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Posts Tagged ‘is California broke?’

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…)

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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