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California Pen$ion Nightmare Wor$en$

Posted by Larry Doyle on May 9th, 2012 7:04 AM |

What is the best part of a nightmare?

When you wake up and it is over.

The folks in California do not have that luxury as they get to live the nightmare that defines their public pension system everyday. In fact, the nightmare is getting scarier. How so?

The “not so exclusive” California $100,000 Club continues to experience explosive growth. Let’s check in on this club which since last we checked a year ago has seen close to a 25% increase in size.  (more…)

“Fix Pensions and We Won’t Have to Fire Teachers”

Posted by Larry Doyle on May 9th, 2011 9:36 AM |

You do not need to read Sense on Cents to know that many of the states in our union are drowning amidst a sea of future pension obligations. While state treasurers and legislators are all too often inclined to play financial games and utilize smoke and mirrors to disguise the burden of these pension obligations, the absolute figures are so astronomical and will require a meaningful restructuring. Might that happen? Would public employees actually swallow a very real revaluation of their pension benefits?

Marcia Fritz, the head of the California Foundation for Fiscal Responsibility, is calling for her state to do just that. Ms. Fritz recently released a statement entitled, Fix Pensions and We Won’t Have to Fire Teachers,

California taxpayers would save billions of dollars that would flow to public schools, community colleges and universities if state and local public employees retired with benefits comparable to those provided to employees of Silicon Valley’s top companies. Teachers’ jobs would be saved and school programs spared. (more…)

California Non-Sense on Cents

Posted by Larry Doyle on August 27th, 2010 5:07 AM |

If a picture spells a thousand words, then two graphs of the employment situation and future pension obligations in California far exceed the works of William Shakespeare.

Should we file these under the heading of “American Tragedy”? Would these works be referenced when somebody looks up “future default” or “unsustainable”? These future pension obligations did not happen by accident. The projected figures represent the plundering of California municipalities with subsequent tax burdens left to future generations. How did this happen? Let’s “read” the following “tomes” provided by the California Department of Finance and highlighted in The Wall Street Journal,

[schwarzenegger]

You might almost think you were reviewing a “Greek tragedy”.

This is no way to run a state or a country.

Larry Doyle

Related Sense on Cents Commentary
Sense on Cents/California

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Bruce Malkenhorst Should Thank Robert Rizzo

Posted by Larry Doyle on July 24th, 2010 10:15 AM |

Bruce Malkenhorst must be a very happy man today and for that he should thank Robert Rizzo.

Who is Malkenhorst? Who is Rizzo? What is the story here?

Readers may recall that 14 months ago, Malkenhorst, a former municipal employee in Vernon, CA was exposed as the recipient of a sweet little ‘half million dollar pension’ connected to his duties in the bustling metropolis of Vernon, CA. How bustling? Vernon, a community in southern California, has a total population of approximately 100 citizens.

Malkenhorst and his cronies in Vernon singlehandedly redefined the concept of municipal fiscal abuse. I highlighted this story and accompanying unbelievable details a year ago in writing a story which an inordinate number of readers have reviewed entitled California’s $100, 000 Club.

This week, Malkenhorst and his pals in Vernon must have partied real hard and toasted Robert Rizzo all week long. Why is that? (more…)

Public Pension Ponzi Schemes

Posted by Larry Doyle on April 6th, 2010 10:50 AM |

Making promises that can’t be kept.

Garnering support via payback, if not kickbacks.

Effectively misrepresenting expected returns.

Am I talking about Bernie Madoff and every other con artist who has ever perpetrated a Ponzi scheme? No, although I could be. I am addressing the reality of the public pension system in our country. Those participating in public pensions can rail on me all they want. The simple fact is the power and leverage of the public unions combined with the willingness of public officials to sell their souls, while mortgaging our children’s futures, have created a massive gap in the funding of public pension liabilities in our nation today. (more…)

Should Uncle Sam Bailout California?

Posted by Larry Doyle on January 7th, 2010 8:07 AM |

Should 49 states bail out one? Should the American public be compelled to cover the fiscal disaster of our largest state? Will America ever face reality?

The ticking time bomb that is the fiscal disaster of the state of California is making its way to Washington. As reported in yesterday’s Wall Street Journal, the Governator Arnold Schwarzenegger Seeks U.S. Funds. If Uncle Sam bails out California, then who is next?

Not surprisingly, the general media is not giving this story even close to the attention it deserves. I wrote extensively on this ticking time bomb last spring and summer. Tick…tick…tick. The fuse is running short.

Let’s quickly review some general statistics about the state on our Left Coast (in more ways than one). As I highlighted last May in writing “As California’s Economy Goes, So Goes the Country,” California has:

– 8 of the 50 largest cities

– population of approximately 37 million people (that we know of), a full 12% of our national population

– an economy similar in size to Italy, ranking it as one of the top 10 in the world (I have seen rankings of 8th and 9th)

– California’s economic output represents 13% of our national GDP!!

– an unemployment rate north of 11% compared to the national average of 8.9%. With a high unemployment rate amongst illegal immigrants, it is not a stretch that California’s unemployment rate is approaching 15% and its underemployment rate is greater than 20%!! (LD’s edit, the current rate is 12.3%).

What is Schwarzenegger’s case? The WSJ reports: (more…)

What Do CA, AZ, FL, IL, MI, NV, NJ, OR, RI, and WI Have in Common?

Posted by Larry Doyle on November 12th, 2009 2:25 PM |

No, these states are not holding a Powerball Lottery . . . although the states themselves could use the winnings.

These states, amongst others, are barreling toward economic disaster.  Don’t take my word for it. None other than the Pew Center on the States produced a report entitled Beyond California: States in Fiscal Peril:

(High five to MC for bringing this to our attention)

California’s financial problems are in a league of their own. But the same pressures that drove the Golden State toward fiscal disaster are wreaking havoc in a number of states, with potentially damaging consequences for the entire country. (more…)

IOU? . . . No You Don’t

Posted by Larry Doyle on July 7th, 2009 11:00 AM |

They may make nice bathroom wallpaper, but major banks have no interest in continuing to accept California’s IOUs. The Wall Street Journal highlights this pathetic fiscal folly in writing, Big Banks Don’t Want California’s IOUs.

These IOUs, respectfully designated as warrants, will pay a rate of 3.75% and mature in early October if financial institutions choose not to redeem them. The statement by the major Wall Street banks speaks volumes. What are they saying?

1. They have no confidence in the California legislature to start putting their fiscal house in order.

2. They have no reason to believe Uncle Sam will step in to bailout California as that would open the door for 49 other wayward ‘children’ to march on Washington looking for the same handout.

3. They do not believe the rate of 3.75% properly prices the risk, especially relative to other opportunities to allocate capital.

If these large banks are not willing to accept the IOUs, then why should any individual? I wouldn’t.

Where is this situation headed? I think we can get a strong hint of the direction this situation is headed from an article I posted in the Newsworthy tab here at Sense on Cents. This article from The Washington Post, States Straining to Repair Budgets, highlights that:

The Obama administration has studied several Capitol Hill proposals to help the states but has decided not to move forward on any of them, according to an authoritative government source who spoke on the condition of anonymity because no announcement has been made about the discussions, which were private. One idea was to let struggling local governments borrow at lower rates from the municipal bond market.

Lower rates from the municipal bond market? What? Do you think California would be issuing IOUs if they could tap longer term financing via the municipal bond market? I seriously doubt California could successfully place longer term debt at anything resembling a reasonable rate of interest.

Then just what does the administration mean about “letting struggling local governments borrow from the municipal bond market?”

With short term interest rates on CDs, Treasury bills, and money market funds so excessively low, do not be surprised to see municipalities across the land trying to lure funds via issuing x-Tender securities covered up in municipal money market funds.

For regular readers here at Sense on Cents, you know that I believe these x-Tender securities (municipal auction-rate securities) represent significant risk. Prior to purchasing a municipal money market fund, please review my post entitled “Municipal Money Market Funds: Caveat Emptor.”

LD

As California Goes, Part II: Other People’s Money

Posted by Larry Doyle on June 9th, 2009 11:41 AM |

A few weeks back, I wrote As California’s Economy Goes, So Goes the Country to address the financial precipice of the largest state in our country. As California faces financial armageddon, the state finds itself challenged with the prospects of massive budget cuts, significant tax increases, or a combination of the two.

Are we witnessing the prequel for what our entire country faces? I believe we are. Let’s navigate.

“Governator” Schwarzenegger is adamant about not raising taxes. The prospect of significant spending cuts is causing a firestorm with rank and file union members. Democratic pols find themselves between the proverbial rock and a hard place.  The Los Angeles Times writes, State’s Budget Crisis Opens Rift Between Unions and Democrats:

The Capitol’s usual political alliances are being tested by the state’s severe financial problems as interest groups scramble to hold onto as much as possible of the state’s shrinking coffers.

The relationship between Democratic leaders and some of their labor benefactors has turned particularly frosty: Many of the programs union members rely on for paychecks — and the unions rely on for dues — have been slated for deep cuts.

In a period of massive fiscal deficits, obviously no stones are left unturned, everybody must contribute, and pain is felt by all parties. Really? If that were the case, then what good is politics and winning elections?

We may want to think that our political process achieves the greatest common good. In my opinion, though, the political game has become a function of “get as much as you can for as long as you can.”  In the process, the politicians have become wedded to their constituencies and incestuous relationships have developed deep roots.

To this end, it is no surprise to see the large unions in California enraged at their political cronies for not “taking care of them.” The LA Times provides insights on this angle:

The friction started when the Democrat-dominated Legislature produced a budget in February that raised taxes but also cut programs and included a GOP-driven plan to put the brakes on state spending. A handful of labor groups then spent millions to help defeat the May ballot measures that the budget spawned.

“Many public employee unions, teacher unions [are] thinking that they were thrown under the bus in the last budget,” said Assemblyman Charles Calderon (D-Montebello). “So now they’re asking themselves: If these Democrats are not going to stand up for us, then what good is it to have them there?”

Why are the California unions so enraged? Well, all we really need to do is review what has occurred on the national level. Why is it that the Supreme Court is reviewing the sale of Chrysler to Fiat? Very simply, Obama overran standard bankruptcy procedures in delivering for the UAW. He justified his “means” because he viewed his “ends” as best for the economy. He ran the same play in the GM bankruptcy.

California union members want a bite from the same apple. Why aren’t they getting it? The great equalizer in our country and economy!! What’s that? The fear of failure. That is, Democratic politicians in California know the pulse of the overall electorate as reflected by the energy embedded in the April 15th “Tea Parties.”

The Times again provides interesting color,

But even some of the most liberal Democrats say some union leaders are ignoring the reality of an angry public, a sour economy and a state government approaching insolvency. Moreover, more taxes would require Republican support in the Legislature, and the minority party has made clear that there will be none.

“We have an economy which is in intensive care, and another round of tax increases . . . would put that patient in cardiac arrest,” said Assembly GOP leader Sam Blakeslee of San Luis Obispo.

Barack, Nancy, Harry….are you listening?

Insights from our friends on the “left coast” are always appreciated!!

LD

Hotel California Revisited: Prisoners Here of Our Own Device

Posted by Larry Doyle on May 20th, 2009 4:30 PM |

“Tonight we have heard from the voters and I respect the will of the people who are frustrated with the dysfunction in our budget system,” Gov. Arnold Schwarzenegger said.

The Wall Street Journal provides full coverage, “California Voters Reject Budget Measures.”

What does California’s budget nightmare mean? The state will be forced to cut upwards of $20 billion from an $82 billion budget. How and why? In the face of the the massive recession, California’s tax revenues are insufficient to meet the state’s fiscal needs.

In years past, California and other states would tap the municipal bond market with bond insurance provided by a monoline insurer, such as MBIA or Ambac. Given the enormous losses suffered by these monolines, primarily on structured mortgage deals, they are no longer strong enough to provide insurance sufficient for California to raise funding. In a similar vein, California can no longer source a letter of credit provided by a large money center bank.

Where is California looking for a backstop to its financial woes? Well, much like the United Auto Workers, the strongly Democratic constituencies in California will look toward Washington for a backstop/bailout.

California’s representatives are downplaying the severity of the situation. California Treasurer Bill Lockyer, much like Barney Frank, condescendingly comments on the historically low level of defaults in municipal finance. Do I have to remind Bill and Barney that historical analysis was also highlighted in providing AAA ratings to sub-prime mortgage deals? (more…)






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