Wednesday, April 1, 2020

PENSION ARMAGEDDON - BIGGER COLLAPSE AND BAILOUT THAN THE BANKSTER MELTDOWN OF 2008?


Top Harvard economist warns of 'mother of all financial crises' amid coronavirus pandemic

 | April 01, 2020 04:24 PM
A top economist predicted that the coronavirus could cause the "mother of all financial crises."
Kenneth S. Rogoff, a widely cited, leading economist at Harvard University, predicted that the novel coronavirus could trigger an economic crash, both in the United States and globally. “This is already shaping up as the deepest dive on record for the global economy for over 100 years,” Rogoff said.
“Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises," Rogoff said, who co-authored a comprehensive financial history book entitled This Time Is Different: Eight Centuries of Financial Folly.
Last week, Congress approved and Trump signed a $2.2 trillion spending bill, the third relief package designed to alleviate economic concerns of small businesses, large corporations, and individuals during the COVID-19 pandemic. It allocates $500 billion in loans to large companies, $350 billion in forgivable loans, and provides $1,200 in direct cash payments to many U.S. citizens, among other items.
Before the historic relief package was passed last week, House Speaker Nancy Pelosi said lawmakers must begin drafting a fourth relief package to deal with the coronavirus pandemic, arguing that the bill that was making its way through Congress was insufficient to address the needs of state and local governments, workers, and other entities affected by the spread of the virus.
On Tuesday, the president advocated for a $2 trillion addition to congressional economic relief bills designed to help workers and businesses during the pandemic, saying he hopes to increase employment through federal programs.
"With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4," Trump tweeted.
Since COVID-19 was first reported in the U.S., the Dow Jones Industrial Average has precipitously fallen, plummeting from over 29,000 to approximately 20,900.
More than 911,000 people have tested positive for the coronavirus globally. Of those, at least 45,000 have died from it, and more than 191,600 have recovered. The U.S. has seen at least 206,000 confirmed cases, with nearly 8,400 reported recoveries.

 THE LOOTING OF AMERICA:

BARACK OBAMA AND HIS CRONY BANKSTERS set themselves on America’s pensions next!

http://mexicanoccupation.blogspot.com/2015/04/obamanomics-assault-on-american-middle.html

The new aristocrats, like the lords of old, are not 

bound by the laws that apply to the lower orders. 

Voluminous reports have been issued by Congress 

and government panels documenting systematic 

fraud and law breaking carried out by the biggest 

banks both before and after the Wall Street crash 

of 2008.

Goldman Sachs, JPMorgan Chase, Bank of America and every other major US bank have been implicated in a web of scandals, including the sale of toxic mortgage securities on false pretenses, the rigging of international interest rates and global foreign exchange markets, the laundering of Mexican drug money, accounting fraud and lying to bank regulators, illegally foreclosing on the homes of delinquent borrowers, credit card fraud, illegal debt-collection practices, rigging of energy markets, and complicity in the Bernie Madoff Ponzi scheme.

 

The Next Looming Economic Contagion: Pensions Collapse

As the stock market implodes in response to COVID-19, there is an underlying economic virus that will soon be evident: America's grossly underfunded pensions.  With the market down 40% in from its high point (before rebounding March 24), many corporations may default on their pension promises.  consumption and thus gross sales will decline (further dampening corporate profits), and the widespread weakness of pensions will be exposed.  This in turn will cause a vicious cycle in which retirees and those planning retirement will have fewer disposable dollars and will divert more money to retirement savings — further weakening consumption and undermining the effectiveness of interest rate adjustments by the Federal Reserve.
The problem of underfunded pensions has been loudly proclaimed for years.  It is hard to ignore article titles like "The Coming Pension Crisis Is So Big that It's a Problem for Everyone" (Forbes, 5/20/2019), "'Their house is on fire': The pension crisis sweeping the world" (Financial Times, 11/17/2019), and "Pension Plans for Millions of Americans Are on the Brink of Collapse" (NPR, 11/28/2018).
Yet these warnings have been ignored.  Now we must face the consequences.
America is on the brink of a realization of just how much corporations and legislatures have "planned for the best, in denial of the worst."  In both corporate boardrooms and legislative budget-making, employees will look back and see that what has been done is nothing short of fraud.  But it's too late now — we cannot roll back the investment clock.
John Boehner and Joe Crowley issued a bipartisan warning last summer:
Left unchecked, this crisis will decimate the retirement future of millions. Over the years, the number of retirees has grown dramatically, while the number of active participants and employers has decreased.  This imbalance, combined with the market decline from the Great Recession, has put many of these vital pension plans on an unsustainable path[.] ... To make matters worse, the Pension Benefit Guaranty Corporation (PBGC) multiemployer program, the funding backstop for plans that have run out of money, is also projected to collapse by 2025.  The dissipation of the PBGC would leave retirees with about 2% of what they had counted on for retirement[.] ... The collapse of the entire system would further compound the pension crisis at hand and have a domino effect on our economy, potentially leading to widescale business closures, layoffs and rising unemployment.
The current decline was foreseen — and the warnings ignored.  The imminent implosion will quickly exceed all municipal defaults in U.S. history combined.  Worse, state pensions are some of the greatest offenders in playing "kick the can" with beneficiaries' contributions.  Legislators everywhere have played this game of promising costly benefits to unionized state labor organizations (especially teacher unions) and then diverting required contributions to other budgetary preferences using unrealistic predictions of returns on existing investments, accounting gimmicks, and absurdly low estimates of future benefits.
There is no federal Pension Benefit Guarantee Corporation for state plans — the PBGC insulates only private-sector defined benefit plans under ERISA.  State workers may perceive that the government will always pay, but states don't print currency, and they are limited by reality:
When states and local governments reduced their employer contributions to their public pension funds during the Great Recession, they in effect borrowed from those pension funds.  If governments hope to meet their contractual obligations to their employees, they must pay these delayed pension contributions back at some point.
But most states did not pay them back.  This analysis from the Federal Reserve Bank of Cleveland addresses the legal recourse of pension beneficiaries when the state lacks the financial resources to keep its word in a time of crisis:
[O]ur legal system provides judges with the flexibility to adapt broad constitutional principles to the extreme and exigent necessities of their times.  In such times, federal courts typically defer to states' "police" (sovereign) powers, a decision which essentially allows the state, as a sovereign entity, to resolve an issue as it sees fit.  The US Supreme Court has made a similar ruling, deciding that "[t]he contract clause must be construed in harmony with the reserved power of the State to safeguard the vital interests of her people.  Reservation of such essential sovereign power is read into contracts."  In other words, when "vital interests" are at risk, defending contracts may be of secondary importance.  [A] state may have all the legal authority it needs to shed its insurmountable liabilities and force its creditors to accept any deal it offers.
What remains now is to ponder the extent of the federal bailout that will be granted to employees whose pensions are evaporating before their eyes.  When Sears sought bankruptcy protection, the PBGC undertook to step in for some 90,000 employees.  How many can it rescue now, even with a federal infusion of cash?  The present situation promises to be exponentially larger.
If President Trump is the voice seeking aid for private pensions, Nancy Pelosi and the Democrats will likely strangle a rescue plan or try to attach socialist conditions.  But how much money would be required for the federal government to also rescue underfunded state pensions? 
In June 2019, the Pew Charitable Trusts provided a 2017 snapshot of state pension shrotfalls:
[T]he pension funding gap — the difference between a retirement system's assets and its liabilities — for all 50 states remains more than $1 trillion, and the disparity between well-funded public pension systems and those that are fiscally strained has never been greater[.] ... In 2017, the state pension funds in this study cumulatively reported a $1.28 trillion funding gap[.] ... Even after nine years of economic recovery, most state pension plans are not equipped to face the next downturn.
A serious hurdle to a federal rescue is this moral hazard — states that had been most neglectful in funding their pensions would have the most to gain.
Whichever way this shrinking pie is sliced, there will be only crumbs for retirees and workers.  The coming economic whirlwind is going to pick up this Dorothy's house of pensions neglect, and no one knows where it will land.
We aren't in Kansas anymore.  Nor are we over the rainbow.

Democrats to seek aid for troubled union pensions in next relief package

 | April 01, 2020 12:01 AM
House Democrats planning a new and sweeping economic relief package to respond to the coronavirus say they’ll include federal aid for troubled union pensions.
Democrats have just begun drafting the relief bill, which they said would include enhanced family paid leave, more money for food stamps, and new worker safety requirements.
The pension bailout, if included in the measure, could cost tens of billions of dollars if it matches a pension relief package the House passed last year.
Speaker Nancy Pelosi, a California Democrat, told reporters she believes President Trump has signaled interest in aiding troubled pension programs but that it was excluded from the $2.2 trillion package signed into law last week because Senate Republicans, led by Majority Leader Mitch McConnell, did not want it in the bill.
“President Trump was actually supportive, but Mitch McConnell was not,” Pelosi told reporters. “And so, he said we'll save it for the next bill. Well, here's the next bill.”
House Democrats earlier this month introduced an economic relief package, but it was rejected by Senate lawmakers, who negotiated the $2.2 trillion bipartisan deal with the Trump administration.
The sidelined House proposal included the language in the House-passed Butch Lewis Act, a multiemployer pension bailout measure with a nearly $100 billion price tag. It would provide low-interest loans to the nation’s most underfunded union pension plans to help them stave off looming insolvency, and it would provide an additional $71 billion in direct cash assistance to those struggling pension plans. The measure would help ensure pension benefits for 1.3 million workers.
Pelosi did not indicate this week whether the draft of the new economic relief bill will include the Butch Lewis Act, but a Democratic aide confirmed it, acknowledging the plan would have to be bipartisan.
“Our proposal is the Butch Lewis Act, but, more importantly, we need and want multiemployer pension reform that works,” a senior Democratic aide told the Washington Examiner. “We are not so committed to an approach that we can’t negotiate a solution.”
The House-passed bill won support from dozens of House Republicans, but it never received consideration in the Senate.
The plan has generated opposition from some economists who argue it does nothing to address the underlying flaws in the pension programs that now threaten their solvency.
About 125 multiemployer pension plans will become insolvent in the next two decades, and some will go broke in the next few years, the Congressional Budget Office said.
“It’s a way to kick the can down the road, and you are using a lot of taxpayer money,” Rachel Greszler, a research fellow in economics, budget, and entitlements at the Heritage Foundation, told the Washington Examiner.
Greszler pointed to a Sept. 6 letter from the CBO that warned of the looming collapse of many union pension plans, even if Congress passes a pension bailout.
“About one-quarter of the affected pension plans would become insolvent in the 30-year loan period and would not fully repay their loans,” the CBO wrote. “Most of the other plans would become insolvent in the decade following their repayment of their loans.”
Greszler said it would make more sense for the federal government to shore up the Pension Benefit Guaranty Corporation, or the PBGC, which is also headed for insolvency, and to put in place reforms to help pension plans survive, such as a slight reduction in benefits.
Democrats and many Republicans said Congress has no choice but to act to stop the pensions from becoming insolvent.
The vast majority of union pension plans are grossly underfunded and will have to cut benefits to retired workers without federal help.
Congress last year passed legislation to protect the pensions and healthcare for 92,000 mine workers.
Senate Republicans also introduced their own multiemployer pension reform plan they said is “designed in a balanced way to avoid tipping more plans into a poorer-funded condition and also to avoid exposing taxpayers to the full risks associated with the largely underfunded multiemployer system and pushing the PBGC into insolvency.”
The measure was authored by Senate Finance Committee Chairman Chuck Grassley, an Iowa Republican, and Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander, a Tennessee Republican.
“We need to act quickly, but we can’t just pour money into failing and mismanaged funds,” Grassley said. “Our plan will provide relief and reform now. Without it, our retirees will be left without the future they worked for.”
The AFL-CIO opposes the Grassley-Alexander plan, arguing it puts too much of the responsibility on the unions by requiring them to provide much higher premiums to the PBGC.
“This document contains no federal financial assistance whatsoever,” AFL-CIO officials said in a statement. “Contrast this to the over $700 billion that the government provided to the banks and Wall Street in 2008 and other corporate tax giveaways in recent years. It is punitive in nature, imposing hefty new costs that even healthy plans will be unable to survive.”
Democrats will have to negotiate a bipartisan solution with the Senate, which is run by Republicans. They'll also have to convince McConnell, of Kentucky, that any pension bailout belongs in a new coronavirus relief measure.
"I’m not going to allow this to be an opportunity for the Democrats to achieve unrelated policy items that they would not otherwise be able to pass," McConnell said Tuesday on the Hugh Hewitt show.

Report: States Face $1 Trillion in Unfunded Liabilities

 


States are facing more than $1 trillion in unfunded future liabilities related to health and life insurance benefits for their retired employees, a growing shortfall that amounts to about $3,100 for every person in the United States, according to a new report by the American Legislative Exchange Council (ALEC).
ALEC, which has come under attack by left-wing advocacy groups in recent years, describes itself as “the nation’s largest nonpartisan, voluntary membership organization of state legislators, with more than 2,000 members across the nation.”
Its mission is “to discuss, develop, and disseminate model public policies that expand free markets, promote economic growth, limit the size of government, and preserve individual liberty.”
The new study, the latest in an annual series from ALEC’s Center for State Fiscal Reform, comes after critics have complained for years that cash-strapped states don’t adequately fund their retiree-related obligations, which has allowed those sums to accumulate.
Its authors say that, “in the end, government must be held accountable for its actions.” Without policy changes, these liabilities could lead to future tax increases or force cuts to core public services in states.
Making governments use “more prudent actuarial assumptions and increasing transparency prevents state governments from making impossible promises and allowing unfunded liabilities to accumulate,” the report states.
These unfunded benefit programs for retired public employees fall under a category that fiscal analysts call “other post-employment benefits,” or OPEB. OPEB excludes public pension plans but includes benefits to retired workers such as health insurance, life insurance, supplemental Medicare insurance, and more. The study examined 132 OPEB plans from fiscal 2013 to 2017, drawing on the most current Comprehensive Annual Financial Reports (CAFRs) and Actuarial Valuation Reports.
“While a trillion dollars is a rounding error in Washington, D.C., at the state level, it’s a huge threat to government programs and taxpayers,” Jonathan Williams, chief economist and executive vice president of policy at ALEC, told The Epoch Times in an interview.

Jonathan Williams of the American Legislative Exchange Council. (Courtesy American Legislative Exchange Council)
“Governments, if they want to spend more money on new programs, need to view OPEB liabilities as a threat, so I think there is something for both parties to like from tackling these liabilities.”
Public pensions have generally been prefunded at 80 percent in order to be considered healthy, “but now a lot of us are thinking 100 percent is better.” OPEB items, by contrast, have generally not been prefunded at all, he said.
“OPEB liabilities have flown under the radar, but they have become more visible as a result of federal accounting rule changes that force states to list them on their balance sheets,” Williams said. Even so, they have been “overshadowed” by fiscal problems in Detroit and Puerto Rico.
“Unfortunately, this new transparency has left us with these very huge liabilities,” he said.
The states with the largest OPEB liabilities are California ($166.6 billion), New Jersey ($130.4 billion), New York ($129.3 billion), Texas ($115.7 billion), and Illinois ($64.4 billion), according to the study. The states with the smallest OPEB liabilities are Nebraska and South Dakota, which Williams said are tied at zero because they don’t pay for retired employees’ health care, followed by Kansas ($285,000), Oklahoma ($9.1 million), and Utah ($210.9 million).
“There is a lot of doom and gloom in the report,” but there are also a handful of states that are doing a good job getting a handle on their OPEB liabilities, Williams said.



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