Posts Tagged ‘detroit’

Faith in the Detroit Farce

The New York Times feels that the issue is ‘good faith’ in the just-concluded trial to see if Detroit can use bankruptcy rules to slash public pensions with union lawyers arguing that a “cloak of secrecy” surrounds the governor’s bankruptcy strategy making it almost impossible to negotiate on pensions. “You don’t know how or what is going to be cut,” Sharon Levine, representing AFSCME, said. “How could you make a counterproposal without the very basic, simple facts?”

Which is exactly why this trial has been a farce and the only issue to be decided is how much those who were never promised any Detroit tax money (bankruptcy lawyers, managers, consultants. et. alia) will siphon from those who were (bondholders and public employees).   But one thing has become clear – the reason.

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13th Checks and Other Scary Public Plan Chimeras

A hallmark of government today is effective secrecy.  Meetings at which decisions are purportedly made are publicized in small print among hundreds of legal ads.  The media, if they even bother to report real issues, print official happy-face press releases.  Consequences of actions, if even disclosed, get buried in reports that run on for hundreds of pages.

What all this leads to is surprise when an absurd concept like providing an extra monthly payment to current retirees comes to light as it did in Detroit recently as part of an orchestrated campaign to now cut all benefits.  Where in the private sector do pension trustees get told they have extra money and decide to dole out a little to people who have no vested right to it except what is created after the fact?

But when it is oblivious taxpayers footing the bill for the benefits of those making the rules we get concepts like the 13th check and a few others:

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Rolling Stone Covering Public Pensions

Miley Cyrus gets nude in the current issue of Rolling Stone which also includes an article by Matt Taibbi:

Looting the Pension Funds All across America,
Wall Street is grabbing money meant for public workers

I bought the magazine and read the Taibbi story but now I’m considering reading about Miley Cyrus’ drug use since there’s a better chance it contains more useful information on public pensions than Taibbi’s hit-piece.

Actuarial Dicksy Land

Cate Long is a Dick and the public plan actuaries she puts her faith in are all Dicks.

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The Myth of Actuarial Independence

I spoke with a Reuters reporter on Monday about the Detroit pension-funded-status imbroglio but didn’t feel I sufficiently got across my opinion of the real role of public plan actuaries.  Perhaps Milliman, Inc. (Milliman) will do it for me as they go rogue on the profession.

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Buying Actuarial Opinions

Never has the curtain of deceit in public pension funding been open so wide as in Detroit’s clumsy attempt to create an underfunding in their two pension plans within the parameters used by public plan actuaries for decades to create the appearance of quasi-solvency.   Detroit had been paying Gabriel Roeder Smith & Company (GRS) millions of dollars over the years to mask the true cost of pension liabilities accruing.  Then last May when they needed to have the plans be severely underfunded and unsustainable they paid Milliman, Inc. (Milliman) $350,000 for that opinion (proffered on June 4, 2013 with the general public getting it today) for both the Detroit General Retirement System (DGRS) and the Police & Fire Retirement System (PFRS).

Resist the impulse to wade through these jargon-laced reports.  They were not designed for anyone to understand.  They were designed to have their conclusions accepted without question.

I do not accept them and they raise four questions that are obvious once isolated.

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Dumb, Lazy Pensioners

Detroit Emergency Manager called these people “dumb, lazy, happy, and rich” in a WSJ article earlier this month:

Today it was reported that he apologized*. He shouldn’t have. Though those people don’t look particularly happy or rich (subjective judgments in any case) there is no doubt that they, like the vast majority of public pensioners, are dumb and lazy when it comes to assuming pension promises will be kept.

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The Full Milliman Report

As requested by Detroit COO Chris Brown, Milliman, Inc. began an “analysis of the City of Detroit’s actuarial liabilities in support of the City and Financial Advisory Board (“FAB”). ”  They sent Mr. Brown a ten page letter on July 6, 2012 which, after some Very Rough Preliminary Guesstimates (VRPG), put the unfunded pension liability at $5.6 billion and the liability for retiree health care at $6.6 billion ($3.1 billion for DGRS and $3.5 billion for PFRS).

In prior blogs I reviewed how they arrived at their pension numbers in some detail.  The rest of the letter is a warning that GASB has some ideas that would further inflate that pension underfunding number and another VRPG on the value of retiree health benefits.

Please review the letter and tell me what strikes you.  For me there’s just this one other thing to note.

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Milliman on Pension Obligation Bonds

“It’s the dumbest idea I ever heard.  It’s speculating the way I would have speculated in my bond position at Goldman Sachs.”

Jon Corzine in 2008 on Pension Obligation Bonds

Pension Obligation Bonds generate a lot of fees and make the plans they are bought for appear better funded than they actually are which are two of the primary goals of the people who run many government plans.  In every other respect they are a disaster.  Milliman in their report criticizing Detroit’s official pension numbers under the heading “Impact on City of past Pension Obligation Certificates” took dead aim at this pernicious practice: Continue reading

Educating the Public on Detroit

Technology has killed serous televised discourse.  I can’t imagine William F. Buckley feeding setups to six talking heads spewing their sound-bites on topics of the day. I see him debating informed challengers proffering well-reasoned positions, which could still have more entertainment value than anything we see on TV today:

So it is that the discussion being had on the Detroit bankruptcy instigated in part by faulty assumptions as to the value of pensions and the perceived wisdom being formed that actuaries have been lying for decades to appease their clients is welcome but the pundits carrying the message could use some better backup information though they are not completely to blame.

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