It will be a fight among the creditors, secured, unsecured. The best Calpers can hope for is to be first in line amongst unsecured creditors. The situation hasn't been tested because the cities that have gone bankrupt did not want another costly legal entanglement and deferred to Calpers. However, the creditors can sue each other apparently, and that means Wall Street vs. Calpers.
I would imagine that ultimately Calpers will lose. Cowardly, pork barrel politicians won't solve the mess, only bankruptcy can cut the Gordian knot of waste and special interests.
But both of these funding levels are assuming ~7.5% long-run returns.
CalPERS's actual return for FY11 was . . . 0.1%.
The missing 7.5% of interest income is . . . $18B or so that either has to be made up immediately, or a lot more down the road, since by the rule 72, 7.5% interest doubles the principal in only 10 years . . .
I don't know what's going to happen with California's pension issue, but it's a major, major problem coming down the pike.
And all the people with spiked pensions and other miscellaneous bullshit is going to create an immense public backlash, too.
The Howard Jarvis people called me into a paid focus group not too long ago, and my advice to them was nail the unions on this pension issue, since that's their achilles heel.
California judges have pensions, too. It would seem they have an automatic conflict of interest, which points to the Feds resolving the legal issues above the state level. State laws exist in force where they don't conflict with Federal laws. One would assume that the same legislators that give themselves the store are the ones who constructed the state laws about pensions.
Thus this part is a complete legal fantasy on Calpers' part:
Calpers expressly stated that it was "concerned about inappropriate preferential treatment that might be given to other creditors" in San Bernardino's bankruptcy. Calpers has long argued that pension contributions cannot be touched, even in a bankruptcy.
Two laws. One governs pensions and another governs bankruptcy. The pension law should be preserved.
Developing a Bell Curve, If we have about 30K Cali Union and Public workers getting over $100K, this is an annual obligation of about $3B per year. This is about 1/4th the Cali Annual Deficit, I recall.
Would really be interesting to track back to when Cali was making computers, electronics, Blackbirds, Apollo, and Space Shuttle.
The private sector shrivels, and the public sector grows. Democrats are brilliant!
part of the problem with you conservative posters here is that you've got Dems on the brain. You guys can't think at all about our real problems, you just point the finger at Democrats and blindly blame them without actually detailing the alleged "Democratic" screwup.
When in fact a lot of the root causes we face now are actually caused by conservatives and their dysfunctional ideology of greed, and fraud -- disempowering government and then wondering why their sanctified "free market" totally fucks itself up not soon after.
"Dems" didn't lower rates, first Greenspan did in the 2001-2004 period (to do what he could to get Bush reelected) and then since 2008 Bernanke has lowered rates because the alternative is simply a cross-default collapse of the economy of debt, an economy of debt CREATED when the Republicans were running the show:
The State of CA chased out much industry in tandem with the decline of defense spending.
Dems caused housing to go up with CRA, and the imposition of CRA funding on FHA and private loans.
NAFTA was debated, and Ross Perot, the only one with a business background debating was correct.
Californias liberal mindset did California in. If high taxes and large government were the way to go, then CA would be flush with money, the State and Cities would be solvent. However, even with the highest amount of taxes, lots of technology, CA is having severe issues.
NAFTA did not work, - we cant outsource our way to prosperity. Its taken some time for us to get in this situation, but many cannot even see the cause and the effect.
I wrote both. It is all a scam. First, the scam is with charter schools that cherry pick students and are backed by big money to bash teachers' unions and second are the cities who have been helped by Bernanke to reap a windfall from governments, city governments included.
Clinton alteration of CRA forced much more securitization.
Rubins, an treasuring for Clinton and then moved on to CITI, and oversaw an exceleration of CDO by CITI.
However, they needed Glass Stegal overturned, and the dems got this done by marching 30 Dems into the leading Republicans office when he did not want to undo Glass Stegal.
So the liberals actually did the subprime mess, but the media does not bring this up.
This is all a lie. Read Ritholz, read me. First, Glass-Steagall repeal and derivatives as gambling repeal were sponsored by the Gramms, Phil and Wendy, Republicans.
The vote in the senate was along party lines, until the Republicans talked the Dems into going along. The vote was 90 to 8 for Glass-Steagall repeal. Barbara Boxer voted AGAINST repealing Glass-Steagall and you can't get more liberal than that.
The CRA was only about 25 percent of subprime. The rest was bogus rated AAA private MBS. The CRA pulled back from origination when securitization took over. The Fed has a chart on it and it is found in my ebook, Ponzi Housing Scheme 21st Century. It is also found online.
It is true that Citi got a waiver from Glass-Steagall in 1997. But what you need to know is that the toxic loans came from the UK, where they were called self certified loans. They were imported from the Square Mile, which never had Glass-Steagall like laws.
So, it all came from the UK and Basil 2. The risk was mispriced, on purpose, because of a formula given to the central banks by an employee of JP Morgan. It was adopted and applied, circa 2003. Both parties were involved as Geithner allowed the bogus risk CDO's to be spread and Henry Paulson spread them like wildfire in 2004.
So that is the story. The public guaranteed pools tried to catch up later, but the real bubble was private.