The Golden State Pension “Trainwreck” is Coming

Published on
February 13th, 2020
35 minutes

The Golden State Pension “Trainwreck” is Coming

The Interview ·
Featuring Senator John M. W. Moorlach and Michael Green

Published on: February 13th, 2020 • Duration: 35 minutes

California State Senator, John Moorlach, joins Real Vision to discuss California’s looming pension crisis. Senator Moorlach explains to Mike Green of Logica Capital Advisers why CalPERS, or the California Public Employees’ Retirement System, is so massively underfunded. He discusses how the system has flooded into the equity market and made promises to its pensioners that it cannot possibly keep. Filmed on February 6, 2020, in Sacramento, California.



  • FB
    Floyd B.
    18 February 2020 @ 22:53
    ANOTHER outstanding interview done by Mike ! I believe he has multiple objectives in these interviews..present the problem,discuss and identify the facts and explore the possible solutions. Regarding some of the comments below..suggesting that government should be more accountable,transparent and responsible to the citizens is not some political or pie in the sky set of ideas. Streamlining access to information,proposing a more business like structure to manage the financial and human resources of government are real solutions and I applaud John for proposing them! Mike feels strongly that these issues should be explored and solutions found for the general welfare. Maybe there needs to be fewer cynics and more adult conversations like the one found in this interview.
  • EK
    Edward K.
    18 February 2020 @ 15:58
    Moved to Sonoma county, CA in 2010. Amazingly the county supervisors in 2012 retroactively increased pensions for county employees. Taxes and bond issuance disproportionate(/ridiculous per square footage) and concluded would lead to financial ex-sanguination if we stayed there in retirement. Sold in 2018 and now live in a low tax county not far from bay area. I can not imagine that in the next housing downturn this will not impact property owners disproportionately. If reflexivity is a valid concept then you do not need 2008 type scenario to have a similar outcome.
  • BT
    Brett T.
    17 February 2020 @ 07:37
    Good interview by both people. I think Michael Green in particular is exceptional. I remember having U.S. investment banks like Morgan Stanley, CSFB etc pushing (I mean giving it the real sales push - i.e. there were huge commissions to be earned) "YES" swaps to me in a large corporate here in NZ back in 1993 (YES = Yield Enhanced Swaps). These were the same instruments that Robert Citron loaded up on - levered directional interest rate plays. These IB's were pushing 3 x levered positions to us at a time 3 month US rates were 3.25%. I worked out that we'd be underwater if yields rose to 3.5%. I'd only been in the market a couple of years (in my mid-20s) but even I knew rates weren't going much lower at that time and likely rising within a year. They bottomed at 3% and were rising 6 months later. I told these IB's that you'd have to be a fool to buy these (in 1993). You just heard what happened. 25+ years later I approach CalPERS with unique investment strategies that are uncorrelated, lower risk & significantly better performing than US equities AND I will align my fee to performance. They give me a generic flick to go see a gatekeeper database manager (essentially a warehouse to be shelved). They prefer to deal with the large brand asset managers (asset gathers who are seeking [& getting] AUM based fees & not delivering on investment performance relative to passive - just like the IB's in '93). It really is a perverse system we operate in. Those in authority go with the best sales pitch - everyone likes a good story - because you can turn and repeat that same story to those to whom you report. As John said right at the beginning of the interview re: Bob Citron at O.C., nobody really understands (or seemingly wants to) and in the absence of understanding, a good story plus a recognizable brand is all you need to do a deal.
    • EK
      Edward K.
      17 February 2020 @ 16:25
      This kind of corroborates the prevailing notion that pensions are 'dumb money".
  • AA
    Aaron A.
    17 February 2020 @ 02:30
    CA, be ready to reap what you have sown. That state is so screwed up it defies logic.
  • NI
    Nate I.
    16 February 2020 @ 04:32
    Great to have Mike Green at RV. His interviews are excellent. I don't deny that pensions are a problem, but in my view the problem is completely mischaracterized. Discussion of IRRs, excessively generous benefits, etc. are academically interesting, but they completely miss the big picture. The real problem is that there is way too much government. Huge swaths of it are completely unnecessary. If we shrink the government, the pension problem will resolve itself. The door prize is the added prosperity Americans would enjoy from less government interference in our lives. We did much better when we had far less government.
  • DK
    D K.
    13 February 2020 @ 07:28
    How many retail clerks and Uber drivers want to support state retirees who retire in their mode 50’s to six-figure pensions? How many boomers want to support this bloat? How many millennials? When this goes belly up and taxpayers get hit up yet again, perhaps they’ll finally figure out being a one-party State was not such a swift idea.
    • JB
      John B.
      13 February 2020 @ 23:40
      This is going to be the number 1 issue when all these problems do blow up. The public unions have had so much power for so long that they are actually (IMO) doing their members a huge disservice. They seem to be unable to consider what happens if the younger voters decide they will NOT accept higher taxes to allow cushy government jobs. Most people under 40 know they are not going to see any money out of these programs. They aren't going to continue funding programs that have been flawed from the start, that everyone knows are flawed and that they feel they receive ZERO benefit from. The issue with spending so much money on these plans is that the service quality has fallen to the point that many people wonder what their tax money is actually going towards. People will pay top dollar for top dollar services, but they wont pay top dollar for services that are so bad that its what everyone compares bad service too ("at least xyz isnt as bad as the DMV"). These unions are actually making their members MORE vulnerable to even deeper cuts to benefits by being unwilling to restructure now, before it all blows up. 50 years from now California will be like Michigan (no offense to those who live there, its not you its your government).
    • NI
      Nate I.
      16 February 2020 @ 04:18
      I can't speak to California specifically, but I can tell you that when I worked in State government, the pay was very low. It was so low that many people in my agency qualified for food stamps. When I left government and went back to the private sector, I tripled my salary. The pension was the trade-off that leveled the playing field. I was willing to accept the dismal pay in exchange for some job security and a good pension. When it became clear to me that I was going to be defrauded by an unfunded pension, I left. My point here is that the Uber driver is in for a huge tax shock if State government has to start paying market wages. The way I see this situation, it's not about pensions. We simply have way too much government. If we shrink government, the pension problem will solve itself.
  • RC
    Ronald C.
    15 February 2020 @ 23:49
    Ugh. A whole interview of political speak. If only other people were as smart as you.
  • BM
    Beth M.
    15 February 2020 @ 16:57
    What an absolute shame these unions, state and local governments are not to renegotiate their pension agreements! The private sector is paying for these city, state and teacher pensions. They retire on 60 to 70% (or more) of their salary. I don't see the local dry cleaner, restaurateur, jeweler, or any local business person (who's sweating it out) getting a pension. I married a teacher and my spouse even admits it's disgusting. No wonder people are leaving in droves from California and Illinois. Abraham Lincoln is rolling over in his grave...what a tragedy! It literally makes me weep.
  • MS
    Michael S.
    15 February 2020 @ 07:09
    On homelessness, the "California homeless problem" is a USA homeless problem. I was homeless as a teen, and left my home state and went to CA because it was warm and friendly to people who were down on their luck. I wasn’t born in CA, but as a homeless person, CA was nicer than winters in the Midwest. They talked about how much David Tepper meant to New Jersey, but not about how much Prop 13 (in percentage terms) meant to California, the subject. Prop 13 is effectively a form of "rent control" for an entire state of the rich and upper middle class, and many of California's fiscal issues over the last decades go back to it.
  • MS
    Michael S.
    15 February 2020 @ 06:39
    CEOs, CFOs, etc. in the private sector often assume no responsibility either. In fact, they are often just very aggressively gorging themselves on the long-term built-up American capital to which they've been entrusted.
  • PO
    Paul O.
    15 February 2020 @ 05:57
    Fascinating interview... and Mike, whatever the weight loss programme you’re on, keep it going - it’s working!
  • JC
    Joel C.
    14 February 2020 @ 12:01
    yet again a slightly leftfield interview choice that turns out to be tremendously insightful and valuable. only on RV.
  • HM
    Harry M.
    14 February 2020 @ 11:09
    What a great interviewer in Mike Green. He made the interview itself much better. Mike's questions are all apposite, stated clearly and in the shortest of words. They were all the questions I would like to have asked. I wish I could get as much out of all interviews on Real Vision, but I suppose that isn't possible unless Mike becomes your lead interviewer. All too often the questions are longer than the answers, but not on this interview. Mike clearly has no interest in showing how much he knows. HM
  • NC
    N C.
    14 February 2020 @ 04:26
    John Moorlach you are an absolutely incredible public servant. If only there were more of your kind in California. Thank you and Michael Green for the interview!
  • Rd
    Ronald d.
    14 February 2020 @ 02:16
    I think there is somewhat of a flaw in the union structure itself being that retired members have the same vote as working members, this impacts who is voted on to be union leaders, the retires or members who are going to retire soon have much more weight, and therefore union leaders will always have a bias for the current retirement setup. I have seen it when the union is in negotiations, they will always give up more for the new hires than the existing members. Not sure how to fix this, but I believe this is what keeps pushing the existing retirement system to a eventual fallout among union members & public and private backers of the plans.
  • RR
    Ryan R.
    13 February 2020 @ 20:02
    Just a heads up at 17:30 you say we have not restructured the pensions. That is false. Pepra employees (Public employee pension reform act) get less benefits and pay more into the system.
    • MG
      Michael G. | Contributor
      14 February 2020 @ 01:09
      This was discussed. The new “portable plans” for new employees.
  • JF
    Jennifer F.
    14 February 2020 @ 00:31
    Wow. Why do we councils if they can't do much at all.
  • WS
    William S.
    13 February 2020 @ 16:23
    A Time bomb - sooner or later it will trigger - a crisis and fingers pointing everywhere. This has been going on for 30+ years
  • CB
    C B.
    13 February 2020 @ 14:58
    California is lucky to have Senator Moorlach. It must be incredibly frustrating to work in such a dysfunctional and one-sided political regime.
  • TJ
    Terry J.
    13 February 2020 @ 14:40
    Top drawer video as usual from Mike and his guest. Some scary data on the fragile state of US state pension funding which as the Senator suggested is a train wreck waiting to happen. The irony probably is that although I was amazed to hear John confirm CALPERS has now gone 100% passive, that decision and that of similar major institutional investors is probably what is keeping the stock and bond markets climbing to ever crazier highs as their ETF models keep applying their blind momentum strategy of buying more and more of the winners regardless of valuations, until of course as Mike frighteningly identified in his brilliant video with Raoul a few months ago, the next downturn eventually occurs and there are no bids at any price because passive has killed the active manager whom ordinarily would have provided the liquidity! Surreal and very worrying!
  • PJ
    Peter J.
    13 February 2020 @ 10:34
    Great interview. Mike , almost as good an interviewer as an interviewee :)