In reading John R. Talbott’s new book, ‘Survivial Investing: How to Prosper Amid Thieving Banks and Corrupt Governments’, and marking quotable passages it was eerie how his assertions about how stock and bond investing became a fool’s game in this country related to our public pension crisis. Below are some passages with a word or two changed:
I can’t tell you why all this was so obvious to me. I had a big advantage because I was trained in sophisticated pension funding and so understood complex subjects like open amortization and asset smoothing, but I couldn’t believe only a few of us were sounding the alarm. What I found most discouraging was that throughout the crisis, actuaries and politicians continued to lie and steal, and academics and television pundits provided cover for them. It was as if everybody was participating in the scam and wasn’t about to kill the golden goose. p. x
The big question is, if the actuaries and politicians are so corrupt, why haven’t senior actuaries and politicians been arrested? The answer is threefold. pp. 21-23
- First, they write the rules. It is difficult to violate a law if you are the person writing the laws.
- The second reason that no actuaries or politicians have been arrested is that they act as their own police force.
- The third reason is….that actuarial funding is not transparent…..it’s near impossible for a regulator, much less a journalist, to get inside the valuation report and ask questions about what actually is going on….Journalists who care – and this number is declining rapidly in the corporate-owned media environment – can try…to deduce what kinds of activity, illegal or legal, might be producing those results. But I can assure you, journalists are not invited to spend time inside
because actuaries deal in long maturity assets and liabilities, they require good regulation and legislation to ensure that they don’t overpromise and underdeliver. p. 29
These problems are never solved. It isn’t that Congress doesn’t work; it just doesn’t work for the average citizen. It is busy delivering goodies for its campaign contributors p. 30
Yes, our government is broken, but you have to understand who broke it: the politicians and the lobbyists. And to the extent that they are now writing their own rules, it’s ridiculous to even talk about whether they have violated the law. They wrote the laws. p. 43
People in power are not trying to solve problems; they’re trying to cover their tracks and please their financial supporters. p. 71
The thought that government could stimulate economies, create jobs, and encourage new industries flies in the face of everything history has taught us about state-run enterprises and economies. p. 74
This crisis has exposed mainstream actuarial thinking to be flawed at best and dead wrong at worst. p. 99
Burypensions Blog 
Posted by brooklyn91941 on August 14, 2012 at 11:48 am
I guess everyone drinks he same kool aid. Markets only go up and I’m not going to be here when the day of reckoning arrives.
Posted by meepbobeep on August 14, 2012 at 11:51 am
…heh, you can post that one on the Actuarial Outpost yourself, John.
Posted by Frank on August 14, 2012 at 11:59 am
Greed fed by delusion and denial always is a recipe for disaster. Add in moral hazard, occult processes and unchecked power, and you get disaster squared. You should have been at NCSL, John. Liars & Deniers rampant. Even when Girard Miller laid it out for them, the lights did not go on.
http://www.statebudgetsolutions.org/blog/detail/state-lawmakers-finally-hear-the-u-word-on-pensions
Posted by Anonymous on August 14, 2012 at 1:54 pm
John, I am surprised that you are not aware that the whole banking system will be revamped after this years presidential election.
I was also wondering why tough love doesnt tell the politicians what to do with her tax money, after all public employees have told them what to do for years. It can be that hard since public employees are morons and tough love is top of her class
Posted by Tough Love on August 14, 2012 at 10:25 pm
Classy guy …. certainly one of the Public Sector’s “best and brightest”.
Posted by Eric on August 14, 2012 at 4:32 pm
John:
Paul Volcker recently concluded a study of problem pensions, and, of course, NJ was the poster child. The one aspect which stood out in my mind from what you have listed above is the lack of transparency. This was one of the many criticisms of the NJ system.
Eric
Posted by Tough Love on August 14, 2012 at 7:58 pm
The actuaries are only valuing the given benefit structure … approved by the politicians.
The promised benefits are at least 50% TOO RICH … the ROOT CAUSE of the problem. Of course an excessive benefit structure will be VERY have to fund.
Posted by Jail Nait on August 14, 2012 at 10:55 pm
So far this century only two(*) Americans have been held accountable for anything. They are Joe Paterno and Anwar al-Aulaqi.
* George Zimmerman may be #3.
This is not generation accountable.
Posted by eatingdogfood on August 15, 2012 at 12:13 pm
It’s BANKRUPTCY Time; Baby !!! Ain’t No Way Round This One !!! This Dog Simply Won’t Hunt !!!
Posted by Al Moncrief on August 15, 2012 at 1:44 pm
SPEAKING OF THIEVING GOVERNMENTS – LOOK AT THE DOCUMENTS THAT I HAVE LINKED HERE, AND TELL ME IF YOU DO NOT AGREE. WHETHER OR NOT COLORADO’S COLA THEFT ATTEMPT IS ULTIMATELY SUCCESSFUL, THERE IS NO DISPUTING THAT COLORADO PERA WILL LIE TO REACH ITS OBJECTIVES.
PROOF THAT COLORADO’S GOVERNMENT LIES: COLORADO PERA’S ATTEMPT TO TAKE CONTRACTED RETIREE BENEFITS.
When I was young I held the belief that public service in the United States is honorable, that the United States of America was exceptional in the world, that governments in the United States, while flawed, deserved the respect of citizens.
Now that I am old, I see that I was naive . . . that governmental entities in the United States will intentionally deceive to achieve their goals, and that over two centuries our soldiers have died for a country that will countenance, and even celebrate, base behavior on the part of its public sector instrumentalities. It saddens me, but if this state of affairs persists in the United States . . . Honor is dead.
Some background . . .
You may know that an entity of Colorado state government, Colorado PERA, is attempting to breach its public pension contracts with its retirees. Colorado PERA is attempting a retroactive taking, a “clawback” of accrued, fully-vested pension benefits that were earned by retired PERA members over decades.
Colorado PERA public pension benefits include a “base benefit” that is set at retirement and a “COLA benefit” that adjusts pensions annually to compensate for inflation. The “base benefit” and the “COLA benefit” are set forth in Colorado statutes with identical force of law and legal status.
In its attempt to breach retiree contracts Colorado PERA has created a contrivance. The contrivance that Colorado PERA is using is that somehow the “base benefit” is a contractual obligation, but the “COLA benefit” is not a contractual obligation, in spite of the fact that both pension benefits are set forth in law in an identical manner. What this boils down to is attempted, unabashed, theft by government.
Whether or not Colorado PERA’s attempt to take fully-vested public pension benefits from PERA retirees is ultimately successful in the courts, one fact has been incontrovertibly established . . . Colorado PERA, as an instrumentality of the State of Colorado, is an organization that will lie to achieve its policy goals.
This is a sad fact for the many employees of Colorado PERA, for the trustees that have served on the Colorado PERA Board of Trustees over 80 years, and for the thousands of PERA members and retirees.
And now, the proof of the deceit . . .
Colorado PERA has told us, in writing, that the PERA COLA benefit IS a contractual obligation of PERA . . . and then, after initiating their attempt to breach contracts, Colorado PERA has told us, in writing, that the PERA COLA benefit IS NOT a contractual obligation of PERA. Both of these statements cannot be true.
Colorado PERA in a written document, to the Colorado General Assembly’s Joint Budget Committee on December 16, 2009 states that the PERA COLA benefit IS a contractual obligation of PERA:
“The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”
Link:
Click to access PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf
Colorado PERA on page 23 of its May 6, 2011 “Reply Brief” in the pension case Justus v. State states that the PERA COLA benefit IS NOT a contractual obligation of PERA:
“Plaintiffs seek to create a contract right that has never existed—an unchangeable COLA for life triggered (inconsistently) by either the date of their retirement or ‘full vesting.’”
Link:
Click to access 2011-05-06-pera-defendants_-reply-in-support-of-summary-judgment.pdf
That is simply unbelievable.
In one document PERA writes “the contract right has never existed.” In the other they write that the COLA benefit is a contractual obligation protected under the Colorado and US constitutions.
When PERA writes that they need “actuarial necessity” to take the COLA benefit, they are not denying that it is a contractual obligation, in fact, it is an admission of the contractual nature of the COLA benefit.
For further information regarding Colorado PERA’s attempt to take fully-vested pension benefits from retirees visit saveperacola.com or Friend Save Pera Cola on Facebook.
Posted by Tough Love on August 15, 2012 at 2:56 pm
Al, It doesn’t matter. Private Sector Plans do not provide automatic COLA increases and neither should Public Sector Plans … at Taxpayer expense.
The collusion between our elected representative and Public Sector Unions has been exposed … and BASIC pensions (not just COLAs) for CURRENT workers (and in some cases for those already retired as well) must be significantly reduced.
Public Sector workers are NOT “special” and deserving of greater pensions and better benefits at our expense …. and all while Public Sector workers make no less in “cash pay” (per the Us Gov’t BLS) than their Private Sector counterparts.
Posted by MJ on August 16, 2012 at 7:07 pm
Al, honestly I am sick and tired of your posts regarding the CO pensions. Same story, different state–way too much promised with no way to pay for it. As naturally ocurring market forces continue to unravel the pensions and the laws of economics take full control, there will be no more denial. It is only a matter of how long it will take the politicians and union leaders to smash and grab all that they can before the real fun begins and who they will assign to take the fall. You talk about the honor of working in public service and from your posts I take it you are retired. Hasn’t life taught you by now that there is no honor among thieves—ever. They will slash each other’s throats for a bigger slice of the pie just as the politicians and unions will or should I say have done to thier unquestioning minions. Funny how no one in the “honorable” employ of public service was objecting or questioning how all of these overly generous salaries, pensions and health care premiums would be paid for or how very few were accountable for lost funds, corruption, etc. as their neighbors lost jobs, homes, savings, pay cuts, lousy health insurance, just to scrape by—nope not one public servant thought that they should take less. People have been writing about this impending pension crisis at the federal, state and municipal level for years, this is nothing new. You sound shocked??In the real world, contracts are broken and renegotiated all the time, every day, and in the real world, employees have to actually produce something in order to stay employed. In the fantasy land of “honorable” public service, the law of lunacy rules where public salaries, health care, perks, pensions, etc. are artificially maintained at the expense of others. You and other public servants do not deserve one cent more that anyone else in the real world. At one point, I was sorry to see that these pensions were so doomed but not anymore. There is not honor among thieves, ever!
Posted by speedkillsu on August 15, 2012 at 5:53 pm
If you want to see a great movie about thieving wall street banks Oliver Stones “margin Call” …it’s spot on ,therefore it won’t make any money I caught it on netflex
Posted by Tough Love on August 15, 2012 at 6:08 pm
And does thieving wall street banks justify thieving Public Sector Unions & workers ?
Didn’t your mommy ever teach you that 2 wrongs don’t make 1 right ?
Posted by Eric on August 16, 2012 at 9:49 am
Jail Nait:
Bernie Madoff was also held accountable, only after he turned himself in and confessed. I guess that the feds had no other choice and felt perplexed. After all, they have repeatedly assured investors that he was the “real deal” and that there was nothing to worry about as far as giving your life’s savings to him.
I remember reading about a Boston based financial guru, sending conclusive documents to the feds, proving that Bernie’s returns were impossible to have achieved,based upon the alleged stock information, published by Bernie himself,and still Bernie received a clean bill of financial health. The Boston based expert even testified at a hearing and produced these documents as exhibits and was treated as an alarmist kook.
Nevertheless, Bernie was ultimately held responsible.
Eric
Posted by Tough Love on August 16, 2012 at 11:06 am
Boston based financial guru – Harry Markopolos.
Posted by MJ on August 16, 2012 at 7:09 pm
Read his book. Some of it was over my head but got the gist. No body listened to the geek from Boston but boy are they listening now. SAME as the pensions—no one seems to be listening but as one city after the next falls into bankruptcy, boy will they be listening then!
Posted by Tough Love on August 16, 2012 at 7:25 pm
What the Taxpayers need is for the 2 Bond insurance companies to win their challenge of the Stockton CA bankruptcy, insisting that pensioners (and current workers) as well as bond-holder must take a haircut.
Then the floodgate will open, when CalPERS position that pensions are untouchable will be exposed for what it is …. BS.
It’s WAY past time to re-set these pensions to no more than they WOULD HAVE BEEN (e.g., 50+% LESS) in the absence of the collusion between the Public Sector Unions and the self-serving politicians beholden to them for campaign contributions and election support..
Posted by MJ on August 16, 2012 at 7:51 pm
Yes indeed and if the bond insurance companies do not win, CA and every other state will not be able to borrow without having huge problems. I am rooting for the bond companies!
Posted by muni-man on August 17, 2012 at 9:44 am
The economic vice is now starting to squeeze the publics’ juicy goodies, but it’s only the first inning for them. It’s gonna get a lot more severe in the years ahead. Any state/city stupid enough to try and flip the bird to bondholders so they can try to keep propping up unsustainable benefits is gonna rue the day. Markets are really unmerciful (something publics are blissfully unaware of in their cozy cocoon that’s now unraveling more each day) and will put these stiffs on their persona non grata list permanently, making new borrowing virtually impossible. Then they’re absolutely screwed.
First, the UNCOLA, next OPEB’s, then Pension-Lite or even worse, Pension-Fail. Damn, what’s a public to do these days?
Posted by steve on August 16, 2012 at 3:31 pm
Margin Call is a very good movie but it was written and directed by J.C. Chandor. Oliver Stone had nothing to do with it and it is far better than Stone’s Wall St. sequel. Let’s give credit where it’s due…
Posted by Eric on August 16, 2012 at 5:38 pm
Yes. Tough Love, that name escaped me and I was in too much of a hurry at the time to google it.
Eric