Wednesday, December 17, 2008

Breathtakingly bad news from the coast and Midwest

Bad news on CalPERS*, and as California likes to remind us - as they go, so goes the nation. Illinois, with its unsettled political position (Blagogate) and stressed cash position is forced to pay 4x the yield on its bond issues.

Illinois reaches deal on bond issue [Reuters]
State Treasurer Alexi Giannoulias believes the borrowing was essential as his office was receiving calls from state creditors that had not been paid since May or June. . .
Illinois sells $1.4 billion in bonds [Chicago Tribune]
Illinois Treasurer Alexi Giannoulias said the state is paying $20 million more in interest on the debt as a result of the Blagojevich scandal.

[Ed. note: Illinois leapfrogged over California to win "Most Screwed."]

CalPERS loses 103% on land deals [WSJ]
Calpers in recent weeks said it expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. That's because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed. [Emphasis mine]

[Ed. not: Is the hair on the back of your neck standing straight up yet?]

"No one in the marketplace knew how swiftly the housing market would fall -- not the Federal Reserve, not the Treasury," said Ted Eliopoulos, head of Calpers's real-estate portfolio, in an interview.

Ed. note: Eliopoulos clearly does not understand the concept of bubbles. Worse for you Mr. Elipoulos: plenty of people did predict this very scenario.

Calpers recently estimated that if its declines for the current fiscal year are greater than 20%, it would trigger an increase of 2% to 5% of an employer's payroll. Currently, the average employer-contribution rate for public agencies, including cities and counties, is 13% of payroll, Calpers said, which is already on the high side for state pension funds, according to industry analysts. [Emphasis mine]

Ed. note: The writer is being disingenuous here. The EMPLOYERS are the State of California and municipalities, and they don't have an extra 5% to cover CalPERS costs.

*California Public Employees Retirement System

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