Mar 03 2008
Milwaukee County Officials Should Take Notice of What Can Happen When You Borrow Money Only to Gamble It Away
Some Milwaukee County officials have been floating the idea of borrowing large amounts of money at a certain percentage rate (about 6%) an reinvesting it in various markets to increase the returns (theoretically at 8%) to cover our future pension obligations.
I’ve said it’s not only a bad idea, but is akin to taking next month’s mortgage to Las Vegas. Cities like Philidelphia who have put their pension obligations into such a risky scheme are now seeing why borrowing money with the hope of getting a better return on it is a bad idea and can only lead to further economic trouble.
This is something we here in Milwaukee should avoid like the plague; and not only because it’s as risky as taking next month’s mortgage payment to Vegas.
Philadelphia’s $4 billion pension deficit is causing the city’s retirement-fund manager to shun Treasuries at a time when the Bush administration needs him most.
Yields on 30-year U.S. bonds that fell to a record low of 4.10 percent this year are forcing pension funds to favor equities, corporate debt and commodities in an attempt to cover unfunded liabilities and meet return objectives of about 8 percent. Even the federal government’s own Pension Benefit Guaranty Corp. said on Feb. 19 that it plans to shift $15 billion to stocks from debt. - Bloomberg
