WHERE'S AL GORE TO WARN US ABOUT RISKY SCHEMES?:

Pension Plan or Ponzi Scheme? (Kurt Brouwer, 6/12/10, Fundmastery Blog)

Staggering under the weight of overgenerous benefits, faulty investment assumptions and deficient cash contributions, public employee pension plans are a mess. So, of course, one would think those in charge are resolutely taking steps to dig their way out of the mess they are in, right? Wrong. Now, the New York state public pension plan has apparently subscribed to the strategies of the late Charles Ponzi. Ponzi fashioned a classic fraud in which he fooled investors by paying outsized returns for early investors with capital contributed by later investors. I had thought this had reached a peak with the infamous Bernard Madoff scheme in which many billions of dollars were lost, but now there is a new claimant to the title of Ponzi Perfection — The State of New York. This report from the New York Times tells the tale [emphasis added]:

Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.

In Hamlet, Shakespeare’s character Polonius give this financial advice, ‘Neither a borrower, nor a lender be…’ Now, in the case of the New York state public employee pension plan, it will be borrowing from and lending to itself. What could possibly go wrong?