At this point there are no "good" answers, but the path to the "right" answer is pretty clear, it is unsustainable to balance the retirement of a few on the labors of others.
I've made a number of suggestions to folks in Sacremento, pretty much anyone who asks and some that don't. On various ways the system might work. One outcome though is you don't get "lifetime income" unless you do what Mr. Money Mustache suggests and convert your lifestyle into something that can survive on a 3-4% annual withdrawal rate of your accumulated benefit.
There needs to be a "retirement" value for government employment that results in a good retirement but not extravagant. Sorry, but once you start passing the fifty thousand in retirement your getting a bit much. I would cap any retirement at median for your region, with minor and I mean MINOR boosts to cover medical for special circumstances, like really hurt in line of duty.
Go look at the bad retirements that people are paying.
I think the whole public servant thing is largely a myth.
For what its worth, its pretty easy to talk to these people. Its hard not to talk to them when an election is coming up.
I sometimes think voters that care enough to engage are a myth. :-)
I did one contract for a state government long ago. A friend of a friend brought me in because she knew I'd be unable to comprehend the normal pace of government work, and would therefore cluelessly batter my way though institutional inertia to get things done in time to meet certain goals.
I am definitely not suited for large organization, private or public. And there certainly were people who were just punching a clock. But a lot of people were, despite decades of service, still coming in every day determined to make things better.
As far as I can tell, it's the same thing with the teachers I know. It is a hard job, much more difficult than I could ever do. But despite that, most teachers I've met are doing the work because they really like teaching, and they care about what happens.
It blows my mind, really. My short attention span and desire to stir up trouble mean I'm well suited for startups, but could never spend 40 years doing the same thing. That, however, is exactly what we want out of government: stability, reliability, predictability.
Yeah like kicking cans down roads with funny bond schemes http://blogs.marketwatch.com/fundmastery/2010/03/12/goldman-...
>pension benefits, and health benefits to retirees. This is money taken away from providing services to current residents of the city.
It's called paying your bills. Honoring commitments made to those retirees, some of which are current residents of the city.
You can't squeeze blood from a stone.
Not to put too fine a point on it...
But the VAST majority of the money spent "honoring commitments made to retirees" is not made to "current residents of Detroit". Most of it was just a one-way funnel of money from Detroit out to the suburbs, other areas of Michigan and beyond.
It makes no sense for Detroit... to essentially be funding people in the suburbs... by taking on debt. That was just craziness.
2) The bankruptcies will dramatically weaken the public sector unions.
http://en.wikipedia.org/wiki/Public-sector_trade_union#cite_...
http://www.nationalaffairs.com/publications/detail/the-troub...
If they force the bond holders to eat it all then the market for municipal bonds will be hurt badly. The irresponsible largess in the current government pension system needs to come to an end.
Pensioners will be last in line as usual, I assume.
>If they force the bond holders to eat it all then the market for municipal bonds will be hurt badly.
Good.
> The irresponsible largess in the current government pension system needs to come to an end.
1. It's always the working stiffs who have to sacrifice, isn't it?
2. It has come to an end.
Basically, promises are made that have no bearing on reality and the now has to suffer for it. I wish they'd give them the opportunity for a 401k. At least then they'd have an option of seeing something after 40 years of dedicated public service.
Also, the workers didn't promise themselves anything. They made a deal with their employers. The employers didn't have to agree to anything. They did, and those deals should be honored.
The employees getting the pensions are not the same ones doing the negotiating. By your theory, government employees would always get what they wanted and therefore never strike, but that's demonstrably not the ase.
It's funny, when a bank NINJA-loans a half-million dollars for a 1000ft^2 bungalow, it's always the-purchaser-took-advantage-of-the-bank, and never, the-bank-should-have-known-better-and-deserves-to-go-broke.
Any one know what kinds of perks Michigan as for state munis? In colorado you get a tax break on them.
Banks deserve to be exposed to the risk they assume in general, but this issue has problems in addition to the problem of banks being sheltered from risk.
The only thing the creditors can try at this point is to get a judge to rule that Detroit is not eligible for bankruptcy. Slim chance there... but we've all seen stranger things happen.
Everything Detroit was rated 'junk' for a while, so much of it is already priced into 'high-yield' portfolios.
I don't see the feedback loop. In normal bankruptcies, or any other mistake in management, there's a feedback loop to help self-correct and prevent this from happening again. So politicians made a lot of promises they couldn't keep, got in bed with the folks running the city and created all sorts of sweetheart deals, made lots of speeches about making the city a better place and so forth while running it into the ground.
The lawyers come in, nullify the promises made to many of the participants, including bond holders and dedicated employees, all of whom acted in good faith. The politicians walk away. Heck, some of them are probably busy right now continuing to move up the political ladder.
So where's the feedback loop? The fact that bondholders will be more careful next time around? That's all I can see, and it's a very flimsy thing to hang that much optimism from. My bet is the state picks up the bonds, takes over managing the city budget, and gives everybody involved a 30-40% haircut. This may prevent the particular city named Detroit from repeating the same mistake for a few years, but it does absolutely nothing for all the other mismanaged cities. I'm not even sure Detroit will remain in the doghouse very long. In fact, from a certain political angle, looks like a very well-played strategy. At the end, all the players walk free and continue making speeches about how awesome Detroit is and "if they had only listened to me" things would have worked out.
Doesn't look too encouraging for anybody, but heck, maybe I missed it.
This might be overly optimistic.
Now rewrite your post in the context of the federal government's promises. (Total unfunded liabilities).
>Doesn't look too encouraging for anybody
Indeed, save perhaps private security guards.
How is this a reboot? To me it seems more like the typical infinite "just one more last chance" that enablers give to drug addicts.
There's a great article on this: http://www.freep.com/article/20130603/NEWS01/306030014/City-....
There will be much unhappiness and gnashing of teeth before it's all finished.