As I’ve been writing about in the Martenson Reports over time, including the last one, one of the next shoes to drop is going to be a pension disaster. This too will be more easily measured in trillions than billions.
I am expecting a public pension wreck based on “management” so flawed as to cross over into gross negligence or worse.
March 3 (Bloomberg) — The Chicago Transit Authority retirement plan had a $1.5 billion hole in its stash of assets in 2007. At the height of a four-year bull market, it didn’t have enough cash on hand to pay its retirees through 2013, meaning it was underfunded to the tune of 62 percent.
The CTA, which manages the second-largest public transit system in the U.S., had to hope for a huge contribution from the Illinois state legislature. That wasn’t going to happen.
Then the authority found an answer.
“We’ve identified the problem and a solution,” said CTA Chairman Carole Brown on April 16, 2007. The agency decided to raise money from a bond sale.
So far so good, eh? I mean especially if you don’t think about it too hard. After all, the only way a scheme to borrow money to plug a fiscal hole can work is if you are earning more from investing that cash that you are paying out in interest. Makes sense right?
Your investment gains have to exceed your interest costs or the scheme becomes a sure-fire money loser.
Well, here’s the punch line:
Read More »