When the gimmicks run out: Part 2, ‘They want us to die’

February 26, 2013 | Argentina, Capital markets, Inflation, New York, Pensions, Speculation

[Continued from yesterday’s Part 1.]


By:David A. Smith                             


Yesterday’s post introduced us to New York’s state budget problems (via a this New York Times (December 19, 2012) article), which over the last decade or so have been covered up with ‘fiscal gimmicks,’ all of which have now been exhausted – all but one, that is:


We’ve been covering the problems up to now


The report also questioned a new borrowing mechanism that allows the state, local governments and public institutions to reduce their pension contributions in the short term in exchange for higher payments, with interest, over the long term.


Illinois has already done this, with bad results: 


Not good.  Definitely un-good.


To say Illinois faces a hole in funding its public employee pension systems is like saying the Grand Canyon is an impressive ravine or the Mindanao Trench a good-size gully.

Indeed, “hole” is hardly an appropriate word. “Abyss” and “chasm” come readily to mind, with “bottomless pit” not too far away.


Personally, I think this is moral fraud barely short of criminal.


The report called the mechanism a gimmick that amounted to a “slippery slope” for the governments involved.


The state comptroller, Thomas P. DiNapoli, defended the borrowing mechanism as a necessary step during tough economic times, calling it “an effort to deal with real-life challenges.”


DiNapoli: Okay, so maybe it’s not such a good grip.


It’s discouraging to hear a public official defend such fiscal nonsense.


But he praised the report as a road map for future reform and said he hoped it raised awareness about the state’s financial challenges.


“Much of this is going to come down to some very tough choices that are going to have implications in a very direct way on the people of our state,” Mr. DiNapoli said.


Yes, they’ll have to be made in the future … because they aren’t being made now.  And they’re getting worse, as they have already got worse in Argentina (as reported in the Economist (February 16, 2013) (blue font)::


Despite the legal precedents [ordering them to pay contractual pension benefits – Ed.], Ms Fernandez and Diego Bossio, the head of ANSES, have refused to bring in universal indexation for pre-2009 inflation.


When governments go broke, they start ignoring their own laws, on grounds of ’emergency’ or quibbles about contracts. 


Recent massive anti-Kirchner demonstration


In November Mr Bossio [Head of ANSES – Ed.] stated that the agency had used the “majority” of its funds to provide pensions to people who lacked them altogether,


Then they use the power of the state to force people to fight or their rights, spending time and money:


Instead, they have required every pensioner seeking such compensation to file suit.


As soon as this happens, government becomes consumed by these disputes, and the machinery of government is gummed up with needless and entropic litigation.


More than 450,000 cases now clog the courts. Meanwhile, ANSES has been granting only around 1,500 new claims for higher benefits each month. In contrast, it rejected an average of 6,000 last October and November.


The judiciary—already in conflict with Ms Fernandez Kirchsner over the constitutionality of a law regulating the media [That’s the one making it a crime to report inflation statistics – Ed.] —has contested the government’s strategy of delay.


Nations need a strong rule of law because without it, populists can morph inexorably into dictators, bringing in their wake inflation and then hyperinflation.


Looks good on me, doesn’t it?


Last June the Supreme Court ordered ANSES to prepare a written report explaining how it allocates its budget and why it would not automatically approve all cases resembling Mr Badaro’s.


In November Mr Bossio responded that the agency … could not afford to help the neediest Argentines if it paid all retroactive claims.


“We can’t afford it, so we’re not obligated to do it.”  Perhaps New York should try this method of balancing its books. 


Mr Bossio concedes that workers who paid into the system are entitled to the real value of the pensions they were promised.


Please note that entitled to it does not mean will receive it – one of many sophist dodges used by charlatans throughout history.


However, he notes that payroll contributions only finance 55% of ANSES’s benefits. The rest comes from general revenues, such as value-added tax. “Anyone who buys a soda at a kiosk is contributing,” he says. “If they need help, why should they not receive it as well?”


This gentleman is a verbal shyster on a par with Argentina’s economics minister: notice how he and the Kirchner government went from “this is a government obligation” to “everyone knew it was impossible” with basically no interval in between.


Yet to critics Mr. Bossio’s plea of poverty rings hollow.


OI never said I was poor: I said you were poor


For the past five years Argentina has not issued debt to the public, because investors have demanded prohibitive interest payments.


They’ve demanded ‘prohibitive’ interest payments because Argentina has a history of ignoring its obligations and stiffing anyone stupid enough to fund them.


Argentina burned its boats to the capital markets long ago.


Think that hurts our chances of being rescued?


Having run out of foreigners to stiff, the government then had to seize money from domestic sources.


Facing a financing crunch, in 2008 Ms Fernandez nationalized the country’s private pensions.


The problem is, seizing assets doesn’t make them any larger, and in fact it reduces the economy, because no one with a brain will create wealth that someone else can readily seize. 


She has since turned ANSES into something of a public slush fund.


‘Something of’?  I presume the Economist is just being understated to avoid a needless libel suit.


In the past four years the treasury has sold the agency over $10 billion of bonds at paltry interest rates.


Fortunately, that could never happen in America. 


The bigger the bills, the less each one is worth?


The president has used the proceeds to fund popular projects, such as low-income housing, infrastructure and transfers to poor families with children.


Those are worthy causes, to be sure, though forgive me for concluding they have been done solely for populist public relations, not for substantive effect.


Meanwhile, in recent years the returns on ANSES’s investment portfolio have lagged behind Argentina’s estimated inflation rate of 25% (the official rate is lower, but is widely known to be doctored).


Fortunately, this could never happen in America.


As the courts process the claims, more pensioners will eventually get what they are owed.


But the wheels of justice move slowly, and Ms Fernandez has less than three years left in office.


Unless she tries to change the Argentinian constitution, which has been mooted about.  It wouldn’t be the first time. 


“Socialists always run out of other people’s money.”


Moreover, with every day that passes fewer people remain who were receiving benefits before 2009. “It’s their sick little game,” says Juan Alberto Suarez, a 79 year-old whose lawsuit has not yet been resolved eight years after it was filed. “They want us to die before they have to give us what’s ours.”


Fortunately, this could never happen in America).


As one example of the budget pressures cities are facing, Mayor Stephanie A. Miner of Syracuse said her city’s annual pension costs had increased 50% since she took office in 2010, to $30 million from $20 million. “If you say to the municipality, ‘You’re just going to have to figure out how to pay for it,’ what you are saying is that now bad people aren’t going to be arrested, fires aren’t going to be put out,” she said. “Snow will not be plowed from the roads. Trash will not be collected.”

No snow plowing for you, Syracuse

All these things are happening in Detroit today.

“And where are we going as a society if we cannot provide those basic, essential services?”


To Argentina?


I object to that comparison