Two for One

I've posted more than a few times about the time-bomb of unfunded pension obligations at the state and local levels. (Check here, here, and here.) I've also recently noted that pay-as-you-go programs--the only alternative to pre-funding, are biased against the young (although I observed that's not inherently wrong, simply unsustainable unless prudently managed). If you have access to last week's Wall Street Journal you'll find an article showing that the sustainability of pay-as-you-go is increasingly problematic: "The median spending on pensions among the country's 250 largest cities rose to 10 percent of general budgets in 2012, up from 7.75 percent in 2007." In other words, in only five years payments on municipal pensions have increased by nearly 30%. This is clearly unsustainable. Just what will give remains to be seen but what's happening in Detroit is not a one-off. Eh, Chicago?

Page 2. Stephen Lubben, the go-to guy when it comes to financial contracts (download my short article here if you want to know what financial contracts are), observes that for all the inside-the-beltway hopes about the power of the Dodd-Franks-created Orderly Liquidation Authority (OLA)  to prevent another financial meltdown, serious concerns remain about how it would fare any better than the Chapter 11 bankruptcy system. This subject is way inside baseball, which is why most politicians don't have a clue. No one wants a world in which some financial behemoths are "too big to fail" but but the grasp of the OLA seems far beyond its reach when it comes winding down such institutions apart from a bailout.