Tag: Bloomberg

The Economic Cost of Gun Violence

Mary Pat Campbell

Link: https://everytownresearch.org/report/the-economic-cost-of-gun-violence/

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Excerpt:

  • Taxpayers, survivors, families, and employers pay an average of $7.79 million daily in health care costs, including immediate and long-term medical and mental health care, plus patient transportation/ambulance costs related to gun violence, and lose an estimated $147.32 million per day related to work missed due to injury or death. 
  • American taxpayers pay $30.16 million every day in police and criminal justice costs for investigation, prosecution, and incarceration. 
  • Employers lose an average of $1.47 million on a daily basis in productivity, revenue, and costs required to recruit and train replacements for victims of gun violence.
  • Society loses $1.34 billion daily in quality-of-life costs from the suffering and lost well-being of gun violence victims and their families.

Author(s):

Publication Date: 19 July 2022

Publication Site: Everytown Research

Young Versus Old Will Define Fight Over Public Pensions

Mary Pat Campbell

Link:https://www.washingtonpost.com/business/young-versus-old-will-define-fight-over-public-pensions/2022/10/06/d4fae69a-4566-11ed-be17-89cbe6b8c0a5_story.html

Excerpt:

Younger workers are mostly excluded from those benefits, and few believe pension funds will be around to pay them at retirement time anyway. So younger workers want salary increases rather than promises. Also, portable, employee-directed accounts like 401(k)s rather than large and ever-increasing contributions to black-hole public pension systems. The fight in 2023 may be more between younger and older public employees than between united public employees and taxpayers.I think young employees will score their first victory after many years of getting pushed down. It will be short-term inflation then that applies lethal pressure in a tight labor market, not stock prices, interest rates or even longer-term expectations of price increases. Wages will have to be raised for public employees, who will refuse burdens from past underfunding or benefit cuts that apply only to them. The alternative is unacceptable declines in public services as the best employees quit, job openings go unfilled and qualifications for new hires are lowered.The most heavily indebted states, with the worst credit ratings and biggest pension funding shortfalls, may not be able to pay these increases. While 2022 should be a good revenue year for a majority of state and local governments, heavily indebted states with big pension-funding gaps need to brace for some serious headwinds. Illinois already spends 11% of its revenue to service debt. Increased yields on its bonds could double that to 22% as debt is refinanced, even if the state runs balanced budgets.

The temptation to cut benefits for retirees may be overwhelming. While these people can (and will) yell and scream, that’s easier to accept than a teachers’ strike or a police slowdown. Current employees can be offered generous wage increases and portable pensions. Reducing actuarial pension liabilities will please creditors and rating agencies. Taxpayers will appreciate being spared. In many states, cutting benefits will require a constitutional amendment or other legal heavy lifting, but with enough incentive, that can be done.

I expect something like Social Security reforms. A cap will cut benefits for people receiving the highest pensions, and states will put tax surcharges on benefits for high-income people even if they have moved out-of-state. Copays and deductibles will be increased for health coverage.

The first state to try this will face strong legal challenges, a nationwide union counteroffensive and significant in-state political resistance. But with enough fiscal pressure it may happen. If state administrations can keep current public employees on the sidelines, via wage increases and benefit restructuring, it might succeed.

Author(s): Aaron Brown, Bloomberg

Publication Date: 6 Oct 2022

Publication Site: Washington Post

UK Pensions Got Margin Calls

Mary Pat Campbell

Link: https://www.bloomberg.com/opinion/articles/2022-09-29/uk-pensions-got-margin-calls

Excerpt:

I said above that pension funds are unusually insensitive to short-term market moves: Nobody in the pension can ask for their money back for 30 years, so if the pension fund has a bad year it won’t face withdrawals and have to dump assets. Still, pension managers are sensitive to accounting. If your job is to manage a pension, you want to go to your bosses at the end of the year and say “this pension is now 5% less underfunded than it was last year.” And if you have to instead say “this pension is now 5% more underfunded than it was last year,” you are sad and maybe fired; if the pension gets too underfunded your regulator will step in. You want to avoid that.

And so the way you will approach your job is something like:

  1. You will try to beat your benchmark, buying stocks and higher-yielding bonds to try to grow the value of your assets.
  2. You will hedge the risk of rates going down. If rates go down, your liabilities will rise (faster than your assets); you are short gilts. You want to do something to minimize this risk.

The way to do that hedging is basically to get really long gilts in a leveraged way. If you have £29 of assets, you might invest them like this:

  1. £24 in gilts,
  2. £5 in stocks, and
  3. borrow another £24 and put that in gilts too.[5] [5] No science to this number, and you’d probably do a bit less if your stocks are correlated with rates.

That way, if rates go down, the value of your portfolio goes up to match the increasing value of your liabilities. So you are hedged. You were short gilts, as an accounting matter, and you’ve solved that by borrowing money to buy more gilts. In practice, the way you have borrowed this money is probably not by actually getting a loan and buying gilts but by doing some sort of derivative (interest-rate swap, etc.) with a bank, where the bank pays you if rates go down and you pay the bank if rates go up. And you have posted some collateral with the bank, and as interest rates move up or down you post more or less collateral. 

This all makes total sense, in its way. But notice that you now have borrowed short-term money to buy volatile financial assets. The thing that was so good about pension funds — their structural long-termism, the fact that you can’t have a run on a pension fund: You’ve ruined that! Now, if interest rates go up (gilts go down), your bank will call you up and say “you used our money to buy assets, and the assets went down, so you need to give us some money back.” And then you have to sell a bunch of your assets — the gilts and stocks that you own — to pay off those margin calls. Through the magic of derivatives you have transformed your safe boring long-term pension fund into a risky leveraged vehicle that could get blown up by market moves.

I know this is bad but I find something aesthetically beautiful about it. If you have a pot of money that is immune to bank runs, over time, modern finance will find a way to make it vulnerable to bank runs. That is an emergent property of modern finance. No one sits down and says “let’s make pension funds vulnerable to bank runs!” Finance, as an abstract entity, just sort of does that on its own.

Anyway, as I said above, 30-year UK gilt rates were about 2.5% this summer. They got to nearly 5% this week, and were at about 3.9% at 9 a.m. New York time today. You can fill in the rest.

Author(s): Matt Levine

Publication Date: 29 Sept 2022

Publication Site: Bloomberg

CalPERS Cooks the Books While Taking an Unnecessary Loss to Exit $6 Billion of Private Equity Positions

Mary Pat Campbell

Link: https://www.nakedcapitalism.com/2022/07/calpers-cooks-the-books-while-taking-an-unnecessary-loss-to-exit-6-billion-of-private-equity-positions.html

Excerpt:

CalPERS is up to its old crooked, value-destroying ways. Its sale of $6 billion in private equity positions, at a big discount….because CalPERS was in a hurry despite no basis for urgency, shows yet again the sort of thing the giant fund routinely does that puts it at the very bottom of financial returns for major public pension funds.

Oh, and on top of that, CalPERS admitted to Bloomberg that it is lying in its financial reports for the fiscal year just ended this June 30 by not writing down these private equity assets. As former board member Margaret Brown stated:

In Dawm Lim’s Bloomberg story, Calpers Unloads Record $6 Billion of Private Equity at Discount, CalPERS admits to cooking the books. Not recognizing the sale (the loss in value) in the same fiscal year can only be to play shenanigans with the rate of return. So if, or more likely when, CalPERS again does badly in comparison to CalSTRS and similar funds, remember it would be even worse if CalPERS was accounting honestly.

Author(s): Yves Smith

Publication Date: 8 July 2022

Publication Site: naked capitalism

DOJ Antitrust Chief Warns S&P Global Over Insurer Ratings Tweak

Mary Pat Campbell

Link: https://www.yahoo.com/now/doj-antitrust-chief-warns-p-152645646.html

Excerpt:

S&P Global Inc. should “carefully consider” a proposed tweak to how it assesses the creditworthiness of bonds owned by insurance companies, the Justice Department said, warning that such a change “could raise significant concerns” under U.S. antitrust law.

The Justice Department’s antitrust division said in a letter dated last Friday that a proposed methodology change by S&P — the world’s largest credit ratings company — could raise barriers for its rivals. The changes could end up hurting the credit grades of insurance companies that invest in bonds that aren’t rated by S&P.

The firm should “carefully consider whether penalizing insurers that purchase securities rated by S&P’s competitors has the potential to raise barriers to entry and expansion by competitors, insulate S&P from competition, or otherwise suppress competition from rival rating agencies,” said antitrust chief Jonathan Kanter in the letter. “Such actions could raise significant concerns that the Sherman Act has been — or will be — violated and warrant additional scrutiny.”

Author(s): Leah Nylen

Publication Date: 4 May 2022

Publication Site: Yahoo (Bloomberg)

Why Retirement Isn’t Necessarily the Same as Not Working

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2022/03/07/why-retirement-isnt-necessarily-the-same-as-not-working/

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Excerpt:

If you claim Social Security at age 70 instead of 62 the sum total of your accrued benefits will be 17% higher if you make it to age 82 (which is the male life expectancy at 62). And remember that’s low risk, inflation-indexed income; there’s no better deal on the market.

Of course, delaying benefits means fewer years collecting them, but if you end up living to your early 80s you’ll come out ahead. The figure below plots how much you’ll get from Social Security (inflation-adjusted and discounted using today’s TIPS curve) at each age depending on when you retire.

And if you already claimed Social Security you can still change your mind and get higher benefits.

But if you are already retired (or resolved on it this year) and the market is down, it may seem like delaying Social Security isn’t an option. After all, you still need to eat.

Author(s): Allison Schrager

Publication Date: 7 Mar 2022

Publication Site: Think Advisor

California Public Pensions Are Major Fossil Fuel Investors

Mary Pat Campbell

Link:https://www.rigzone.com/news/wire/california_public_pensions_are_major_fossil_fuel_investors-09-dec-2021-167254-article/

Excerpt:

California’s climate-conscious policies aren’t matched by the investment choices of its largest public pension funds, according to a report from two environmental groups. 

Of the 14 top U.S. pension funds analyzed by Stand.earth and Climate Safe Pensions Network, California Public Employees’ Retirement System, known as Calpers, and California State Teachers’ Retirement System, known as CalSTRS, were the largest investors in fossil fuel companies, with $27.1 billion and $15.7 billion, respectively, according to findings published Wednesday. 

The two combined hold about half the fossil fuel assets for the entire group, according to the study. Calpers also came first in fossil fuel holdings as a proportion of its total assets under management, at 6.9%.  

….

The New York State Teachers’ Retirement System had the second-largest share of its portfolio invested in fossil fuels, at 6.6%. 

Author(s): Robert Tuttle

Publication Date: 9 Dec 2021

Publication Site: Rigzone

Bloomberg, Other Publications Criticize CalPERS’ Leverage on Leverage Plan to Boost Returns While Missing Additional Types of Borrowing

Mary Pat Campbell

Link:https://www.nakedcapitalism.com/2021/12/bloomberg-other-publications-criticize-calpers-leverage-on-leverage-plan-to-boost-returns-while-missing-additional-types-of-borrowing.html

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Excerpt:

The financial press has gone into a round of hand-wringing over CalPERS’ efforts to chase higher returns in a systematically low-return market, now by planning to borrow at the CalPERS level on top of the leverage employed in many of its investment strategies, in particular private equity and real estate.

These normally deferential publications are correct to be worried. Not only is this sort of leverage on leverage dangerous because it can generate meltdowns and fire sales, amplifying damage and potentially creating systemic stresses, but the debt picture at CalPERS is even worse than these accounts they depicted. They failed to factor in yet another layer of borrowing at private equity funds and some real estate funds called subscription line financing, which we’ll describe shortly.

…..

CalPERS tells other less obvious fibs, such as trying to depict private equity as so critical to success that it need to put more money on that number on the roulette wheel. Remember, the name of the game in investment-land isn’t absolute performance but risk adjusted performance. Not only has private equity not generated the additional returns to compensate for its extra risk at least as long as we’ve been kicking those tires (since 2012), academic experts such as Ludovic Phalippou, Richard Ennis and Eileen Appelbaum have concluded private equity has not even beaten stocks since the financial crisis.

Let us stress that unlike German investors, who have a pretty good handle on all the leverage bets in their investment portfolios and thus can make a solid estimate of how much risk they are adding via borrowing across all their investments, CalPERS is flying blind with respect to private equity. It does not have access to the balance sheets of the portfolio companies in its various private equity funds.

And while having balance sheet would be a considerable improvement over what is has now, it doesn’t give the whole picture. CalPERS would also need to factor in operating leverage. When I was a kid at Goldman, whenever we analyzed leverage (as in all the time), we had to dig into the footnotes of financial statements, find out the amount of operating lease payments, and capitalize them, as in gross up the annual lease payments to an equivalent amount of borrowing so we could look at different companies on a more comparable basis.

Author(s): Yves Smith

Publication Date: 10 Dec 2021

Publication Site: naked capitalism

Omicron Wave Sees South Africa’s Weekly Excess Deaths Almost Double

Mary Pat Campbell

Link:https://www.bloomberg.com/news/articles/2021-12-08/s-african-weekly-excess-deaths-almost-double-amid-omicron-wave

Excerpt:

South African excess deaths, a measure of mortality above a historical average, almost doubled in the week ending Nov. 28 from the preceding seven-day period as a new coronavirus variant spread across the country.

During the period 2,076 more people died than would normally be expected, the South African Medical Research Council said in a report on Wednesday. That compares with 1,091 the week earlier.

The rise, while only reflecting a week of data, contrasts with hospitalization numbers that show that most admissions have mild forms of the coronavirus, spurring hope that the omicron variant is more benign than earlier strains.

Author(s):Antony Sguazzin

Publication Date: 8 Dec 2021

Publication Site: Bloomberg

Illinois Effort to Fix Ailing Local Pensions Faces Legal Hurdle

Mary Pat Campbell

Link:https://www.bloombergquint.com/onweb/illinois-effort-to-fix-ailing-local-pensions-faces-legal-hurdle

Excerpt:

A court ruling as soon as this month will help determine the fate of one of Illinois Governor J.B. Pritzker’s key plans to ease the massive shortfall in local pension funds across the state. A 2019 law championed by Pritzker would merge about 650 local police and firefighter pensions with assets topping $16 billion into two funds to cut costs and improve returns.

….

The law set a June 30 deadline for the consolidation of the funds, but many of the local pensions are hesitating or even refusing to merge until they learn the outcome of litigation to block the combining. Three dozen current employees and retirees, along with 18 local retirement plans, filed a lawsuit in February in Illinois circuit court saying the consolidation violates the state constitution.

….

So far, however, the new Illinois Police Officers’ Pension Investment Fund hasn’t received any assets and expects to begin getting funds around March, said executive director Richard White. About 44% of the 357 downstate and suburban police funds that were supposed to be merged into the bigger pension plan haven’t even responded to requests for information, White said. 

Author(s): Shruti Singh

Publication Date: 2 Dec 2021

Publication Site: Bloomberg Quint

Flood-Threat Assessment Finds Danger Goes Far Beyond U.S. Homes

Mary Pat Campbell

Link:https://www.bloomberg.com/graphics/2021-flood-risk-critical-infrastructure/

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Excerpt:

Nearly a quarter of U.S. critical infrastructure—utilities, airports, police stations and more—is at risk of being inundated by flooding, according to a new report by First Street Foundation, a Brooklyn nonprofit dedicated to making climate risk more visible to the public.

Roughly 14% of Americans’ properties face direct risk from major storms, but the study shows danger extends far from those property lines.

The authors say the report provides the first holistic understanding of flood risk beyond individual property level. In addition to critical infrastructure, the report assesses commercial buildings, millions of miles of roads and socially important institutions such as schools and museums.

“Even if your home is far from the risk of flooding or forest fires, you may not so easily escape the systemic impacts from vulnerable critical infrastructure that sometimes extends hundreds of miles,” said Jesse Keenan, a climate-change and real-estate expert at Tulane University in New Orleans.

Author(s): Leslie Kaufman, Rachael Dottle, Mira Rojanasakul

Publication Date: 11 October 2021

Publication Site: Bloomberg

Here’s the Gender Pay Gap at 10,000 U.K. Employers

Mary Pat Campbell

Link:https://www.bloomberg.com/graphics/2021-uk-gender-pay-gap/

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Excerpt:

Women in finance in the U.K. still make significantly less than men. While the gender pay gap at financial firms in the country narrowed slightly last year, overall the industry continues to have the biggest disparity.

Men working in finance and insurance made 25% more than women last year, down from 28% in 2019, a Bloomberg News analysis of government data shows. The pay gap is especially wide in investment banking, where some of the highest-paid employees work.

It is the fourth straight year that finance has led the industry rankings, showing that executives are finding it difficult to shrink the gap. Mining and quarrying had the second-biggest pay gap at 23% as the commodity boom boosted the income of workers, who are largely male.

Author(s): Neil Callahan

Publication Date: 6 Oct 2021

Publication Site: Bloomberg