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Home Publications Blogs Beat the Press As Chicago Cuts Pensions, Are Bondholders Also Taking Losses?

As Chicago Cuts Pensions, Are Bondholders Also Taking Losses?

Friday, 04 April 2014 04:36

The NYT reported that Chicago Mayor Rahm Emanuel is negotiating reductions in pension benefits with the city's workers, including some cuts to retirees. It would have been worth mentioning if the city is also engaged in negotiations with its bondholders to arrange a partial default. Pensions are legal obligations of the city, which enjoy a comparable or higher status than the city's bonds. (In its bankruptcy settlement, Detroit's workers will almost certainly see a higher share of their pension obligations met than its bondholders.)

If Chicago is really unable to meet its pension commitments to retirees, who are now being asked to give back the benefits for which they worked, it would also be reasonable to ask investors to also take some loss. After all, this is what is supposed to happen in a market economy when investors use bad judgement and fail to recognize the risks associated with a loan.

Comments (10)Add Comment
Up to the penioners to negotiate.
written by Jeff Fisher, April 04, 2014 8:13
If the pensions have a higher legal claim the pensioners ought to be able to negotiate from a position of strength and demand bondholders take more of the pain. So its up to them to not roll over I guess.
public sector pensions, Low-rated comment [Show]
alternative universe, Low-rated comment [Show]
The city can afford it
written by Jennifer, April 04, 2014 1:51
For the umpteenth time-
1) government workers' pensions are part of their salaries
2) most government workers will not get Social Security checks-this was decided by the state not the worker
3) most pension funds are in good shape. The ones that are not are usually are not either because there was manipulation of benefits/financial fraud, or WERE NOT PAID into by the GOVERNMENT. The workers always pay.
In Chicago the city has not paid, surprise, there is a funding gap.
Chicago has the money-but why pay working stiffs when you can find developers?

written by Mark Jamison, April 04, 2014 4:23
Jeff - are you seriously arguing that Dean doesn't work for a living? Who else, in your estimation doesn't work for a living?
Your argument seems to be one of resentment and little else. If you want to suggest that we should improve Social Security so that it actually provides a reasonable retirement that seems reasonable. Instead you seem to be suggesting that we seek the lowest common denominator.
And please read Jennifer's comment several times until you actually understand how public pensions work.
written by Jay, April 04, 2014 10:24
I do not understand why some people don't value public service or helping people in general. The private sector lobbyists have basically conditioned folks to accept the status quo. People used to have pensions, healthcare, insurance, 401k matching, some semblance of job security, and paid leave. It makes no sense to use government workers as a straw man for ills that were created by people that horde wealth and act like it is the result of pure talent. Quite frankly, anyone is eligible to work in government but people chase higher pay and knock other people that choose benefits over cash. Sounds like sour grapes. You may as well get mad at professional athletes for spending all their time playing with a ball in public subsidized ball parks and they retire with more money after 5 years of working.
written by Jeff, April 05, 2014 11:29
1) I never suggested that public sector workers receive SS.

2) "Pensions are part of gov workers salaries". What does that mean? Cause i really don't know. Does it mean that they are so skilled that they need to be compensated for their below market salaries. Let's take bus driver's as an example. They actually do something useful which is more than i can say for most public sector workers. Are their salaries below market? They sit in a chair and drive a large vehicle aka a low skill job. They make more than most if not all private sector drivers. Do greyhound bus drivers get a pension? They don't. The company can't afford it. Why do public sector bus drivers get a pension? Because the state has the power to tax. In other words the private sector workers pay for the generous pensions of workers. It is indefensible.

3) "Public sector workers pensions are well funded" who cares? If they are well funded it's because the state taxes private sector workers to pay for those pensions. see above.

My position is SS for ALL. Lower the retirement age and improve. Pay for it by raising corporate taxes and closing loopholes. We all win if we stick together.
written by Jeff, April 05, 2014 11:50
are you joking? i hope so for your sake. Wake up and smell the coffee. writing an article is not a job and it doesn't pay. It isn't and it doesn't. sorry. College professor? is that job. They read in front of an audience for an hour twice a week. is that job? I'm sorry doesn't qualify.

Mark:"But college professor do research"

Answer, First no one reads what they write. Nor should they. It's useless twaddle. Case in point the MIT sociology professor who is doing research on the long term unemployed sited in the NY Times Bus section. What research? there aren't enough jobs that require a little skill and pay well.

I like Dean Baker and i think unlike 95% of the intellectuals out there his research is useful. I could be wrong but from what i can see Dean aspires to represent the working class perspective. I was just trying to get him to consider the issue from the perspective of private sector workers.

I'm not a resentful person. But what if i was? would i be wrong? sometimes people are right to be resentful. Dean is retired and has a good annuity. I think he's wrong to defend to public sector pension that private sector workers pay for when he doesn't pay for it and he's already retired.
mark anyone can work in the public sector?
written by Jeff, April 05, 2014 12:08
You say anyone can work in the public sector. really? apply for a job as a firemen. You will never get it. never. Not of course you are connected to someone high up in the fire dept.
written by Jeff, April 05, 2014 12:50
i mis read part of your comment.

I'm not sure about how things stood when SS was first legislated. You could be right about that.

Public sector unions have made a decision to pursue pension benefits for their own workers rather than SS. I have never ever heard a public sector union official call for letting public sector workers participate in SS. never.

Even if public sector workers didn't make that decision. it's irrelavent. It's a special privilege that they don't deserve that is paid for by others.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.