” More and more cities, counties, and even some states will face the harsh reality of having to fix their pension systems or deal with a Detroit-style bankruptcy.
“This is happening in too many cities and towns across America, where social services, because they can be cut, are cut. Because pensions and bonds constitutionally cannot be cut, they’re the protected class,” Wall Street financial analyst Meredith Whitney told CNBC.
“I think you’re going to see a real issue of neighbor against neighbor on these very issues,” said Whitney, who recently co-founded Kenbelle Capital LP, a New York hedge fund.”
That’s the bad news . Here is the worse news .
“But here’s the real rub: experts are warning that many pension systems, those claiming they are well funded and those who say they aren’t, have all been using rosy projections about future investment returns.
In a recent editorial in Barron’s, Thomas Donlan writes that pension funds have “hidden the results with dubious financial reporting.”
Detroit, he says, was using the standard 8 percent return on assets, widely used by other funds. Donlan argues that is foolhardy to claim an 8 percent rate of return.
Consider that since January 1, 2001, the Dow Jones has appreciated, on average, a paltry 2.2 percent, with the S&P growing just 1.36 percent.”
Municipal governments throughout the nation have been hiding their unfunded liabilities with parlor games and dubious economic assumptions that guarantee that no matter how bleak things seem today , they will be orders of magnitude worse in the very near future .