Tuesday, June 19, 2012

Gasparino: Secret JPM report states true condition of public pensions

Charlie Gasparino at Fox Business managed to snag a secret JP Morgan Chase report on the true condition of state and municipal pensions:

"OK, it’s no secret that nation’s public pension funds are in big trouble, holding large “unfunded” liabilities owed to public workers once they retire. But most politicians (New Jersey Gov. Chris Christie is an exception) will tell you the problem is fairly containable, that there are simple fixes — such as raising taxes on the rich or pruning benefits.

Not so, warns a “strictly confidential” report JP Morgan issued last year. It describes in straightforward, frightening detail how underfunded pensions are huge ticking timebombs for many of the nation’s big cities and states.

The scandal isn’t simply that most public officials are misleading the public about the enormity of the problem and what steps must be taken to address the matter. As the Morgan report notes, many of the real liabilities are located “off balance sheet,” hidden from the public’s eye, and lax accounting standards let cities and states minimize their enormity.

It’s also that JP Morgan itself kept the report’s findings a secret except for a few big clients, mostly hedge funds and large institutional investors, who got the inside tip on which states and cities are most likely to default on their debt as their pension liabilities fester.

Yes: Default is a very real possibility, because the solutions are far from easy.

Nationwide, the actual size of unfunded public pension liabilities is four times larger than the $900-plus billion that officials are ’fessing up to. That’s right, the bank sees a $3.9 trillion hole; to plug that, states and cities will need large tax hikes, massive budget cuts or both. Plus, public-sector unions will have to accept smaller retirement packages, and later retirement ages, to keep the pension systems going.

Without these steps, states and cities with the biggest holes face possible insolvency and default, though the bank believes the risk of default “is greater for municipalities than for states.”

Many of the places facing the biggest pension liabilities are right here in the Northeast, where big government rules and public unions are such a potent political force that officeholders dish out gold-plated benefits....

I got my hands on the report not from an disgruntled employee looking to even up the score with his old firm, but from someone who believed the reason JP Morgan kept it a secret stinks to high heaven: Bankers there are afraid of upsetting state and city officials who hand them large fees to underwrite municipal bonds.

Keep in mind, JP Morgan is Wall Street’s leading underwriter of municipal debt. A public release of the report might anger big Morgan muni clients such as Massachusetts, which has a large pension liability.

And why draw attention to an issue that might spook investors, cut off funding for municipal governments and for the fees the bank collects on that funding? A muni-market panic could land the bank in far hotter water than its current London Whale travails..." Column

Posted by Kingfish at 8:19 AM

10 comments:

Anonymous said...

A "huge ticking time bomb" and ChiliCheeseFriesReeves did NOTHING this past session to shore up PERS.

He.didn't.even.try.

June 19, 2012 at 9:23 AM
Anonymous said...

I missed what Feel and Speaker Disaster tried on PERS reform.... Hell, can you blame Reeves after seeing those two bozos whiff on charter schools in the House?

June 19, 2012 at 10:28 AM
bill said...

I like our leaders and think they have done a pretty good job with only one legislative session behind them as the majority party. They got the emotional stuff addressed, passed a budget, drew new and good legislative districts and got the hell out of there a day ahead of schedule. They learned a few things and will do better next time. The state pension plan is a third rail that no one wants to touch. The complexity of the issue will cause it to take the lion's share of a session, so they need to have their slates clean before they start the fight. However, if they're tempted to kick it down the road to preserve their own electability, they need to look no further than Scott Walker. He showed that you can lead the effort to take on the tough fights and still remain popular among the voters. Wisconsin is in better shape for it, and I think we'll see more elected officials taking the bull by the horns after November. Bill Billingsley

June 19, 2012 at 12:03 PM
Anonymous said...

love you Bill

June 19, 2012 at 12:05 PM
Anonymous said...

Ok Bill I would agree with you if PERS just covered State workers only. Most of the PERS workers are teachers,county and city workers, you know the home folks. Those are the folks who make them take your picture off the wall in the statehouse. No one in their right mind is going to touch PERS until the train goes off the rails and into the ditch, then they will "save" it.

June 19, 2012 at 12:12 PM
Shadowfax said...

What screwball thinks state employees are NOT 'home folks'? How idiotic. I don't know the exact breakout, but not half of them live in some spooky, dark building in Jackson and turn into bats at dark.

June 19, 2012 at 12:38 PM
Anonymous said...

Bill - are you suggesting this would be a good topic for Bryant's first special session?

June 19, 2012 at 3:34 PM
Shadowfax said...

What Mr. Billingsly fails to consider (or perhaps demonstrates ignorance of) is that there is absolutely no comparison between Mississippi's need to address PERS alerts and what Scott Walker went up against in Wisconsin.

Mississippi has no public employee collective bargaining, no lifetime retirement health benefits, no union protection for tenured state employees, no elected officials put in place to protect union members who are state employees and no wage/benefit packages set by politicians who are beholden to a group of organized state employees.

Apples and oranges. Absolutely no comparison. No parallels.

June 20, 2012 at 3:35 AM
Kingfish said...

He did not say MPERS was as bad as Wisconsin's or that the issue were the same. He was talking about leadership and a Governor's willingness to meet a problem head on instead of ducking it every year. Obviously the conditions you mentioned are true, no one disputes that or says MPERS is as bad as Illinois or California. However, those charts I create and post show everything is not just rosy either.

June 20, 2012 at 6:12 AM
Anonymous said...

How delicious that so many here are looking for Bryant to "legislate" via special session.

God love Haley Barbour for castrating the Legislature in the minds of Mississippi's politically conscious.

June 20, 2012 at 10:32 AM

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