Every so often, Calculated Risk posts a chart that has been created by dshort showing how the stock market has been doing compared to other historical bear markets. Given the recent falls, I thought that people might want to look at the most recent chart.
The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.
With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.
That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years — more than half of them since 1997 — public records show.
The quick fix for pension funds becomes a future albatross for taxpayers.
In the CTA deal, the fund borrowed $1.9 billion by promising to pay bondholders a 6.8 percent return. The proceeds of the bond sale, held in a money market fund, earned 2 percent — 70 percent less than what the fund was paying for the loan.
The public gets nothing from pension bonds — other than a chance to at least temporarily avoid paying for higher pension fund contributions. Pension bonds portend the possibility of steep tax increases.
Read the whole article for all the disgusting details. For example, by law most states have to guarantee pay back of those pension bonds.
The loan-financing arm of Toyota, Japan’s biggest industrial giant, is understood to have approached a state-backed fund for as much as $2 billion in emergency loans.
A request for Government funding from the Japanese giant is expected to trigger a deluge of other demands for capital by other of the country’s struggling industrial companies.
When the article says $2 billion dollars it means dollars not the equivalent value of yen. What this means is that Japan is going to have to sell some T-bonds if it is going to honor this request.
Given the scale of the T-bond market, this is small potatoes. Still, it does demonstrate the mechanism by which T-bond yields could spike even if Japan or China do not decided to deliberately dump dollars as a matter of policy.
Criminal correction spending is outpacing budget growth in education, transportation and public assistance, based on state and federal data. Only Medicaid spending grew faster than state corrections spending, which quadrupled in the past two decades, according to the report Monday by the Pew Center on the States, the first breakdown of spending in confinement and supervision in the past seven years.
In that one paragraph you have the problem of demographic aging and cultural break down.
Investors’ despair about financial companies and the recession has brought the Dow Jones industrial average to another unwanted milestone: its first drop below 7,000 in more than 11 years. The market’s slide Monday, which took the Dow down 300 points, was nowhere near the largest it has seen since last fall, but the tumble below 7,000 was nonetheless painful.
The credit crisis and recession have slashed more than half the average’s value since it hit a record high over 14,000 in October 2007. And now many investors fear the market could take a long time to regain the lost 7,000.
AIG, the fallen US insurer, unveiled a $62 billion loss today — the largest in US corporate history — as it secured a fresh $30 billion bailout package from the Government.
From Marginal Revolution (in regards to AIG bailouts)…..
No one wants to say it, but essentially the Fed has been bailing out European banks.
The inflation-adjusted cost of the Marshall plan has been estimated at about $115 billion in current dollars. If we end up spending $250 billion on AIG, how much of that sum will go to European financial institutions and might it someday exceed the scope of the Marshall plan? (I do not, by the way, think that central banks ought to treat foreign creditors differently.)
He is right that nobody important wants to say it, but blogs have been pointing this out from the beginning. Still, the comparison to the cost of the Marshall plan is an original twist.
This week’s essay of the week is Warren Buffett’s annual shareholder report. Key things to pay attention to are his comments on why bond insurance might make it more likely that municipal bonds will default and how the bail outs have meant that it is easier for firms on the ropes to get capital then relatively healthy companies like his own.
The meaning of the marks that disaster response teams put on various structures. You never know when this type of information will come in handy.
All the charts you could ever want on the current state of the economy (except current debt to GDP levels).
The reason stealth planes spend so much of their time in hangers.
Acme Tool Co. is not especially vulnerable to the current economic climate, supported as we are by a repair industry, and repair being a fact in a cynic’s life and not just a realtor’s dream of an ever-exploding house value. But the collapse of unbounded optimism is sucking quite a lot down the drain with Click Here to continue reading.
Just when you thought there is nothing that can surprise you anymore in this country, comes this. LNT’s “DegpunktĔ reports that Valmiera state prison had four special guards dogs shot as part of the “economy regime”. Apparently, the guards couldn’t bring themselves to do that so they called in an outsider and gave him a gun. I wonder if that’s the kind of measures that Mr Slakteris, the minister of finance, meant when he famously told the Bloomberg TV that “we will be …taupÄ«gi [economical].”
Ryanair’s chief executive caused howls of protest today when he suggested that the airline may charge passengers £1 to use its toilets.
The S&P 500 closed at 735 or so. The low in 1997 was 737.01.
Note: the S&P 500 was at 744 when Greenspan spoke of “irrational exuberance”!
