Donnerstag, Mai 20, 2010

A Very Slow Motion Train Wreck...

When watching old films, silent films, there was a certain obsession with train crashes. Perhaps the most famous was the destruction of the locomotive "Texas" in the 1926 Buster Keaton film "The General", which was also the most single expensive scene in all of silent film movies (cost $42,000 back then, ca $1.7mn today).

We're seeing a return of the spectacular train wreck, but one that is happening in very slow motion. Regardless, it is as inevitable as the train wreck of the "Texas" in "The General".

Read this to understand.

A $1 tr bailout to union employees and government workers - who are making out like bandits here - is in the works, not today, not tomorrow, but over the next 20 years or so.

Why is this happening?

Simple: a simple and fundamental failure in understanding how pension funds actually work without being funded. The basic assumption that made such funds even remotely plausible was an overestimation of the returns these funds could generate (most assume 8% return on investments, a rate that today you can only find for junk) and, as a result, an underestimation of the funds needed to guarantee a set return.

These deals should repudiated as being, basically, fraudulent: instead of reducing worker benefits, the taxpayers are expected to bail out government workers instead.

Seven states are currently in trouble and will have to be bailed out within the next ten years. A total of 31 states are facing this over the next thirty years.

Why? Because they entered into pension deals that are, at the very worst, sweetheart deals. There are some where the pension funds have a higher priority than bond holders.

Slow motion train wreck indeed.

Let's quote Thatcher here, in a speech to the Conservative Party Conference (10 October, 1975)

And I will go on criticising Socialism, and opposing Socialism because it is bad for Britain — and Britain and Socialism are not the same thing. (...) It's the Labour Government that have brought us record peace-time taxation. They've got the usual Socialist disease — they've run out of other people's money.

Government workers and public unions are slowly running out of taxpayer money. One of the greatest swindles of all time is slowly unfolding before our eyes, but there are few taking notice, precisely because it is unfolding so slowly. $1 tr is no chump change.

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