Who's underwriting? Morgan Stanley, Goldman Sachs, et al.
Why does the State of Illinois need to borrow to subsidize its contribution commitments?
Well, the funds are about $86 billion in the hole. In part because of huge losses -- like those everyone else suffered -- in 2008 and 2009.
So, immediately we see that while the taxpayer is supposed to bail out financial conglomerates for investing in risky and toxic structured financial imbroglios -- enabling banksters to walk away with seven-figure bonuses -- they're supposed to ignore the plight of state hospital janitors, victims of those investment schemes.
That's bad enough. But, why would normally risk-adverse pension funds be involved wtih this kind of crap investment to begin with?
Certainly, much of the blame falls on credit ratings agencies. Yes, the ones who teamed up with Goldman, Bear Stearns, Lehmen etc. to peddle "AAA" toxins to the rest of us dumbasses. Yes, the same ones that are threatening to downgrade investment ratings on government bonds. The same bonds that Illinois' got to peddle to meet its pension commitments.
But some of the blame must fall on the state government. Who decided, for some reason, to stop contributing to the funds as much as the funds should pay out:
one of the main problems was a state law, passed in 1994, permitting Illinois to contribute less to the pension fund every year than the amount that would actually cover the benefits.Thus, the funds had to find a way to make a big profit to cover their obligations to pensioners. And investments with the kind of high profit margins that could accomplish this are inherently risky. That's why savings accounts yield less interest than junk bonds.
D'oh. I don't know why they did this. Maybe they wanted to kill public pensions. Maybe they thought we'd all get a ride to heaven on the stock market. Either way, it doesn't matter now.
Meanwhile, the same financial institutions that walked away gloating from the financial crisis that ruined pension funds' balance sheets are the very same vultures gorging on underwriting commissions divied out by the state when they've got to sell bonds just to meet funds' operating expenses.
