Pension Obligation Bonds

Link: https://marypatcampbell.substack.com/p/pension-obligation-bonds#details

Graphic:

Excerpt:

2015: Why are Pension Obligation Bonds OF THE DEVIL? A Lesson from the Dollar Auction  

http://stump.marypat.org/article/191/why-are-pension-obligation-bonds-of-the-devil-a-lesson-from-the-dollar-auction

The dollar auction is a truly evil game. I used to forbid people from playing it at Mathcamp. That’s not a joke.

I had a really ugly graph on that post, and yes, I’ve gotten better with the graphs over the years. The ugliness of that graph was a partial inspiration to seek solutions. (Other ugly graphs as well).

You can barely see it, but there was a POB between 2003 and 2005. It barely made a dent in the unfunded pension liability.

And what then? In the ten years since 2005, Illinois underfunded the TRS pension fund by at least a billion dollars a year.

With regards to contributions, there was a choice on the part of the “government”.

With regards to all the other reasons for shortfalls — investment experience, experience in salary changes and longevity — the government had less direct control. But they definitely had a choice with regards to how much of the budget to apply to the pensions.

And every damn year, the Illinois government made a conscious decision to shortchange the pension. That was not an accident.

POBs are most often used by governments that were shortchanging the pensions, or goosing the benefits in insane and seemingly sane ways, to paper over said shortchanging. This farce lasts only so long.

Author(s): Mary Pat Campbell

Publication Date: 20 Jun 2022

Publication Site: STUMP at substack

What Pension Funds’ Riskier Strategies Mean for Future Retirees

Link:https://www.wsj.com/podcasts/google-news-update/what-pension-funds-riskier-strategies-mean-for-future-retirees/439e4dbc-86f1-4431-8ada-14345feb42fd

Excerpt:

Heather Gillers : So alternative investments are typically not assets that can be traded on the public market like stocks and bonds, where you know the price, you can buy them and sell them any time. They’re fairly liquid, very liquid. Alternative assets. On the other hand, are private market assets, they’re typically illiquid. So examples would be like private equity where you’re investing in private companies, not in publicly traded stocks, or infrastructure like roads and bridges, or real estate, apartment buildings, hedge funds was a long time popular alternative asset that’s lost some of its favor with public pensions. Private credit is one that’s gaining steam. That’s private loans to companies. Not bonds that are traded on the public markets, but private loans.

J.R. Whalen : So from an investment perspective, how are these alternatives different from traditional things like stocks and bonds?

Heather Gillers : So stocks and bonds are traded on public markets. You can pretty much always find a buyer. You can always find out how much it costs. And most importantly, like you can pretty much cash out any time. Whereas an alternative investment, you’re probably planning to hold it for 5 or 10 years at the minimum. And if you do have to sell it in an emergency, you could end up getting a lot less than you hoped.

Author(s): Heather Gillers, J.R. Whalen

Publication Date: 20 Oct 2021

Publication Site: WSJ podcasts

Jason Riley: Thomas Sowell’s Unique Insights on Race, Economics, and Politics

Excerpt:

Thomas Sowell is one of the most influential economists, syndicated columnists, and social critics of the past half-century, having authored provocative, best-selling books on everything from race relations to childhood development to, most recently, Charter Schools and Their Enemies. His masterworks include Knowledge and Decisions, which uses Friedrich Hayek’s insights about distributed information to explain both how markets work and why intellectuals disdain markets; A Conflict of Visions, which explores the ideological origins of political struggles; and Basic Economics, a best-selling primer now in its fifth edition.

Sowell’s inspiring life—he was born black and poor in North Carolina in 1930 and received his Ph.D. from the University of Chicago at the age of 38—and expansive work are now the subjects of a new documentary, Common Sense in a Senseless World (watch here) and a forthcoming biography titled Maverick.

Author(s): NICK GILLESPIE

Publication Date: 24 February 2021

Publication Site: Reason

What Wall Street’s ‘Short Squeeze’ Means for Investors and Regulators

Link: https://knowledge.wharton.upenn.edu/article/what-wall-streets-short-squeeze-means-for-investors-and-regulators/

Excerpt:

The consternation over the stock price surges at GameStop and AMC is rooted in their disconnect with their financial performance – both companies are losing money, made worse by the pandemic lockdowns.

The other shoe is yet to drop for those who bid up the share price of GameStop, according to Indarte. “I think we’re going to see more pain felt potentially by the retail investors that are in effect bidding up the price of GameStop,” she predicted. “It’s hard to justify the prices that we’ve been seeing for the company, based on the company’s fundamentals.” In the latest quarter, GameStop reported a 30% fall in revenues to $1 billion and a loss of $18.8 million. Similarly, AMC has also shuttered most of its theaters, and recently secured $917 million in financing to stave off bankruptcy.

In addition to the soundness of its fundamentals, a company’s stock price can also be driven by investor sentiment, “but there is large heterogeneity between different companies for the importance of both,” according to Binsbergen. Much of the price discovery depends on the liquidity and the total market capitalization of the stock, he noted. Small and illiquid stocks are more susceptible to non-fundamental price movements than larger stocks, he explained.

Author(s): Jules H. van Binsbergen, Sasha Indarte

Publication Date: 29 January 2021

Publication Site: Knowledge @ Wharton