"How important is eating?"
December 4, 2013 5:57 AM   Subscribe

Detroit ruling on bankruptcy lifts pension protection. (NYT) U.S. Bankruptcy Judge Steven Rhodes ruled Tuesday morning that yes, Detroit is eligible for Chapter 9. The shocker for retirees — Rhodes also ruled that city pension benefits won’t receive heightened protection in bankruptcy and may be cut. (Detroit Free Press) Firefighters, along with police officers, don't qualify for Social Security, while other city workers do. (Detroit News) Previously. Previouslier.

From the Detroit News article...


"Rhodes said any plan of adjustment concerning retirees would need to be “fair and equitable.” Bonnie Walls, an 87-year-old widow of a former Detroit treasury worker, doesn’t know what that means.

Walls, who lives in a mobile home in Leesburg, Fla., said she receives $688 a month from her deceased husband’s pension. Her only other income she said is the $1,432 a month she receives in Social Security benefits. She’s also helping to care for a schizophrenic son, she said.

When asked how important the $688 pension is to her and her son, she laughed for a moment and answered: “How important is eating?”"
posted by sio42 (286 comments total) 20 users marked this as a favorite
 
“It’s definitely going to affect me. These people, the karma is going to get them."

Heh. No it won't. "Getting them" is your job now. Don't rely on fiction.
posted by Ghost Mode at 6:08 AM on December 4, 2013 [15 favorites]


I'm not going to pretend to know what the best solution is for Detroit's current situation, but it seems that framing this purely in terms of pensioners going hungry is incomplete. The city is in bad shape and desperately needs funds. You could also ask how important ambulances are, or a functioning police force in a city with horrific levels of violent crime. I don't feel great about pensions being on the table for cuts, but this is not a simple situation by any means.
posted by bookish at 6:14 AM on December 4, 2013 [18 favorites]


Somewhat more horrific now, I suspect.
posted by Naberius at 6:15 AM on December 4, 2013


This is horrible and, unfortunately, the future. In the US, the aggregate unfunded pension obligations for municipal and state employees is stated as $1T dollars. Once you remove all of the accounting mumbo-jumbo it is actually $3T.*
I'm 32 and fortunately no longer work in the state government, but it's important for my generation and the one above mine to know that there is an extraordinarily low likelihood they will see that money.

*Apologies, I can't provide a citation for this; these numbers are drawn from a study I'm working on with my grad school professor.
posted by staccato signals of constant information at 6:16 AM on December 4, 2013 [9 favorites]


Even better news: the precedent might impact rulings elsewhere, as in California. (NYT)

"Getting them" is your job now. Don't rely on fiction.

"Getting by" is probably most of these people's full-time (or multiple part-tme) job right now. When the judges rule against you, the money is long since gone, and no one is running on a "restore the pensions" platform, a wistful dream about karma is all you've got left.
posted by kewb at 6:17 AM on December 4, 2013 [9 favorites]


The city is in bad shape and desperately needs funds. You could also ask how important ambulances are, or a functioning police force in a city with horrific levels of violent crime.

You could also ask why we let ourselves fall into such a false dichotomy of pitting one group against another in a fight for table scraps.
posted by RonButNotStupid at 6:19 AM on December 4, 2013 [53 favorites]


When the judges rule against you, the money is long since gone, and no one is running on a "restore the pensions" platform, a wistful dream about karma is all you've got left.

A lot of them probably also have guns, though they're more likely to use them on themselves than the people stealing from them.
posted by Ghost Mode at 6:21 AM on December 4, 2013


This is such a clusterfuck. There are multiple situations where government employees opt out of Social Security into a separate pension plan.

In the small picture, in the short view, it often makes financial sense, especially with the much higher benefits that public safety employees usually get. But irregularities or breaks in employment can make a mess of this too, not just this hypothetical bankruptcy.

If we lived in a civilized country, where everyone gets a pension and single payer health care, municipal pension bombs would be a non-issue.

There's a flipside to the Detroit Bankruptcy though, which may turn out to be good in the long run:

For decades, municipal employees unions in some cities have gotten strong enough to negotiate unsustainable pensions. They were emboldened to do so by the fact that Chapter 9 bankruptcy was presumed to not permit cutting pensions.

There was no threat of catastrophe for unions who over extended the taxpayer's ability to cover their pension costs. In some cases, the pension costs started to get out of hand and eat too much into city's operating budgets.

The unions, again emboldened by political climates, did not want to see staff cuts made in order to cover the pension costs, and successfully lobbied for another solution: The got the cities to borrow to pay pension benefits. And that in turn creates more unsustainable debt, which increases the risk of bankruptcy, but who cares, 'cause the pensions were still sacred, they thought.

Until now.

So what's the potential upside here? That if Detroit cuts pension payments, it will scare city employee unions across the country into a new mindset, one where they actually consider the long term consequences of the level of benefits they demand. If the benefits can't be covered by the municipal tax base, maybe now the unions won't ask for those benefits.

Maybe.

Honestly, we'd all be way better off if municipalities started offloading their employee health benefits completely and putting their employees on Obamacare. Traumatic at first, but in a few years, a massive amount of well organized union members would have Obamacare, and be set up to lobby to improve Obamacare's level of coverage.
posted by MeanwhileBackAtTheRanch at 6:25 AM on December 4, 2013 [8 favorites]


So what's the potential upside here? That if Detroit cuts pension payments, it will scare city employee unions across the country into a new mindset, one where they actually consider the long term consequences of the level of benefits they demand. If the benefits can't be covered by the municipal tax base, maybe now the unions won't ask for those benefits.

And without municipal jobs that offer comparatively better benefits than the private sector, corporations will be free from competition and able to reduce their paltry offerings even further. It's Win-Win.
posted by RonButNotStupid at 6:27 AM on December 4, 2013 [35 favorites]


I always love when a company of going bankrupt everyone lines up to pay the CEO and says shit like, "We made these promises. This was the contract he signed when he took the job." They do this for companies that a CEO runs into the ground in what looks like on purpose.

Happen to be rank and file or a public employee? "We don't have the money to honor our obligations." or, "There's investors to think of first. Get in line."
posted by cjorgensen at 6:29 AM on December 4, 2013 [35 favorites]


Firefighters, along with police officers, don’t qualify for Social Security while other city workers do.

So these people who put their lives on the line year after year for the city of Detroit are just supposed to sit there and take being screwed out of even the remote chance of not retiring into poverty?

Years ago, these men and women agreed to take jobs that wouldn't even leave them with the basic retirement safety net other working people enjoy in return for the promise of guaranteed pension benefits, and now, even that's not going to be available to them?

This is disgusting and if Detroit police and firefighters riot, you won't hear me complaining about it .
posted by saulgoodman at 6:29 AM on December 4, 2013 [16 favorites]


Detroit's already burning.
posted by cjorgensen at 6:31 AM on December 4, 2013 [1 favorite]


This is not a new phenomena. I was 17 when Mr. Petrovich - a kindly 80+ year old man who lived across the street - told me as I shoveled his walk that the Iron mine he used to work for was filing for bankruptcy and that he would almost certainly lose his pension.

I was amazed to learn at the time that when a company files for bankruptcy, the order in which people are paid out is basically :

1. Banks
2. Other banks
3. some other banks
...
600. Pensions

He died a couple of years later, and those last ones were rough. Although MN had a decent safety net at the time, he worked his whole life for that comfortable pension.

He was robbed surely as if I had beaten him up and taken his money, but banks own the jails - they don't go them.
posted by Pogo_Fuzzybutt at 6:32 AM on December 4, 2013 [95 favorites]


I think - but I'm not sure maybe with someone with more domain expertise will pop up - that the judges decision really is just saying "A Municipal Bankruptcy is just like a Corporate Bankruptcy with respect to pensions in the pecking order of creditors - and federal bankruptcy law supersedes the state constitution"

So I guess the really issue at hand is the state vs federal thing. Assuming I'm right (and I very well might not be) that would still mean the pension holders are very senior unsecured creditors, but are now junior to the secured creditors. I have no idea how much of the debt is secured vs unsecured.
posted by JPD at 6:34 AM on December 4, 2013


Blaming the unions or the workers in any way for "unsustainable" pensions is ludicrous.

TWO sides sign a contract. In this case (and the thousands like it) one side DIDN'T DO THEIR JOB - namely, fund the fucking pensions. The pensions always conveniently took a back seat to EVERYTHING else. And now the injured party has to pay the price. Just another modern American rabbit hole.

Expect other municipalities to move ahead with bankruptcy on this news.
posted by Benny Andajetz at 6:34 AM on December 4, 2013 [71 favorites]


"Don't qualify for social security" could just as easily be phrased "were permitted to opt out of social security".

Not quite sure why the powers that be did this, or why the option was put into law, but I sometimes wonder how many private citizen would do the same (opt out, I mean) if given the choice.
posted by IndigoJones at 6:36 AM on December 4, 2013 [1 favorite]


is this a thing that can end up before the Supreme Court? I'm not exactly sure how that works.
posted by sio42 at 6:36 AM on December 4, 2013


I'm not sure the degree of pension funding matters. If they were fully funded they might just become another asset for creditors to attach. Or it might have mattered how they were structured.
posted by JPD at 6:37 AM on December 4, 2013 [1 favorite]


On the one hand — yes, generations of the city's leaders should have been funding the pensions from the start. They should also have been doing a better job of avoiding the bankruptcy situation as a whole.

But it's not as if all the pensions would be paid out if the judge had ruled the other way. They don't have the money.
posted by atbash at 6:37 AM on December 4, 2013


is this a thing that can end up before the Supreme Court? I'm not exactly sure how that works.

as a non-lawyer it sounds exactly like the sort of thing the Supreme Court can rule on. Irony of Ironies though - its a states rights issue - but I doubt Scalia will see it that way.
posted by JPD at 6:39 AM on December 4, 2013 [1 favorite]


The bankruptcies are a consequence of prior political choices. The governments add debt and lower taxes to avoid political pain, and they let later administrations deal with the consequences.
posted by surplus at 6:39 AM on December 4, 2013 [1 favorite]


Blaming the unions or the workers in any way for "unsustainable" pensions is ludicrous.

TWO sides sign a contract.


As one of the sides, the unions (and their workers) should accept at least some portion of the blame. Certainly not the lion's share, but it's not "ludicrous" to point out that the unions willingly played along with the idea that their members would get less money now in return for money that would probably exist in the future.
posted by Etrigan at 6:39 AM on December 4, 2013 [3 favorites]


Every city and state worker in America needs to know about this. Even very rich governments are going to fail to meet pension obligations. It's mathematically impossible for some of these governments to pay all they owe. If they were private funds, the managers would be in jail by now.
posted by miyabo at 6:40 AM on December 4, 2013 [1 favorite]


Fair and equitable means "everybody gets to suffer the same".
posted by symbioid at 6:46 AM on December 4, 2013


Except, as Anatole France said:

"The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread."
posted by symbioid at 6:47 AM on December 4, 2013 [13 favorites]


Etrigan: "Blaming the unions or the workers in any way for "unsustainable" pensions is ludicrous.

TWO sides sign a contract.


As one of the sides, the unions (and their workers) should accept at least some portion of the blame. Certainly not the lion's share, but it's not "ludicrous" to point out that the unions willingly played along with the idea that their members would get less money now in return for money that would probably exist in the future.
"

They traded their labour for that money. They held up their end of the bargain. Only one side wants to get something for nothing and it's not the unions.
posted by Proofs and Refutations at 6:50 AM on December 4, 2013 [63 favorites]


JPD: I think - but I'm not sure maybe with someone with more domain expertise will pop up - that the judges decision really is just saying "A Municipal Bankruptcy is just like a Corporate Bankruptcy with respect to pensions in the pecking order of creditors - and federal bankruptcy law supersedes the state constitution"

So I guess the really issue at hand is the state vs federal thing. Assuming I'm right (and I very well might not be) that would still mean the pension holders are very senior unsecured creditors, but are now junior to the secured creditors. I have no idea how much of the debt is secured vs unsecured.


I think this is right. I was emailing a bit about this with a friend who is a bk judge and this was what I took away from the convo. Unfunded pension debt is treated like any other debt in a bk and can be restructured.
posted by Aizkolari at 6:56 AM on December 4, 2013 [1 favorite]


They traded their labour for that money. They held up their end of the bargain.

Not in contention, at least not by me. But the unions took the slight gamble that "that money" just might not exist. I'm not saying the unions are entirely or mostly to blame -- just that they're not entirely blameless either.
posted by Etrigan at 6:56 AM on December 4, 2013 [1 favorite]


the villains are the politicians and the people who voted for them
posted by JPD at 6:56 AM on December 4, 2013 [1 favorite]


Republican governor Rick Snyder's role in this is disgusting. He objected to money coming from anywhere outside Detroit, from anywhere at all in the richest country in the history of the world to avoid ripping up Detroit pensioners' contracts and stealing their money:

"It's not just about putting more money in a situation," Snyder said. "It's about better services to citizens again. It's about accountable government."

Vetoing the bankruptcy and attempting to honor promises guaranteed in his state's constitution to retirees? No way. Because accountability.
posted by airing nerdy laundry at 6:57 AM on December 4, 2013 [12 favorites]


I have heard that a difference exists in municipal pensions between Canada and the U.S., i.e. that employees do not contribute cash to their pensions in the U.S., while they do so up here. I am not blaming the employees, just pointing out that there are advantages to having an employee contribution (like, there's actually some money in the pension plan itself). Am I accurately informed?
posted by not_that_epiphanius at 6:57 AM on December 4, 2013 [1 favorite]


Unfunded pension debt is treated like any other debt in a bk and can be restructured.

I think - I think - that in a Ch. 11 its the most senior unsecured creditor, but in Ch. 9 there isn't a precedent so its equal with the other unsecured creditors.
posted by JPD at 6:58 AM on December 4, 2013


In the US, the aggregate unfunded pension obligations for municipal and state employees is stated as $1T dollars.

This.

99% of the time, the reason cities are crying about their pension obligations is because they haven't put any money into the pension fund for 30 years, relying instead on magical thinking about how "the market" would grow the value of the fund sufficiently to meet their obligations. I would be shocked if there is a single city out there that has been diligently putting money into its pension funds on an ongoing basis, and yet still finds itself unable to meet its contracted pension obligations.
posted by slkinsey at 6:59 AM on December 4, 2013 [24 favorites]


Yes the unions have some culpability--particularly since they fostered and supported political leaders who shared their agenda or were afraid to run against the unions. The fact is--there is plenty of responsibility and blame to go around. Everyone gets to lose in this situation. You can make also make the banks an corporations the "villains" but the real villain is the corruption and myopia that comes with power. I lived near Detroit and I am extremely fond of the city and its contribution to the country and the world. There are world class economists in the public, private and labor circles in Detroit. And I have to believe that every one of them knew, in their heart and mind, that the contracts negotiated and services provided over the last 30 +/- years were inevitably unsustainable.
posted by rmhsinc at 6:59 AM on December 4, 2013 [1 favorite]


The only thing preventing pension cuts so far has been the question of whether it was legal. A ruling that pensions may be cut means that pensions will be cut.
posted by ceribus peribus at 6:59 AM on December 4, 2013 [3 favorites]


Years ago, these men and women agreed to take jobs that wouldn't even leave them with the basic retirement safety net other working people enjoy in return for the promise of guaranteed pension benefits, and now, even that's not going to be available to them?

The real scandal is, pensions are MONEY THE PERSON HAS ALREADY EARNED. It's part of the agreement made by the worker with the employer. I do this work for you, you pay me some money now, and other money later. It's not some magical benefit that is just handed to them. It's money they have already earned.

We have a truly broken system, where pension funds aren't structured properly to begin with. If you can't guarantee the money that someone has earned will be there when it is time to pay it to them, then you need to figure out a better way to make sure that money IS there.
posted by hippybear at 7:00 AM on December 4, 2013 [95 favorites]


I have heard that a difference exists in municipal pensions between Canada and the U.S., i.e. that employees do not contribute cash to their pensions in the U.S., while they do so up here.

Well that doesn't really matter. Cash is fungible. Whether I say "As part of your comp I'm going to guarantee you X in a pension" or "I'm going to take out Y from your comp and guarantee you X in a pension" - the difference is that the latter will demand a higher salary. That pension promise was essentially non cash compensation for the Detroit folks.
posted by JPD at 7:00 AM on December 4, 2013 [5 favorites]


Ahhh, politics ... Is there anything that power and money can't fuck-up?
posted by ZenMasterThis at 7:01 AM on December 4, 2013


99% of the time, the reason cities are crying about their pension obligations is because they haven't put any money into the pension fund for 30 years, relying instead on magical thinking about how "the market" would grow the value of the fund sufficiently to meet their obligations. I would be shocked if there is a single city out there that has been diligently putting money into its pension funds on an ongoing basis, and yet still finds itself unable to meet its contracted pension obligations.

The part about contributions is true, however the funding crisis is being dramatically overstated by how interest rates are used to discount future obligations.
posted by JPD at 7:01 AM on December 4, 2013 [1 favorite]


>“It’s definitely going to affect me. These people, the karma is going to get them."

Heh. No it won't. "Getting them" is your job now. Don't rely on fiction.


Well, a couple of points. "Karma," as originally conceived, is pretty much "if you do shitty things, you make the world shittier; if you do good things, you make the world better. This may or may not directly affect you, but you have to live in the world, so think about how shitty you want that world to be." The second point is that pensions are not some glorious benefit bestowed upon workers. Pensions are deferred pay. You pay me less now in return for extending the pay past my retirement. So, one "karmic outcome" of cities and states reneging on their pension responsibilities is people are going to stop accepting them in contracts. Which means more money for salaries or fewer workers and definitely longer, bitterer contract disputes which already suck up a ridiculous amount of civic time. What goes around does, indeed, come around, although sometimes it can be deferred for an administration or two.
posted by GenjiandProust at 7:03 AM on December 4, 2013 [13 favorites]


Make no mistake, this isn't just a bankruptcy proceeding. The political attack on unions and pensions is being pushed here.
posted by Benny Andajetz at 7:04 AM on December 4, 2013 [24 favorites]


Once again: screw poor people.
posted by Old'n'Busted at 7:05 AM on December 4, 2013 [5 favorites]


I think - I think - that in a Ch. 11 its the most senior unsecured creditor, but in Ch. 9 there isn't a precedent so its equal with the other secured creditors.


Since it's unfunded isn't it by definition unsecured? So in a Ch. 9 it would be equal with the unsecured creditors?
posted by Aizkolari at 7:06 AM on December 4, 2013


Meanwhile somewhere in the depths of Wall Street an analyst is pricing up some kind of CDS like instrument to sell to boomers concerned their pensions will be cut.
posted by Damienmce at 7:07 AM on December 4, 2013 [4 favorites]


Seems as appropriate to the discussion I'm seeing here as it was with the original announcement:

Bankruptcy and Moral Leprosy (emphasis in original)
More broadly, the Detroit bankruptcy story will likely appeal to those who view American politics, economics and culture as a vast morality play in which the looting of the productive and the virtuous by those people and their union-thug allies eventually ruined the looters themselves, as their avarice outstripped their ability to redistribute the wealth they could not themselves generate. There is no power on earth that could make me listen again to Rick Santelli, but I suspect that somewhere he is gloating or glowering, depending on how deeply he is invested in the municipal bond market.

This is all somewhat ironic, because the very existence of bankruptcy laws is a testament not only to a belief in second chances, but in the ability of people and institutions to bring great and valuable things out of failure. Access to bankruptcy is a very American phenomenon. The list of great Americans who have survived bankruptcy (Henry Ford, Walt Disney, H.J. Heinz, Milton Hershey) or—prior to the modern era of bankruptcy laws—personal insolvency (Thomas Jefferson, Abraham Lincoln, U.S. Grant) is long and distinguished enough to make the equation of bankruptcy and moral leprosy, well, un-American.

Detroit will long suffer in higher borrowing rates, loss of autonomy, and reduced city services, for the situation that brought it to bankruptcy. And among the greatest sufferers will be the municipal employees and retirees, now unsecured creditors against the city, and low-income residents, who are supposedly to blame for their excessive demands for a middle-class standard of living. So let’s dispense with the smug and moralistic condemnations, and the use of misery to justify miserable austerity policies.
posted by zombieflanders at 7:07 AM on December 4, 2013 [27 favorites]


I don't feel great about pensions being on the table for cuts, but this is not a simple situation by any means.

It's simple enough; we collectively just don't care about what's right.

In a world that wasn't dominated by evil, the state of Michigan would simply be on the hook for the mistakes that its creature Detroit made. If it didn't want to be on the hook for how its scheme for local government played out, it ought to have intervened to fix the situation long before it became this desperate.

Likewise, fixing the situation of local government in Detroit is also pretty simple: abolish the local governments in the metroplex and replace them with a single metropolitan government. But that would have meant that black people would have some votes over what happens in honkyland, so obviously that was never going to happen.
posted by ROU_Xenophobe at 7:07 AM on December 4, 2013 [18 favorites]


TWO sides sign a contract. In this case (and the thousands like it) one side DIDN'T DO THEIR JOB - namely, fund the fucking pensions. The pensions always conveniently took a back seat to EVERYTHING else. And now the injured party has to pay the price. Just another modern American rabbit hole.

like a mortgage?
posted by fistynuts at 7:08 AM on December 4, 2013 [1 favorite]


This is why I always wanted to be an actuary. By the time anyone notices you messed up, you've been gone 20 years.
posted by Damienmce at 7:09 AM on December 4, 2013 [3 favorites]


As a teacher in Texas, I'm paying super-super close attention to this.

Much like some of the affected workers, I do not qualify for Social Security. The limited tradeoff for that is supposed to be my retirement pension. If the end result of all of this is that government entities can bail out on encumberments such as these, you're going to see public sector flight in more places than just Detroit.

As noted above, pensions are money we have earned. They've taken an amount roughly equal to social security taxes out of each of my paychecks. To be told that a) We can lose this money without recourse and b) we still won't get social security means there's no way I'd be willing to put in my 30. There's no way any sane person would.
posted by parliboy at 7:11 AM on December 4, 2013 [27 favorites]


>>99% of the time, the reason cities are crying about their pension obligations is because they haven't put any money into the pension fund for 30 years, relying instead on magical thinking about how "the market" would grow the value of the fund sufficiently to meet their obligations. I would be shocked if there is a single city out there that has been diligently putting money into its pension funds on an ongoing basis, and yet still finds itself unable to meet its contracted pension obligations.

The part about contributions is true, however the funding crisis is being dramatically overstated by how interest rates are used to discount future obligations.


What I really don't get is why this seems to be so different for governments. I've been around any number of "union negotiation" kinds of things in my various day jobs, and one fairly common disagreement is when the union says that the company hasn't been putting enough money into the pension fund as they are obligated to do under the collective bargaining agreement. So, clearly part of these CBAs obliges the company to actually put money into the pension fund and/or maintain it at a certain value. Cities, on the other hand, never seem to have to do this.
posted by slkinsey at 7:11 AM on December 4, 2013 [1 favorite]


Since it's unfunded isn't it by definition unsecured? So in a Ch. 9 it would be equal with the unsecured creditors?
'eh - mean unsecured. Sorry Typo.

I don't think a fully funded plan is secured though either if its not structured properly.
posted by JPD at 7:11 AM on December 4, 2013


The era of pensions you could actually live on seems like disneyland to me. I am looking forward to working for 40 more years and trying to save 20% after taxes because I plan on there not being social security as we know it today or anything like a pension. Depressing.
posted by fraxil at 7:12 AM on December 4, 2013 [3 favorites]


If only there were some way for governments to raise money by demanding that people, particularly wealthy people, help pay for the obligations of the society whose structure supports their wealth. Some kind of "tax."
posted by edheil at 7:13 AM on December 4, 2013 [57 favorites]


.

Shit is fucked up and bullshit.
posted by Artw at 7:14 AM on December 4, 2013 [13 favorites]


I would be shocked if there is a single city out there that has been diligently putting money into its pension funds on an ongoing basis, and yet still finds itself unable to meet its contracted pension obligations.

Detroit did. Not enough, obviously, but it did. Part of what's going on here is not simply Detroit's lack of contributions, though that's obviously a huge factor. One of the other things, and a significant one, is disastrous mismanagement of the pension fund by the union. In short, the pension has already paid out almost $1 billion in cash bonuses to beneficiaries--both retirees and current workers--between 1985 and today. That's over and above the defined benefits. The practice was called the "13th check," and it amounted to workers and retirees getting an entire month's bonus salary at the end of the year if the pension fund had beaten its target. Instead of, you know, keeping the money on hand for the inevitable years when it wouldn't.

So workers and retirees already have $1 billion they weren't supposed to have. With any kind of return, that could be almost $1.5 billion extra in the fund today. That's about half of the unfunded liability.

In short: retirees are probably getting screwed here, but it's not only due to Detroit's lack of adequate contributions. Beneficiaries essentially raided their own fund for current income. They've already gotten a lot of the benefits they were supposed to get.

That doesn't necessarily help them going forward, but it does change the perspective a bit. The Detroit paper has great coverage of the issue.
posted by valkyryn at 7:14 AM on December 4, 2013 [27 favorites]


What I really don't get is why this seems to be so different for governments. I've been around any number of "union negotiation" kinds of things in my various day jobs, and one fairly common disagreement is when the union says that the company hasn't been putting enough money into the pension fund as they are obligated to do under the collective bargaining agreement. So, clearly part of these CBAs obliges the company to actually put money into the pension fund and/or maintain it at a certain value. Cities, on the other hand, never seem to have to do this.


Most private sector union plans are regulated under ERISA and so have funding requirements.

I suspect the Muni employee union leaders were always betting that the pension obligations were money good given their debtor could raise taxes to cover the obligations so there was no impetus to require funding. Not to mention its much easier for the politicians to agree to higher pensions when they themselves don't actually have to figure out how to pay for them.
posted by JPD at 7:14 AM on December 4, 2013 [1 favorite]


I don't understand why a person (or a union representing people, or whatever) would agree to a deal where they pay what would be their social security tax into a private pension instead. I also don't understand why a government employer would ask them to agree to it, or even why it would be allowed in the first place.

I feel that I should clearly state that I'm not blaming the victims here; I'm very much on their side. I just honestly don't understand why a situation like this would come about in the first place.
posted by Flunkie at 7:18 AM on December 4, 2013


If only there were some way for governments to raise money by demanding that people, particularly wealthy people, help pay for the obligations of the society whose structure supports their wealth. Some kind of "tax."

Well this was always the bet - the problem is Detroit's population has gone from 2 million to 700k with that 1.3 that's moved away disproportionately higher income folks.

Detroit is exactly the sort of municipality that should be going bankrupt and restructuring its obligations. The only issue here is should the pensioneers be forced to carry some of the burden of that restructuring.
posted by JPD at 7:18 AM on December 4, 2013 [3 favorites]


If only there were some way for governments to raise money by demanding that people, particularly wealthy people, help pay for the obligations of the society whose structure supports their wealth. Some kind of "tax."

Because there are so, so many rich people in Detroit. Millions of 'em.
posted by valkyryn at 7:18 AM on December 4, 2013 [8 favorites]


Blaming the unions or the workers in any way for "unsustainable" pensions is ludicrous.

The politicians are supposed to represent the city's people at a contract negotiation, and if they sign something unsustainable, it's their fault, true.

But the power dynamic can get incredibly lopsided in some cities. Cities like Detroit or Oakland or Stockton can have huge non-profit sectors, or large government workforces, but few large businesses. That leads, especially in smaller cities, to all-powerful political machines, and machines are beholden to their power bases.

So for instance, Oakland: no republican has been elected here since the 90s. No green either. No independents. It's 100% democrats, and there's been a union dominated local democratic party for a long time. And with low business tax revenues, lower property values, you get a city with less money than every city around it, and yet municipal salaries and benefits are higher than every other nearby city's.

In a situation where the unions have more power than the politicians, don't they at some point have to take responsibility for that power?
posted by MeanwhileBackAtTheRanch at 7:22 AM on December 4, 2013 [1 favorite]


valkyryn: Because there are so, so many rich people in Detroit. Millions of 'em.

It's like like the Bible says, "love thy neighbor, except if he happens live on the other side of a municipal boundary in which case you are completely absolved of any responsibility because screw him for living in such a crap hole of a city"
posted by RonButNotStupid at 7:25 AM on December 4, 2013 [11 favorites]


valkyryn:

Interesting and valid point. Who are the trustees, and how are they appointed? I can't seem to find that info. Surely they are a third party in this?
posted by Benny Andajetz at 7:26 AM on December 4, 2013


Fundamentally the American governmental structure, the structure of our cities too, is the deep problem here.

Remember a few years ago when everyone was talking about how horrible corporate personhood is?

It's time to talk about how horrible municipal corporate personhood is.

We have a system were city governments act like corporations in all the worst possible ways, because they literally are corporations.

Local governments compete with each other, they fight to avoid merging into more efficient models, they have attorneys that are obligated to fight the public.
posted by MeanwhileBackAtTheRanch at 7:28 AM on December 4, 2013 [1 favorite]


All this talk about the "unsustainable" pensions seems to ignore how Detroit got hollowed out. How is Detroit supposed to fund pensions and operations when the rich white people took the city's entire tax base and moved it to Bloomfield Hills and Farmington and Grosse Point?

ROU_Xenophobe has it right. This situation could easily have been avoided if the state had forced Metro Detroit to stand or fall together. Instead, Michigan allowed a policy of de facto municipal segregation.
posted by [expletive deleted] at 7:30 AM on December 4, 2013 [12 favorites]


Who are the trustees, and how are they appointed?

Well until 2012 at least, the trustees were elected by union employees and retirees. See? So what's partly going on here is the union complaining that they don't have enough money despite having already spent almost $1 billion of money they did already have.

Granted, even with that extra $1 billion--again, likely closer to $1.5 with reinvestment--they'd still be at least that much short, but the optics of the thing are just miserable.
posted by valkyryn at 7:31 AM on December 4, 2013


Oh America, it's like your national goal is to make everyone poor!
posted by blue_beetle at 7:32 AM on December 4, 2013 [3 favorites]


Because there are so, so many rich people in Detroit. Millions of 'em.

You are smart and knowledgeable enough to be fully aware of how dishonest this argument is. Shame on you.
posted by [expletive deleted] at 7:32 AM on December 4, 2013 [3 favorites]


TWO sides sign a contract. In this case (and the thousands like it) one side DIDN'T DO THEIR JOB - namely, fund the fucking pensions.

Getting out of contracts is largely what bankruptcy is for. When the debtor files, that means he DIDN'T DO HIS JOB of paying his creditors, like evil banks.
posted by Tanizaki at 7:33 AM on December 4, 2013 [1 favorite]


Oh America, it's like your national goal is to make everyone poor!

Rich people are evil and the poor are noble, so this is for everyone's moral improvement.
posted by Tanizaki at 7:33 AM on December 4, 2013 [1 favorite]


You are smart and knowledgeable enough to be fully aware of how dishonest this argument is. Shame on you.

Oh, get stuffed. Detroit lacks the power to impose any taxes it hasn't already imposed. There's just no more money to be had there.

And neither Michigan as a state nor the federal government is under any obligation to step in here.
posted by valkyryn at 7:35 AM on December 4, 2013 [3 favorites]


All this talk about the "unsustainable" pensions seems to ignore how Detroit got hollowed out. How is Detroit supposed to fund pensions and operations when the rich white people took the city's entire tax base and moved it to Bloomfield Hills and Farmington and Grosse Point?

EXACTLY.

Our local governments compete. They compete to hoard resources behind their municipal borders, and so Chicago has Winnetka, Detroit has Gross Pointe, Oakland has Piedmont, all of these are parasite cities where richer whiter people go to have their own superior school district and police force.

We allow necessities, like cops, firemen, teachers, street maintenance, to be unequally distributed. And the vehicle that lets that happen is municipal corporate personhood.

We sacrifice the greater good for hyperlocal home rule.
posted by MeanwhileBackAtTheRanch at 7:37 AM on December 4, 2013 [6 favorites]


And neither Michigan as a state nor the federal government is under any obligation to step in here.

But maybe there is some moral culpability in using tax dollars to build a massive network of freeways that cut Detroit to ribbons so the rich could live in tiny townships where property taxes went to the local swimming pool and negro patrol?
posted by [expletive deleted] at 7:38 AM on December 4, 2013 [15 favorites]


I think - but I'm not sure maybe with someone with more domain expertise will pop up - that the judges decision really is just saying "A Municipal Bankruptcy is just like a Corporate Bankruptcy with respect to pensions in the pecking order of creditors - and federal bankruptcy law supersedes the state constitution"

Basically, yes. [I'm not a domain expert either though]

I'm not sure the degree of pension funding matters. If they were fully funded they might just become another asset for creditors to attach. Or it might have mattered how they were structured.

Not usually. The trustees manage the funded part of the pension for the beneficiaries, the funder doesn't control it and a bankruptcy court wouldn't touch it. Incidentally, the US is very unusual in the amount of pension underfunding that is permitted, in many countries defined benefit pensions must maintain high coverage rations. In some countries that ratio is 100% and whenever they fall under it due to changes in return assumptions they have to submit a plan to the regulator for repairing the deficit.
posted by atrazine at 7:38 AM on December 4, 2013 [3 favorites]


And addressing the previous "just raise taxes" arguments, no, on the municipal level, again because of municipal corporate personhood, it is very very possible to end up in a situation where there are no more taxes to raise.

Don't even get me started on how much worse it is in California, where you need a 2/3rds majority of the electorate to pass a simple hike in the local real estate taxes.
posted by MeanwhileBackAtTheRanch at 7:39 AM on December 4, 2013


The real scandal is, pensions are MONEY THE PERSON HAS ALREADY EARNED. It's part of the agreement made by the worker with the employer. I do this work for you, you pay me some money now, and other money later. It's not some magical benefit that is just handed to them. It's money they have already earned.

It's appalling how misleading some of the reporting on this issue is. You'd think this was some gift bestowed on a bunch of freeloaders, and not part of a negotiated compensation package.
posted by Mavri at 7:40 AM on December 4, 2013 [1 favorite]


Well this was always the bet - the problem is Detroit's population has gone from 2 million to 700k with that 1.3 that's moved away disproportionately higher income folks.

That 1.3 million largely moved away to places where they can still see the Renaissance Center from the top floors of the office buildings they drive to over roads paid for by Detroit tax dollars.
posted by Etrigan at 7:40 AM on December 4, 2013 [15 favorites]


You can make also make the banks an corporations the "villains" but the real villain is the corruption and myopia that comes with power.

So the real villain is something abstract that can't be pinpointed, not the actual living breathing people who caused and profited from this.
posted by MisantropicPainforest at 7:43 AM on December 4, 2013 [16 favorites]


I don't understand why a person (or a union representing people, or whatever) would agree to a deal where they pay what would be their social security tax into a private pension instead. I also don't understand why a government employer would ask them to agree to it, or even why it would be allowed in the first place.

Usually it's because the retirement/pension fund was established before SS became a thing. So rather than require workers to contribute to two retirement funds, they were allowed to supplant the SS tax with the pension plan.
posted by Pogo_Fuzzybutt at 7:46 AM on December 4, 2013 [1 favorite]


I think - I think - that in a Ch. 11 its the most senior unsecured creditor, but in Ch. 9 there isn't a precedent so its equal with the other unsecured creditors.

One thing that had to be decided here is whether General Obligation bondholders were secured creditors. Historically they have been, Detroit has argued that they aren't.
posted by atrazine at 7:50 AM on December 4, 2013


So the real villain is something abstract that can't be pinpointed, not the actual living breathing people who caused and profited from this.

Funny how that always works.
posted by saulgoodman at 7:51 AM on December 4, 2013 [2 favorites]


It's not some magical benefit that is just handed to them. It's money they have already earned.

No it isn't. What they've earned a promise of a return on an uncertain investment. That's effectively earning a promise that nobody knows for certain can be kept.

Another way to look at it is that they already earned the principal, and then they appoint a board to oversee how to invest it. If they screw up and invest badly, the city still has to pay the defined benefit. It's kind of crazy.
posted by MeanwhileBackAtTheRanch at 7:52 AM on December 4, 2013 [1 favorite]


In a world that wasn't dominated by evil, the state of Michigan would simply be on the hook for the mistakes that its creature Detroit made. If it didn't want to be on the hook for how its scheme for local government played out, it ought to have intervened to fix the situation long before it became this desperate.

This is exactly what should happen. Otherwise, why not just incorporate the Campus Martius as its own municipality, transfer all the pension obligations to that municipality, and then go bankrupt every 30 years or so?
posted by one more dead town's last parade at 7:58 AM on December 4, 2013


Wait, is it actually being argued that people should not have been able to move away from a grasping, sucking hellhole just because they happened to be rich and white? Or that the state is to blame for putting up highways so they can drive in and out? Was Detroit supposed to be a Roach Motel for the melanin-challenged?
posted by corb at 7:59 AM on December 4, 2013 [1 favorite]


Wait, is it actually being argued that people should not have been able to move away from a grasping, sucking hellhole just because they happened to be rich and white? Or that the state is to blame for putting up highways so they can drive in and out? Was Detroit supposed to be a Roach Motel for the melanin-challenged?

What is being argued is that people are benefiting from their proximity to Detroit out of proportion to their contributions to Detroit.
posted by Etrigan at 8:02 AM on December 4, 2013 [14 favorites]


No, no one is arguing that.
posted by MisantropicPainforest at 8:02 AM on December 4, 2013 [1 favorite]



I'm not going to pretend to know what the best solution is for Detroit's current situation, but it seems that framing this purely in terms of pensioners going hungry is incomplete


The important thing to know from this story is that pensioners are not getting priority over corporate bondholders.

If there is simply not enough money, then yes, the pensions will need to be cut.

But only if pensioners get 100% of what's there and corporate bondholders get 0%.

Putting bondholders ahead is a crime.
posted by ocschwar at 8:03 AM on December 4, 2013 [3 favorites]


The real scandal is, pensions are MONEY THE PERSON HAS ALREADY EARNED. It's part of the agreement made by the worker with the employer. I do this work for you, you pay me some money now, and other money later.

Whenever someone offers to pay you money now vs. money later, and you take the "later" option, there is risk involved.

If you rake my leaves, in exchange for $25 now and $100 at the end of the month when I have my paycheck, you're taking on a risk — between now and the end of the month I could die, or get fired, or develop a serious Bolivian Marching Powder habit, or any number of other things that might imperil my ability to pay you. And in that case, you'd have to line up with all the other people that I owe money to and get paid out as part of bankruptcy proceedings, or we'd have to find some way to restructure the debt, which is a nice way of saying that you're not going to get what you were promised.

The fundamental disconnect happening in Detroit is that employees (and possibly the unions, although one would hope they are more savvy, or should have been) viewed a promise from a municipal government as zero-risk, when in fact there was significant risk.

It's as though they viewed a local government obligation like a Federal government obligation. Federal government obligations are inherently safe, because the Federal government can always print more money in order to repay creditors. (In other words, the dollars you get paid back with may not have any real value, but you'll always get your dollars. I.e. there's inflation risk but no real default risk.) But state and municipal governments aren't sovereigns and don't print their own currency, and thus have the actual risk of default, or at least bankruptcy.

By allowing municipal employees to opt out of Social Security — backed by the Federal government, with its ability to print money, the biggest economy in the history of the world, etc. etc. — in favor of a city-run pension, they allowed those employees to take on a significant amount of risk. Perhaps they didn't know that when they did it, or maybe it looked like a good deal at the time: $X promised by the Federal government vs. $X+N promised by Detroit, for sufficiently high values of N, might have seemed pretty good back when Detroit was booming. But it was never without risk. The problem isn't that the risk existed per se, but that individuals were allowed to take on (perhaps even encouraged) that risk with their retirement assets. Right there, as far as I'm concerned, is the real crime.

My guess is that there are other cities in similar situations to Detroit's and this isn't the last time we'll see this drama played out. In basically any situation where retirees have exchanged Federal benefits for ones backed up by a lesser party without the FF&C of the US Government, there now exists the possibility that their benefits will disappear.

Looking forward, we should prohibit anyone across the board from declining Social Security in favor of any retirement program which isn't backed by the Federal government (schemes like Railroad Retirement are fine). Since individuals can't easily diversify their pensions to mitigate risk, it's inappropriate to let them take it on.
posted by Kadin2048 at 8:04 AM on December 4, 2013 [14 favorites]


Wait, is it actually being argued that people should not have been able to move away from a grasping, sucking hellhole just because they happened to be rich and white? Or that the state is to blame for putting up highways so they can drive in and out? Was Detroit supposed to be a Roach Motel for the melanin-challenged?

It was (rich) white flight in the 60s and 70s that turned it into "a grasping, sucking hellhole" in the first place.
posted by zombieflanders at 8:05 AM on December 4, 2013 [2 favorites]


So the lesson here is actually that Detroit pensioners were smart to take the 13th check. Because if they didn't the city would have just underfunded the pension anyway and they would be right where they are but without that extra cash.
posted by srboisvert at 8:06 AM on December 4, 2013 [10 favorites]


What is being argued is that people are benefiting from their proximity to Detroit out of proportion to their contributions to Detroit.

There isn't a city in the country that doesn't think this true in its case. Most of them are right. Most of them aren't filing for bankruptcy.
posted by valkyryn at 8:06 AM on December 4, 2013 [1 favorite]


fixing the situation of local government in Detroit is also pretty simple: abolish the local governments in the metroplex and replace them with a single metropolitan government

Just don't elect Rob Ford.
posted by one more dead town's last parade at 8:07 AM on December 4, 2013 [4 favorites]


viewed a promise from a municipal government as zero-risk

Did they?
posted by MisantropicPainforest at 8:07 AM on December 4, 2013


if they didn't the city would have just underfunded the pension anyway and they would be right where they are but without that extra cash.

Nope. They'd stand to take far less of a haircut than they're looking at right now. That extra $1.5 billion would make up something like half of the current unfunded liability.
posted by valkyryn at 8:07 AM on December 4, 2013 [1 favorite]


Wait, is it actually being argued that people should not have been able to move away from a grasping, sucking hellhole just because they happened to be rich and white? Or that the state is to blame for putting up highways so they can drive in and out? Was Detroit supposed to be a Roach Motel for the melanin-challenged?

Nobody's talking about physically keeping the rich white guys inside the city. The problem that needs solving is that the white-flight enclaves outside Detroit continue to place demands on the city's infrastructure, police force, etc., especially the parts that still commute into the city to work, while contributing reduced amounts or nothing to pay for that service.
posted by Holy Zarquon's Singing Fish at 8:08 AM on December 4, 2013 [7 favorites]


Also:

Or that the state is to blame for putting up highways so they can drive in and out?

Considering that the highways tended to be built by ramrodding them through black neighborhoods, kinda, yeah
posted by zombieflanders at 8:09 AM on December 4, 2013 [5 favorites]


Also, no one should be commenting on Detroit without having read Thomas J. Sugrue's The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit:

"Once America's "arsenal of democracy," Detroit over the last fifty years has become the symbol of the American urban crisis. In this reappraisal of racial and economic inequality in modern America, Thomas Sugrue explains how Detroit and many other once prosperous industrial cities have become the sites of persistent racialized poverty. He challenges the conventional wisdom that urban decline is the product of the social programs and racial fissures of the 1960s. Probing beneath the veneer of 1950s prosperity and social consensus, Sugrue traces the rise of a new ghetto, solidified by changes in the urban economy and labor market and by racial and class segregation.

In this provocative revision of postwar American history, Sugrue finds cities already fiercely divided by race and devastated by the exodus of industries. He focuses on urban neighborhoods, where white working-class homeowners mobilized to prevent integration as blacks tried to move out of the crumbling and overcrowded inner city. Weaving together the history of workplaces, unions, civil rights groups, political organizations, and real estate agencies, Sugrue finds the roots of today's urban poverty in a hidden history of racial violence, discrimination, and deindustrialization that reshaped the American urban landscape after World War II."
posted by MisantropicPainforest at 8:09 AM on December 4, 2013 [2 favorites]


LEAVE ROBERT MOSES ALONE!!!!!
posted by tonycpsu at 8:09 AM on December 4, 2013 [3 favorites]


There isn't a city in the country that doesn't think this true in its case. Most of them are right. Most of them aren't filing for bankruptcy.

In fairness, most of them weren't also the center of a booming nationwide manufacturing concern that proceeded to catch fire and crash as if it thought extinction-class meteors were role models.
posted by Holy Zarquon's Singing Fish at 8:09 AM on December 4, 2013 [2 favorites]


Or that the state is to blame for putting up highways so they can drive in and out?

Yes, the state is to blame. The devaluation of Detroit's housing stock was driven in no small part by the state plowing freeways to drive white people's cars through black people's living rooms. Part of the reason Detroit is a hellhole is that unlike other cities, their freeway revolt was suppressed.
posted by ocschwar at 8:10 AM on December 4, 2013 [12 favorites]


She’s also helping to care for a schizophrenic son, she said.

Well, that's another discussion ENTIRELY.
posted by Melismata at 8:10 AM on December 4, 2013


Some time ago, perhaps as far back as 20 years ago they invented this thing called a 401k, otherwise known as a defined contribution plan. Unions have, since then, thwarted nearly every effort to transfer from a traditional pension (defined benefit) plan to the various flavors of 401K type plans. Those that did are no longer threatened by bankruptcy, because the"fund" is already funded. The Federal Government mandated that the USPS fully fund their pensions because the government does not want to be stuck paying hundreds of thousands of retired postal workers pensions when the USPS finally goes belly up.
posted by Gungho at 8:10 AM on December 4, 2013


The problem is the white flight enclaves outside Detroit don't really depend that much on the central city any more. Live in Birmingham, work in Southfield, shop in Troy, etc. Detroit does house much of the region's infrastructure but good luck making that or any kind of historical argument around here.
posted by wikipedia brown boy detective at 8:11 AM on December 4, 2013 [1 favorite]


In fairness, most of them weren't also the center of a booming nationwide manufacturing concern that proceeded to catch fire and crash as if it thought extinction-class meteors were role models.
posted by Holy Zarquon's Singing Fish at 11:09 AM on December 4 [1 favorite +] [!]


You mean those companies that moved most of their production to non-union states and Mexico?
posted by Gungho at 8:12 AM on December 4, 2013


Michael Lewis published a great article in Vanity Fair about pensions and bankruptcy in California: California and Bust. Around 2/3 of the way through he discusses San Jose, a city larger than Detroit where "pension and health-care costs of retired workers now are more than half the budget."

The San Jose mayor describes a process where public safety unions secured higher and higher pensions during good years via political pressure and binding arbitration. The pensions are ongoing liabilities that remain contractually locked in regardless of the city's income. Since the housing crash, the city has had to cut workers and salaries, close libraries and community centers, and -- yes -- terminate police and firefighters. "I ask him what the chances are that, in this pinch, he could raise taxes. He holds up a thumb and index finger: zero."

I have no idea what the real situation is in San Jose, but assuming it's as the mayor describes, yes, unions have some responsibility in this situation. Don't you think the unions claim as much credit as the city when workers are promised higher pensions? Their job -- and these are professionals whose salaries are paid by workers -- was to lock the city into the maximum benefits their bargaining power could command, and they did it well. But with the leverage of binding arbitration and the ability to oust politicians who didn't cooperate, their bargaining power commanded a level of benefits that couldn't be sustained without crippling the city in weak economic times.

Setting aside everyone else in San Jose, this is poor representation of the police and firefighters who make up the unions. The members deserved to be told that the pension promises in their contracts were impossible, but I doubt that's how the unions presented it when they secured the contracts. And who wants to do police work or fight fires in a city that can't afford to fund enough firefighters and police officers, let alone schools and libraries and community centers?

Again, I don't know what the deal really is in San Jose or Detroit, and I support the need for unions and for pensions. But it is certainly possible for a union to share the blame in screwing over its members (and everyone else in the city) by negotiating unsustainable and unbreakable promises from politicians who have little to lose by giving in.
posted by jhc at 8:13 AM on December 4, 2013 [7 favorites]


I don't know if you remember, but there was this thing called a recession that basically wiped out many many private 401k plans and destroyed many people's retirements. Also, the fed mandated that USPS fully fund their pensions for employees who didn't even exist yet because the republicans hate government and want it to die.
posted by MisantropicPainforest at 8:13 AM on December 4, 2013 [18 favorites]


Detroit does house much of the region's infrastructure but good luck making that or any kind of historical argument around here.

Detroit houses a lot of infrastructure that makes living in Detroit downright unhealthy.

If MI doesn;t need anything from Detroit, then let Detroit blockade the freeways. Why should Detroit residents suck the fumes and put up with the noise if they get no benefit from it ?
posted by ocschwar at 8:13 AM on December 4, 2013


Plenty of people have been screwed out of their 401k contributions over the years, too, so I doubt it. The only reason capitalists push 401k's is because they put more money in the pot for institutional investors to play the markets with.
posted by saulgoodman at 8:14 AM on December 4, 2013 [9 favorites]


"I ask him what the chances are that, in this pinch, he could raise taxes. He holds up a thumb and index finger: zero."

Seems like the real problem is that he can't raise taxes.
posted by MisantropicPainforest at 8:15 AM on December 4, 2013 [2 favorites]


Some time ago, perhaps as far back as 20 years ago they invented this thing called a 401k, otherwise known as a defined contribution plan. Unions have, since then, thwarted nearly every effort to transfer from a traditional pension (defined benefit) plan to the various flavors of 401K type plans.

Maybe you were lucky, but after the 2007 crash, a lot of people saw their 401ks more or less wiped out.

The Federal Government mandated that the USPS fully fund their pensions because the government does not want to be stuck paying hundreds of thousands of retired postal workers pensions when the USPS finally goes belly up.

The only reason the USPS is even close to going belly up is--wait for it--because the federal government forced them to fully fund their pensions.
posted by zombieflanders at 8:16 AM on December 4, 2013 [11 favorites]


What is being argued is that people are benefiting from their proximity to Detroit out of proportion to their contributions to Detroit.

There isn't a city in the country that doesn't think this true in its case. Most of them are right. Most of them aren't filing for bankruptcy.


Name another city in the country that's lost more than a million people from the core city and kept most of them in the metropolitan area.
posted by Etrigan at 8:17 AM on December 4, 2013 [2 favorites]


I live 3 blocks from the I-94/I-75 interchange and the municipal incinerator (largest in the USA!), no need to convince me. But it seems the only force pushing us towards any kind of regionalism is the various fiscal crises: Detroit and soon Wayne County.
posted by wikipedia brown boy detective at 8:17 AM on December 4, 2013


I wish that key numbers were more available in the reporting on this. One thing that should be emphasized is that we're not talking about huge pensions, the averages are only $30k/year even for those that are not eligible for social security! And there are less than 100 pensions greater than $90k/year. So these are much more modest pensions than others may be used to hearing about in local reporting on municipal pensions, and any cuts to these will be dearly felt. And just cutting the pensions of the wealthiest pensioners may not suffice.

The articles make a big deal of a shortfall of $3.5B, but nobody seems to report the current value of holdings. But they will speculate that pension cuts could be anywhere from 10%-50%. The current value seems to be a key figure in all this.

And really, all these numbers are probably looking mighty fine for those in their 20s that could not find jobs anywhere in the last recession. Social security of $1400/month? If only my friends that age could have found employment that would let them earn that. I fear for the future of our nation because in 2013 the idea of a pension is basically dead, and who knows if the current generation of young workers will have been able to save anywhere near what they needed to by 2060.

There's too much risk in personal investing in order for individual accounts to completely take over for institutional and societal backing of planning for the future. People seem to want to blame the actuaries, but I would bet dollars to donuts that the actuaries told management about the problem, and was overridden in order to solve short term crises.

I spend an inordinate amount of time trying to plan for this future where I some how have live my last 5-45 years on a single amount, and the only answer seems to be that there is no way to definitively plan for the future, there's always some way that you can get let down. Even if you get an annuity, what happens when medical technology suddenly extends everyone's lives 5 more years and a the annuities' providers go bankrupt, and the states' insurance policies on private annuities was underfunded and doesn't pay out? There are just too many ways to screw up as an individual when planning for retirement, and that's no way for people to live their lives. My god it's a good thing that we don't all by default have complete control over our social security investments, that terrible idea would have screwed 99% of the populace.

It seems that the only way for this to work is for the elderly to depend upon the next generation's productivity. Guaranteed basic income is an idea that seems to see acceptance from all political sides. Once you turn 18, your check is in the mail whether you're working, unemployed, healthy, disabled, retired, a beach bum, ski bum, or alley bum. I don't know if it would work, but as our income disparity skyrockets and institutions fall apart, it seems that it should be looked into.
posted by Llama-Lime at 8:24 AM on December 4, 2013 [12 favorites]


It's worth recalling that a lot of non-union, non-pensioned poor people in Detroit are suffering too. The entire city is incapable of providing basic services like police and ambulances. That affects everyone in the city and the theory of this bankruptcy is that it's an orderly process to try to get the city functioning for everyone. And apparently the pension-receivers are now about to get screwed out of some what was promised. It's a shitty situation.

Past pension promises should be inviolate. But I sure wish American cities would stop creating future pension disasters. It's all well and good to guarantee a government employee a salary and health care for life. But the cities literally can't afford that today and certainly aren't going to be able to afford it 30 years from now when the promises they are making today come due. And the cost of those promises is born by every tax payer – rich people, poor union employees, working poor Walmart employees – everyone. We can't keep doing this going forward.

One partial way out of this mess is to get a handle on healthcare costs. Medical spending is by far the largest growing pension cost. Obamacare is our start on controlling those costs, and while it's not enough hopefully it will make the environment a bit more sane for everyone.
posted by Nelson at 8:28 AM on December 4, 2013 [8 favorites]


For years now economists, financial planners and government officials have said that deficits "don't matter", and that as long as you have aggregate growth everything works out in the end.

When growth stops, as is the case in Detroit, suddenly the math really does matter. Writing checks that your ass can't cash will eventually wind you up in trouble.

I'm not pointing fingers at the pensioners, it's a horrible position for them to be in. Detroit officials should be damned for over-promising that which mathematically couldn't be paid.
posted by tgrundke at 8:32 AM on December 4, 2013 [3 favorites]


This was the Hail Mary pass; the unions had no serious argument that Detroit didn't have to restruture but had nothing to lose in case the courts would somehow try to put this back to the Governor and Legislature from which they might get a bail out.

Now that this is over with, the unions have a chance to be smart -- to advocate a restructuring of pension liabilities with significant optionality, i.e., the cash requirements go down now, but can increase in some correlation formula with tax revenues over time, and then the unions can actually focus on the policy changes which might permit population and property values (and, hence, tax revenues) to recover in the long term.

Since the city doesn't have much money, the state can really help here by creating state tax and regulatory relief for Detroit investments, and by making the state portion of educational funding fully portable in a school choice regime which would encourage families to stay in Detroit when they'd otherwise have to deal with Detroit Public Schools.
posted by MattD at 8:36 AM on December 4, 2013


Yes, by all means, let's just embrace the shock doctrine and enact the policy preferences of Ayn Rand and the Koch Brothers.
posted by tonycpsu at 8:39 AM on December 4, 2013 [5 favorites]


George Romney could have done something once the writing was on the wall in '67. But no, more segregation, more redlining and more concentration of polluting infrastructure where the poorest and blackest live (at least when we don't bulldoze their homes for more freeways) was the order of the day.

Now Rick Snyder's sockpuppet is working hard to ensure anyone still alive who put out those fires gets to eat dog food for dinner in an unheated apartment.
posted by [expletive deleted] at 8:42 AM on December 4, 2013 [4 favorites]



For years now economists, financial planners and government officials have said that deficits "don't matter", and that as long as you have aggregate growth everything works out in the end.


Deficits and surpluses are just electronic messages and pieces of paper sloshing back and forth. What matters is demography.

All pension plans boil down to collecting money from those who are currently working, and using it to pay for the care and comfort of the elderly.

If those currently working are too few in number, no conceivable pension plan, be it social security, defined benefits, annuities, or 401ks, will fix it.

Detroit is in this mess because the people working in Detroit are too few in number. The nation at large is at risk because of the Baby Boom. And no pension reform is a sure fix. One important thing is to not inflict high unemployment on the young, obviously. But besides that, what can you do ?
posted by ocschwar at 8:44 AM on December 4, 2013 [4 favorites]


All pension plans boil down to collecting money from those who are currently working

No, that's unfunded pension plans. Funded pension plans boil down to setting aside the money to fund the pension at the time the pension obligation is made, investing it, and then paying for pensions out of the pension fund. Those pension funds are some of the largest investors in the US economy. The California Pension plan, for instance, is currently sitting at $277 billion dollars.
posted by Nelson at 8:47 AM on December 4, 2013 [7 favorites]


One important thing is to not inflict high unemployment on the young, obviously. But besides that, what can you do ?

Take the money from rich people, where the vast majority of economic growth over the past 30 years has gone to, and fund these pensions and give it to poor people.
posted by MisantropicPainforest at 8:47 AM on December 4, 2013 [7 favorites]


if you can admit that since court ordered desegregation, the *real* base of the Republican party has nakedly politicized the federal court appointment process to return business law to the gilded age, then you can admit that a federal court decision can be nakedly political.

this is the same kind of "States rights" decision as Bush v. Gore: the powers that be are just looking for enough legal verbiage to cover the decision that has already be made wrt the fate of public sector pensions.
posted by ennui.bz at 8:49 AM on December 4, 2013


Funded pension plans boil down to setting aside the money to fund the pension at the time the pension obligation is made, investing it, and then paying for pensions out of the pension fund.

Key words: "investing it." And where do you think the returns will come from those investments?

Drumroll: from those currently working, one way or another. And those people have to exist.
posted by ocschwar at 8:50 AM on December 4, 2013 [3 favorites]


Guaranteed basic income is an idea that seems to see acceptance from all political sides. Once you turn 18, your check is in the mail whether you're working, unemployed, healthy, disabled, retired, a beach bum, ski bum, or alley bum.
Really? What republican backs this? What republican would back this?

What republican would not trip all over themselves in a rush to declare this idea to be anti-Jesus?
posted by Flunkie at 8:50 AM on December 4, 2013 [10 favorites]


viewed a promise from a municipal government as zero-risk

Did they?


Well, that's the charitable interpretation. Alternately, they knew the risks, took them on, and are now whining about it. I'm sure there are some who will prefer that narrative, but absent any evidence I think there's no reason to assume it.

The problem that needs solving is that the white-flight enclaves outside Detroit continue to place demands on the city's infrastructure, police force, etc., especially the parts that still commute into the city to work, while contributing reduced amounts or nothing to pay for that service.

I was going to suggest that Detroit implement a commuter tax, similar to Philadelphia and (prior to 1999) New York City, which would be levied on those who work and make money in the city but don't actually live there.

However, I found that Detroit already does this. If you work in the city, you pay 1.2%; if you live there, it's 2.4%. So commuters are already helping to pay for the infrastructure they use, and at a rate higher than most other cities (supposedly only Philadelphia is higher, although some sources say Pittsburgh is as well). While they could certainly raise it, they might already be at the revenue-maximizing point; there might not be much holding employers in the city as opposed to the suburbs, so that could be dangerous.

And although Detroit apparently has tax-collection problems, those are mostly related to Detroit residents who work in the suburbs; city taxes paid by commuters are automatically withheld by employers so there's pretty good collection.

Though it might be a hard sell given how car-centric Detroit is, they might want to consider parking taxes, since that would also (mostly) hit commuters.
posted by Kadin2048 at 8:52 AM on December 4, 2013 [3 favorites]


This whole "stealing from the kids to give to the parents" meme needs to die. It's catchy and truthy, but it's not true. We are all in the same boat. We need structure. We need determination. We need society.
posted by Benny Andajetz at 8:53 AM on December 4, 2013 [4 favorites]


Yeah, let's not mistake Milton Friedman embracing the "negative income tax" in the 1960s and some more reasonable libertarian types on the Internet saying they could maybe embrace a universal basic income as some kind of groundswell for the notion that we give everyone in America money for doing nothing.
posted by tonycpsu at 8:54 AM on December 4, 2013


The only reason the USPS is even close to going belly up is--wait for it--because the federal government forced them to fully fund their pensions.

That, and Congress not allowing the USPS to charge reasonable postage rates for the service, so they could better cover the pension obligations.
posted by Thorzdad at 8:55 AM on December 4, 2013 [1 favorite]


What republican backs this? What republican would back this?

What republican would not trip all over themselves in a rush to declare this idea to be anti-Jesus?
posted by Flunkie at 11:50 AM on December 4 [2 favorites +] [!]


a Milton Friedman republican who would try to get you to trade this for the complete removal of all public welfare programs.
posted by ennui.bz at 8:55 AM on December 4, 2013 [6 favorites]


Detroit is in this mess because the people working in Detroit are too few in number. The nation at large is at risk because of the Baby Boom. And no pension reform is a sure fix. One important thing is to not inflict high unemployment on the young, obviously. But besides that, what can you do ?

I dunno, I hear strawmen are a great way to shore up your working age population.

But seriously, this is a total red herring. Detroit didn't magically empty of people. Read the thread. Look at this map. Most of the municipal property tax base is still there in the metro area, concentrated in little enclaves of wealth where it funds some of the best municipal infrastructure and services in the world.

As for the baby boom, well, just eliminate the cap on Social Security contributions and distribute that income down. Now it's no longer a regressive tax. Better yet, extend it to all income streams for individuals, including return on investments. Bam, now benefits can go up for everyone with no shortfall in the forseeable future. Yes, that will put a burden on people's 401k's. Call it the cost of living in society.

Canada has already reformed its equivalent so that it's solvent into the foreseeable future, but the collapse of private retirement savings and defined benefit pensions means we are now having a conversation about expanding it. Because it's proved to be the most reliable source of income for retirees. Fancy that, insurance scales well.
posted by [expletive deleted] at 8:56 AM on December 4, 2013 [5 favorites]


ennui.bz: " a Milton Friedman republican who would try to get you to trade this for the complete removal of all public welfare programs."

So... Mary Landrieu?
posted by tonycpsu at 8:56 AM on December 4, 2013 [1 favorite]


Really? What republican backs this? What republican would back this?

More than you might think. The theory isn't that we just add a GBI to the existing mix of government benefits, but eliminate every other benefit program in favor of a GBI. That would cut down on a massive amount of government bureaucracy (with the accompanying reduction in the government workforce), eliminate pretty much every special interest that tries to vote itself a bigger piece of the pie for its particular benefit program, and make the government's future obligations trivial to calculate. Republicans really like most of those things.

Of course, senior citizens tend to vote Republican, so any plan that would do anything to Social Security and Medicare is going to be tough for them. But there are definitely Republicans talking about this sort of thing. I don't think it's ever going to happen, but it would be a significantly more "conservative" way of doing things--everybody gets the same benefits, if you can't make it work, too bad for you--than the status quo.
posted by valkyryn at 8:57 AM on December 4, 2013 [4 favorites]


Those that did are no longer threatened by bankruptcy, because the"fund" is already funded.

Yeah right; remember this naivete when the big market crash happens, and most of us who are now dutifully putting all the spare cash we can into 401k accounts are devastated, and executives and Wall Street operatives walk away with billion dollar bonuses.

What, that sounds hysterical to you? I'm guessing the person who said forty years ago, "You can't trust companies to keep your pension intact until you retire" would have been labelled hysterical, too.
posted by aught at 8:57 AM on December 4, 2013 [4 favorites]


Oh, I see. As long as we completely eliminate every other aspect of the social safety net, there are a few republicans who might consider this idea. Well, that's entirely reasonable and realistic.
posted by Flunkie at 9:01 AM on December 4, 2013


Yeah right; remember this naivete when the big market crash happens, and most of us who are now dutifully putting all the spare cash we can into 401k accounts are devastated, and executives and Wall Street operatives walk away with billion dollar bonuses.

Yeah, it's been more than 5 years, I guess we're due for another one. It's like the anti-jubilee.
posted by [expletive deleted] at 9:02 AM on December 4, 2013 [1 favorite]


Detroit's already burning.

I kind of wonder if Thanksgiving isn't basically an all access pass to DIY arson. Just buy a turkey fryer and tip it over onto whatever structure you want to make an insurance claim on.
posted by BrotherCaine at 9:03 AM on December 4, 2013


Some time ago, perhaps as far back as 20 years ago they invented this thing called a 401k, otherwise known as a defined contribution plan.

Wow, you mean that thing my now-65-year-old mother had that in 2008 suddenly had 70% of it disappear? Please, continue sharing your fiscal wisdom!

Try to do it after 6 though, since my mom is still working what with the job she can't retire from now.
posted by XQUZYPHYR at 9:03 AM on December 4, 2013 [12 favorites]


Most of the municipal property tax base is still there in the metro area, concentrated in little enclaves of wealth where it funds some of the best municipal infrastructure and services in the world.

Well, for one thing, Detroit municipal services absolutely suck at the moment, so I think you might be overselling your case a little bit.

But the rest of your post just indicates your continued lack of understanding about the realities of local, state, and federal politics. The ability of citizens to vote with their feet by relocating across jurisdictional borders has been an essential part of American politics since before the Constitution was signed. Think property taxes are too high in your county? You can always move. Think that your municipality isn't getting enough income from non-residents to support your current level of services? Cut your services or impose an employment tax. Don't like the fact that your municipal government is imposing an employment tax on your employees? Relocate your business. Etc. This is what cities do. They adapt and change to adjust to their circumstances. Except Detroit, which continued to act as if the salad days of the 1960s never stopped.

Really, there is nothing Detroit can do about this, and there is no reason to expect that they or anyone else should be able to. Detroit's population--and thus tax base--has been falling for a generation, yet they have not done a single thing to adapt their spending to that fact. And it's not like Detroit was forced to build or maintain all of those roads with its own money. Either its voting population approved it, or Lansing built the highways with state money, drawn from every county in Michigan. Or used federal dollars.

Detroit may be the victim of economic forces beyond its control, and may even be a loser in what is a fundamental feature of the American political system. But no one forced it to increase its outlays, year after year, when there was no realistic expectation that it was ever going to be able to afford to pay for said outlays. Detroit has to own that one. It could always have cut back, but it didn't, and now it has to.
posted by valkyryn at 9:06 AM on December 4, 2013 [2 favorites]


As long as we completely eliminate every other aspect of the social safety net, there are a few republicans who might consider this idea. Well, that's entirely reasonable and realistic.

Hey, I didn't say it was a good idea, just that it was an idea with more Republican support than you might figure.
posted by valkyryn at 9:07 AM on December 4, 2013 [1 favorite]


But only if pensioners get 100% of what's there and corporate bondholders get 0%.

Putting bondholders ahead is a crime


It's worth noting that some of those bondholders will be pension and other retirement funds. In other words it's not simply a choice between screwing over "decent hard working Americans" and "evil fat cats."
posted by yoink at 9:08 AM on December 4, 2013 [4 favorites]


the white-flight enclaves outside Detroit

And, amazingly, a couple of those "tax-shelter enclaves" are actually *inside* the city, surrounded by it, but set up (in the case of Highland Park, by Henry Ford himself, from what I have read) to help avoid Detroit municipal taxes.
posted by aught at 9:08 AM on December 4, 2013


Wow, you mean that thing my now-65-year-old mother had that in 2008 suddenly had 70% of it disappear? Please, continue sharing your fiscal wisdom!

I believe the correct libertarian response is: It's her own fault for not doing proper research into the funds and their managers, then choosing the safest possible funds to put her money in, and self-managing it appropriately. She did get an MBA at some point, too, right?
posted by Thorzdad at 9:09 AM on December 4, 2013 [9 favorites]


It seems that the only way for this to work is for the elderly to depend upon the next generation's productivity.

And what do you do if there isn't endless economic growth? Schemes that depend on the next generation to always pay the previous generation with interest added seem fine when you're sitting pretty as the victors in a World War and running the economy balls-out to repair all the broken stuff, but they seem suspect when you realize that eventually the population is going to start declining, and it'd be nice to treat that as a good thing and not make it into an artificial catastrophe via economic policy.

Personally I think we need greater insulation between our society and the economy, not chain our society more firmly to the oars. Pension schemes that only work under growth/inflationary conditions are dangerous in the long term, since economies have to eventually deal with contraction/deflation as well as population decline.
posted by Kadin2048 at 9:10 AM on December 4, 2013 [5 favorites]


This is what cities do. They adapt and change to adjust to their circumstances.

Except ones that are completely barred from doing so by state legislature. Detroit ain't one of them, but New York City is. DC is explicity banned from doing so by Congress.
posted by Ghost Mode at 9:10 AM on December 4, 2013


But only if pensioners get 100% of what's there and corporate bondholders get 0%.

Putting bondholders ahead is a crime

It's worth noting that some of those bondholders will be pension and other retirement funds. In other words it's not simply a choice between screwing over "decent hard working Americans" and "evil fat cats."


Funds that are invested in things besides Detroit muni bonds. Unlike the pensioners.
posted by ocschwar at 9:10 AM on December 4, 2013 [1 favorite]


Wait, is it actually being argued that people should not have been able to move away from a grasping, sucking hellhole just because they happened to be rich and white?

Unsurprisingly, the only person saying that is you.

What people like me are arguing is that creating the legal fiction that your neighborhood of Detroit is actually this totally separate, different place called Grosse Pointe doesn't count as "moving away."
posted by ROU_Xenophobe at 9:10 AM on December 4, 2013 [10 favorites]


Wow, you mean that thing my now-65-year-old mother had that in 2008 suddenly had 70% of it disappear? Please, continue sharing your fiscal wisdom!

I don't mean to be blunt, but what the heck was your mother doing financially if she was apparently 100% in stocks in 2008 (at age 60!) but has somehow missed the massive rally since 2009, which should have fully restocked her 401k?

By the way, I'm not trying to make this personal, it's a real problem with 401ks--people buying high and selling low (along with fees, maybe a bigger issue). But a defined-contribution plan with reasonable target-retirement reallocation and low-fee funds is not a particularly bad retirement structure (it's certainly preferable for people like myself who cannot imagine working with a single employer for decades).
posted by dsfan at 9:12 AM on December 4, 2013 [6 favorites]


I believe the correct libertarian response is: It's her own fault for not doing proper research into the funds and their managers, then choosing the safest possible funds to put her money in, and self-managing it appropriately. She did get an MBA at some point, too, right?

I know you may be being sarcastic here, but I've worked places that don't have any good 401(k) options (no no-load index funds or properly diversified funds for instance). I've also lost access to the ability to withdraw funds from a 401(k) for several years because my ex-employer went bankrupt without filing the correct paperwork with fidelity to transfer administration of the funds to the employees. I guess someone could make the counter-argument that I could've selected a better employer, but the ideal of a free market in labor choices wasn't even close to reality at the time.
posted by BrotherCaine at 9:15 AM on December 4, 2013 [3 favorites]


Well, for one thing, Detroit municipal services absolutely suck at the moment, so I think you might be overselling your case a little bit.

I think that was referring to the suburban muni services, not the ones in the city.
posted by wikipedia brown boy detective at 9:17 AM on December 4, 2013


Really? What republican backs this [Guaranteed basic income]? What republican would back this?

What republican would not trip all over themselves in a rush to declare this idea to be anti-Jesus?


Milton Friedman supported a negative income tax, which is a form of guaranteed basic income. He's probably more properly considered a libertarian, but I doubt a Republican who knows who he is would be dismissive of him.
posted by cosmic.osmo at 9:18 AM on December 4, 2013


And, amazingly, a couple of those "tax-shelter enclaves" are actually *inside* the city, surrounded by it, but set up (in the case of Highland Park, by Henry Ford himself, from what I have read) to help avoid Detroit municipal taxes.

Yes, Highland Park was once set up to avoid Detroit taxes, but today it's in even worse shape than the city, block-for-block.
posted by wikipedia brown boy detective at 9:19 AM on December 4, 2013


It's worth noting that some of those bondholders will be pension and other retirement funds. In other words it's not simply a choice between screwing over "decent hard working Americans" and "evil fat cats."

Also, if bondholders are below pensions in bankruptcy recovery, they're going to rationally demand higher returns to compensate for the higher risk. Future government borrowing for schools, or transit, or whatever, becomes more expensive. It still may be the right thing to do in this case, but it's not like even if there were only 'fat cats' holding debt that there's no downside to stiffing them.
posted by dsfan at 9:26 AM on December 4, 2013 [4 favorites]


Money is our god. We care not for people.
posted by Ray Walston, Luck Dragon at 9:27 AM on December 4, 2013 [2 favorites]


Personally I think we need greater insulation between our society and the economy, not chain our society more firmly to the oars. Pension schemes that only work under growth/inflationary conditions are dangerous in the long term, since economies have to eventually deal with contraction/deflation as well as population decline.
I would like to hear more of your ideas, because I have no freaking clue how to do that, and I share the goal of finding pension schemes that work in both growth and contraction conditions.

What I was trying to get at with my clumsily phrased "elderly must depend upon the young's productivity" is that personal saving and investments can not be the only means for elderly subsistence, that we must have society supporting the elderly to some degree. They way I phrased it could be interpreted that I think society should pay for all of every elderly persons' care, but that's not what I meant. Maybe Social Security is already that safety net, but I know there are lots of people out there that are not contributing to Social Security, and will get nothing from Social Security, so it's a net with lots of holes.

Societal safety nets may be chains on the productive workers, but I think we need them in order to be a humane society. And even though I'm doing my best not to ever fall back on the safety net, I'm more than willing to submit to the chains in case I do. Our economy is not so weak as to not be able to provide these safety nets, we've just refused to.
posted by Llama-Lime at 9:28 AM on December 4, 2013 [1 favorite]


Funds that are invested in things besides Detroit muni bonds. Unlike the pensioners.

Sure. But then again, although you wouldn't know it from the discussion in this thread, no one at all is talking about wiping out Detroit's pension obligations 100%. They're talking about some percentage reduction. So now you tell me--what's a fair reduction? If your answer is 0%, tell me why it is fair that some other retiree who has money in Detroit muni bonds takes a hit of whatever percentage s/he has invested in those bonds while the Detroit pensioner loses nothing.
posted by yoink at 9:36 AM on December 4, 2013 [3 favorites]


"All these victims stand in line for
crumbs that fall from the table,
just enough to get by.
All the while your invitation
'Wake on up from your slumber,
baby open up your eyes!'"
Slumber - NeedToBreathe
posted by quonsar II: smock fishpants and the temple of foon at 9:39 AM on December 4, 2013


My point, by the way, is not "grrrr, evil greedy unions destroyed Detroit" or whatever, it's just that any simplistic angels-vs-demons interpretation of the situation in Detroit is hopelessly cartoonish, and really of no value either in trying to figure out what a just solution would look like there or in trying to figure out how to avoid similar crises going forward in other US municipalities.
posted by yoink at 9:41 AM on December 4, 2013 [3 favorites]


Once again: screw poor people.

You mean screw poor people who used to be middle class people.

Michigan has been the canary in the coal mine for years/ possibly decades now. Our economic collapse preceded the ‘08 one by more than half a decade. This bankruptcy/pension feckup is just another example of Behold Your Future for many of you.

I work part-time for a college in the metro Detroit area. I am, involuntarily, paying into both a state education retiree’s fund AND a retirees’ healthcare fund – even though I don’t get employer healthcare. Yes, let me repeat that: I’m paying for current retiree’s healthcare even as I scramble to cover my own costs. (And how half-assed Obamacare will benefit Blue Cross while screwing me is subject for another thread.)

At one point there was legal action to exempt people like me from paying into that retiree’s health fund. This reminds me I need an update on that, stat.
posted by NorthernLite at 9:45 AM on December 4, 2013 [2 favorites]


The important thing to know from this story is that pensioners are not getting priority over corporate bondholders.

If there is simply not enough money, then yes, the pensions will need to be cut.

But only if pensioners get 100% of what's there and corporate bondholders get 0%.

Putting bondholders ahead is a crime.


I actually think that in this case the bondholders and the pension plan have equal standing because its Ch 9. In Ch 11 you are correct.
posted by JPD at 9:46 AM on December 4, 2013


For years now economists, financial planners and government officials have said that deficits "don't matter", and that as long as you have aggregate growth everything works out in the end.

When growth stops, as is the case in Detroit, suddenly the math really does matter. Writing checks that your ass can't cash will eventually wind you up in trouble.


This is moronic. The economists who say that "deficits don't matter," which is a vast oversimplification of the Keynesian position, are talking about countries that can print their own money. Detroit, and for that matter Greece, cannot print its own money and so it is properly fucked.
posted by Aizkolari at 9:49 AM on December 4, 2013 [6 favorites]


The economists who say that "deficits don't matter," which is a vast oversimplification of the Keynesian position
Cheney said those exact words, "deficits don't matter". In fact he said that Reagan proved that deficits don't matter. He and his puppet then exploded the deficit through a variety of methods.

I don't think Cheney is exactly a Keynesian.
posted by Flunkie at 9:57 AM on December 4, 2013 [2 favorites]


I agree that Cheney's not a Keynesian, but my point that the relevance of debt and deficits to an organization's economic well-being is tied to its ability to control its own monetary policy. There are currently a lot of right-wing arguments being made (This is what it would be like if a household spent money like the Federal Government!!!) that ignore that basic economic reality, and that annoys me.
posted by Aizkolari at 10:08 AM on December 4, 2013 [1 favorite]


Putting bondholders ahead is a crime

This is a platitudinal slogan and not an economic or legal philosophy. You say it as though there are no consequences to such an action. So let's go with your plan and give all the money to the pensioners and give the bondholders the big kiss-off. Ok, great. You're happy.

Now what happens next time a city wants to issue debt to invest in infrastructure or educational projects? Well, the potential bondholders know that if the city runs out of money and goes bankrupt the bondholders are no longer a priority. So they know (correctly!) that such a loan is a big risk and demand much higher interest, making the payments on the debt cities are incurring much higher, which means LESS MONEY for schools, bridges, utilities, and everything else cities need to issue debt to build.

So you've made pensioners in Detroit happy by making virtually everyone who lives in a city for the next 20 years bear the cost through significantly higher interest rates on municipal bonds.

Is that really a good trade-off? I mean, you could argue that it is. But that's not what you're doing. You're just repeating a FUCK THE MAN mantra.
posted by Justinian at 10:10 AM on December 4, 2013 [9 favorites]


Let's not pit the various parties being screwed by the fiscal irresponsibility of our political leaders and city officials against each other. Bond holders and pensioners who aren't going to starve if they don't get paid should have to stand in line behind pensioners and bond holders who are.

It's a pretty simple and humane way to prioritize distributions when there are equally legitimate claims to a fixed pot of money that can't be reconciled.
posted by saulgoodman at 10:18 AM on December 4, 2013 [3 favorites]


It would also result in the great majority of the money going to the pensioners as I think you probably know. Which, again, may be the best way to go but is in no sense without significant costs which will be borne by everyone who lives in a city issuing municipal bonds. Which is most of us.
posted by Justinian at 10:29 AM on December 4, 2013 [3 favorites]


This is moronic. The economists who say that "deficits don't matter," which is a vast oversimplification of the Keynesian position, are talking about countries that can print their own money. Detroit, and for that matter Greece, cannot print its own money and so it is properly fucked.

Aizkolari,

Keynes or not - politicians have been told, and regurgitated for decades, the mantra that deficit spending is okay so long as you have the cash flow to support the debt burden. You can have your cake and eat it, too!

That line of thinking is a large part of what got a lot of municipalities into trouble: they came to believe that growth was a upward trending line into infinity and that the money would always be there.

Politicians came to believe that so long as they could float the debt they could continue to deficit spend. Well, yes, in some ways this is true - you can continue to do this until the debt burden overwhelms your ability to pay. Then it's much like Wiley-Coyote running off the cliff, still spinning his legs trying to get traction, until gravity wins.
posted by tgrundke at 10:41 AM on December 4, 2013 [1 favorite]


Depriving people of money needed for food, shelter and medicine can cost them in significant ways that have to be borne indirectly by everyone who lives in a city breaking its pension commitments, too. It's no use looking for a perfect solution to a mismanaged cluster fuck. The horse is already out of the barn and the barn's burning down anyway. At the very least, keeping as many people in the immediate line of fire as possible from starvation and financial ruin might be a reasonable and humane goal.
posted by saulgoodman at 10:45 AM on December 4, 2013 [1 favorite]


I've been thinking more and more that one of the things the medieval catholic church really did better than modern democracy is prohibit usury. High hopes for the new pope on that front. Also, Elizabeth Warren for president.
posted by fraxil at 10:46 AM on December 4, 2013 [3 favorites]


Keep in mind that many of the people on the other end of the bond transaction are buying those bonds as part of their own 401k plan, a plan they use because (a) their own employer took away their defined-benefit pension, and (b) social security isn't generous enough to truly take care of seniors.

The people we need to be angry at aren't the pensioners or the bondholders, it's the architects of our privatized pension system that forces everyone to gamble their future earnings on investment vehicles that they don't fully understand, and can't realistically be expected to fully understand when they have to work for a living. It's astounding how well the Reagan revolution has managed to pit the needy against the needy.
posted by tonycpsu at 10:49 AM on December 4, 2013 [4 favorites]


I agree that Cheney's not a Keynesian, but my point that the relevance of debt and deficits to an organization's economic well-being is tied to its ability to control its own monetary policy. There are currently a lot of right-wing arguments being made (This is what it would be like if a household spent money like the Federal Government!!!) that ignore that basic economic reality, and that annoys me.

Aizkolari,

Is that to mean that if all of us individually could print our own money that financial problems would disappear? Because if so...awesome!

Controlling your own monetary policy is only part of the equation. Detroit, obviously, had no monetary control. They did, however, have fiscal control and I assume a decent grasp of accounting and economic trends in their own city. Logic would tell you that you cannot continue making promises of greater future returns on a rapidly shrinking tax base.
posted by tgrundke at 10:51 AM on December 4, 2013


Schemes that depend on the next generation to always pay the previous generation with interest added seem fine when you're sitting pretty as the victors in a World War and running the economy balls-out to repair all the broken stuff

There's a lot of broken stuff now. (Thanks, Reaganomics!) We could have been "running the economy balls out" to repair it these last five years -- and more, yeah?

A lot of it is still broken. We could still work on that.


Really, there is nothing Detroit can do about this, and there is no reason to expect that they or anyone else should be able to.

So: "We Almost Lost Detroit."

 
posted by Herodios at 10:53 AM on December 4, 2013


valkyryn: "Really, there is nothing Detroit can do about this, and there is no reason to expect that they or anyone else should be able to.
...
Detroit may be the victim of economic forces beyond its control, and may even be a loser in what is a fundamental feature of the American political system. But no one forced it to increase its outlays, year after year, when there was no realistic expectation that it was ever going to be able to afford to pay for said outlays. Detroit has to own that one. It could always have cut back, but it didn't, and now it has to.
"

Back when Detroit's automakers were in trouble, we bailed them out. We intervened, and saved those companies as institutions. Many of the people who worked for those companies ate it so that we could preserve these companies, and now that the city itself and its citizens are in trouble, we should just walk away from them instead of extending them at least the same amount of help we gave the companies?
posted by tonycpsu at 11:02 AM on December 4, 2013 [9 favorites]


and now that the city itself and its citizens are in trouble, we should just walk away from them instead of extending them at least the same amount of help we gave the companies?

But corporations are people, my friend. You can't just abandon people.

Except, of course, when they are actual people.
posted by scody at 11:16 AM on December 4, 2013 [9 favorites]


But corporations are people, my friend. You can't just abandon people.

I know there was a large quantity of hamburger in this comment, but there is some ironic truth in Mitt Romney's fateful echoing of corporate personhood dogma.

The auto companies are, in fact, made up of the people who work for them, and that was explicitly part of the Democratic rationale for bailing them out. The ripple effects would have hurt suppliers dealerships, and consumers in all fifty states. It was the right thing to do, which of course means Romney didn't think those particular "corporationpersons" were worth bailing out when he said "Let Detroit Go Bankrupt" in an obvious attempt to capitalize on the anti-bailout sentiment within the Tea Party.
posted by tonycpsu at 11:27 AM on December 4, 2013 [1 favorite]


edheil: "If only there were some way for governments to raise money by demanding that people, particularly wealthy people, help pay for the obligations of the society whose structure supports their wealth. Some kind of "tax.""

This.

As long as income inequality and wealth distribution are as fucked up in this country as they have been (and it appears they're only going to get worse) I'm not sure anybody has a right to complain about unions and pensions.

The problem isn't that people are asking for too much pie. It's simply that there isn't a whole lot of pie left when you allow a few people/corporations to grab most of it for decades both directly and, more importantly, indirectly through not requiring them to pay anything resembling a reasonable tax rate.

You can't allow extreme concentrations of available economic means at the very top and simultaneously expect things to continue to run smoothly everywhere else. That's like allowing one component of a car's engine to hog most of the oil and then making a surprised face when the warning lights come on.
posted by Hairy Lobster at 11:35 AM on December 4, 2013 [5 favorites]


Back when Detroit's automakers were in trouble, we bailed them out.

I thought that was a bad idea too.
posted by valkyryn at 11:38 AM on December 4, 2013


Yeah, it's not as though the bailouts were entirely uncontroversial.
posted by corb at 11:41 AM on December 4, 2013


This is really simple, folks, and any "complexity" is illusory and put there to cover the theft going on in the US by the monied class. Used to be the capitalists would justify their huge accumulation of wealth by pointing to the fact that they were taking all the risks and workers could depend upon a risk-free paycheck. Then, in order to justify low salaries, the capitalists began paying partly in retirement benefits, a promise to support the person to a predetermined extent after their working life ended. Then companies got so large they needed hired hands to run them. Some of these hired hands accumulated enough wealth that they became capitalists and began installing their peers in similar positions and rewarding each other as though it was their capital at risk. Meanwhile, capitalists still were taking the risk. Of course, they don't like that, so defined contribution plans were substituted for defined benefit plans, but that couldn't be changed retroactively, because defined benefits were part of an agree-upon compensation for work already done. Taking them away means that workers, too, were taking risks, and then they should be rewarded like the vaunted capitalists.

Well, that's all gone out the window with the latest generation of greedheads. Stealing back the honestly bargained for and earned pensions of working class is no longer considered unseemly. Taxing the rich is a far greater harm than depriving those workers in their retirement, when their resources and options are severely limited. This is a sickening development, and the concern trolling about what poor Detroit will do if it lives up to its agreements to pay its workers in full is hot air to cover the naked theft going on. Fuck this, fuck Republicans, fuck conservatives, and fuck greedy fuckers.
posted by Mental Wimp at 11:53 AM on December 4, 2013 [13 favorites]


The solution to this seems perfectly obvious to me - even though it's politically impossible.

The Federal government should simply guarantee the pensions.

Yes, they'll have to "print more money" (i.e. issue more debt) at some point. They were willing to print trillions of dollars to fund stupid, pointless wars that benefited America not one whit - why shouldn't they be willing to print a tiny fraction of a percent of that to prevent older Americans from literally starving in the street?

These are the people who fought in World War 2, Korea, Vietnam. These are the people who worked in the automotive factories that were part of what made America's prosperity and productivity the envy of the world.

I assure you - each dollar of that money will be spent almost immediately, and those dollars will be spent repeatedly throughout the Detroit area. A large number of jobs will be created/preserved - in an area of the country that massively needs it.

More, the collapse of the Detroit area will be at least slowed down. I tried to estimate once how much value in infrastructure was simply allowed to rot in this slow-motion landslide - it was hard, but numbers in the hundreds of billions of dollars came up.

Economically, America's biggest investment is people. By "breaking" people - by rendering them economically useless and allowing their environment to decay and collapse - and by similarly "breaking" whole cities, we're doing the equivalent of burning billion dollar bills.

It would be easy to do. Treasury rates are at historic lows - which means that the markets are very hungry for more debt. And I don't think that proof that the United States was finally thinking toward the future would really deter the rational bondholder...

As I said, politically impossible. The Republicans, even though obviously mentally ill, control the entire terms of the dialog.
posted by lupus_yonderboy at 11:56 AM on December 4, 2013 [23 favorites]


Oh, and on preview - yes, tax the rich too - even more so. The key factor is that the Federal government should guarantee the pensions.

But that's just as politically impossible...
posted by lupus_yonderboy at 11:58 AM on December 4, 2013


> I don't think Cheney is exactly a Keynesian.

Even Nixon said "I am now a Keynesian in economics" (The New York Times, January 4, 1971.) If Nixon, then it's thinkable for anybody. Ebenezer Scrooge, Keynsian.


> Treasury rates are at historic lows - which means that the markets are very hungry for more debt.

That, or else it means nobody wants to take on any more debt at any interest rate no matter how low.
posted by jfuller at 12:01 PM on December 4, 2013 [3 favorites]


We could have been "running the economy balls out" to repair it these last five years -- and more, yeah?

Assuming that what you're saying is that we should have been deficit-spending more at the Federal level during the recession in order to provide Keynesian-style economic stimulus and create jobs, sure, fine idea.

But that's a short-term goal; you can't stimulate yourself back into economic growth indefinitely, and I'm not sure it would even be a good thing if you could. Eventually you run into some sort of unpleasant hard limit — energy, food, population density, housing, water, etc. — and things get really uncomfortable. (If not for us, then for others who actually end up bearing the costs of our "growth".)

The solution isn't just to pursue growth uber alles forever and ever, the solution is to find an socio-economic system that doesn't fall completely apart without expansion.
posted by Kadin2048 at 12:01 PM on December 4, 2013 [3 favorites]


It's pretty much impossible to save your way to prosperity, though. If the choice is between austerity and stimulus...
posted by Benny Andajetz at 12:04 PM on December 4, 2013


These are the people who worked in the automotive factories that were part of what made America's prosperity and productivity the envy of the world.

It's actually the municipal employees, not the auto workers. Which is why it's a lot easier to rally even the lower-middle-class against them: everyone hates government employees.
posted by Etrigan at 12:05 PM on December 4, 2013 [3 favorites]


Silly goose, government jobs aren't real jobs.
posted by Benny Andajetz at 12:07 PM on December 4, 2013 [2 favorites]


Government employees are also a convenient target if you are looking to disproportionately hurt women and minorities without making it obvious:
http://www.epi.org/publication/bp339-public-sector-jobs-crisis
posted by fraxil at 12:12 PM on December 4, 2013 [8 favorites]


staccato signals of constant information: "This is horrible and, unfortunately, the future. In the US, the aggregate unfunded pension obligations for municipal and state employees is stated as $1T dollars. Once you remove all of the accounting mumbo-jumbo it is actually $3T.*"

Infinite time horizons in an era of historically low taxes sure do make our public institutions' financial situation look dire. We don't have to put away 3 trillion dollars now, we have to pay 3 trillion dollars over the next 70 years or so.

To put that in perspective, if we wanted to go crazy and completely prefund all presently existing future obligations of municipal and state pensions, using your figures, we'd all need to pitch in $10,000. Since we have many years, we actually only need to pay a couple of hundred dollars extra in taxes each year. Less actually, since investment is a thing that exists, as is inflation.

The problem is that we don't have any real system to even out the cash flows when certain cities/regions are on the decline and are losing residents to other areas, even though the city they left will be paying out pensions for services provided to that former resident for years to come. Detroit can't pay for its pensions, but collectively we can all pay for all the municipal pensions quite easily.

There is a reason we became a country instead of remaining a bunch of little fiefdoms.
posted by wierdo at 12:37 PM on December 4, 2013 [14 favorites]


the math isn't even that bad - because that $1T is arrived at by discounting the future obligations at the LT treasury rate of like 3.5% - when LT rates have been much higher historically.

The Federal government should simply guarantee the pensions.

The Government actually does guarantee some pensions through the PBGC - but the idea of muni defaulting was seen as so crazy for so long the mechanism never evolved to cover them.
posted by JPD at 12:42 PM on December 4, 2013


The problem is that we don't have any real system to even out the cash flows when certain cities/regions are on the decline and are losing residents to other areas, even though the city they left will be paying out pensions for services provided to that former resident for years to come. Detroit can't pay for its pensions, but collectively we can all pay for all the municipal pensions quite easily.

This seems like a strong argument to require state and local workers to participate in social security going forward (a policy I think I agree with), but I don't think it presents an obviously fair answer for what to do in this particular situation.
posted by dsfan at 12:56 PM on December 4, 2013


Oh christ, another MetaFilter Detroit conversation. Crypto-racism, libertarian stroke-offs and vague platitudes ahoy!

First off, it's worth revisiting this (something I've posted too often, but hey): Former Michigan State Treasurer on How the State of Michigan Helped Bankrupt Detroit.

Second off, it's worth knowing that Michigan's annexation and municipality laws are incredibly archaic and broken; many of the annexation strategies would have been pretty much legally impossible without constitutional amendments.

Third, the 13th check stuff really did fuck a lot of the Detroit pensions; it was a terrible way to make up for not having cost of living increases.

Fourth, Snyder and Orr do want to destroy Detroit. It's been a longterm goal of the Michigan GOP to do everything — from environmental controls to tax policy to educational policy — to destroy the political power of Detroit, in large part due to racism.

Fifth, yes, the state and the feds should step in here. If only indirectly; massive redevelopment stimulus can help Detroit overcome a lot of the structural drags on the local economy (things like renewing their infrastructure to serve a smaller population and less industrial production). Even just cleaning up a lot of the industrial waste in Detroit would be a huge boon — Detroit has a massive brownfield problem that comes from things like chroming plants abutting residential neighborhoods. Former Governor Engler, who was in office for most of the '90s, worked to make sure that the Department of Environmental Quality's enforcement arm was gutted, and fought legislation that would have made site pollution liability have real teeth.

Detroit's got a lot going for it, and it's a shame it's mostly through stories like these that it's known now, but there aren't any good answers as far as I can see.
posted by klangklangston at 1:01 PM on December 4, 2013 [20 favorites]


Hunh, this whole thing seems like deja vu all over again. Oh right, I've heard this story before. Those of you saying "this will start to happen elsewhere," well, welcome to Rhode Island....Central Falls was the first but probably half the cities and towns in the state are trying to re-negotiate the ridiculous giveaways of yesteryear that they made to public-sector unions, while threatening to file for bankruptcy if it doesn't go their way.

Anybody who thinks that this is the unions' fault, or alternatively, not at all the unions' fault, I promise you, messes like this there is plenty of blame to go around for everyone, and everybody comes out looking shitty.

If there is a single core problem, it's that democracy doesn't have any particularly strong incentives for elected officials to do things that are bad now but will pay off in thirty years, and plenty of powerful incentives to do things that are great now but will be disastrous in thirty years. (See also: global warming.) Almost every aspect of this is a totally predictable long-term consequence of some decision that made a bunch of folks happy in the short term.
posted by mstokes650 at 1:13 PM on December 4, 2013 [2 favorites]


>> Treasury rates are at historic lows.

> That, or else it means nobody wants to take on any more debt at any interest rate no matter how low.

No, it most certainly does not mean that.

Treasury rates are the rates that the US government gets for its debt, no more and no less. The US government is certain to be taking on more debt on an ongoing basis, now and in the future. If the markets perceived that this were a risk - that the risk of debt default were increased by the ongoing increase in debt - then interest rates would have to rise, because investors would demand to be compensated for the increased risk.

You might be confusing treasury debt with corporate debt - except, literally from today's news, "Corporate Bond Sales Push Further Into Record Territory", from that Socialist rag, the Wall Street Journal.
posted by lupus_yonderboy at 1:17 PM on December 4, 2013 [3 favorites]


...democracy doesn't have any particularly strong incentives for elected officials to do things that are bad now but will pay off in thirty years...

50% tax on gross income for all current and former elected officials until the pensions are paid in full.
posted by j_curiouser at 1:24 PM on December 4, 2013


401ks and IRAs and the like have a real hands on requirement. If you are 70 you shouldn't be heavily weighted in stocks. If the market slumps you shouldn't be selling wholesale. Select market sectors perhaps, but trying to market time is a fool's game. Consistent and prudent investment over time is the key. While most lost an average of 47% during 2007 I lost only 26% because of diversity. Now, all that has been made back, twice over. Fidelity, Vanguard, Putnam and other mutual fund companies have recognized that some people like a hands-off approach and have developed age specific funds that are targeted for retirement, and change their balance the closer they get to the targeted date. hey, Even pension managers have to manage lest the whole fund go bust.
posted by Gungho at 1:29 PM on December 4, 2013 [1 favorite]


Detroit's already burning.

I kind of wonder if Thanksgiving isn't basically an all access pass to DIY arson.


The fires have been happening for years. I would not connect the recent flurry to Thanksgiving. Much more likely fear for the future, or perhaps just random. Tragically the Heidelberg Project has been specifically hit multiple times.

I read this, on seeing income disparity earlier today. Not directly about Detroit, but seems relevant.
posted by mdn at 1:30 PM on December 4, 2013 [2 favorites]


dsfan:"This seems like a strong argument to require state and local workers to participate in social security going forward (a policy I think I agree with), but I don't think it presents an obviously fair answer for what to do in this particular situation."

It's a stronger argument for some fiscal integration between states and localities within those states. For example, some states have statewide purchasing pools, redistribute taxes, and otherwise give their municipalities a relatively dependable baseline of revenue regardless of the wealth of its particular residents.

That doesn't help so much if everybody up and moves to Florida or Georgia or Arizona, though. It would help with the immediate issue surrounding Detroit, though, where the core city is stuck without sufficient revenue to provide services to existing residents and maintain infrastructure for residents and commuters both, yet outlying areas are not so financially constrained.

Basically, we need to stop letting people skip out on the check when it comes due. Obviously, people should be free to relocate and it would be an administrative nightmare to continue collecting (relatively small amounts of) tax from past residents to cover future obligations incurred as a result of their having resided there. Thus, we're left with taxing larger groups and redistributing the money.

Everything has a lifecycle cost, much of which is not apparent until it gets old and worn out. This applies to your house, your car, nuclear reactors, trash dumps, and yes, cities themselves. We allow the people who are most able to afford the burden of the necessary maintenance/restructuring/whatever to skip out when the going gets rough, leaving those least able to carry the burden to fix the problems. Hence, Detroit.

Gungho: "Fidelity, Vanguard, Putnam and other mutual fund companies have recognized that some people like a hands-off approach and have developed age specific funds that are targeted for retirement, and change their balance the closer they get to the targeted date. hey, Even pension managers have to manage lest the whole fund go bust."

There is this concept, it is called specialization. This means we have IT people, we have accountants, we have police officers, we have doctors, and many other jobs. It is ridiculous to expect that everyone be their own fund manager. This is a good thing because it allows society as a whole to be more efficient because work is assigned to the individuals best suited for it. They get the work done faster and better because and the rest of us don't have to waste our time doing it slowly and inefficiently due to our inexperience. It is a complete waste of time and mental space for most people to understand anything beyond the broadest strokes of the financial markets. That doesn't mean investing might not make a nice hobby or that it isn't a job that needs to be done, but it does mean that an attorney's time is better spent lawyering instead of trying to manage their retirement accounts. It is even more ridiculous to blame them for failing to do something they probably didn't even know was a thing that was possible, much less necessary.

Also, average income individuals can't afford good advice individually. Better that it be provided as part of the retirement plan. Maybe we could pay one manager or a small group of them to manage the retirement accounts of all of a company's employees, thus saving all those similarly situated people significant cash compared to them each retaining a financial adviser.
posted by wierdo at 2:11 PM on December 4, 2013 [3 favorites]


valkyryn: " I thought that was a bad idea too."

corb: "Yeah, it's not as though the bailouts were entirely uncontroversial."

So do either of you have a counterfactual scenario where we don't bail out any of the institutions that failed and things turn out better than they did after we did bail them out? We recouped our investment with most of them, and the downside risks of letting major firms interconnected so tightly with the rest of the economy were significant. How do you justify doing nothing in this situation?
posted by tonycpsu at 2:14 PM on December 4, 2013 [2 favorites]


So do either of you have a counterfactual scenario where we don't bail out any of the institutions that failed and things turn out better than they did after we did bail them out? We recouped our investment with most of them, and the downside risks of letting major firms interconnected so tightly with the rest of the economy were significant. How do you justify doing nothing in this situation?

I have a counterfactual scenario that should partly satisfy and partly anger both sides of the political spectrum:

- Nationalize unavoidably failing banks. Dismiss all CXOs with prejudice (no golden parachutes) and replace them temporarily with their most senior subordinates, pending new hire replacements.

- Imprison all top-tier executives of bond agencies that applied top-level ratings to known bad investments for fraud.

- Require in-trouble but not dying banks to forgive debt from all non-corporate debtors, in their share of debt held, the total forgiven must be equal to the full amount of a federal cash infusion.

- And while we're at it, apply penalties to all participants in mortgage borrowing (loan officer, broker, and applicant) who signed falsified income amounts for "stated income" loans, and invalidate the mortgages and nationalize the titles to those houses, pending zero-dollar reserve auctions.

- Profit. Seriously. The government did the right thing with GM and showed a profit for saving it. We could have, and should have done so with the banks.
posted by chimaera at 2:48 PM on December 4, 2013 [5 favorites]


Profit. Seriously. The government did the right thing with GM and showed a profit for saving it. We could have, and should have done so with the banks.

Whether or not the government did the right thing with GM, it has been a loss.
posted by dsfan at 3:17 PM on December 4, 2013


It's a stronger argument for some fiscal integration between states and localities within those states. For example, some states have statewide purchasing pools, redistribute taxes, and otherwise give their municipalities a relatively dependable baseline of revenue regardless of the wealth of its particular residents.

That doesn't help so much if everybody up and moves to Florida or Georgia or Arizona, though.


And the thing is, it's things like these that make people move in the first place. People, by and large, do not want to spend their taxes on other people's cities and other people's problems. They want their tax money going towards things that benefit their neighborhood, their town, their city, their region. If you attempt to make this different, they will move to someplace that will let them. This is one of the reasons for the "rich white flight" in the first place.

And let me assure you, there are states that will be eager to take these people with their large tax base. Nor is it sane at all to say, "Well, you worked for the city for X years, now we're not going to give you your pension because we thought you would be paying more taxes on it and you're not."

Honestly, this whole thing raises issues of why Detroit needed, and was allowed, to declare bankruptcy at all, rather than just buckling down and figuring out how to pay off their debtors over a time period. If they stopped creating new pensions and just stuck to paying the old ones off, they would be able to make up the money relatively quickly, for example. Or hell, some creative solutions, like exempting people from their real estate and city taxes until they were able to pay the full pensions.
posted by corb at 3:28 PM on December 4, 2013


And the thing is, it's things like these that make people move in the first place. People, by and large, do not want to spend their taxes on other people's cities and other people's problems. They want their tax money going towards things that benefit their neighborhood, their town, their city, their region.

No, some people don't want to do that. The outlays of financial support from the blue states to red states is well-worn territory. And even the idea of benefits to their areas hasn't proven to be the case. Most of the low-tax havens people are moving to fall into these categories of exclusion rather than benefit: seniors, so they don't have to pay for any schools or family services; and the rich, because they don't want to pay for public schools or areas for the general public. And of course there's quite a bit of racial and economic prejudice involved as well.

Also, I should point out that the reverse was true in Detroit, where the black folk helped pay for the roads that destroyed their neighborhoods so that white people could get to work. By all reasoning, they should have been the ones moving out. Sadly, the realities of US social and economic mobility make it that much harder for minorities and/or poor to do that within Michigan, let alone the rich white folk enclaves like Phoenix or Ft Lauderdale.

If you attempt to make this different, they will move to someplace that will let them. This is one of the reasons for the "rich white flight" in the first place.

Actually, in the case of Detroit it was largely that white Detroit didn't want to improve the schools and municipal services of black Detroit. They took their case to the Supreme Court, it got the thumbs-up, and the mass exodus to places where they wouldn't have to fund better schools for black kids or protect black people from crime or provide black people medical services, began in earnest.

And let me assure you, there are states that will be eager to take these people with their large tax base.

Thanks for illustrating the competitive and predatory nature of the selfish elite.
posted by zombieflanders at 3:44 PM on December 4, 2013 [10 favorites]


Honestly, this whole thing raises issues of why Detroit needed, and was allowed, to declare bankruptcy at all, rather than just buckling down and figuring out how to pay off their debtors over a time period.

I take it you didn't read klangklangston's link.
posted by Mental Wimp at 4:04 PM on December 4, 2013 [1 favorite]


"And the thing is, it's things like these that make people move in the first place."

Tax flight's actually a pretty minor part of the overall flight. Much more important were racism, urban policies (sprawl/suburbanization), loss of manufacturing base, and rapid growth elsewhere, pretty much in that order.
posted by klangklangston at 4:33 PM on December 4, 2013 [2 favorites]


"I take it you didn't read klangklangston's link."

;) THAT'S WHY I KEEP POSTING IT
posted by klangklangston at 4:34 PM on December 4, 2013 [1 favorite]


Okay, klangklangston. I'll read the link. Put the kitten down. It's okay. I swear. It doesn't have to come to this.
posted by corb at 4:47 PM on December 4, 2013


It's a stronger argument for some fiscal integration between states and localities within those states.

You expect others to pay for Detroit's fiscal fuck ups? you see why that would never happen, right?
posted by jpe at 5:44 PM on December 4, 2013


From Boston Globe yesterday:

"HERE’S A fun fact that didn’t come up in yesterday’s City Council hearing: 141 cops in Boston earned a bigger paycheck than the mayor did last year. That’s right. Mayor Menino earns $175,000. If you count base pay, the Quinn Bill education bonus, details, and overtime, 141 cops earned more.
Another fact: Nearly a third of all Boston police officers earned more than Governor Deval Patrick. The governor earned $137,000 last year. About 600 cops took home more."


Boston police are already some of the best paid pubic employees IN THE COUNTRY. But the police union in Boston demanded a 25% pay raise. And the reason? Because the fireman got a 19% raise back in 2010. The mayor said no. And then in came the arbitrator. And here is the rest of the story:

"Disingenuous as the police union’s negotiating position may be, the arbitrator bought it. City councilors vote on the award Wednesday. Although one called the award “jaw-dropping” and others said it was the result of a “broken” system, there is little chance they will muster the political courage to vote it down. But this won’t be the end of the story. If the patrolmen get this raise, so too will the detectives and their superior officers. The real cost of this contract will be far more than the $87 million you have been hearing about. It will be more like $142 million."

And, yes, the city council voted in favor of it today.

This is exactly the problem. I am no enemy of public sector unions. Hell, I am a member of one myself! But to suggest that the unions are not part of the problem is ridiculous. They still have power in some places such as Boston. But they often don't use that power wisely or in the interest of the long term financial health of the city in this case. Make no mistake about it, this will eventually implode and we will look back at this day with this vote and understand why.
posted by Seymour Zamboni at 5:48 PM on December 4, 2013 [3 favorites]


> You expect others to pay for Detroit's fiscal fuck ups?

Detroit is not a person. Detroit didn't fuck up - a small group of extremely highly-paid individuals allowed the city to be looted, and no doubt profited handsomely from it.

None of the people now living in Detroit "fucked up". If there's any fucking going on, they were "fucked over".

> you see why that would never happen, right?

Because America is the land of short-sighted psychopaths?
posted by lupus_yonderboy at 6:05 PM on December 4, 2013 [8 favorites]


Returning - klangklangston, that was a good teaser link, but failed to go in depth into areas I'd personally, at least, be most interested in. Got any meat? I will no-shit read it top to bottom before returning if so.
posted by corb at 6:12 PM on December 4, 2013




Pope Guilty's link is astonishing - appalling. I keep thinking I'm unshockable by the blatant looting of our economy but, well...
posted by lupus_yonderboy at 6:24 PM on December 4, 2013 [1 favorite]


I was amazed to learn at the time that when a company files for bankruptcy, the order in which people are paid out is basically :

1. Banks
2. Other banks
3. some other banks



the banks, not being idiots, insisted on security for the money owed. the union negotiators, on the other hand.....
posted by jpe at 6:29 PM on December 4, 2013


None of the people now living in Detroit "fucked up".


that's right, I forgot that all the mayors voted themselves into office all those years. thanks for the correction.
posted by jpe at 6:30 PM on December 4, 2013 [2 favorites]


corb: "Honestly, this whole thing raises issues of why Detroit needed, and was allowed, to declare bankruptcy at all, rather than just buckling down and figuring out how to pay off their debtors over a time period. If they stopped creating new pensions and just stuck to paying the old ones off, they would be able to make up the money relatively quickly, for example."

Do you have a source for this claim, or is this just more aspirational truthiness? Pension obligations are only responsible for $3.5B of Detroit's $18B in debt. Even if we waved a magic wand to erase all $3.5B of that, I don't see any amount of "buckling down" that could begin to chip away at the remaining $14.5B, especially considering the city's services have already slashed.
posted by tonycpsu at 6:34 PM on December 4, 2013


But to suggest that the unions are not part of the problem is ridiculous. They still have power in some places such as Boston. But they often don't use that power wisely or in the interest of the long term financial health of the city in this case.

But then again, neither do the executives at banks or corporations. In an era where we're supposed to exercise every advantage and not count on jobs providing for more than a few years, can you really fault unions from using their leverage to extract as much money as they can, while they can? It certainly sucks for the city, but with the money those officers make, they can just take valkyryn's advice and move to somewhere that can provide basic services when the time comes.
posted by RonButNotStupid at 6:35 PM on December 4, 2013 [1 favorite]


"You expect others to pay for Detroit's fiscal fuck ups? you see why that would never happen, right?"

Racism? That they want Detroit to fail? A biological impediment to admitting their own culpability in the problem?
posted by klangklangston at 6:54 PM on December 4, 2013 [2 favorites]


Or the simpler answer, which is that they didn't vote in Detroit's leadership, bear no responsibility for the crisis, and would prefer to focus on their own backyard. It doesn't have to mean they want Detroit to fail, or are bad human beings, or are somehow ignoring their guilt. It just means that other concerns have priority.

Cities in a bad way get desperate for investment. So yes, they offer tax breaks to companies to come. Some even get stupid enough to build them infrastructure, assuming that it means the companies will come and bring the magic money with them. It's cargo-cult behavior, but it's understandable, at least. Not necessarily evil, or relating to campaign contributions, either.

Detroit suffered, as far as I can see, from the same thing a lot of other places suffer - they vote for a leader not based on competence at governance, but at how charming he was, or how much he happened to agree with them on social issues, or whether he looked better than the other guy. That's tragic, but not fixable as long as you live in a democracy. The bums should have been voted out, and they weren't.

Mind you - I don't think that justifies pension looting. The city of Detroit bears contractual obligations to its pensioners, and I think that it should be forced to pay those obligations. And I agree that no new spending ought to take place until those obligations are paid. No new hires, no new buildings, no new stadium.

But that doesn't make everyone else in the country responsible to give Detroit a hand for their own bad decisions - if only the bad decisions of electing and re-electing other people that made bad decisions.
posted by corb at 7:00 PM on December 4, 2013 [3 favorites]


In some strange tangential way, the odds of me ever buying an American big three auto has fallen even farther into the no way category. This stuff is disgusting, particularly to be happening in "Detroit, the motor city". Pff, way to go America. Keep up the self-cannibalism.
posted by buzzman at 7:00 PM on December 4, 2013


And before anyone asks, if it were happening in my city I'd say the same thing. Hell, it might well. We elected DeBlasio because he made everyone's dreams happy and they felt like they could identify with him, over a guy with actual skill in governance. If the city burns, we deserve what we get.
posted by corb at 7:01 PM on December 4, 2013 [1 favorite]


I hope that Detroit's museum isn't destroyed
posted by knoyers at 7:43 PM on December 4, 2013 [1 favorite]


"Or the simpler answer, which is that they didn't vote in Detroit's leadership, bear no responsibility for the crisis, and would prefer to focus on their own backyard."

Except that they did vote for the governor, and past state leaders, whose policies have had a significant effect on Detroit.

So, that's only the simpler answer if you want to ignore the history and context of Detroit's bankruptcy. Simpler to the point of disingenuously simplistic.
posted by klangklangston at 7:49 PM on December 4, 2013 [4 favorites]


We elected DeBlasio because he made everyone's dreams happy and they felt like they could identify with him, over a guy with actual skill in governance.

1) Anybody who'd vote for a politician who identifies with the 2013 Republican party- the party of burning the world down around us- on the grounds that they have skill in governance is smoking something heavy.

2) Any politician stupid enough to publicly come out in favor of dead kittens is too fucking stupid to dress himself, let alone run for office.
posted by Pope Guilty at 8:13 PM on December 4, 2013 [6 favorites]


I hope that Detroit's museum isn't destroyed

Judge Steven Rhodes said selling artwork at the Detroit Institute of Arts would not be a long term solution to the city's insolvency.

Also, it appears that there are secret talks underway to save the DIA.

I tend to agree with Judge Rhodes that selling off the DIA isn't going to help. Hell, it's not even a drop in the bucket. Preliminary reports value the collection at about $8.6 million.

I can't begin to imagine what a loss of tourist dollars breaking up the DIA would bring. I spend a lot of time there - I could sit all day in the Rivera Court, just absorbing - it's only a short drive to Detroit from here. Every time I'm there, even if I am the first one to walk in the door at 9AM in the middle of the week, the place is jammed to the rafters.
posted by MissySedai at 8:38 PM on December 4, 2013 [2 favorites]


> that's right, I forgot that all the mayors voted themselves into office all those years. thanks for the correction.

Sarcasm is demeaning to all concerned. Please refrain if you wish to be taken seriously

By this argument, we should have executed all Germans after the Second World War, since their leaders committed war crimes.

This is a particularly repulsive idea since the bad decisions happened far in the past. Many of the current inhabitants didn't live in Detroit at the time - many weren't even born - and many of the remainder didn't vote for the leaders who caused the damage.

I note also that the people above who are telling us that Detroit must be punished for the actions of its leaders decades ago aren't actually urging that those leaders also be punished. If you wished to discourage this behavior in future, surely it's more effective to punish the small number of corrupt or incompetent leaders than an entire city.

This is no surprise. America in 2013 is very big on punishing average people, but pathologically unwilling to punish the rich and powerful no matter what crimes or blunders they commit.

America could easily afford to help Detroit - heck, it would probably cost a lot less over a twenty-year period to help it out than it would to let it collapse and have to deal with the consequences - but I'm sure it won't, because many Americans believe that the hundreds of thousands deserve to be punished, and punished severely, for choosing corrupt leaders who screwed them over. A country where people honestly say things like, "If the city burns, we deserve what we get," it is a country that idolizes punishment over anything constructive.
posted by lupus_yonderboy at 10:04 PM on December 4, 2013 [10 favorites]


corb: "Or hell, some creative solutions, like exempting people from their real estate and city taxes until they were able to pay the full pensions."

Please explain how reducing revenue reduces the cost of already incurred pension obligations without resorting to the trickle down theory in all its severely discredited glory.

By the way, your theory of white flight is even worse. White flight plainly had fuck all to do with local control of local taxes. Making it out to be about taxes is like making the civil war out to be about states rights or trade policy. It's revisionist history designed to make (sometimes formerly) casually racist white people feel like less enormous assholes.

corb: "Cities in a bad way get desperate for investment. So yes, they offer tax breaks to companies to come. Some even get stupid enough to build them infrastructure, assuming that it means the companies will come and bring the magic money with them. It's cargo-cult behavior, but it's understandable, at least. Not necessarily evil, or relating to campaign contributions, either."

This completely ignores what got them where they are in favor of why they remain there. It's not building infrastructure for specific companies that bankrupts cities like Detroit, although it can and sometimes does (that particular issue causes more problems for local competition than anything else). It is the massive amounts of infrastructure required to support a no longer existing large population and industrial base that continues to exist and require maintenance and reconstruction, even if only to shrink it to a more reasonable size for current use. Who is going to pay for that when all those with means leave? Do you understand why this is not a sustainable model for a society?

I mean we could devolve back into a bunch of little city-states constantly at each other's throats, but I'd really rather not. The (euro-centric) world really has been a better place since that particular model of sovereignty mostly left us.
posted by wierdo at 12:09 AM on December 5, 2013 [2 favorites]


Gungho: “401ks and IRAs and the like have a real hands on requirement. ”
And that's why they're bullshit, dude. Expecting Mr. and Mrs. America to manage their retirement money with anything like the skill of a specialist fund manger is ridiculous. Especially when, because bonds pay essentially nothing these days, sometimes you can't get the returns you need to fund your retirement except by having a stock-heavy position. Not to mention all the people who tried to bail themselves out with their retirement savings — or what was left of them — and save their homes from foreclosure in the last few years.

I'm glad your investments have worked out for you. Millions and millions of your fellow Americans aren't in the same position.
posted by ob1quixote at 2:17 AM on December 5, 2013 [3 favorites]


So do either of you have a counterfactual scenario where we don't bail out any of the institutions that failed and things turn out better than they did after we did bail them out? We recouped our investment with most of them, and the downside risks of letting major firms interconnected so tightly with the rest of the economy were significant. How do you justify doing nothing in this situation?

Yes, actually. At least two of the Big Three automakers are, in my opinion and the opinion of many others, no longer really viable as commercial entities. Chrysler required a bailout and filed for bankruptcy. Ford did neither, but its financials aren't exactly rock solid either.

This is true for at least two major interrelated reasons. First, the Big Three aren't really automakers with a union, they're retirements plan that happen to make cars. Seriously, with you take legacy costs into account, Detroit pays almost twice as much per vehicle what foreign automakers do. GM required a bailout. Second, the Big Three's product lines haven't been particularly stellar for the last decade or three. There's an argument to be made that this has to do with corporate sclerosis, entrenched middle-managers being unwilling to take risks, but that has something to do with the influence of the union and the financial realities of that relationship. Asian automakers are making tons of money on small cars with lower margins. The Big Three can't really do that, because their labor costs are so high. And there's not necessarily room in their R&D budgets to put in the investment to come up with a viable competitor.

All of that being said: while the automakers, as corporate entities, seem to be increasingly non-viable, they still own a crap ton of valuable property. Real property, equipment, and IP. The Big Three might not be in a position to make adequate use of that capital, but that doesn't mean someone else wouldn't. Remember when Hostess went bankrupt last year? Someone else bought up those assets almost immediately and there was no Great Twinkie Shortage of 2013. Same would likely happen here. Someone would buy up those assets and try to turn them into a profitable manufacturer. The union would get screwed, as it would have no ability to force the new company to deal with it or to honor the contractual obligations of the Big Three. But so would most of the corporate and management flacks at the Big Three who have so efficiently contributed to their employers' demise. On the contrary, most of the union workers would probably find themselves employed pretty quickly--if at lower pay--while a lot of the former corporate employees might well not. The union guys do good work after all (No one's really arguing otherwise. Or at least I'm sure as hell not.), unlike many of the corporate guys.

Oh, and the collapse of the Big Three would also dissolve really crippling relationships with the auto dealer franchise networks. Boy howdy is that problematic. Reforming that entirely would actually require amending a lot of state and local laws, so that's another situation entirely, but simply cutting those ties and starting from contractual scratch would be a huge boost to the manufacturers. Dealers are actually another source of drag on manufacturers' profits.

So yeah. I think that would be a result which would have turned out better in the end. We have not recouped our investment with them--it's still at a loss, thank you very much--and we'd be in a position where American automakers could finally compete on the global stage. Hell, where they could compete at home.
posted by valkyryn at 4:01 AM on December 5, 2013 [1 favorite]


First, the Big Three aren't really automakers with a union, they're retirements plan that happen to make cars. Seriously, with you take legacy costs into account, Detroit pays almost twice as much per vehicle what foreign automakers do.

Getting back to the Headlines from a Mathematically Literate World post what does that mean? If Toyota paid $1 in retirement costs per automobile, does Ford pay $2? Assuming those numbers are considerably bigger, how does 'twice as much' compare with other costs associated with manufacturing? How does that take into account the possibility that other countries might provide citizens with more government services and automakers might not have to directly pay out as much to retired employees?
posted by RonButNotStupid at 5:06 AM on December 5, 2013 [1 favorite]


So, that's only the simpler answer if you want to ignore the history and context of Detroit's bankruptcy. Simpler to the point of disingenuously simplistic.


Klang -

All politics is local. When I vote for governor of Ohio I really don't think in terms of what he/she will do for Cincinnati, Columbus, Toledo, Westchester, Wooster, Youngstown, etc. I think in terms of what he/she will do for Cleveland because that's where I live, that's my sphere of influence and that's really about as far extended as I can realistically focus.

Cleveland is no stranger to the kind of malaise that has afflicted Detroit - of course to a lesser degree. We've had fifty years of incestuous politician-union hand jobbing and grift, of the city core being gutted as people moved to the suburbs (or Florida and Arizona...). Plenty of blame to go around, but what I can tell you is this: humans make rational decisions that are in their individual best interests. I have concern for my neighbors and want to see them do well, but when my wife and I relocate in the coming years it will be because our circumstances, needs and desires have changed. That decision will be made for us, by us, not for anyone else because we have no control over the others. What helps make that decision? Simple - 1) taxes, relative to what we receive in services, are ridiculous compared to other communities; 2) A school district that is failing; 3) Too small of a house and yard - we want more room; 4) Quiet - our location is too noisy; 5) Safety - in our block watch area we've had 12 break-ins since September.

I think these are pretty reasonable points and they're many of the same reasons why others around me are moving, too. Detroit went through this, many other communities go through this, and unless you are going to force people to stay where they are, it will continue to happen.

Simplistic? Hardly. The only thing simplistic is thinking that there are a few people to blame (e.g.: a politician you don't agree with, racism, etc.), when in reality these are rational decisions made by pretty rational and reasonable people.
posted by tgrundke at 5:11 AM on December 5, 2013 [2 favorites]


This is true for at least two major interrelated reasons. First, the Big Three aren't really automakers with a union, they're retirements plan that happen to make cars. Seriously, with you take legacy costs into account, Detroit pays almost twice as much per vehicle what foreign automakers do. GM required a bailout. Second, the Big Three's product lines haven't been particularly stellar for the last decade or three. There's an argument to be made that this has to do with corporate sclerosis, entrenched middle-managers being unwilling to take risks, but that has something to do with the influence of the union and the financial realities of that relationship. Asian automakers are making tons of money on small cars with lower margins. The Big Three can't really do that, because their labor costs are so high. And there's not necessarily room in their R&D budgets to put in the investment to come up with a viable competitor.

Japan (and Germany and the UK for that matter) also have extremely generous social security and universal health care, the two biggest contributors to labor costs. German manufacturers, in particular, also have pretty high rate of labor union worker pools. And they do it all without dissolving unions (with a disingenuous "oh, well, it was inevitable"), forcing workers to be paid less, removing their benefits, and stripping them of their rights.
posted by zombieflanders at 5:12 AM on December 5, 2013 [11 favorites]


the Big Three aren't really automakers with a union, they're retirements plan that happen to make cars

By that metric, the U.S. is nothing more than a retirement plan with an army.
posted by one more dead town's last parade at 5:14 AM on December 5, 2013 [11 favorites]


Simplistic? Hardly. The only thing simplistic is thinking that there are a few people to blame (e.g.: a politician you don't agree with, racism, etc.), when in reality these are rational decisions made by pretty rational and reasonable people.

Except we know in this case that it was about racism. They went to the Supreme Court to ask to be (institutionally) racist and were given the go-ahead. We know that the Michigan wants to fuck over Detroit because they pass bills aimed at Detroit. Sometimes they even slip up and blame Detroit directly. That's what klangklangston is talking about.
posted by zombieflanders at 5:15 AM on December 5, 2013




Plenty of blame to go around, but what I can tell you is this: humans make rational decisions that are in their individual best interests. I have concern for my neighbors and want to see them do well, but when my wife and I relocate in the coming years it will be because our circumstances, needs and desires have changed. That decision will be made for us, by us, not for anyone else because we have no control over the others.

That's fine. But there's also this thing called the Tragedy of the Commons which happens when a bunch of people indirectly cause something terrible to happen through their own individual, rational, self-interested decisions. I would think that as a society we should be able to recognize when this happens and provide relief to those harmed by it.
posted by RonButNotStupid at 5:21 AM on December 5, 2013 [3 favorites]


Getting back to the Headlines from a Mathematically Literate World post what does that mean?

The Big Three pay about 13% of the sales price of their vehicles in labor and legacy costs.
posted by valkyryn at 7:16 AM on December 5, 2013


Japan (and Germany and the UK for that matter) also have extremely generous social security and universal health care, the two biggest contributors to labor costs.

That is as may be, but it doesn't change the math for Detroit, does it?
posted by valkyryn at 7:18 AM on December 5, 2013 [1 favorite]


valkyryn: " That is as may be, but it doesn't change the math for Detroit, does it?"

No, so I'll offer you a deal: we take Japan's universal health/retirement benefits, and our auto workers compete on a level playing field.

Whaddya say?
posted by tonycpsu at 7:19 AM on December 5, 2013 [3 favorites]


Getting back to the Headlines from a Mathematically Literate World post what does that mean? If Toyota paid $1 in retirement costs per automobile, does Ford pay $2? Assuming those numbers are considerably bigger, how does 'twice as much' compare with other costs associated with manufacturing? How does that take into account the possibility that other countries might provide citizens with more government services and automakers might not have to directly pay out as much to retired employees?

The difference between the two was basically greater than 100% of the gross profit on a small car. Like Toyota could actually spend more money to design, build, and spec the car and make money, whereas GM could barely break even selling more cheaply made cars at the same price. And this is with pretty similar labor and factory productivity. It was more $1 vs $12
posted by JPD at 7:23 AM on December 5, 2013 [1 favorite]


That is as may be, but it doesn't change the math for Detroit, does it?

Which is why the absence of those solutions from your comment was conspicuous.
posted by zombieflanders at 7:26 AM on December 5, 2013


You guys on Team Liquidate can keep ignoring the fact that what that extra money is paying for is already taken care of for the foreign laborers, but all you're doing is making the case for having nationalized healthcare and a more generous Social Security that doesn't require us to funnel health insurance and seniors' retirement money through a network of profit-minded skimmers.
posted by tonycpsu at 7:27 AM on December 5, 2013 [5 favorites]


GM's problems were related to how we pay for healthcare - but a bigger issue for them was that 1) auto manufacturing became more capital intense so you had a smaller proportion of current employees contributing to a pension plan with a much greater proportion of retirees than any actuary assumed when they told GM how much to set aside. This was massively levered by the fact that GM went from selling like 65% of cars in America to selling like 25% or what ever their current market share is. How that happened is a long story - but its basically innovators dilemma + oil crisis + US support for Japanese exporters as part of Cold War policy. GM dropped the ball for sure - but even if they hadn't 65% share w/o some sort of barrier isn't usually sustainable.
posted by JPD at 7:28 AM on December 5, 2013


Also, it's not "almost twice as much." The real numbers are around $70 and around $45 depending on what year you're looking at.
posted by tonycpsu at 7:32 AM on December 5, 2013 [1 favorite]


tonypsu - the japanese national pension scheme isn't actually very generous - the payout is IIRC something like 8k a year.

Also Japan doesn't have single payer, although they do have something like medicare for everyone who isn't insured through their employer
posted by JPD at 7:33 AM on December 5, 2013


Universal =/= single-payer.
posted by zombieflanders at 7:37 AM on December 5, 2013


Direct labor costs have never been a problem for the US OEM's - and over the last 20 years+ even factory quality/productivity has not been a problem.
posted by JPD at 7:37 AM on December 5, 2013


JPD, you are correct on both counts, but the U.S. has a vastly larger number of retirees to pay for in "legacy costs" than the Japanese do, so you can't do the cost comparison solely in per-capita terms.
posted by tonycpsu at 7:38 AM on December 5, 2013 [1 favorite]


yeah but he was calling for nationalized health care which is single-payer (And something I think the US should have - so just pointing out that its not a reason why the US had these issues)
posted by JPD at 7:39 AM on December 5, 2013


The Japanese Welfare State is very weird and I don't understand it very well. It was very much driven by the whole life time employment concepts and the tacit agreement between the government and corporations to keep employment full in exchange for entry barriers and other things that would strike us as borderline illegal. I worry/wonder what happens to it as Japan itself changes.
posted by JPD at 7:42 AM on December 5, 2013


but the U.S. has a vastly larger number of retirees to pay for in "legacy costs" than the Japanese do, so you can't do the cost comparison solely in per-capita terms.

GM or the US? Because Japan def. has a much greater % of retirees than the US does.

If you are referring to GM specifically - then yes that's a big part of the problem. Toyota matured as a business in the 70's. GM in the 50's.
posted by JPD at 7:43 AM on December 5, 2013


I seriously don't care at this stage whose fault the financial mess is; it's inconceivable to me that anyone could argue that it's just fine to strip pensions from people, especially when they're not going to have any other source of income. What sort of point are people thinking they're proving here? Because all I can see is them proving they're heartless bastards who don't belong to the human race.

And, yes, if it's necessary to ensure people don't starve to death/freeze in winter/live in a post apocalyptic landscape, then the money to fix this should be taken via taxes from other people who have more. That's what the point of living in a civilised nation surely is.
posted by lesbiassparrow at 7:44 AM on December 5, 2013 [3 favorites]


JPD: " GM or the US? Because Japan def. has a much greater % of retirees than the US does."

Right, the big three. My point was that valkyryn wants to make such a big deal out of the gap between the two, but when you're amortizing over the retiree pool for companies that have been around so long, the legacy costs do most of the work, so in the thought experiment where the U.S. had even a marginally more generous welfare state, the legacy costs would evaporate quickly.
posted by tonycpsu at 7:50 AM on December 5, 2013 [1 favorite]


the japanese national pension scheme isn't actually very generous - the payout is IIRC something like 8k a year.

There's several levels of pension in Japan. The equivalent to $8k is guaranteed, kind of like (but not identical to) Social Security, aimed at the unemployed and students. There are additional public pensions and mutual aid pensions on top of that for those who spent time in the workforce and in some cases, specific jobs. What we would think of as 401ks, IRAs, etc are separate from that.
posted by zombieflanders at 7:55 AM on December 5, 2013


well you would never had created the obligations to begin with. But your math is wrong - especially for OPEB obligations which you PAYG because they aren't tax deductible - its not amortizing over the number of employees its amortizing over the number of units. The OPEB issue alone was enough to make the Big Three non-competitive.

I'm agreeing with you BTW. Absolutely the OPEB obligations would only exist in the US. Retirement would still be an issue.

Inevitably though a fixed cost business that sees its market share decline 30% is going to be in trouble no matter what.
posted by JPD at 7:56 AM on December 5, 2013


There's several levels of pension in Japan. The equivalent to $8k is guaranteed, kind of like (but not identical to) Social Security, aimed at the unemployed and students. There are additional public pensions and mutual aid pensions on top of that for those who spent time in the workforce and in some cases, specific jobs. What we would think of as 401ks, IRAs, etc are separate from that. well sure - but that's doesn't make the system inherently more generous. The basic pension is very low.
posted by JPD at 7:57 AM on December 5, 2013


but that's doesn't make the system inherently more generous. The basic pension is very low.

But we're not talking about the basic pensions, we're talking about pensions for workers. My response to valkyryn was in response to employee pension plans, which meant I was talking about those in both countries.
posted by zombieflanders at 8:01 AM on December 5, 2013


but GM also had an extremely generous pension plan. The problem isn't the generosity of the plans its that the business shrunk dramatically between creating those obligations and paying them off.

Toyota isn't fine because they have a government pension plan - they are fine because they have not had to shrink.

Other than the OPEB issues a more generous welfare and social security state would not have saved GM.

The point is - there is no one to point a finger at unless you think the CEO of GM in 1964 should have seen what the next 45 years were going to bring in terms of share losses and the shift to smaller more efficient cars.
posted by JPD at 8:07 AM on December 5, 2013


Productivity keeps going up, up, up (stratospherically). Profits keep going up (also, stratospherically). But money and benefits keep going down, down, down. Hmmmm.

Somebody's fighting over table scraps.
posted by Benny Andajetz at 8:23 AM on December 5, 2013 [5 favorites]


I think the per-capita debate is a bit of a canard. If healthcare and retirement were shared ( government) responsibilities, why wouldn't economies of scale kick in?
posted by Benny Andajetz at 8:31 AM on December 5, 2013


it would of course. Clearly big business that required any sort of skilled labor should want nationalized healthcare and (probably) nationalized pensions/retirement savings mechanism.

But the issue here is that some people claim "GM was screwed because of them greedy unions" and others claim "GM would have been fine if we had a Nordic Welfare State" and neither of them are really right.
posted by JPD at 8:37 AM on December 5, 2013 [2 favorites]


But the issue here is that some people claim "GM was screwed because of them greedy unions" and others claim "GM would have been fine if we had a Nordic Welfare State" and neither of them are really right.

I have no idea where you're getting that second part from. Neither Germany nor Japan have "Nordic welfare states." Germany's healthcare system is essentially what Obamacare would have been had we (a) not had to kowtow to Joe Lieberman et al in 2010, and (b) not been continually sabotaged by the GOP. Japan's pension system is a highly interconnected set of funding by both public and private entities, tightly regulated to (among other things) prevent either the front-loading or back-loading that's a huge problem with both private- and public-sector unions here. Both of them have detailed, strict labor regulations. Neither of them have become Stalinist enclaves that we are told will result from doing those exact same things. Indeed, both of these are things that would have been beneficial to both the Big Three and their workers. Neither are government takeovers of the means of production or socialist indoctrination. Furthermore, dismissals that basically say "well, that doesn't help Detroit now, does it?" are dodging the question.
posted by zombieflanders at 8:54 AM on December 5, 2013 [7 favorites]


And GM didn't fail for any of those reasons, and if what happened to GM happened to Toyota or Volkswagen those businesses would fail as well. That's sort of the point.

Volkswagen and Toyota still reserve for Pensions. GM reserved for Pensions. It was an Erisa sponsored plan - they had to fund to some level. The problem was that the Actuaries told them dating to the 60's "this is the rate you have to fund at" assuming the business was a battleship that just kept steaming forward making about the same amount of money and employing about the same amount of people. That didn't happen - so GM began to have to allocate more and more of its cashflow to pay for its employee retirement obligations. This meant it underinvested in its cars. Which meant the business did even worse. Which meant you had to reduce the work force by an even greater amount. Let me be clear - this was not the employees fault. When they bargained for those pensions GM willingly gave them to them because they were that profitable. That changed, the pensions couldn't, shouldn't, and didn't - but they were a big part of what happened.

People keep asserting that pensions are fully funded outside of the US - that just isn't true.. Volkswagen has 31 Bil Eur in Present Value of Retirement Liabilities - and holds assets in the its plan accounts of 7.228 Bil. So yes - if that business began to slowly shrink the way GM did - they would be unable to fund their pensions. (And Wolfsburg wouldn't be in great shape either)
posted by JPD at 9:30 AM on December 5, 2013


I tend to agree with Judge Rhodes that selling off the DIA isn't going to help. Hell, it's not even a drop in the bucket. Preliminary reports value the collection at about $8.6 million.

The original estimation of the worth of the collection was actually around $8 billion, not million. More recent estimates put the value under $2 billion -- less than initially expected, but a high enough value to "likely to inflame the passions of bondholders, unions and other creditors who see DIA masterpieces as a prime source for recovering the billions they are owed by the city. [...] Asked directly whether the DIA was included in his working draft of his plan, [Detroit emergency manager Kevyn] Orr said: 'We’d like to find a way to monetize the DIA.' "

Arts journalist Tyler Green, on this potential travesty: "Orr is apparently none-to-clear on what a mission-oriented, non-profit, educational institution is or how it is supposed to function."
posted by scody at 10:46 AM on December 5, 2013


I would think that as a society we should be able to recognize when this happens and provide relief to those harmed by it.

That's a great point. My argument is that a large segment of society, for whatever reason, is so tuned to their own needs (good or bad) that there simply isn't much bandwith or desire to start looking over the horizon at the bigger picture.
posted by tgrundke at 11:23 AM on December 5, 2013


Never fear, Detroit: Rand Paul is coming to save the day.
posted by Etrigan at 1:39 PM on December 5, 2013


tonycpsu: "Yes, by all means, let's just embrace the shock doctrine and enact the policy preferences of Ayn Rand Paul and the Koch Brothers."

FTFY.
posted by tonycpsu at 1:53 PM on December 5, 2013


Never fear, Detroit: Rand Paul is coming to save the day.

Good Lord. Tax cuts are the answer to every fucking problem under the sun for these idiots. Talk about a one-trick pony.
posted by Benny Andajetz at 1:58 PM on December 5, 2013 [1 favorite]


JPD: "Toyota isn't fine because they have a government pension plan - they are fine because they have not had to shrink."

Also because their US manufacturing business is not yet old enough to have any significant number of retirees. As of a couple of years ago, it was still zero.
posted by wierdo at 2:20 PM on December 5, 2013


Any politician stupid enough to publicly come out in favor of dead kittens is too fucking stupid to dress himself, let alone run for office.

That's a perfect example of what I'm talking about, though. The real-world answer, if you have two kittens on the tracks, and you have a choice of delaying tens of thousands of people for two hours to save the kittens, or let the trains run and risk the kittens dying, you should run the fucking trains. A competent administrator should run the trains. A nice guy should save the kittens. But people don't vote for the competent administrator, they vote for the guy who will save the fuzzy adorable kittens.

Politicians shouldn't have to make up bullshit fuzzy lies to get elected, and the fact that they do should make the stones weep.
posted by corb at 3:58 PM on December 5, 2013


But people don't vote for the competent administrator, they vote for the guy who will save the fuzzy adorable kittens.

You see, this is the oversimplification that wracks the Republican party. The election didn't swing on this one incident that you choose to focus on. There was no evidence, with or without kitten crushing, that he was a competent administrator, and ignoring the public will in order to show what a hard-headed administrator you are is not only stupid politics, but callous and emblematic of the "fuck-you" attitude currently embodied by Republicans.
posted by Mental Wimp at 4:25 PM on December 5, 2013 [2 favorites]


Yeah, cargo cult thinking like this (a good Mayor would kill the kittens, therefore I should be pro-kitten death) isn't the worst thing about the shambling horror of the modern GOP, but it's high on the list.
posted by Etrigan at 7:31 PM on December 5, 2013 [1 favorite]


I note, I don't actually care about the kittens one way or another, I was responding to the assertion that politicians need to actually care about this shit and it is stupid of them not to.

The election swung on other feel-good stuff. But it was still feel-good stuff and not actual policy suggestions that could be implemented.

And that, bringing it back, is one of the problems with Detroit, because people want to vote for the guy that promises them pie in the sky, rather than the one who says there is actually no realistic pie in the sky and they will have to accept that their city is never going to be great again and will just have to settle for being okay.
posted by corb at 7:41 PM on December 5, 2013


Summary:
There used to be a lot of money. Now there is no money. This includes:
  • Money which was actually mine
  • Money which I was promised
  • Money that I expected
Who made the money go away? We need a plan to get the money back. Especially the money which was actually mine, but also the rest of it, because I need that money.
posted by Joe in Australia at 7:44 PM on December 5, 2013


That's a perfect example of what I'm talking about, though. The real-world answer, if you have two kittens on the tracks, and you have a choice of delaying tens of thousands of people for two hours to save the kittens, or let the trains run and risk the kittens dying, you should run the fucking trains. A competent administrator should run the trains. A nice guy should save the kittens. But people don't vote for the competent administrator, they vote for the guy who will save the fuzzy adorable kittens.

Politicians shouldn't have to make up bullshit fuzzy lies to get elected, and the fact that they do should make the stones weep.


It isn't about that. Politicians need a certain set of skills- both administerial and social- to function effectively. Even if it's the right answer to let the train kill the kittens, actually saying to a fucking newspaper that you support killing the kittens is such a profound failure of judgment that it calls the rest of his competence into question. It demonstrates an inability to actually be a skilled politician.
posted by Pope Guilty at 7:59 PM on December 5, 2013


corb: " The election swung on other feel-good stuff. But it was still feel-good stuff and not actual policy suggestions that could be implemented. "

So it's not possible that a city in which registered Democrats outnumber registered Republicans 6 to 1 preferred the Democratic candidate because they thought he possessed the skills and experience necessary to do the job properly?

Maybe they thought his seven years on city council were an asset, while Lhota's service to the Giuliani administration were a liability?

It must be because the majority of New York voters that voted for de Blasio weren't thinking about policy?
posted by tonycpsu at 9:13 PM on December 5, 2013 [4 favorites]


I don't think it's possible to have a conversation about pensions and pension-funding unless the difference between defined-benefit and defined-contribution is crystal clear.

Defined-benefit: it's insurance basically. It's a gamble. You pay a certain amount each month into an investment, hope that the management of the investment is competent and that the economy doesn't tank. What you earn out of it could be much, much, much more than what you put in.

Defined-contribution: it's a savings account basically. You save a chunk of money. It's set aside. It earns a bit of interest, and then in the end, you get to use it again.

Number one is magical optimism, number two is realistic pragmatism.

All that being said, regardless of what kind of pension system people have, yanking a promised pension is serious bullshit. If the cities signed onto a contract, then they have an obligation to fulfill their side of it no matter how stupid they were to sign on to it.

Here are some pragmatic and human options I can think of for dealing with an underfunded defined-benefit pension: reducing the payout of a defined-benefit to say, 70% of what was promised, and/or putting a number-of-years limit on the payout of the defined-benefit, and/or reducing the payout year on year until a minimum is reached. All of these are much better options than just killing off the pension and leaving people stranded.

Alternatively, there is New Brunswick's shared risk system, which balances something between defined-contribution and defined-benefit although it might be a bit late for that in Detroit.
posted by molecicco at 1:53 AM on December 6, 2013


Defined-benefit: it's insurance basically. It's a gamble. You pay a certain amount each month into an investment, hope that the management of the investment is competent and that the economy doesn't tank. What you earn out of it could be much, much, much more than what you put in.

No, this is totally wrong. Defined benefit pensions are quite precisely defined. They use sound mathematical principles and are based on hundreds of years of insurance experience. On an actuarial basis you don't get out "much, much, much more" than you put in. You get out exactly what you put in. Maybe not you personally, but the group as an aggregate.

What goes wrong with pensions is when politicians try to defy the mathematics and cut off the funding that the mathematicians tell them are required, in the name of tax cuts.

It is the defined contribution plan that puts you at the mercy of chance. As a single person with one lifetime, you get one roll of the dice, one flip of the coin to see how the economy, health and longevity treat you. With the defined benefit plan you have thousands of people and many lifetimes that are pooled to spread the risk over both people and across time that dilutes and smooths out the risk. It is the difference in results between one coin flip and a thousand coin flips. Which would you bet your life on?

There is always the possibility that a pension will be run poorly, but that is simply a argument that pensions should be better managed, not that that they don't work. Mathematically, pensions are far superior to defined contribution plans for managing risk.
posted by JackFlash at 9:11 AM on December 6, 2013 [11 favorites]


What goes wrong with pensions is when politicians try to defy the mathematics and cut off the funding

Or worse the politicians game the mathematics. A simple way to screw a pension plan is to say "let's assume a 6.7% annual return instead of a 6.6% annual return. Hey, look, we don't have to fund the pension as much!". The actuarial stuff goes wrong too, in underestimating people's lifespans. Predicting future expenses has also proven to be impossible in the world of rapidly rising healthcare costs, doubly so in elderly people.

Even with good intentions, predicting how funded a pension needs to be is very difficult. And the politicians who manage the pensions have every reason to try to subvert the system; the problem won't show up for 30 years afterall.
posted by Nelson at 11:23 AM on December 6, 2013 [2 favorites]


The actuaries can screw up as well because the assumptions are predicated on a stable or growing population and pool of employees.
posted by JPD at 2:08 PM on December 6, 2013 [1 favorite]


>The actuarial stuff goes wrong too, in underestimating people's lifespans.

No. Despite all the innovations in heath care, the major changes in longevity have been in infant and childhood mortality. The slow increase in life expectancy after retirement was accurately predicted and accounted for by the Social Security actuaries over 75 years ago. The life expectancy at retirement increase has been a very steady one year per decade for the last century. There have been no surprises in longevity, despite what the ignorant pundits tell you. This is one of the most trivial of actuarial calculations.


>Predicting future expenses has also proven to be impossible in the world of rapidly rising healthcare costs, doubly so in elderly people.

You are confusing pension plans with health insurance plans. Pension plans have well defined costs. Health costs are an entirely different can of worms that is much bigger than just health insurance.


>The actuaries can screw up as well because the assumptions are predicated on a stable or growing population and pool of employees.

You are confusing a pay-as-you-go system like Social Security with pre-funded pension funds. Pension funds don't depend on stable or growing numbers of employees. You know how much in benefits you will need in the future based on the current number of people employed and in retirement. You handle those benefits using past and current contributions by current employees and employers. If you put in the proper contribution each year that the person is employed, you don't need to put in any more after they retire. It does not require new future employees.
posted by JackFlash at 11:17 PM on December 6, 2013 [3 favorites]


Well no. Issue one is that when shrinking firms make large restructurings they usually vest pensions with shorter service lifes but full benefits than the actuaries assumed when they told them how much cash is to be set aside. Secondly the degree to which funds are allowed to be underfunded under ERISA means that there is very commonly a PAYG component. Not to mention OPEB liabilities are always PAYG.
posted by JPD at 5:53 AM on December 7, 2013


You are confusing pension plans with health insurance plans. Pension plans have well defined costs.

My understanding is that many government employee retirement plans include both a cash pension payment and a promise of health insurance, at least until the former employee turns 65 and gets Medicare. I don't understand the details of how those two retirement benefits are funded in typical cases; can you explain? I can see how the healthcare costs are not well defined, but they are still obligations.

Colloquially when we hear about "the government pension problem" on the news they are also referring to the growing cost of promised health insurance. Honestly I'm out of my depth here, but here's a couple of references for California: 1, 2. Going back to the posted articles about Detroit, the Detroit Free Press reports "Now, there’s no doubt that retiree health care and pensions are at risk. A change to health care coverage is planned for March, but cuts in pensions remain unknown and painfully uncertain."
posted by Nelson at 8:24 AM on December 7, 2013


Health insurance is indeed a difficult problem, but that is separate from the pension issue. People tend to lump the two, just like they do in the Social Security/Medicare debate. Health insurance is a national problem that goes far beyond issues of pre-funding, pay-go, underfunding, rising rates, etc. Until the country faces up to really reforming its dysfunctional medical system we simply are going to have to pay for it one way or the other, unless you propose rationing healthcare.

But my original comment was on the riskiness of defined benefit vs defined contribution pension plans, not health insurance. Traditional pensions are a well defined, mathematically tractable, manageable benefit.

>the degree to which funds are allowed to be underfunded under ERISA means that there is very commonly a PAYG component. Not to mention OPEB liabilities are always PAYG.

Well, ERISA pertains to corporations, not municipalities, the topic of this post. But all you are saying is that if pensions are managed badly, they turn out badly. No argument there. ERISA rules should be tightened. And OPEB pertains to health insurance which is an entirely different, messy issue.
posted by JackFlash at 9:04 AM on December 7, 2013


Maybe government health care and pensions are structurally different, but my understanding is that both are simultaneously bankrupting Detroit and both are subject to renegotiation now. I agree that the cash pension part of a government retirement program is more tractable than the health care obligation part. But both expenses are obligations local governments have made to retired employees.

The reason I keep coming back to health care costs is that I think one way out of they government employee retiree obligation mess is to control health care costs. Which Obamacare is a first step towards doing. And I'll be bold enough to say a real solution does include "rationing". US spending on healthcare is terribly wasteful, particularly compared to the outcomes we get for our money. There has to be some sort of spending control. Detroit can't afford to pay for an MRI every time a government employee has a headache.
posted by Nelson at 9:17 AM on December 7, 2013




Robbing Illinois's Public Employees
Given what happened in Detroit and Illinois, public employees have no reason to believe that any pension they obtain through collective bargaining will actually be there for them in retirement. “The level of cynicism and distrust that every public employee in this state feels right now is massive,” says AFSCME Illinois’s Roberta Lynch. Future public employee contracts will likely feature nominal wage hikes, in exchange for significantly lower future retirement security, paradoxically hurting local economies. “Cities cannot strengthen local economies by cutting the buying power of retirees,” says Jordan Marks, executive director of the National Public Pension Coalition.

The biggest consequence of disappearing pensions would be similar to what we’ve seen in the private sector, a conversion into defined-contribution, 401(k)-style plans. These plans impose 46 percent higher costs than pension plans, according to the National Institute for Retirement Security, with much of that money landing in the hands of Wall Street investment managers. And 401(k)s have contributed to a looming retirement crisis for workers, who are accruing debt faster than they generate savings, according to a report from the research firm Hello Wallet.

Not only would public employees suffer from a shift from pensions to 401(k) plans, so would the entire economy. Public pension funds, which distribute benefits to workers, hold $3 trillion in wealth, and they invest that money in everything from mortgages to infrastructure. Because public pension funds have a long time horizon, they can invest in long-term projects in ways other investors cannot. Shutting them down would radically transform what gets investment capital in America, and over time, funding would shift away from safer, long-term projects and into shorter-term investments. This increased risk through chasing short-term profits was a major cause of the financial crisis.
posted by zombieflanders at 9:10 AM on December 9, 2013


Given what happened in Detroit and Illinois, public employees have no reason to believe that any pension they obtain through collective bargaining will actually be there for them in retirement.

The unions need to specify who is to control the pension, what actuaries will determine contributions, and who underwrites it. I would be in favor of governmental guarantees of worker pensions, both public and private, and taxing for-profit entities to back them up.
posted by Mental Wimp at 12:09 PM on December 9, 2013 [2 favorites]




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