Just over a week ago in an article I published here in Big Government: “New California Budget Crisis May Torpedo November Tax Increase Initiative.” The article illuminated how State Controller John Chaing had shocked California’s spendthrift politicians by announcing the State would be out of cash beginning March 8th and would miss up to $5.4 billion in vendor payments through May 1st. The timing of the Chaing announcement was disastrous for state politicians; because it destroyed any hope that Governor Jerry Brown’s $6 billion tax increase initiative on the ballot in November would pass.

Now it appears that Brown successfully lobbied for California to get $6 billion in cash and siphon off a total of $18 billion from the $25 billion mortgage settlement with the five largest U.S. banks, who were accused of fraud in the handling of foreclosures and loan modifications. But as Franklin Center Fellow, Steven Greenhut asks in a deliciously sarcastic article: “Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s public employees’ retirement fund?” Greenhut highlights that the mortgage settlement money is really just another accounting entry, because the real source of cash to fund the “Left Coast” is “implicitly via Federal Reserve/Government coffers.”

Most Americans still snarl about crony capitalism when they think of multinational banks taking $1 trillion slurp of taxpayer’s hard earned cash and then paying themselves record bonuses, while hiking fees and cutting off borrowers. But with the United States President and Congress solemnly telling Americans healthy banks were key to our future, most Americans gritted their teeth and came together to bail-out of banks, insurance companies, and other financial firms.

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The collapse of MF Global, the brokerage dealer headed by former New Jersey Governor and Goldman exec Jon Corzine, may seem like just another case of Wall Street fat cats paying the price for their speculation (actually, though Corzine may have run the firm into the ground, he’s reportedly going to receive a $12 million golden parachute).  The MF Global affair, however, signifies something even deeper:  how crony capitalists like Jon Corzine have used state pension funds for their political and financial benefit.

MF Global has declared Chapter 11 bankruptcy after Corzine led the firm to buy big holdings of debt from Spain, Italy, Portugal, Belgium, and Ireland at a discount.  Now federal regulators are investigating how hundreds of millions in customer money has gone missing.  But these were not simply financiers.  Some of Corzine’s biggest clients were pension funds for teachers, public employees, and others.   The fifth largest shareholder was TIAA-CREF, which owned 6% of the stock (MF Global’s Bankruptcy Petition is here).  In 2008,  before Corzine arrived, MF Global was sued by numerous pension funds over losses they had sustained because of MF Global trades, including the Iowa Public Employees’ Retirement System, Policemen’s Annuity Benefit Fund of Chicago, Southeast and Southwest Areas Pension Fund, and the State-Boston Retirement System.  MF Global settled the suit for $90 million.

The MF Global bankruptcy will cost pension funds a lot.  Pension funds around the country will likely take severe hits as their shares in the firm, bonds, or other holdings suffer huge losses.  The Oregon pension fund had a heavy stake MF Global.  Others are likely to follow. (more…)

One of the boldest labor thugs in America today is Stephen Lerner, a crafty economic terrorist who manages to sound like a folksy self-improvement seminar leader while he explicitly calls for the overthrow of capitalism.

“People are ready to move,” said Lerner, an organizer with the radical Service Employees International Union (SEIU). “We have solutions. We just have to build it bigger and larger,” he said during a panel discussion Oct. 3 at the Take Back the American Dream conference in Washington, D.C.

If we are really serious about movement building then we think one part is we have to act heroically, that we have to inspire people by our actions and we have to be willing to take incredible personal and collective risks, that that’s the time and there’s moments where history shifts and we’re going to decide if it shifts. That’s where I think we are and it’s a wonderful place to be because for the last couple of years it’s been shifting the other way.

An SEIU board member, Lerner is one of the architects of a subversive plan that aims to destroy the nation’s financial system through intimidation, mass protests, and the mob violence that accompanies it. As part of it, Lerner targeted JPMorgan Chase for attack earlier this year because the bank would be “a really good company to hate.”

Lerner told a receptive union audience that it is necessary to demonize people like JPMorgan Chase CEO Jamie Dimon in order to generate hatred and envy that will help to foment revolution. “We’ve got to be clear on the human beings who are bad,” he told the SEIU 775 convention in Seattle on Sept. 22. Wealthy corporate leaders must be made into social outcasts, despised even by their children, he said. “How do we make it so politicians don’t even want their money because their money’s toxic, it’s dirty, it’s evil.”

“It’s one thing if we say JPMorgan Chase crashed the economy. It’s another thing if we say Jamie Dimon makes $20 million a year, who is involved in the opera and all these philanthropies, and thinks he’s a nice guy, and he’s destroying our lives.”

Lerner also calls upon state and local governments to stop doing business with banks that refuse to pay their “fair share” in taxes, slash interest rates, and forgive overextended homeowners’ mortgage principal. He urges students and local governments –which employ many public sector union members— not to pay back “[u]nfair [d]ebt” unless interest rates are lowered. Such a loan strike “would threaten CEO bonuses and bottom lines of the banks.”

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In today’s New York Times:

Federal regulators are investigating whether California violated securities laws and failed to provide adequate disclosure about its giant public pension fund, according to a person with knowledge of the investigation.

The Securities and Exchange Commission normally polices companies, but last year it brought its first enforcement action ever against a state, accusing New Jersey of securities fraud for misleading bond investors about the condition of its pension fund. The commission signaled, in its settlement with New Jersey, that it was going to look more broadly at the pension disclosures of states and cities.

The fund, the California Public Employees’ Retirement System, known as Calpers, lost about a quarter of its total investment portfolio during the financial crisis, leaving the state responsible for replacing billions of dollars each year and contributing to its huge deficit. The question is whether California adequately disclosed in the preceding years how risky the pension investments were and how much money it might need to cover any shortfall.

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Last week I calculated that CalPERS would increase its pension charges to cities, counties, and the state of California over 30% to regain massive investment losses over the last decade.  My initial estimate was drawn from a presentation by Kung-pei Hwang, CalPERS Senior Actuary, which I recorded mid November.  My report also detailed the gimmickry that CalPERS used to hide the 50% shortfall in their planned assets.  However, it looks like my estimate was way low because we now have new video of the CalPERS board stating in their own words that the costs to cities, counties and the state will increase a GINORMOUS 55% by 2013 and the increased rate will need to be in place for at least the next 19 years.

And, this will only provide a 50/50 chance of getting to where they need to be to fulfill pension obligations for municipal and state workers.   In aggregate for all municipalities and the state this could equal a $4 billion a year drag on the economy of cities and counties as each spends less for local government functions.  Many cities and counties are already struggling to meet the current pension costs.  The new rate threatens to put many governments into serious financial trouble.  For the City of Los Angeles alone this means an increase of $340 million each year in payments to CalPERS!

Listen at the 57 minute and 37 second mark of this video as a board member adds up the financial hit cities and counties in California are about to take……

In addition, CalPERS admits earlier in this video that they have not built into their forecast the fact that restrained government budgets will likely result in layoffs and/or early retirement which will further strain the pension system.  Less municipal & state employees means less payments made into CalPERS to refill its underfunded coffers.  Their financial model does not reflect this reality.

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CalPERS financial sleight of hand is reminiscent of Bernie Madoff’s lying to his investors through phony statements designed to mask losses and outright fraud.

Much has been written about The California Public Employees’ Retirement System (CalPERS) being underfunded by $500 billion due to massive investment losses over the last decade, but now we have video of a CalPERS Senior Pension Actuary, Kung-pei Hwang, describing how they intend to change basic assumptions in their financial model to (please allow me to mix my metaphors) Hide The Decline in their assets held for municipal, county, and state employee’s retirement.

Through this statistical gimmickry, CalPERS can push the loss into later years and appear solvent today.  Of course, at some point in the future it will need to raise funds from state and local governments to compensate for these losses.  But for now, they seem content to hide the disastrous condition of their fund.

As you can hear Mr. Hwang say in his presentation to the Huntington Park City Council last week, “that means we will defer most of the loss to future years.” “This means the city will realize another increase in future years. I hate to bring bad news, but those are the facts.”  Well, the fact is this bad news will hit budgets for all cities, counties and the state of California and not just Huntington Park.  By playing with its financial model in this way, CalPERS is treating all California taxpayers like Madoff investors by cooking its actuarial books to Hide The Decline in its assets.

It gets worse, much worse as noted below after the video………..

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