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  #431  
Old 04-20-2009, 01:16 PM
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By the way MPC, even though I tend to disagree with some of your sentiments, I do appreciate you keeping this thread alive with updates and the links you provide. I always check for them when I log on in the morning.
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  #432  
Old 04-20-2009, 01:47 PM
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Quote:
Originally Posted by Lane Meyers View Post
By the way MPC, even though I tend to disagree with some of your sentiments, I do appreciate you keeping this thread alive with updates and the links you provide. I always check for them when I log on in the morning.


Not a problem. Obviously, I'm a Jeremy Gold acolyte (all hail Jeremy!), keeping in mind my area isn't pensions.

My concern here, other than from a general public policy sort of problem, is that public pensions are doing very poorly now and I think some of the fallout will reflect poorly on the actuarial profession. That's a parochial concern, of course. Note that many of the things I link to [double-dipping, fraud, graft, etc.] have nothing to do with actuaries.

And finally, to be a total suckup and refer to the Risk is Opportunity slogan, I think the current financial crisis might be a good opportunity to sell the benefits of DB pension plans (and/or retirement annuities)...and so I'm trying to keep an eye on the downside to think of what needs to be fixed or avoided in the future. Public pensions are much more likely to get into the news from sheer size and political involvement, but if you check out the Pension Tsunami site, they cover some large private plans as well or general troubles with private plans.
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  #433  
Old 04-20-2009, 05:10 PM
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Based on a line of reasoning as in the following linked post, I would guess that an entry price discount rate for public pension plans would be around a corporate Aaa bond - 20 bp.

http://www.actuarialoutpost.com/actu...d.php?t=162927
So are you finally agreeing with a MVL approach?
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  #434  
Old 04-20-2009, 06:23 PM
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Originally Posted by Dan Moore View Post
Based on a line of reasoning as in the following linked post, I would guess that an entry price discount rate for public pension plans would be around a corporate Aaa bond - 20 bp.

http://www.actuarialoutpost.com/actu...d.php?t=162927
Given that the reasoning in that post was thoroughly debunked, I don't put too much stock in that estimate. (Feel free to read my response in that thread, its support, and lack of rebuttal)

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Call me an equity risk premium believer.
How convenient. You get to present yourself as a great actuary by offering an opinion to clients that conforms to their twisted view of finance.

An actuary's job in assumption setting has nothing to do with their (uneducated) belief in capital market assumptions - they are supposed to know more about risk than their client. Sadly, most agree with you and do not - and we are where we are as a result.

Actuaries better stop providing the right answer to the wrong question, and start ensuring that the right questions are being answered or they are going to find themselves out of business.
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We, the actuarial profession, did several things badly.

1. Pandering - we marketed ourselves as finding clever ways to give the public pension sponsors something for nothing
2. Ignored consequences - we found clever ways to allow politicians to ignore the true costs of benefit increases, like negative amortization of losses
3. Low standards of measurement - GASB had the most simple-minded of standards, and is now only going half-way to raise the standard.
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  #435  
Old 04-21-2009, 08:00 AM
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Okay, let's look at a comprehensive blog post from Mish [focusing on California]
http://globaleconomicanalysis.blogsp...-explores.html

Quote:
In an effort to rein in pension costs, Pacific Grove California Explores Bankruptcy.
....
Inquiring minds are reading how CalPERS, CalSTRS award big bonuses despite losses.
....
Q: How does one lose 25-30%?
A: It takes "Top Talent"
....

Please consider the CNNMoney article Fat Pensions Spell Doom For Many Cities.
....
Clearly Pacific Grove is watching, and I commend them for it. Two cities will not make a trend, but it's a start.

Unless unions are willing to renegotiate benefits (which they won't be), bankruptcy is the only viable option for cities. Raising taxes will not fly. So here's to hoping Pacific Grove files bankruptcy. Bankruptcy is a taxpayer friendly option that everyone but the unions should welcome.
He's rounding up some of the same stuff we saw in March, when the judge overseeing the Vallejo bankruptcy said, sure, pension benefits may get changed in bankruptcy. And, of course, there's no PBGC to backup public pensions.

Anyway, perhaps unions will be a little more interested in conservative accounting of their pension liabilities when a municipal bankruptcy might wipe out what they thought were promised benefits.
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  #436  
Old 04-21-2009, 09:33 AM
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So are you finally agreeing with a MVL approach?
I believe that exit price & entry price are the relevant measures for the fair value of pension liabilities. Where exit price is the maximum the plan sponsor would pay to settle the liabilities now, and entry price is the amount a market participant with credit risk = riskiness of pension liabilities would receive to assume the liabilities.

Several months ago, I think I said that pension liabilities have a fair value equal to exit price. Now, I changed my position to include entry price as a relevant measure for fair value. Because pension liabilities exit price << entry price, there is not a clear-cut way to assign a fair value to pension liabilities. So I wouldn't use the term MVL for the entry price concept.
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  #437  
Old 04-21-2009, 09:49 AM
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Where exit price is the maximum the plan sponsor would pay to settle the liabilities now, and entry price is the amount a market participant with credit risk = riskiness of pension liabilities would receive to assume the liabilities.
More terms that don't mean what you think they mean.
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  #438  
Old 04-21-2009, 09:51 AM
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Originally Posted by WWSituation View Post
Given that the reasoning in that post was thoroughly debunked, I don't put too much stock in that estimate. (Feel free to read my response in that thread, its support, and lack of rebuttal).
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I'd like to see you carry out the same exercise on Credit Default Swaps but do it as of 12/31/2006.

Your logic implies that the bigger the denominator is, the lower the risk is. This is the exact opposite of how I would look at it.
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The numerator is irrelevant to me - it was based on plans valued at higher interest rates and equity levels - they have zero relevance in measuring the risks of today's plans. It was also based on a credit environment different from today.

The denominator is the only thing that matters - and even this is a highly spurious input since it says nothing of future risk. It does not reflect the duration gap plans employ and it does not consider the credit profiles of the companies with large unfunded liabilities.


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  #439  
Old 04-21-2009, 09:53 AM
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I don't think that term means what you think it means.
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Originally Posted by JMO View Post
More terms that don't mean what you think they mean.
When you express a complete thought, I'd be happy to respond.
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  #440  
Old 04-21-2009, 10:20 AM
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I have previously explained my disagreement with your definition of exit value. I don't care to expand on it further.
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This. And everything else JMO wrote.
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Yup, it is always someone else's fault.
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