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The Public Pension Debate

March 1, 2011

A quick comment today on private version public pensions.

This is a topic I have tremendous passion for so it will be difficult to be brief.    Simply, I support defined contribution plans more than I support defined benefit plans.  Generally speaking, defined benefit plans have their basis in economic optics using assumed rates of return and discount rates which can lead to gross underfunding, and ultimately bail-outs and bankruptcies.

In the Wall Street Journal today, Ms. Jeannette Neumann (see writes an article titled “States Mull Shift In Workers Pensions.”  An excerpt:

“….Many government-worker unions oppose a switch to 401(k)-type plans. The debate has become heated in Florida after Gov. Scott called for such a move. Florida’s pension system was 87.9% funded as of July. Doug Martin, legislative director for the Florida branch of the American Federation of State, County and Municipal Employees, opposes abandoning the pension plan and says the costs of switching to a 401(k)-like plan can outweigh the savings for at least 25 years.

A switch can increase the payments a public employer has to make to any pension fund it closes, particularly if the pension is underfunded, which many are. That is because when a fund closes, over time there are fewer workers contributing. The burden can fall on the public employer to make up shortfalls….”

The last paragraph above is outrageous; it defies logic, or at least any rational logic.  It suggests an underfunded (defined benefit) pension fund should not be closed because the funding gap will have to be made up by fewer workers – and then further suggests that the burden would then fall to the public employer (i.e., the taxpayer).  One can only use “Other People’s Money” for so long. Eventually the money runs out.  Leverage only works when it can be paid back and there is a “plan B” for exit.  “Hope” is not an investment strategy.

The root cause must be highlighted.  Even today, public pension plans use an average investment return approaching 8% (coupled with strict investment restrictions limiting the permissible investments to generally higher quality securities which return no where near 8%).  If someone were to guarantee an 8% return (for life),  one would be wise to not only find several lawyers to get this guarantee in writing, but beg and borrow to secure funds to invest in such a return.  When it is determined that the investment assumptions are flawed, and they are, it leads to only one conclusion:  the liability mechanics must change to match the asset.

Without getting too deep in the weeds, GASB (Governmental Accounting Standard Board – the functional equivalent to FASB) has muddied the waters with its various pronouncements surrounding this issue to the point where it is impossible to tell which plans are funded properly and leave the municipalities entirely too much room for interpretation and manipulation.

In short, there needs to be a seismic change in the analysis of public financials.


Partisan Rhetoric

February 17, 2011

One of my fundamental beliefs is that all things can and should be worked out in peaceful and respectful dialogue.  Has that always happened, sadly, no, but not for lack of trying.  There have been many failures, but I still, perhaps stubbornly, hold it to be sacred.

While there will continue to be intense partisan rhetoric in the coming weeks over the budget, there was an excellent letter to the editor in today’s Wall Street Journal that touches upon this very issue:

Michael Medved offers sound advice to conservatives to stop accusing President Obama of deliberately weakening America (“Obama Isn’t Trying to ‘Weaken America’,” op-ed, Feb. 14). Most conservatives believe that Mr. Obama is attempting to fundamentally transform America and that, in the process, his policies have weakened the American economy and its standing in the world.  But benefit of the doubt says that these are side-effects, not objectives.  Although conservatives ought to avoid the malicious intent charge, it is worth remembering that the left used that charge quite effectively to attack President George W. Bush.

President Obama’s primary domestic priority, as stated repeatedly during his campaign, is to make America a fairer country with less income disparity and more help for the disadvantaged—not necessarily a European welfare state, but a major step in that direction. His primary foreign policy is to make America more of a team player, rather than taking action and demanding that others follow suit. Shortly after his inauguration, President Obama told an audience in France that, “In America there is a failure to appreciate Europe’s leading role in the world.”

President Obama is not an economist, businessman or foreign policy expert. He was a lawyer, community organizer and politician. Chances are that he sincerely believes that his vision of a socially just America will produce a better, if not stronger, nation; and, if the economy suffers a little in the process, that is a price worth paying. There’s no malicious intent there, just a community organizer’s view of government’s role in the private sector. Conservatives can show that Mr. Obama’s policies are hurting the country without questioning his intent or impugning his integrity.

Chris Morgan

Charleston, S.C.

Health Care (continued…)

February 14, 2011

I have heard tremendous feedback on health care and clearly it is an issue that touches several nerves.  I continue to believe we need to solve the health care issue (call it investing, call it spending, call it what you want).  Its current path is simply not sustainable.  Health care is expense and we have to finds ways to manage the cost better.  This will, and should, be debated and I will continue to add observations.

With that, David Whelan, of Forbes, has an excellent blog post regarding health care:  We Probably Spend Too Little On Health Care (absent the Justin Bieber reference and picture!).  See

Health Care

February 9, 2011

Such a major issue, and there is politics in the air.  Who can truly believe in their own heart and soul that not every single person in the United States should have appropriate access to quality health care?

However, health care is not free. 

Democrats up for re-election in 2012 will feel tremendous pressure to reverse/alter/justify their vote on health care; and no doubt some (many?) will alter their positions depending on opinion polls from their districts.

Republicans also face concern.  If Republicans stay on the “repeal heath care” wagon, it will become a distraction from the economy, which at least in the eyes of the American voters, is just about the only thing that really matters.  The American public wants to see lower unemployment and in general, feel secure in their financial future.  A continuing bombardment of political rhetoric on heath care will have a devastating impact on the Republicans in 2012.

But back to health care:  The Unites States needs to provide access to quality health care for all.  I know of no one who would want to watch someone sick and be denied appropriate healthcare.  Some things, in my opinion, need to happen, and happen soon: 

  • The FDA needs to be quicker in its approval for medicines, trial clinics, etc.  We simply need to remove the bureaucracy of red tape surrounding the FDA; although to do so, we need drastic changes in tort reform.  FDA Commissioner Margaret Hamburg recently indicated that an estimated 25% of the economy is affected by FDA oversight.  As further indicated by the Milkin Institute in a University of Chicago study, life expectancy gains since 1970 added $3.2 trillion per year to America’s national wealth.  A 1% reduction in cancer deaths would equate to $500 billion!


  • Mandates – a very hot topic.  Simply, the law of large numbers is critical to the success of managing health care.  I understand and appreciate the argument – why should I be forced to buy health insurance?  Many people have compared it to car insurance in that it is mandated – but the difference is individuals can choose to drive and thus, at a minimum, liability insurance is required.  The argument is different with health insurance.  Sometimes, the moral obligation outweighs and this is such a time.


  • Another key component is allowing interstate commerce for health insurance along with portability.  A major challenge exists with the interstate commerce of health insurance because insurance is regulated at the state level; there needs to be federal regulation of insurance.  While I am no fan of larger governments, I have seen state insurance regulation in action for over 25 years – and it has its positives, but entirely too many negatives.  


Bottom line, the absolute root of health care starts in the home (as does Education, a topic for another time) by creating a healthy lifestyle and in turn, prevention measures.  Michelle Obama should be commended for her “Healthy Eating” and “Let’s Move” initiatives.  These are critically important.  Jamie Oliver’s eight episode TV show Food Revolution should be mandatory for every parent, child, school board and educator in the country.  On a personal note, my children watched it, enjoyed it and are understanding healthy choices.

By way of simply example, obesity can be better managed which in turn will lower diabetes, control cholesterol, manage blood pressure, mitigate heart attacks, stokes, blood clots, etc.   

I firmly believe that an active dialogue on health care can lead to some amazing and real results.  The current health care act needs some changes, but in principle, it is the right thing to do.  It will cost money and other programs must be cut and altered.  Sacrifice will be required from all angles; but do we really have a choice?  I submit we have a moral obligation on this issue.

I Snapped!

February 6, 2011

I have calmed down a bit, as it has been several hours, but the interview of President Obama by Bill O’Reilly before the Superbowl was atrocious.  

O’Reilly was simply and utterly disrespectful.  I don’t care if you are right of Newt Gingrich or to the far left of Keith Olbermann; if you are interviewing The President of the United States of America, you show respect to the individual and if you can not find the decency and muscle up that strength, you show some respect for The Office of the President.   Bill O’Reilly represents all that is wrong with media sensationalism today.  

Disgusting.  Simply disgusting.  

I have joked that Fox News should have fired Bill O’Reilly out of fairness when Keith Olbermann left MSNBC.   Now Fox News needs to fire him with cause.

Geo-Political Matters and Global Economics

February 2, 2011

I indicated last week I would begin to make a few comments on the major points, that in my view, need to be addressed right now, to move forward (fiscal responsibility, education, energy, defense, healthcare, social security and other entitlements).

But first, a few words on the geo-political environment are necessary as backdrop to understand the source of my observations.

Others are much better informed to discuss geo-political matters and the global economy, but it is important to note that I do remain relatively bullish on the U.S. economy as well as the global economy (in the long-term recognizing short-term volatility). I believe in the American spirit of entrepreneurism and capitalism, two principles on which this country was founded and are the economic cornerstone of this nation.

I strongly believe that there is entirely too much emphasis and importance placed on knee jerk reactions to current events and what I perceive to be the competition within the media to be the first to report events (whether it is geo-political or economic) and immediately interpret its meaning. A recurring theme you will see develop in my observations is that this entire world needs to spend way more time in thoughtful and respective dialogue and work towards resolutions and appropriate consensus. I could go on for hours on this subject, and perhaps one day I may!

A simple case in point is the Dow and S&P lost almost 2% in value last Friday due to the unrest in Egypt with some news outlets discussing the impact on oil and energy – but Egypt is a net importer of oil!

The Middle East
With that, the world is full of push and pull and the unrest in Egypt, while individually is not overly concerning to me, it is very much a symptom of a bigger issue. Certainly if it spreads, it is a concern. Egypt while a very old country chronologically in the history of the world dating back to 3000 BC, is an extremely young country compared to its neighbors when the median age of its citizens is 24.

If citizens of other countries see riots and violet protests as a means to effect change, that becomes very concerning. The interplay and balance within the Middle East with Saudi Arabia, Iran, Israel, etc. is fragile. More unrest could occur if any of these countries see this as an opportunity to try to exert some additional power and significance given the stretched resources of the world’s chief enforcer – the United States. As I type this, President Mubarak has indicated he will not run for re-election. This should significantly calm matters and restore the existence of fragile balance over the next few months.

Japan and China
The likes of Japan don’t worry me. As John Mauldin ( so perfectly says, “Japan is a bug looking for a windshield.” And while a lot of time is dedicated to China in the news outlets, China will never be viewed on superior terms or even equal terms when compared to the U.S. China is all about China. There is frightening oppression (of all kinds) throughout China (China recently blocked all information about Egypt via the internet and other social media outlets – although, as did Egypt); and the manipulation of their currency for their own benefit makes Fed Chairman Bernanke and Treasury Secretary Geithner weep in jealously. China is interesting and obviously worthy of attention from an economic balance perspective as they contribute to the world economy, but they are only about China and nothing else, full stop. Just one more example – China is considering a law that requires foreign companies to transfer technology to China if they hope sell in the Chinese market. China is looking to lead not by inventing, but by stealing and rebranding. Ultimately, that is not a sustainable business model.

I just cannot envision a scenario where China is respected as the U.S. is respected.

Europe is important but fairly well-balanced. Again, much is being made about nothing with respect to the EuroZone, the Euro and its challenges. Each member is relatively small in the grand scheme of the geo-political world and its economic and geo-political operations will eventually sort themselves out quite naturally in time.

The United States
All of this points to the United States continuing to be the Commander-in-Chief from a geo-political and economic point of view. However, for this to occur there does need to be some very meaningful and real changes in the United States; and these changes can come about as a result of dialogue, not protests. The United States simply cannot continue with a budget where only 60% of the cost is covered by revenue and the remaining 40% is borrowed, coupled with the fact that 84% of the budget represents entitlements and defense.

These are important points and the United States need to get its fiscal house in order and strengthen its core competencies.

The State of the Union; Politics and Reality

January 26, 2011

The State of the Union
President Obama gave a nice speech last night; unanimous agreement exists in the media.  His major themes were bipartisan in nature and no one could truly disagree that we, as a country, need to move forward, create jobs and continue to focus on the economy and have a renewed and heightened sense of how to manage our dependence on debt.

These are universal themes.  Brian Williams politely, yet adequately, described the speech as “breezy.”

President Obama and the Democrats are way out in front right now–at least from a perception standpoint.  All in, the lame duck session was quite productive.  As I have observed several times, President Obama has offered multiple overtures to Speaker Boehner and at least in the President’s words to date (and to some extent, actions), has moved more towards the center; but I suspect the President has moved just about as much as he plans to.  Politically, the Republicans have been, well, Republicans.

Perhaps Speaker Boehner and the Republicans have a plan.  As I told some guests a few months ago when they asked what I thought of the mid-terms, ignore all politics until about the middle of February.  This period, particularly after an eventful mid-term election, is more about rhetoric and the proverbial “chest puffing” than any real and meaningful consensus building dialogue.

However, within the next month and with the delivery of the budget, Speaker Boehner and the Republicans have got to noticeably move forward and towards the center.  Speaker Boehner still has time to become the speaker he should and can be, which in my view, is a Republican version of Speaker Tip O’Neil.  If the Republicans continue with this current stance, I think the Republicans, and we as a nation, lose a huge opportunity to move in a more centralist and necessary path.

A well known philosophy to which I subscribe is “…you need to spend money to make money…”

There are countless examples and successes and failures and CNBC’s Phil LeBeau does a great job in his editorial regarding General Motors (see

I agree with President Obama that this country needs to invest (i.e., spend money) to make progress and enhance productivity.  Although this will be hotly debated over the coming budget cycle, a few key things need to occur, and we are running out of precious time.

We need to invest in Education (Observation to follow)

We need to invest in Energy and its Infrastructure (Observation to follow)

We need Fiscal Responsibility (Observation to follow):  managing health care, social security, Medicare, and managing all expenses including defense and other discretionary spending.

Entitlement programs and defense make up approximately 84% of the federal budget (and keep in mind the Federal Government only collects approximately 60% of the federal budget in revenue, i.e., taxes — the rest is funded through debt).  There will be active and productive debate on the remaining 16%.  President Obama took a meaningful first step in calling for a spending freeze on this 16%.  The real test and the ability to move the needle rests in the remaining 84% – the third rail of politics.

The West Wing remains one of the best television shows, ever.  A great scene amplifying my point was when President Bartlet and his Deputy Chief of Staff Josh Lyman were talking about social security.  The Deputy Chief of Staff was encouraging the President to move forward with bold action on social security reform and the President was quite reluctant.  The President replied, “Josh, social security is the third rail of politics.”  (Insert West Wing creator Arron Sorkin’s amazing use of the Shakespearean pause here.)  The Deputy Chief of Staff responds, “Yes, Sir, but that is where all the power is.”

There will be much more to come in the next few weeks with respect to these critical points.


January 21, 2011

I Snapped!

On occasion, I will have a special section called “I Snapped” which should be self-explanatory and my tone may not be as consensus building, objective or as respectful as in my other observations.  Perhaps this section is best described as my version of Lewis Black:

Speaker Boehner gets top honors today.  What was this man thinking!?  He receives an invite from President Obama to attend the state dinner for President Hu of China and he turns its down!   He also turned down invitations from President Obama to the India and Mexico state dinner.  Nice.  At least he is consistent; but I would think, as President Obama reaches out to the Republican party, it would be in the best interest of United States of America that Speaker Boehner don a tuxedo and find his way to the White House.  Within a two-week span, President Obama invites him on Air Force One and then to the state dinner and Speaker Boehner gives President Obama the proverbial Heisman!

In the words of Seth Meyers and Amy Poehler from Saturday Night Live:  “seriously, are you serious?”

I am a capitalist at my core, no doubt, but President Obama has taken a few steps forward and offered to work with Speaker Boehner and the reasonable end of the Republican party.   These were gestures in an effort to make nice.  In my opinion, it is a colossal mistake to stand the ground in such a foolish way.  Perhaps Karl Rove is applauding, but I, and many others I know, am not.

I don’t necessarily believe, in general terms, people voted for the Democratic majority in 2008  as much as they were voting against the ways of President Bush and the Republican party.  However, I also don’t necessarily believe people voted for Republicans in the 2010 mid-term elections as much as they were voting against the ways of the more liberal-minded Democrats.  This is critically important for both the Republican and Democratic parties to understand, and what seems so clear to me, seems to be oblivious to those within the Beltway Bubble.

It would be wise, as leader of the Republican Party, for Speaker Boehner to extend a hand and find a way to work with President Obama.  We have some major issues in front of us and this school yard posturing is a complete waste of our money and time.  Speaker Boehner needs to roll up the sleeves, offer the President a cigarette from his pocket, sneak out to the lawn and spend some time with President Obama and others in constructive dialogue.  The Republicans made their statement vote on the repeal of the health care; fine, whatever, have your little moment.  It won’t pass the Senate and would get a presidential veto even if it did.  The Republicans can put a check next to that ridiculous show of partisanship and now move on.  If the Republicans disagreed with parts of the Health Care bill, surely there is a better way to work with the Democrats on a constructive solution than a vote for full repeal (a more objective look at the health care will be forthcoming).

In summary, come on Speaker Boehner, get your head in the game.

Taxes and Debt; Change Is Coming

January 18, 2011

Taxes and Debt

Federal Reserve Bank of Philadelphia President Charles Plosser spoke yesterday and evoked Milton Friedman by saying:

“..we have come to expect too much of monetary policy…”


There appears to be such a great reliance on the Federal Reserve to guide the economy to recovery.  We can deliberate recovery, its definition and parameters for pages, but let’s assume we are in one – and again, we can engage in a lengthy debate where we are in said recovery.  However, just like a parent, at some point, the parent needs to let the child explore, and potentially fail on their own, while still serving as a safety net for a soft(er) landing.

In my view, the Fed needs to let go a bit.  Perhaps the Fed feels partial guilt and blame (although by no means should it carry the entire burden)  for letting housing prices increase 50% from 2003 through the middle of 2006 with its (unwritten) easy money policy.  Certainly those were times of “irrational exuberance.”  However, what has really changed?

It is widely held that there was too much leverage on the financial system and personal spending was too high.  Now the consumer savings rate has increased and personal (and private/corporate) leverage is down sharply yet the overall spending trend line is about the same.  Why?  Government leverage and government spending.  There has been no real movement in the trend line, only who is influencing its path.

In my observation, there in lies a very real and meaning concern.  If it is widely accepted that such a trend line was a bubble and unsustainable  why continue to maintain it above its inflection point?

Unfortunately I think there needs to be a little more pain to ease the trend line down.  I am confident it can be done in a productive fashion which will be the topic of several observations in the near future.  Governments have only two revenue sources:  taxes and debt.  We will have to pick between the lesser of two evils.  In my view, we can not take on more debt.  If we do, future generations will suffer unlike any generation in perhaps the last 100 years.  Simply, taxes have to increase and spending has to decrease.  Measures are in place for taxes to increase beginning in 2013 and 112th Congress is to embark on a spending debate (or is it rhetoric?).  I have some informed (and perhaps no so informed) thoughts to share in the coming weeks.

Facebook Endnote II (the absolute last, I promise).

It turns out that Goldman Sachs will not be offering a participation in Facebook to its U.S. clients amid (according to media sources) the intense media spotlight and a fear of violating U.S. securities laws.  I suppose if something is too good to be true, then perhaps it very well may be.  I also suspect there may be (i) a purported expert 1934 Securities Act attorney at Goldman ensuring a current resume is in their briefcase and (ii) outside counsel to Goldman writing off time it had previously charged to Goldman advising them on the merits of the 1934 Securities Act.  However, as reported in the Wall Street Journal, even with this “setback” in excess of $7 billion in participation orders have been from foreign investors alone! (More than $4 for every $1 in shares being sold.)


Speaker Boehner’s Foot-Fault

January 14, 2011

President Obama gave one of his best speeches Wednesday night in Arizona.  Period.

On the other hand, Speaker Boehner, by not attending the Arizona service, committed, in my mind, what amounts to a very unfortunate foot-fault.  I remain bullish on the relationship between the two, although I must admit; my confidence took a hit within a day of originally expressing my enthusiasm.  For what it is worth, see the attached link for the reasons Speaker Boehner stayed in Washington DC rather than travel with the President (

Instead of using my own words today, I provide excerpts from two New York Times columnists, Mr. David Brooks and Mr. Paul Krugman.  While I find little common ground with Mr. Krugman (including his Monday editorial) he does touch on a meaningful observation today (

In a way, politics as a whole now resembles the longstanding politics of abortion — a subject that puts fundamental values at odds, in which each side believes that the other side is morally in the wrong. Almost 38 years have passed since Roe v. Wade, and this dispute is no closer to resolution.

Yet we have, for the most part, managed to agree on certain ground rules in the abortion controversy: it’s acceptable to express your opinion and to criticize the other side, but it’s not acceptable either to engage in violence or to encourage others to do so.

What we need now is an extension of those ground rules to the wider national debate.

Right now, each side in that debate passionately believes that the other side is wrong. And it’s all right for them to say that. What’s not acceptable is the kind of violence and eliminationist rhetoric encouraging violence that has become all too common these past two years.

While I am yet to be convinced that the tragic events occurring in Arizona were the direct (or even indirect) result of politics, but rather, the sad result of a very disturbed individual, Mr. Krugman’s words, when applied to today’s political rhetoric, ring loud and true.  Civility is needed; and it is the responsibility of all.

Mr. Brooks writes an excellent editorial today as well in the New York Times.  His quote of Mr. Niebuhr stands alone and I adopt it as my closing thought (

In a famous passage, Reinhold Niebuhr put it best: “Nothing that is worth doing can be achieved in our lifetime; therefore, we must be saved by hope. … Nothing we do, however virtuous, can be accomplished alone; therefore, we are saved by love. No virtuous act is quite as virtuous from the standpoint of our friend or foe as it is from our standpoint. Therefore, we must be saved by the final form of love, which is forgiveness.”