Californians: Prepare For A 50% Hike In Pension Costs

It is no surprise that pension funds in the US are significantly underfunded (median 72% funded). California Public Employees’ Retirement System (CALPERS), specifically, is about 26% short of meeting its long-term commitments. Like most major pension funds, it uses smoke-and-mirrors to avoid this yawning gap by smoothing over a long enough timeframe where ‘hope’ for growth in assets triumphs over the reality of liabilities (through a ‘rolling’ 15- or 30-year window – that therefore never comes due). However, under a new plan proposed by CALPERS’ chief actuary, they will shorten the horizon from 15 to 5 years and aim for a specific date 30 years from now to be 100% funded (instead of a rolling hope-driven horizon). The impact of this, as Bloomberg reports, may mean California taxpayers municipal pension contributions will rise as much as 50%. “This is clearly the right thing to do,” notes the fund’s CEO, “as it will reduce the risk of the system,” though we suspect the ‘system’ may just get a little upset at having to face this 50% ‘tax-hike’.

Via Bloomberg,

California taxpayers may see the municipal pension contributions they fund for the California Public Employees’ Retirement System rise as much as 50 percent under a plan to fill $ 87 billion in unfunded obligations.

 

Alan Milligan, the fund’s chief actuary, recommends that the biggest U.S. pension stop spreading out losses and gains over 15 years and instead set rates based on how much is needed to reach 100 percent funding within 30 years

 

The Sacramento-based pension, known as Calpers, is about 26 percent short of meeting its long-term commitments. The state and cities contributed $ 7.8 billion in the last fiscal year, almost four times more than a decade earlier.

 

…

 

Under Milligan’s proposal, the fund would shrink its 15- year rolling period for asset smoothing to five years and amortize gains and losses over a fixed 30-year period rather than the current rolling 30-year period. A fixed period means that all obligations will be fully funded by a specific date.

 

If approved, the rates charged to governments would increase by as much as 50 percent.

 

…

 

“This will reduce the risk our system currently faces,” said the fund’s chief executive officer, Anne Stausboll. “This is clearly the right thing for us to do.”

 

…

 

The median funded status of state pensions, meaning how much money a system has in order to pay its obligations, fell to 72 percent in 2011 from 83 percent in 2007, according to data compiled by Bloomberg.

Zero Hedge

Californians: Prepare For A 50% Hike In Pension Costs

Californians: Prepare For A 50% Hike In Pension Costs

It is no surprise that pension funds in the US are significantly underfunded (median 72% funded). California Public Employees’ Retirement System (CALPERS), specifically, is about 26% short of meeting its long-term commitments. Like most major pension funds, it uses smoke-and-mirrors to avoid this yawning gap by smoothing over a long enough timeframe where ‘hope’ for growth in assets triumphs over the reality of liabilities (through a ‘rolling’ 15- or 30-year window – that therefore never comes due). However, under a new plan proposed by CALPERS’ chief actuary, they will shorten the horizon from 15 to 5 years and aim for a specific date 30 years from now to be 100% funded (instead of a rolling hope-driven horizon). The impact of this, as Bloomberg reports, may mean California taxpayers municipal pension contributions will rise as much as 50%. “This is clearly the right thing to do,” notes the fund’s CEO, “as it will reduce the risk of the system,” though we suspect the ‘system’ may just get a little upset at having to face this 50% ‘tax-hike’.

Via Bloomberg,

California taxpayers may see the municipal pension contributions they fund for the California Public Employees’ Retirement System rise as much as 50 percent under a plan to fill $ 87 billion in unfunded obligations.

 

Alan Milligan, the fund’s chief actuary, recommends that the biggest U.S. pension stop spreading out losses and gains over 15 years and instead set rates based on how much is needed to reach 100 percent funding within 30 years

 

The Sacramento-based pension, known as Calpers, is about 26 percent short of meeting its long-term commitments. The state and cities contributed $ 7.8 billion in the last fiscal year, almost four times more than a decade earlier.

 

…

 

Under Milligan’s proposal, the fund would shrink its 15- year rolling period for asset smoothing to five years and amortize gains and losses over a fixed 30-year period rather than the current rolling 30-year period. A fixed period means that all obligations will be fully funded by a specific date.

 

If approved, the rates charged to governments would increase by as much as 50 percent.

 

…

 

“This will reduce the risk our system currently faces,” said the fund’s chief executive officer, Anne Stausboll. “This is clearly the right thing for us to do.”

 

…

 

The median funded status of state pensions, meaning how much money a system has in order to pay its obligations, fell to 72 percent in 2011 from 83 percent in 2007, according to data compiled by Bloomberg.

Zero Hedge

Californians: Prepare For A 50% Hike In Pension Costs

The Stunning Differences in European Costs of Labor: Or Why “Competitiveness” Is A Beggar-Thy-Neighbor Strategy

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

The ominous term, “competitiveness” has been bandied about as the real issue, the one that causes European countries, in particular some of those stuck in the Eurozone, to sink ever deeper into their fiasco. To fix that issue, “structural reforms,” or austerity, have been invoked regardless of how much blood might stain the streets. And a core element of these structural reforms is bringing down the cost of labor.

In Europe’s private-sector, the cost of labor—gross earnings plus employer-paid social contributions, pensions, disability, etc.—is marked by stunning differences. At the bottom of the spectrum is Bulgaria: the average private sector employee costs a company €3.70 per hour worked; in manufacturing even less, €2.90. Romania is right there at €4.50 and €3.80 respectively. Near the top of the spectrum is Belgium at €40.40 and €41.90 per hour worked. But no one beats the Swedes: €41.90 and €43.80. Per hour worked, the average Swedish employee costs a manufacturer over 15 times more than an employee in Bulgaria.

So, relocate all manufacturing plants from Sweden to Bulgaria? Or Romania? Even Greece would be a great place. The cost of labor there is only €14.70 per hour worked, about a third of what it costs up north. It’s the only country in the EU where the average cost of labor actually fell in 2012—and by 6.8%!

But in Spain, which struggles with a similar unemployment problem, cost of labor rose by 1.1% to €20.90, in Italy by 1.7% to €21.90, in Germany by 2.8% to €31, in France by 1.9% to €34.90. The biggest gainers in percentage terms were at the bottom: in Bulgaria, cost of labor rose 6.4%, a whopping €0.24 per hour! In euro terms, the biggest gainers were at the top: cost of labor in Sweden rose 3.5%, or about €1.50 per hour! The cost of labor at the top is running away.

Based on data from the German statistical agency Destatis, this is what it looked like in 2012:

 

But if enough Swedish companies—and not just manufacturers but all kinds of companies—packed up their machines and robots and cubicles and headed south, unemployment would rise in Sweden. Once unemployment pushes deeply into the double digits, executives will defend their delocalization decisions by lamenting the cost of labor, and soon the government will be talking feverishly about “structural reforms,” without meaning it, and that’s where France is right now. But eventually the situation might deteriorate and pressure wages and associated costs. This has happened in Greece. And they’re all competing with the US, China, Mexico, Bangladesh…. Because competitiveness is not just a beggar-thy-neighbor system.

Alas, the rejuvenated “sick man of Europe,” Germany, isn’t surviving just by cutting its cost of labor. At €31 per hour, it was 32% higher than the EU average, though 11% lower than in France. In manufacturing, it was even more striking: Germany’s cost of labor of €35.20 per hour was 47% higher than the EU average, but still 3% lower than in France. Productivity, infrastructure, transportation costs, corruption, training and education, etc. all figure prominently into this equation. Cost of labor is not the only factor.

Yet German workers have been hit hard: between 2001 and 2010, the cost of labor grew 16%, less than the rate of inflation, while in France, for example, it grew 35%, and in southern countries it jumped far more. In 2011 and 2012, Germany’s cost of labor began to rise with renewed vigor, up 5.9%, but so did France’s at 5.4%.

Much of this money was absorbed by the costs of social contributions, pensions, etc. And they can be breathtaking. The graph below shows these additional costs to the employer per €100 in gross wages paid.

So an average worker in Sweden who earns €100 for a certain number of hours in gross wages costs his employer an additional €51, for a total cost of €151. A Maltese worker, who’d work about three times as long for the same pay, would cost the employer only an additional €10, so €110. And a Bulgarian worker who’d work about 15 times as long for the same pay would cost an additional €18, so €118. This is a conundrum looking for a solution.

Over time, “competitiveness” hollows out the middle and lower classes in some “rich” countries—this has been happening in the US and Germany for years—balloon the middle class in other countries, and make the top in all countries immensely rich. For many people, it’s nothing to look forward to.

Italy has Beppe Grillo, but with European governments reeling from self-inflicted crises, and the euro debacle descending into a tragi-comic farce, one wonders who the real clowns are – especially here in Spain, where ministers gorge themselves on the public purse, leaving behind a trail of evidence so obvious that even the mainstream media can’t ignore it. Read….Will the Real Clowns Please Stand Up?

Zero Hedge

The Stunning Differences in European Costs of Labor: Or Why “Competitiveness” Is A Beggar-Thy-Neighbor Strategy

What It Costs the Worst Bank to Be Truly Evil

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$ 16 billion.

That"s how much JPMorgan Chase has paid in fines, settlements and other litigation expenses in the last four years alone.

More than half of that amount, $ 8.5 billion, was paid out in fines and settlements as the result of illegal actions taken by bank executives.

$ 8.5 billion is almost 12 percent of the net income the mega-bank brought in during the same period.

High Overhead

These figures comes from “JPMorgan Chase: Out of Control,” an impressive analysis of the bank"s performance by Joshua Rosner, an investment analyst at GrahamFisher. And there"s more. Since Rosner published his report only last week, JPMorgan Chase has settled another dispute.

This latest agreement is with the trustee for customers of fraudulent investment firm MF Global.

The MF Global deal included a $ 100 million cash payout from Chase, and an agreement to waive the $ 417 million in claims it had made against MF Global"s clients. If you add in the full amount of this agreement, the bank has given up more than $ 9 billion in settlements since 2009.

Now we"re over 12 percent just in payouts. Throw in all the other litigation costs and the total comes to well over 20 percent of the bank"s net income in a four year period.

And illegalities aren"t the only thing that"s costing JPMorgan Chase"s shareholders a lot of money. There"s also the London Whale foul-up, an apparently illegal series of trades that"s already lost the bank $ 6.2 billion.

Add it all up. Then throw in the massive fines JPMorgan Chase paid before 2009, but after Dimon took the helm. Then add in the likely cost of the cases which loom before the bank today. You"ll find that the Price of Evil for Dimon & Co. is very high — at least by normal standards.

Bad Company

Is “evil” too harsh a word? Merriam-Webster defines evil as “morally reprehensible,” “arising from actual or imputed bad character or conduct,” “causing discomfort or repulsion,” or “causing harm.” Which of those descriptions is not true for the leaders of an institutions that"s paid billions for misdeeds such as:

• Reportedly taking MF Global"s customers" money as that firm was collapsing under the weight of its own fraud;


• Closing the bank account and freezing the credit card of a hedge fund manager because he criticized its handling of MF Global on television;


• Bribing officials in Jefferson County, Alabama, which subsequently went bankrupt;


• Fraudulently submitting court documents in support of its foreclosures, using a group of untrained college students and other young people (known in the firm as “Burger King Kids”) to prepare and submit the papers.

Follow the links at the bottom of the page if you want more information, but here"s a sneak preview: Angels, they ain"t.

The Gang That Couldn"t Cheat Straight

If “evil” strikes you as too harsh you may not like the word “incompetent” either. But the Office of the Controller of the Currency, which is not known for being overly aggressive with bankers, secretly downgraded its internal assessment of the bank"s management and ruled that its internal oversight “needs improvement.”

The OCC found that the “Matters Requiring Attention” within the bank include its much bragged-about risk management, its money-laundering controls, audit oversight, and its valuation of its trading positions.”

What"s a little laxity about money-laundering between friends?

They"re not just taking us for a ride. They"re bad drivers. By being both unethical and incompetent, the management at JPMorgan Chase has violated the moral principle expressed so eloquently the late, great country singer Vern Gosdin: “If you"re gonna do me wrong, do it right.”

Who"s in Charge Here?

You"d think shareholders would be up in arms at Dimon and the Board of Directors for mismanaging their bank so badly. And yet they"re all still in their seats, thanks in part to the way large corporations are allowed to manipulate their own corporate governance. Dimon is both CEO and Board Chair, an extraordinarily privileged position he was not asked to give up after the London Whale scandal.

And about that scandal: There are four things worth knowing about the Whale:

1. The trades were illegal, according to all the evidence.


2. Despite the bank"s bragging about its risk management model — which it publicized widely as a lure to investors — that model wasn"t followed by the London office.


3. Jamie Dimon"s publicists and politician friends have burnished his reputation as “America"s best banker” – and he bypassed his bank"s org chart so that the London unit reported directly to him.


4. His friends and publicists have also burnished his reputation as the country"s most ethical banker. As Henny Youngman used to say, How do ya like me now?

We"ve been all over JPMorgan Chase and Jamie Dimon for a long time. (See below for a partial listing), so we"re glad to see the public tide finally turning against the bank and its leader. One of the triggers for that shift was the Senate"s report on the bank"s trade, which is as damning in its own way as Rosner"s.

Payback

The media climate"s changing, too. Lynn Parramore of Alternet has written a piececalled “The Spectacular Rise and Fall of Jamie Dimon, Wall Street"s Golden Boy.” A Google search of “Jamie Dimon” and “tarnished” (as in reputation) yields articles from USA Today, Bloomberg News, and WGBH News. And Dimon was finally forced to resign his seat on the Board of the New York Federal Reserve.

At long last, people are openly questioning the competence and ethics of Dimon and his team.

But nothing"s really happened. Dimon"s still the boss. Nobody"s been charged with a crime. The only "punishment"the bank has faced has been fines which, while massive by ordinary standards, are a slap on the wrist considering the gravity of the offenses.

The bank executives who committed those crimes haven"t paid a penny in restitution, nor have they been charged with crimes. Those fines have been paid by the bank"s shareholders, who in some cases were the victims of the very crimes that led to the fine in the first place!

It"s like we said the other day about Cyprus: In banking, the victim"s expected to pay restitution to the criminal.

Talk Talk

Chase"s most recent annual report, the document which represents it to current and prospective shareholders, boasts of a “laser focus on managing expenses” and states that “As a business, we are guided by our objectives to expand and deepen client relationships, invest consistently in our franchise, and maintain our risk and expense discipline.”

How"s that working out for you?

Senators came down hard on these malefactors last week — rhetorically, anyway. But the government isn"t cracking down on this den of iniquity. It"s enabling it. As Rosner notes, “Rather than being driven by the strength of its operations and management, many of JPM"s returns appear to be supported by an implied guarantee (emphasis Rosner"s) it receives as a too-big-to-fail institution.”

That"s right: Instead of cracking down on these guys, the government is helping them get even richer — and helping their out-of-control bank get even bigger and more dangerous. And they"re doing it at a time when the Attorney General of the United States has made it clear that he will not prosecute criminals at a too-big-to-fail bank like Chase. Talk is cheap, but actions speak louder than rhetoric.

Crime Pays

Life is still good for Dimon and some of the other senior executives at JPMorgan Chase: Shareholders can"t — or won"t — fire them. The government won"t prosecute them. Taxpayers are helping them get rich. And every day their institution becomes bigger and more powerful. Sure, all that power doesn"t come cheap, but they"ve found other peoplewilling to pay the price …

$ 16 billion and counting.

The price of evil may be high at JPMorgan Chase, but the malefactors who actually committed the wrongdoing aren"t paying it. Wrongdoing and incompetence may be expensive. But for executives at JPMorgan Chase and our other too-big-to fail banks, it"s also surprisingly affordable.

Thu, 03/21/2013 – 14:48

 
AlterNet.org Main RSS Feed

What It Costs the Worst Bank to Be Truly Evil

What It Costs the Worst Bank to Be Truly Evil

Tweet

$ 16 billion.

That"s how much JPMorgan Chase has paid in fines, settlements and other litigation expenses in the last four years alone.

More than half of that amount, $ 8.5 billion, was paid out in fines and settlements as the result of illegal actions taken by bank executives.

$ 8.5 billion is almost 12 percent of the net income the mega-bank brought in during the same period.

High Overhead

These figures comes from “JPMorgan Chase: Out of Control,” an impressive analysis of the bank"s performance by Joshua Rosner, an investment analyst at GrahamFisher. And there"s more. Since Rosner published his report only last week, JPMorgan Chase has settled another dispute.

This latest agreement is with the trustee for customers of fraudulent investment firm MF Global.

The MF Global deal included a $ 100 million cash payout from Chase, and an agreement to waive the $ 417 million in claims it had made against MF Global"s clients. If you add in the full amount of this agreement, the bank has given up more than $ 9 billion in settlements since 2009.

Now we"re over 12 percent just in payouts. Throw in all the other litigation costs and the total comes to well over 20 percent of the bank"s net income in a four year period.

And illegalities aren"t the only thing that"s costing JPMorgan Chase"s shareholders a lot of money. There"s also the London Whale foul-up, an apparently illegal series of trades that"s already lost the bank $ 6.2 billion.

Add it all up. Then throw in the massive fines JPMorgan Chase paid before 2009, but after Dimon took the helm. Then add in the likely cost of the cases which loom before the bank today. You"ll find that the Price of Evil for Dimon & Co. is very high — at least by normal standards.

Bad Company

Is “evil” too harsh a word? Merriam-Webster defines evil as “morally reprehensible,” “arising from actual or imputed bad character or conduct,” “causing discomfort or repulsion,” or “causing harm.” Which of those descriptions is not true for the leaders of an institutions that"s paid billions for misdeeds such as:

• Reportedly taking MF Global"s customers" money as that firm was collapsing under the weight of its own fraud;


• Closing the bank account and freezing the credit card of a hedge fund manager because he criticized its handling of MF Global on television;


• Bribing officials in Jefferson County, Alabama, which subsequently went bankrupt;


• Fraudulently submitting court documents in support of its foreclosures, using a group of untrained college students and other young people (known in the firm as “Burger King Kids”) to prepare and submit the papers.

Follow the links at the bottom of the page if you want more information, but here"s a sneak preview: Angels, they ain"t.

The Gang That Couldn"t Cheat Straight

If “evil” strikes you as too harsh you may not like the word “incompetent” either. But the Office of the Controller of the Currency, which is not known for being overly aggressive with bankers, secretly downgraded its internal assessment of the bank"s management and ruled that its internal oversight “needs improvement.”

The OCC found that the “Matters Requiring Attention” within the bank include its much bragged-about risk management, its money-laundering controls, audit oversight, and its valuation of its trading positions.”

What"s a little laxity about money-laundering between friends?

They"re not just taking us for a ride. They"re bad drivers. By being both unethical and incompetent, the management at JPMorgan Chase has violated the moral principle expressed so eloquently the late, great country singer Vern Gosdin: “If you"re gonna do me wrong, do it right.”

Who"s in Charge Here?

You"d think shareholders would be up in arms at Dimon and the Board of Directors for mismanaging their bank so badly. And yet they"re all still in their seats, thanks in part to the way large corporations are allowed to manipulate their own corporate governance. Dimon is both CEO and Board Chair, an extraordinarily privileged position he was not asked to give up after the London Whale scandal.

And about that scandal: There are four things worth knowing about the Whale:

1. The trades were illegal, according to all the evidence.


2. Despite the bank"s bragging about its risk management model — which it publicized widely as a lure to investors — that model wasn"t followed by the London office.


3. Jamie Dimon"s publicists and politician friends have burnished his reputation as “America"s best banker” – and he bypassed his bank"s org chart so that the London unit reported directly to him.


4. His friends and publicists have also burnished his reputation as the country"s most ethical banker. As Henny Youngman used to say, How do ya like me now?

We"ve been all over JPMorgan Chase and Jamie Dimon for a long time. (See below for a partial listing), so we"re glad to see the public tide finally turning against the bank and its leader. One of the triggers for that shift was the Senate"s report on the bank"s trade, which is as damning in its own way as Rosner"s.

Payback

The media climate"s changing, too. Lynn Parramore of Alternet has written a piececalled “The Spectacular Rise and Fall of Jamie Dimon, Wall Street"s Golden Boy.” A Google search of “Jamie Dimon” and “tarnished” (as in reputation) yields articles from USA Today, Bloomberg News, and WGBH News. And Dimon was finally forced to resign his seat on the Board of the New York Federal Reserve.

At long last, people are openly questioning the competence and ethics of Dimon and his team.

But nothing"s really happened. Dimon"s still the boss. Nobody"s been charged with a crime. The only "punishment"the bank has faced has been fines which, while massive by ordinary standards, are a slap on the wrist considering the gravity of the offenses.

The bank executives who committed those crimes haven"t paid a penny in restitution, nor have they been charged with crimes. Those fines have been paid by the bank"s shareholders, who in some cases were the victims of the very crimes that led to the fine in the first place!

It"s like we said the other day about Cyprus: In banking, the victim"s expected to pay restitution to the criminal.

Talk Talk

Chase"s most recent annual report, the document which represents it to current and prospective shareholders, boasts of a “laser focus on managing expenses” and states that “As a business, we are guided by our objectives to expand and deepen client relationships, invest consistently in our franchise, and maintain our risk and expense discipline.”

How"s that working out for you?

Senators came down hard on these malefactors last week — rhetorically, anyway. But the government isn"t cracking down on this den of iniquity. It"s enabling it. As Rosner notes, “Rather than being driven by the strength of its operations and management, many of JPM"s returns appear to be supported by an implied guarantee (emphasis Rosner"s) it receives as a too-big-to-fail institution.”

That"s right: Instead of cracking down on these guys, the government is helping them get even richer — and helping their out-of-control bank get even bigger and more dangerous. And they"re doing it at a time when the Attorney General of the United States has made it clear that he will not prosecute criminals at a too-big-to-fail bank like Chase. Talk is cheap, but actions speak louder than rhetoric.

Crime Pays

Life is still good for Dimon and some of the other senior executives at JPMorgan Chase: Shareholders can"t — or won"t — fire them. The government won"t prosecute them. Taxpayers are helping them get rich. And every day their institution becomes bigger and more powerful. Sure, all that power doesn"t come cheap, but they"ve found other peoplewilling to pay the price …

$ 16 billion and counting.

The price of evil may be high at JPMorgan Chase, but the malefactors who actually committed the wrongdoing aren"t paying it. Wrongdoing and incompetence may be expensive. But for executives at JPMorgan Chase and our other too-big-to fail banks, it"s also surprisingly affordable.

Thu, 03/21/2013 – 14:48

 
AlterNet.org Main RSS Feed

What It Costs the Worst Bank to Be Truly Evil