To Illinois Residents: Move. Now.


By Karl Denninger


But when shown a seven-page list of derivatives positions held by the Illinois Teachers Retirement System as of March 31, obtained by Medill News Service through a Freedom of Information Act request, the University of Illinois-Chicago assistant professor of finance expressed disbelief.

Yes, derivatives.  In teacher pension funds.  How bad is it?

After losing $4.4 billion on investments in fiscal year 2009, and 5 percent on investments in fiscal 2008, the teachers’ pension is now underfunded by $44.5 billion, or 60.9 percent, according to the Commission on Government Forecasting and Accountability’s March 2010 report.

They have 40 cents of every dollar they need.

So what does someone who has no accountability – that is, who won’t be jailed if they make it worse rather than better, do?

Why they go to Vegas and bet it all on Red with a crooked croupier in a crooked casino!


The teachers’ fund denies it’s currently losing money on its derivatives, and in a statement said its investment strategy, which has included OTC derivatives for the past 27 years, is up 9.7 percent during that same time period. That’s better than the fund’s 8.5 percent target return rate

Lehman was doing really well too.  Right up until they blew up.

A target 8.5% return rate eh?  That’s suspiciously close to the 8.3% debt growth numbers from 2000 onward in the general economy!

That won’t work when the average economic growth rate over the same period is about 5.2%.  Indeed, it is that idiocy that led to the collapse.

We doubled systemic debt from 2000 to 2010, roughly.  That’s clearly what they’re trying to do with their “target”, but it will fail unless we can double outstanding credit again in the next ten years, and we can’t cover the debt payments at their present level.

But right now, TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default, that were blamed in part for the 2008 collapse of Lehman Bros. and bailout of insurance giant American International Group Inc., or AIG.

Writing uncovered derivatives?  Oh yeah, that’s real smart.  They’re effectively short volatility, which is a grand thing to be while the financial stability of nations is in question.

Tell me again how they get to do this?  What their capital base is for it? 

Oh yeah, it’s you, the Illinois taxpayer, who will be required to make up the shortfalls when (not if) this blows up in their face.

Get the hell out of Ill-noise folks.  Right now.

Oh, if you’re an Illinois teacher? 

Your pension is toast.

Mark my words.

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