WiFi was down - Lets talk pensions

Sorry for not posting, my wifi went down. Okay, now lets talk pensions a bit more. Public pensions versus private pensions. Lets talk about why the public pensions are in trouble. Firstly, they were not funded. Each year the state and local governments were supposed to put money in the pension funds, they did not put in the promised amounts because they counted on the existing investments to keep growing.

Over the past two decades bubbles in the stock market and housing market created big returns on investments. The state and local governments were flush with money because of the tax revenues they received. Rather than put in their promised investments and matching funds, the governments expanded services. The pension funds had so much more than they needed that the governments gave increases in the promised payouts.

There was a time in California where Orange County and San Diego were considered the best investors because they sold assets and invested in high return instruments. When the markets crashed, the two were ready to go into bankruptcy. I remember a highly placed local official saying that "We shouldn't sit on our assets", he thought he was so amusing. He wanted to sell all City assets and invest. Why use prudent investment in secure holdings if you can make money off the market? BECAUSE MARKETS FLUCTUATE AND YOU NEVER RISK YOUR HOME OR RETIREMENT.

Shortcuts, ponzi schemes and easy money. Hey, they could have invested in Berkshire Hathaway and not had a pension problem. Public pension funds anticipated returns of 8% a year. That is insanity when inflation has historically been at 5% a year, it assumes you will not make any bad investments of have wild fluctuations in the market. You don't make those assumptions with pensions. Berkshire Hathaway has averaged a 25% increase for forty years or so.

Let us look at what the public pension funds did invest in. CIM Group, for one. The pension funds invested in political investments and many of them failed. Politicians and their friends sat on the pension boards along with union leaders. A cozy group that I have previously shown. The union leaders wanted pay increases and earlier, more lucrative retirements for their members. The politicians wanted union support for their elections. Third parties were used to choose the investments, frequently staffed by friends of the politicians and the unions.

Everything went well enough while the market bubbles grew; but, as with every fairy tale there must be a bad guy. The bad guy was reality, bubbles burst. When the housing bubble burst it took every scheme with it. Fear of the bubble bursting led pension boards to invest in groups doing business with their own organizations, a form of insider trading. Nobody said anything because it was the most likely way to save the pensions and hide the impropriety. It didn't work.

Currently the Federal government is investigating these transactions. It will not be pretty, how could it. Because it was all conducted by buddies and friends, well, things were allowed to happen. Your average teacher, cop, government worker had no idea what his union and the politicians were doing. The middle men for all of this were paid tens of millions, more for being quiet than anything else. The people on the pension boards were given things, over a million dollars in bribes by one of them in New York alone.

Why aren't the unions screaming about Elliot Broidy and Villalobos, why aren't the politicians screaming about the insider investments. It is simple, they were all involved. How come the newpapers are not talking about the connection, how come they are not talking about the underfunding of the past two decades by state and local governments?

In the immortal words of Johnny Rotten, "Ah-ha-ha. Ever get the feeling you've been cheated?" Well kids, we all have. Corruption happens incrementally, it starts small and like an "I Love Lucy" show ends up escalating because you need to lie more and more to make the first lie sound true.

It has been well documented that CIM Group was funded by public pension funds. It has been well documented that they invested in projects which the governments, whose pension funds invested in them, had influence over the projects. Community Redevelopment Agencies were quick to authorize projects for CIM and happy to give them grants and loans. Why did the City of Los Angeles loan $30 million to Cirque De Soleil when it couldn't pay it's own bills. Maybe because CIM Group owned the venue where they were to play. It is possible is it not.

For those new to the blog, read the previous articles on pensions and you will see that I have linked to original documents and reports by traditional media with all of the pieces proving the above. Now, the question is what do we do.

I will start with some simple things. Union members did not keep a good enough eye on their leadership, I am equally guilty of this. Non-involvement allows these things to occur. It is our unions, not the leaderships and we pay the price. Next, we cannot look for shortcuts ourselves, we have to get back to basics. Our unions should not support politicians merely because they will support us, they will not, they are politicians and when the hard times come will give us up in a second.

IBEW is being sold out by the politicians it promoted. Then again, it shouldn't have sought to control them, it should have sought politicians who would do the right thing. Same for the other unions. Unions have a place it is not in politics. We need to get back to basics. We need to look to do an honest days work for an honest dollar. We need to seek to have politicians who truly care about their responsibilities. If we allow the system to be corrupt we guarantee failure eventually. The time is here.

As I sit here those involved are busy trying to hide what occurred, it is too late. They should be buying luggage and updating their passports. The proof is out there and as the pensions are audited the questions will arise. The politicians think the answer is to take away the pensions and reduce them, this has a consequence. If we put the penalty on new hires, they will not come to government. Government should have the best and the brightest, with no reward for success and humiliation for every mistake, why would they join the government for long?

Someone said that public pensions should invest in government bonds, not a bad idea. It leads the employees to want to see projects come in under budget and on time, it means our retirements will be as solid as our work. The person who said this to me is a really smart analyst. Probably better than me; but, I haven't been at my best.

The advantage of 401k plans for employees is that you can switch companies. You do not want people like me switching and going into private industry, you do not want me advising private companies on how to make money from local governments. Government is run by lifers, people who understand how to make the crazy work. When I get home at night I am researching my industry, someone has to.

We need to return to a time when companies were loyal to employees and employees were loyal to companies. It was what made America great, the Japanese imitated it and succeeded, now everyone is out for themselves and nothing works. It can't. If only one dog can win that means everything fails.

The best thing to fix the pensions is to stop the craziness and get back to sound investment in us, invest in ourselves, in our work, in our own institutions. I have posted on the car companies and raised the same questions. Be well.

Before I go. Here is the CIM Group website. Go to the part that says "Case Studies" and see what they did. Downtown Los Angeles and Hollywood are particularly interesting. Remember they did this with funding from CalPers and Lacers, your public pension funds. Hollywood is interesting because CIM purchased properties prior to the adaptive reuse ordinance. What good guessers they were.

This little article will help you to see. Elliot Broidy sat on both CalPers and the City of Los Angeles Police and Fire Pension Board. Mr. Broidy was put on the Los Angeles Board by Antonio Villaraigosa, our Mayor. Mr. Broidy voted to invest $30 million the Police and Fire Pension Fund in the CIM Group which was an investor in Markstone, his own company.

Now for you kiddies who have some fun, find out how many of the old buildings that were converted into lofts had proper asbestos removal, find the permits. Now ask yourself what happened to the head of Building and Safety. Oh, and the supergraphics in Hollywood that caused such a stink, they were put up by, go on guess, CIM Group.

I make no money from this blog, I have absolutely no economic interest in anything, ex cleaned me out and left me the debt. I do however have an interest in seeing things get back on track. We cannot fix the pensions with more of the same, it won't work. Ron Kaye has a website lacleansweep. As far as I know, I never the man. I disagree with some of his suggestions; however, I like the title. We need to start over and get back to basics.

If he really wishes to improve things, their group might consider involving the people who will have to do the work, the City employees. Rather than treating them as the enemy, he might consider working with them and holding those who were decision makers accountable. And to the unions, same thing, should be working with the community not just for our interests, for the City's interest. Hey, I am happy to annoy anyone even the devil himself.