined-benefit plans are explicitly designed so that agencies don't have to fully fund them. The whole game is to push the obligations into the future, and drop the turd into some other politician's lap. Which is why I think it's perfectly reasonable for the pension plan beneficiaries to take their bite of the fiscal shitburger. The guys who negotiate these deals know exactly what they are doing. It's a lousy game, bordering on outright dishonesty. No reason to give them a pass. * Funny how the current crisis came about after decades of supposedly "balanced" budgets. |
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Post by Doug on Jun 22, 2017 13:01:46 GMT -5
What would happen if everybody in state government went home? Just close all the offices and walk out, leaving state vehicles where they sit, doors open on all state buildings. Just walk away from the whole mess. I mean wouldn't they rather be in Tahiti. Who would the bond holders sue?  |
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