Mish's Global Economic Trend Analysis: State of New Jersey Is Insolvent: "The state of New Jersey is insolvent. Bankrupt might be a better word. New Jersey is $60 billion in the hole on pension funding and the Governor is planning on skipping payments in a 'pension payment holiday' until 2012 so as to not increase property taxes."
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California, Illinois, New Jersey...how many more states are insolvent? I found this link on Instapundit.
2 comments:
Very interesting. And Governor Corzine is a former Wall Street banker. The article discusses a number examples of unfunded liabilities — not setting the cash aside to meet known future obligations. Of course, tomorrow will always be better.
The credit meltdown is the colossal economic error in a century. Many large banks invested in assets with questionable value. Regulators didn't point out the risk. High risk mortgages were encouraged with the goal of increasing home ownership. Fannie and Freddie were encourgaged to buy mortgages regardless of quality and risk to keep the mortgage money flowing. Groups of mortgages of certain quality were packaged into mortgage backed securities gobbled up by investors and financial institutions without assessment of the risks. Securities ratings companies didn't rate the risk properly. Alan Greenspan trusted the bankers to not write high-risk loans.
But there were many bankers who were conservative in their loans. I understand that many were in the midwest. They are not lined up at the public trough for more money.
The Honorable David M. Walker, formerly head of the General Accountability Office and Comptroller of the Currency made a major effort several years ago to educate people about unfunded liabilities. Read the visuals from one of his presentations, Saving Our Future Requires Tough Choices Today. He shows that counting the unfunded liabilities, USA's debt is not $10 trillion, but rather is $50 trillion. He calculates the burden as $440,000 per household.
For owners associations, the unfunded liability is the Reserve Fund for capital repairs, replacements and renovations. I prefer the term, Preservation Fund, which better conveys its purpose. As Dr. McKensey has pointed out many times, the day of reckoning is not far off for the many common interest developments created 20 to 40 years ago.
Don Nordeen
Governance of Property Owners Associations
Greenspan was shocked because he assumed Adam Smith's principle that economic players act in their rational self interest universally applies. Obviously it did not as shown by all of the financial institutions that underwrote and purchased nonperforming mortgage debt now standing in the bailout bread line.
Rather than rational self interest, a phenom known as "cash flow underwriting" ruled. In cash flow underwriting, cash flow, i.e. top line revenue, is king and prudent underwriting is essentially discarded. Cash flow underwriting may have seemed to be in their short term self interest but as we are seeing it certainly wasn't in their long term interest.
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