The Newest Winger Outrage

Expect a lot of Winger mileage out of this idiocy over the next few weeks and months from this article in Barron's.  The title?  The $2 Trillion Hole.

LIKE A CALIFORNIA WILDFIRE, populist rage burns over bloated executive compensation and unrepentant avarice on Wall Street.

Deserving as these targets may or may not be, most Americans have ignored at their own peril a far bigger pocket of privilege -- the lush pensions that the 23 million active and retired state and local public employees, from cops and garbage collectors to city managers and teachers, have wangled from taxpayers.

Some 80% of these public employees are beneficiaries of defined-benefit plans under which monthly pension payments are guaranteed...

The rest of the article is behind one of Rupert Murdoch's paywalls, but that's all you need to know.   Pension funds for public employees have run into serious financial trouble, most assuredly.  But blaming the public employees for this state of affairs is ludicrous.  They weren't the ones making the decisions on maintaining the funds.

Those were made by fund managers who invested in the real estate subprime ponzi scheme...

California's two big public pension funds took fresh hits to their troubled real estate portfolios this week, suggesting the fallout from the real estate bubble hasn't completely run its course.

First up was CalPERS, which Wednesday walked away from a controversial Boston investment that cost it about $91 million.

Then came CalSTRS. A New York skyscraper it co-owns is about to go into default, a credit-rating agency warned Thursday. Default could cost the California State Teachers' Retirement System its share of a $75 million investment.

The two losses by themselves don't represent enormous drains on the pension funds, which control portfolios totaling $336 billion. But they show that the funds have yet to completely extricate themselves from the financial debacles that cost them a combined $100 billion in the fiscal year ended last June 30, including several billion in real estate.

...and the investment banks that ran the shell game that these pension funds invested in.

The examiner’s report gives us a new term for hiding problems on a corporate balance sheet that may become common parlance: “Repo 105.” Starting in 2001, Lehman Brothers engaged in repurchase agreements, called “repos,” which were described by DealBook as “what amounts to a short-term loan, exchanging collateral for cash up front, and then unwinding the trade as soon as overnight.” Repos are  a common method for investment banks to finance their operations and are neither illegal nor questionable, at least when clearly accounted for.

Lehman Brothers went a step further by having the collateral exchange under the agreement worth 105 percent of the cash it received — hence, the “105” in the firm’s nomenclature. By doing so, that turned it into a sale for accounting purposes, so that the firm could move the assets it exchanged in the deal off of its balance sheet, at least for a short while.

As explained by DealBook, “That meant that for a few days — and by the fourth quarter of 2007 that meant end-of-quarter — Lehman could shuffle off tens of billions of dollars in assets to appear more financially healthy than it really was.” By timing Repo 105 transactions to the end of a quarter, the reports filed with the S.E.C. and reviewed by investors looked much better than what was going to be the case just a short time later. Enron did much the same thing with some of its assets, such as its notorious Nigerian barge deal.

The examiner’s report goes into great detail in describing how the Repo 105 transactions allowed Lehman Brothers to portray itself much more favorably to investors and analysts by proclaiming that it was reducing its leverage, something very important as the real estate bubble was bursting in 2007. The report determines that Lehman Brothers ramped up its use of Repo 105 deals to reduce its leverage by $38.6 billion in the fourth quarter of 2007, by $49.1 billion in the first quarter of 2008 and $50.4 billion in the second quarter of 2008. The firm did not quite get to the end of the third quarter, filing for bankruptcy in September 2008.

And there is the root of the potential civil and criminal liability of Lehman’s executives. The report describes the use of Repo 105 transactions as a “material misrepresentation” of Lehman’s financial statements.

The pension funds were the largest single investment group in the Big Subprime Disaster.  They invested trillions of dollars in total in the real estate boom, thinking that housing prices never go down.  The banks like Lehman Brothers then went and criminally finagled the numbers to keep those investors, because if they saw the truth and pulled out their trillions, they would be finished.  In Lehman's case, they ended up going under anyway.  But several other investment firms out there took pension cash and ended up losing hundreds of billions of dollars.

And who, in the second paragraph of the article, does Rupert Murdoch's minion say needs to pay for it?  Why, the 23 million retired and active state employees need to pay for it by taking massive cuts in their pensions.  And they expect the rest of us to take up pitchforks and go after them for every dollar that these clearly evil and horrible people apparently are 100% responsible for, expecting a pension in 2010.  The unmitigated gall!

Silly government employees.  You don't get pensions.  The only people who are allowed to make money these days are CEOs, banksters and pro athletes.  The same people crying over the sanctity of the market and the inviolability of contracts are the first one to say we should void the pensions of every public employee in America.  After all, in the Teabagger universe, anyone who works for the government...any government...is corrupt and must be expunged for being the liberal scum they are.

Teachers, firefighters, cops, doesn't matter.  Rip out those pension dollars.  We have a budget to balance.  The same Republicans who pray at the altar of Ayn Rand are the first to say "Rip these people down!  Their compensation is unfair!  They must pay for our entitlement programs!  We must balance our budget on their backs!"

After all, somebody has to pay for those massive tax cuts for the richest 1% of us.  Time to trim that fat, folks!  Remember, that anyone who is a government employee is the Enemy to the Teabaggers.

And the Enemy must be destroyed in their eyes.  Always.

How long until everyone is the Enemy?