P.E.R.S.: LIES, DISTORTIONS, HALF-TRUTHS AND FRAUD
August 29, 2012
A Retort to Paul Cleary
I have been researching PERS (Public Employees Retirement System) or this Fraud and Swindling Scheme, as Kindleberger would say: for 12 years and in that time I have never found anyone in the State of Oregon who understands PERS including Paul Cleary.
1- [Of course, from my background, I have an advantage: a Market Analyst for 30+ years consulting for Banks, S & L’s, Mortgage Companies, Bond Funds, Cotton Growers, Mills, Merchants, Grain Buyers, Users, Feed Lots, Duck Farms, Crude Oil Marketers, Soybean Crushers, various FCM’s and others. I was ranked #1 out of 20 + Analysts with PH.D.’s at Shearson after one year and offered the Head Jobs at both Merrill Lynch and Pru- Bache in NYC]
2- [An analyst is paid to give forecasts that make money for clients. If you perform, you are paid very well, and if you don’t, you are fired. A National Wire House or FCM is not going to allow someone to speak and write on markets to 500 plus offices around the globe unless you can perform with accuracy: that is a fact. You are paid by performance not degrees. The Oregon State economist wouldn’t last 6 months]
PERS is really very simple. The key is the discount rate which calculates the capitalization for the pension. All PERS accounts in Oregon use the 8% discount rate. There are no exceptions. This is fixed and is not a variable. If you do this in the private sector you will go to prison. What states do is a lot worse than Wall Street, which is why PERS must be shut down.
What is a discount rate? It is an assumed rate, on future returns, on assumed future capital. It’s all based on assumptions. By law the private sector must use the AAA Corporate Bond Rate, which is usually between 3 – 5%. The reason is that, it is supposed to be a riskless rate of return to insure it will be paid and the company will not go bankrupt.
State Pensions use a risky rate of return because the taxpayer and his property becomes de facto the corporation or the insurance company for the pensions. In other words market risk is shifted to the private individual from the government employee regardless of the risky discount rate. Naturally when the private sector finds out these facts, he becomes outraged and the PERS sector goes into hiding & spews propaganda.
Let’s backtrack for a second. The TOP 20% of all citizens in the USA, excluding home equity, have a grand total of $60,000.00. Only 2.8% of all citizens including home equity are 1st generation millionaires. Only 11% of citizens 55 and older have over $210,000.00. Regardless of what you see: new cars, new fancy houses, and the latest fashions the average citizen has less than $15,000 in savings. What you see is an illusion of wealth: it is not reality.
let’s compare that to PERS.
Assume a savings at age 55 of $100,000.
PERS Tier I: Money is doubled: $200,000 times 8% = $16,000
(Their contribution is zero)
Private: $100,000 (No Doubling of Money) times 4% = $4,000.
(They contribute all of the money)
PERS is 400% more than the private sector at this point.
this does not include PERS Benefits: 2% COLA every year until death,
no management fee, health benefits, deferral from state income taxes of 10%, and a perpetuity clause. [Unlike a private pension] That’s more like a 14% + Annuity as compared to the private sector that pays 4%.
The best way to look at this is: how much capital is needed to throw off $50,000 per year at age 55: the average 30 year PERS Pension? If you use the 8% discount rate it is $625,000. If you use the 4% discount rate it is $1,250,000. Use a calculator on the Net. The key to PERS is the discount rate, which is never mentioned.
PERS is actually saying that if they worked in the international competitive market sector with international risk they could have saved $1,250,000 at age 55. Are you kidding? Look at the facts!!! These people are delusional: what do you think?
I really want to thank Mr. Cleary for his article because he clearly demonstrates his lack of understanding regarding Capital Management and Elementary Finance. He reminds me of the personal finance teacher at Springfield High School who had filed personal bankruptcy 3 times: competent to teach?
Mr. Cleary goes on about market returns: gain of 35% in 2009 and loss of 44% in 2008. Of course Mr. Cleary thinks he is fooling you because if you use the geometric mean PERS is still behind 24.4%: the true facts. What he obviously does not understand is that these returns are a reflection of volatility: this is more like an aggressive commodity fund. Good Managers have a low beta, low Standard Deviation, and a return above the index average. High volatility means there are too many risky assets in the portfolio.
PERS is a Ticking Time Bomb.
Fact: PERS is trapped. That is why you have to shut it down. The 200 year average for the stock market is 6.5 – 6.9 or 6.7 as the middle of the bell curve - not 8.00: a Fraud. The 200 year average for bonds is less than 3%. If your allocation is 20% bonds (riskless assets) and 80% stocks (risky assets) you will barely make 8%. This leaves little room for error: too tight: back to the geometric mean. See, from 1965 – 1980 the stock market lost 4%. What if we experience that again? Draw your own scenario. (Remember, you are the insurance company).
Pension Obligation Bonds were sold to extend the PERS debt and place it on the next 2 or 3 generations. Jon (Wall Street Crook) Corzine called POB’s “the dumbest idea I ever heard of….It’s speculating the way I would have speculated in my bond position at Goldman Sachs”.
Cleary states that 120 PERS Employers sold POB’s on “their independent financial evaluation”: Financial evaluation? Nonsense, where is the probability study? You don’t just dump 60 million into an investment for which you, the insurance company, must pay in 20 years without a thorough probability study of this paying off: to do otherwise is just plain foolish.
Who is going to pay for this debt if the investment loses money? You, the insurance company, and taxpayer will pay for this over the next 2 to 3 generations. Isn’t it great that both Mr. Cleary and the Springfield School District believe we should place taxes on innocent children? See, these children, by law, can’t vote.
Mr. Cleary goes on about the Oregon Personnel except he doesn’t tell you, the insurance company, that PERS payroll cost will rise from 18% to 21% - 24%, and then to 35% in 2013. In other words, they can’t make the money needed to pay the pensions, so you and your posterity, the insurance company, will pick up the tab.
was Nietzche who said: “That which is about to fall deserves to
PERS must be shut down because it is the gift that keeps on TAKING.
HOW TO FUND OREGON GOVERNMENT: THE SOLUTION:
Actually, this is how to fund Lane County and the School Districts: each employee takes out a $100,000 loan at 3.5 % against his house with a balloon payment after 7 years.
He places that money in the PERS account which will make 8%. That is a gross profit of $4,500.00. They pay 50% of the profit to the government agency. If you have 500 employees you will receive $1,125,000 per year which will fund their govt. agency.
Problem is Solved and the PERS member takes the risk: not the taxpayer]
[The Golden Rule applied: Do unto others as you would have those do unto you]
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You have to understand that PERS is more like a financial paper mill. In order to pay the retirees they keep putting more people into PERS. And, if you check the records they keep putting more employees into PERS to keep it going, and they keep hiring more PERS employees to keep the system from going under: these facts have never been reported. It is obvious that this is going on.
(Potential Idea: Mr.Cleary. Would you borrow $100,000 at 4.5% against your house and put that money in the stock market with a 40% probability of making 8%? No rational, reasonable person would do this)
� 2012 - Fred Starkey - All Rights Reserved