Category: Investment

Whose risk is it, anyway? Part 4, If the funding ratio falls below 80%

16 January, 2014 (09:00) | Actuaries, Bankruptcy, Bonds, Detroit, Investment, Kevyn Orr, Municipal bankruptcy, Municipal bonds, Pension funds, Public choice theory, Risk, Speculation, US News |

By:David A. Smith   [Continued from yesterday’s Part 3 and the preceding Part 1  and Part 2.]   In the three days up to this point, we’ve discovered that the City of Detroit, not its employee-retiree pension funds, owns the risk of fund underperformance, meaning we have a classic case of moral hazard combined with principal-agent risk.  […]

Whose risk is it, anyway? Part 3, Unrealistically high projected rates of return

15 January, 2014 (09:00) | Actuaries, Bankruptcy, Bonds, Detroit, Investment, Kevyn Orr, Municipal bankruptcy, Municipal bonds, Public choice theory, Risk, Speculation, US News |

By:David A. Smith   [Continued from yesterday’s Part 2 and the preceding Part 1.]   In yesterday’s post on the net unfunded liabilities of Detroit’s two principal public-employee unions (the non-uniformed GRS and the uniformed FRP), we had reached the point of knowing that Detroit was on the hook for any shortfalls, even as the pension funds […]

Whose risk is it, anyway? Part 2, Negative twelve percent return

14 January, 2014 (09:00) | Actuaries, Bankruptcy, Bonds, Detroit, Investment, Kevyn Orr, Municipal bankruptcy, Municipal bonds, Pension funds, Public choice theory, Risk, Speculation, US News |

By:David A. Smith   [Continued from yesterday’s Part 1.]   Yesterday’s post, the first of four parts in this multi-parter, finally started our blog process of explaining the arcana of pension fund investment management and its implications for failing cities and municipal bankruptcies.   Principal sources used in this post Pension and Investments (April 15, […]

Whose risk is it, anyway? Part 1, 52% of the obligations

13 January, 2014 (12:21) | Actuaries, Bankruptcy, Bonds, Detroit, Investment, Kevyn Orr, Municipal bankruptcy, Municipal bonds, Pension funds, Public choice theory, Risk, Speculation, US News |

By:David A. Smith   Throughout my ongoing posts about municipal insolvency and municipal bankruptcies (Chicago, Detroit, Hamtramck, Harrisburg, Jefferson County, San Bernardino, Scranton, Vallejo) , two themes have dominated the liabilities side:   Firefighters gather in front of the federal courthouse protesting possible pension and public safety cuts during a Detroit bankruptcy hearing on July […]

The pain in Spain takes pensions down the drain

29 May, 2013 (09:13) | Eurozone, Global news, Investment, Pensions, Spain |

“Repeat after me, my dear: the pain in Spain takes pensions down the drain”   By:David A. Smith   The capital needed to provide retirement income is supposed to be invested in the safest of securities, so that when the elderly come to need the money, it will be there – and if the pension […]