JP Morgan: Public Employee Pension’s Set to Explode

But they wanted to keep the story to themselves:

JPMorgan recently circulated a “strictly confidential” report among leaders at the bank and with trusted hedge fund allies outside of the bank which details an impending public pension crisis. And we mean big time nastiness.

Massive cuts in services will have to happen, or massive tax increases will have to happen, or both, to keep many pensions and municipalities from going over a cliff. The politicians know that disaster is coming. JPMorgan and their hedge fund buddies know that it’s coming. The public, though it has a sense of impending doom, still doesn’t grasp the avalanche that is headed toward states and cities in the very near future.

Charlie Gasparino details in the attached article that JPMorgan did not want the information in the report to become public because it feared angering the politicians in the municipalities and states where default due to public pensions is a very real possibility. Many local politicians are lying when they tell their fire fighters and teachers that pensions are in good shape. According to what the report supposedly says these workers should probably start making alternative plans for retirement. But to say that is very messy politically.

JPMorgan didn’t want to lose its very profitable muni bond underwriting business in these same localities, which is determined to a large degree by these same lying local politicians, so this information was kept quiet.


To the actual article:

OK, it’s no secret that nation’s public pension funds are in big trouble, holding large “unfunded” liabilities owed to public workers once they retire. But most politicians (New Jersey Gov. Chris Christie is an exception) will tell you the problem is fairly containable, that there are simple fixes — such as raising taxes on the rich or pruning benefits. …

Not so, warns a “strictly confidential” report JP Morgan issued last year. It describes in straightforward, frightening detail how underfunded pensions are huge ticking timebombs for many of the nation’s big cities and states.  …

Nationwide, the actual size of unfunded public pension liabilities is four times larger than the $900-plus billion that officials are ’fessing up to. That’s right, the bank sees a $3.9 trillion hole; to plug that, states and cities will need large tax hikes, massive budget cuts or both. Plus, public-sector unions will have to accept smaller retirement packages, and later retirement ages, to keep the pension systems going.  …

In New York, for example, JP Morgan said state officials would have to immediately cut spending by 12.3 percent or raise taxes on everyone by 7.4 percent. And they’d need to make these tax hikes and budget cuts permanent for the next two decades to fully fund public-employee pensions.

New Jersey faces an even bigger hole. Even after Christie’s reforms, it would still have to cut spending 30.8 percent or raise taxes another 17.2 percent, keeping them in place for two decades, to solve the problem.
via NY Post.

No word on how Illinois fares.  But as we are the #1 unfunded pension state in the union it’s no doubt a bad, bad, bad situation.

Layoffs on Wall Street?

After adding thousands bankers in the past two years, financial firms again appear to be on the verge of cutting that many positions and then some. Consultants and Wall Street recruiters say banks could eliminate nearly 21,000 jobs from their securities divisions in New York alone. Worldwide cuts could be even larger. Recruiters say big banks are in the process of finalizing their downsizing plans, and that layoffs could start soon.

The latest round of job cuts could rival those that happened during the financial crisis. Back then, which was less than four years ago, Wall Street eliminated 28,000 positions. But that round of downsizing included the collapse of Bear Stearns and Lehman Brothers, and the biggest crisis in the financial markets since the Great Depression. By comparison, the stock market is up this year, and just last week banks reported better than expected earnings for the first quarter. What’s more, at the same time large firms are firing, many smaller investment banks have been staffing up. As a result, overall employment on Wall Street might not drop as much as it did after the financial crisis.

via Fortune Mag.

Two thoughts:

First, just so everyone knows, the crisis in not over; we’re not out of the woods yet.  It’s sad whenever anybody loses their job and there may be a lot more of this coming.  Bankers, especially investment bankers, are especially susceptible.  A story this week about how JP Morgan Chase lost $2 billion in their “synthetic credit portfolio” shows with what relative ease the wheels can fall off the bankers bus.  Everyone who works in that industry is on the edge everyday.

Second, this is a fine example of the private sector doing something the public sector cannot — getting rid of unnecessary people.  We know from the 2010 U.S. Census that Illinois while Illinois is growing its 3% rate over a decade is enemic compared to other states; we lost a U.S. House seat.  Yet Illinois government continues to grow and grow and grow.  We need to right-size Illinois government.  Some agencies are actually understaffed; leaving taxpayers waiting for basis services.  Others are bloated with staff getting paid to attend baseball games.