Detroit's emergency manager Kevyn Orr says a pension fund takeover is a "right, if not an obligation" after Orr learned of extra, unwarranted pension payments.
Kevyn Orr said in a recent interview that at the current pace, the city's General Services System pension fund could lose its ability to pay pensions owed to current and future retirees within 12 years. A takeover is a "right, if not an obligation, that I have to consider under the statute, and we're considering that right now," he said.
Representatives of the pension board said Mr. Orr's figures were faulty.
The Oct. 25 draft report by the city's auditor general and inspector general, which was reviewed by The Wall Street Journal, found that during the 12 years ended in fiscal year 2012, the pension funds paid $1.22 billion of interest credits into retirees' savings accounts while the funds had losses of $2.05 billion, or 29% of their net asset value.
Earlier this year, Mr. Orr unveiled a proposal calling for the city to pay 20 cents on the dollar for the $3.5 billion that the city says it owes its two pension funds, one for 20,500 nonuniformed retirees and one for 12,700 retired police and firefighters.
"When workers in Chicago and L.A. realize that their pension benefits are no longer inviolate, unions are going to say what they really want is not bigger benefits but better funding. And that's going to put enormous pressure on current budgets," said Robert Novy-Marx, associate professor of finance at the Simon Business School at the University of Rochester.
A person familiar with the matter said Mr. Orr would like to engineer a takeover of the city's General Retirement System for nonuniformed employees and retirees. Mr. Orr's office estimates that the fund has only 64% of what it needs to meet its obligations, while fund officials put the figure at 80%. The separate fund for the city's police and firefighters is in better shape, both Mr. Orr and fund officials say.
Michigan's emergency-manager law allows for the takeover of a municipal pension system that is less than 80% funded.
20 Cents on the Dollar
Twenty cents on the dollar sounds about right to me. But Orr ought to take over both funds. More importantly, new rules are needed.
Immediately kill public defined benefit plans going forward
End collective bargaining of public unions
Scrap prevailing wage laws
Tax at an 85% rate all defined benefits above $80,000
Claw back all pension-spiking
Lower corporate tax rates to previous levels to attract businesses.
Set long-term pension plan assumptions at 5% or the 30-year Treasury rate, whichever is lower (currently 3%).
Default, if necessary on pension benefits above a certain level, whatever it takes to make the state solvent within 10 years, using conservative pension plan assumptions.
Points 4, 7, and 8 are the critical ones.
The "bold" plan has considerable merits vs. an across the board 20 cents on the dollar offer of Orr.
I am not sure what the cutoff should be in point number 4. Perhaps it's lower or higher. It depends on plan funding.
It's the concept that is important. And I strongly suggest unions openly embrace the idea as being more fair.
What's Fair?
From Yahoo!Finance ... Juanita Sailes-Jackson, 64 years old, a Detroit retiree who worked as a typist and parking enforcement officer, said she opposed the idea of any takeover of the city's pension funds, because she believes the system works well. Ms. Sailes-Jackson, who collects $500 a month in pension, said, "I can't have any cuts because I wouldn't be able to pay most of my bills."
I don't know how long Sailes-Jackson worked to accumulate her promised benefit. Thus such quotes only exist to play on emotions.
But cuts are coming. And they should come, because the system clearly doesn't work! But how to distribute them?
Negotiated Settlements
The fairest possible thing to do is sit down at the table and negotiate a settlement, with everything taken under consideration, but with a 100% premise of no taxpayer responsibility.
As a starting point, I suggest, those with the least pension benefits get the smallest cuts, and those with the most benefits get the biggest cuts.
Indeed, if unions were smart, the majority could come to negotiated terms with a starting point along the lines of
No cuts in benefits for the bottom 30%
Small cuts in benefits for the next 30%
Big cuts in benefits for the top 40%, on a sliding scale
Such a negotiated settlement would be the fairest thing for everyone, pensioners and taxpayers alike.
Notice that whining about history, praying for massive tax hikes, complaining to state legislatures, and bitching to Mish are not viable options.
Blame the Unions
Unfortunately, it's highly unlikely unions would ever do what I suggest. So, the most likely consequence is an across the board cut even if it means Sailes-Jackson collects $100 a month instead of $500, regardless of how long she worked.
When that happens, don't blame me, and don't blame Orr. Blame the unions (and the crooked politicians who went into bed with the unions).
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
As a result of Troika-imposed austerity, Greece has a current account surplus that widened in September to over a billion euros.
This happened because demand for foreign goods collapsed in the wake of 27.3% overall unemployment and a shockingly high 57.9% youth unemployment.
The Coming Greek Default
In spite of a current account surplus, Greece's overall debt load is unsustainable.
Here are a couple of key details: Greece has €320 billion in sovereign debt. Greece's debt-to-GDP ratio is 174%.
Recall that the Troika considered anything beyond 120% unsustainable. Also recall that Greek debt was restructured twice to meet those targets.
The pertinent question is not "How will Greece pay back €320 billion?" because it can't and won't. Rather, the pertinent question is "How will Greece NOT pay back €320 billion?"
Two Possibilities
Default accompanied by an exit from the eurozone
Debt relief from Germany and the rest of the eurozone
For political consumption purposes ahead of the last federal election, German chancellor Angela Merkel ruled out more aid to Greece. That blatant lie was probably enough to hold support for the eurosceptic AfD party below the 5% threshold to make German parliament. AfD failed by 0.2 percentage points.
Had Merkel admitted the truth, it's hard to say how many more votes AfD would have gotten, but I suspect far more than 0.2 percentage points.
With election lies out of the way, the corollary questions for Germany now are quite similar.
Questions for Germany
Does Germany grant debt relief to Greece?
If so, how.
If not, when does Merkel admit she lied?
If not, when does Merkel admit the consequences?
Prisoner's Dilemma Game
This line of questioning creates a sort of Prisoner's Dilemma Game in which two individuals (in this case countries) might not cooperate, even if it appears that it is in their best interests to do so. Click on the link for prisoner's dilemma examples.
One way or another Germany is going to pay. Unless Germany forgives Greek debt, Greece is more likely than ever to default.
Why? Because Greece now has a current account surplus. It does not need to borrow money from foreign countries to finance its ongoing deficit (because there is no deficit).
Ever since Greece entered its rescue programme in 2010, the relationship between Athens and its international lenders has been fundamentally unequal. Having lost access to the capital markets, the Greek government relied on the bailout funds to pay its bills.
With the public accounts edging closer to a primary surplus, the government feels it has a stronger hand to play. On Sunday lawmakers passed the 2014 budget without showing it to the IMF or the commission as demanded by EU rules. The vote sets the scene for a tense meeting when troika representatives return to Athens this month.
That Antonis Samaras, prime minister, feels the need to flex his muscles is understandable. His coalition's parliamentary majority is now wafer-thin after defectors refused to vote for more austerity measures. Opposition parties, such as Syriza on the left and Golden Dawn on the right, are gaining strength thanks to their pledges to renegotiate the rescue deal or even abandon the single currency.
Yet Mr Samaras should be careful not to overplay his hand. ....
Alexis Tsipras, Greece's far-left opposition leader, said the Greek government will no longer have a mandate to run the country if his Syriza party finishes first in May's European parliament election.
He predicted that national elections would be held before the end of next year.
Mr Tsipras, who has vowed to scrap the country's €172bn bailout agreement with international lenders, said anger in Greece has grown since last year's national election when Syriza twice came close to becoming the country's biggest party in parliament – falling just short of the centre-right New Democracy party of Antonis Samaras, now prime minister.
Unless Samaras talks tough, Syriza would likely win the next election and may do so anyway.
Tsipras would one of the two major things that Greece needs to do: Tell the Troika "go to hell" then default. Greece also needs a tremendous amount of structural reforms, most of which none of the Greek political parties seems willing to address.
The key point is that as long as Greece runs a current account surplus, it can finance its way via taxation, without further Troika meddling.
The two economic adjustment programmes for Greece from 2010 and 2012 as well as the sovereign debt restructuring from April 2012 and the debt buyback initiative in December of the same year have had a significant impact on the debt profile of Greece as a sovereign debtor. Greece's creditor structure in 2013 compared to the point of departure in 2010 hardly bears any resemblance.
Prior to the conclusion of the first economic adjustment programme more than 85 percent of Greece's sovereign debt was held by private institutions. By contrast, following the twin debt restructuring and buyback exercise during 2012 over 80 percent of Greece's sovereign debt now rests in the portfolio's and budgets of the eurozone's member states, the ECB's and the IMF's vaults as well as on the balance sheet of the European Stability Mechanism (ESM).
While in 2010 Greek sovereign debt was primarily held by German[2], French, Italian, Swiss and Japanese banks, the combination of two rescue programmes and debt restructuring have fundamentally altered the ownership structure of and accountability for the accumulated sovereign debt of Greece from the private to the official sector. Greece's public creditors in Europe and Washington together now own roughly 84 percent of the country's 320 billion euros in debt.
Who will blink first?
Has this secondary migration process tied the hands of Greece as a sovereign debtor and created a prisoner dilemma for the Troika of international creditors? Who will blink first in the OSI debate? Who will continue to defend his privileged senior creditor status and insist on 100 percent payback?
It took no less than European Commissioner for Employment Laszlo Andor of Hungary to get to the heart of the matter. While he argued that Greece did not need a third bailout, Andor was honest to say that what Athens really needed was to be given debt relief. -
"What Greece needs today is not a third bailout, but a proper reconstruction plan, which inevitably starts with a significant (emphasis added) debt relief and continues with programmes that bring fresh investments" (Kathimerini 2013).
Greek Sovereign Debt History
The ECB, EU, IMF, and politicians in various countries managed to transfer 80% of Greek sovereign debt from private hands into public hands. In essence, they bailed out banks and put taxpayers at risk.
Calculating taxpayer responsibility percentages of various countries is simple enough.
Public ownership of Greek debt (counting IMF and ECB) is 80%.
80% of €320 billion is €256 billion
Two Key Questions
Who pays if Greece defaults?
In what way?
Countries Responsible if Greece Defaults
Country
Percentage
Greek Debt Responsibility in Billions of Euros
Austria
2.78%
7.104
Belgium
3.47%
8.874496
Cyprus
0.20%
0.500992
Estonia
0.26%
0.654848
Finland
1.79%
4.58752
France
20.32%
52.030976
Germany
27.06%
69.285632
Greece
2.81%
7.188992
Ireland
1.59%
4.063744
Italy
17.86%
45.721088
Luxembourg
0.25%
0.639232
Malta
0.09%
0.231168
Netherlands
5.70%
14.591488
Portugal
2.50%
6.404096
Slovakia
0.99%
2.53696
Slovenia
0.47%
1.202944
Spain
11.87%
30.381824
Eurozone 17
100%
256
Note that Greece can hardly be responsible for 2.81% (7.19 Billion) of its own debt so that amount needs to be distributed accordingly to make the percentages total 100%.
Otherwise, unless the IMF is willing to wave its debt, the numbers are approximately as shown.
Three More Questions
Given Greece's current account surplus, who really has the upper hand here?
Although Germany might be able to cough up €69 billion, where the hell is Spain going to get €30 billion?
Where the hell is Italy going to get €45.7 billion?
Should Spain suffer enough at the Troika's hands to also reach a current account surplus, it will be in a similar position to Greece. In other words, the structure of the eurozone is such as to cause a cascade of disorderly breakups as soon as countries eliminate their deficits.
Final Bonus Question
So Angela Merkel, when are you going to admit this setup, and what are you going to do about it?
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Here's some new charts from reader Tim Wallace on "Covered Employment" (working in a job eligible for unemployment benefits).
First a few notes ....
Typically, hours worked and wages paid to employees in covered employment are used as a basis in establishing unemployment benefits should an employee becomes unemployed by no fault of their own.
Self-employed people are not covered by unemployment insurance but we still have to pay into the system.
Covered employees are entitled to unemployment benefits if they earn enough wages and meet eligibility requirements of their state.
For example, the State of Washington requires 680 hours of covered employment to be eligible for unemployment benefits.
Covered Employment
Covered Employment Notes
Covered employment hit 128,673,493 in January 2002.
Since then, the working age population has grown by 30 million.
Covered employment was 133,902,387 in December 2008.
Covered employment is 130,396,096 now, a decline of 3,560,291.
Covered Employment vs. Federal Spending
Wallace comments "I divided the budget by 10,000 so both numbers can be graphed in the same chart. It is a slope reference at which I am looking. You can see that the slope of the budget is much steeper, part of which owes to inflation, but since the 1990's the Fed tells us that we have had inflation under control. The slope starts to steepen on spending in the early 2000's, then spiked in 2008 with the financial crisis."
Spending Per Covered Employee
Wallace comments "We are closing in on $30,000 spending per person working in covered employment."
Mish comments "We cannot discount self-employment because self-employed pay taxes as well. Nonetheless, these charts provide yet another indication of weak hiring as well as visual evidence that something is awry with the budget."
Also, when the next recession does hit, there are plenty of people who did not accumulate enough hours of covered employment to be eligible for benefits.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Over the course of several weeks, White House Executive Pastry Chef Bill Yosses and his talented team created a 300-pound White House replica. And great news: It's edible.
This year’s gingerbread creation features a miniature Bo and Sunny sitting on the front steps of the house, and a functioning replica of the North Lawn fountain.
President Obama addresses his support of Computer Science Education Week, an annual grassroots campaign dedicated to highlighting the importance of computer science education for K-12 students.
In last week’s address, President Obama says that before Congress leaves for vacation, they should extend unemployment benefits for 1.3 million hardworking Americans who will lose this lifeline at the end of the year.
Last week, the President spoke on the importance of addressing economic mobility and supporting implementation of the Affordable Care Act, visited fasting immigration reform activists, marked World AIDS Day, celebrated Hanukkah, and visited a local bookstore for Small Business Saturday.
We've entered a fortuitous time to be involved in the digital marketing space. Almost half of the global population now has access to the internet, the way consumers consume content is rapidly evolving, and with that comes an exciting array of challenges and opportunities. This post specifically focuses on the trends that lay ahead for content marketers and the role they play within an organization. Having a concrete understanding of upcoming trends is important in laying the foundation for defining the content goals within an organization and deciding where resources should be allocated.
Trend 1: Competition to gain consumers' attention will increase
Smaller businesses won't be able to compete based on sheer volume. So how can a site differentiate itself in this market? This is where the development of a contentstrategy can come into play. It's extremely helpful to understand a company's unique value proposition, and if the company doesn't have one, to understand where the opportunities are in the space to create one. For B2C companies, it can be identifying the company's existing target audience and promoting the brand as an advocate for a particular lifestyle. For B2B companies, it is often times about positioning your brand to be the ultimate authority or source of knowledge in a specific industry/niche.
When developing a content strategy, it's important to evaluate the product that the business sells. Evaluating a product doesn't mean identifying the features or solely understanding the benefits of the product. It actually means understanding the marketability of the product. For instance, is the product a "think" product or a "feel" product? Does the product require high involvement or low involvement from the consumer? Using the FCB grid developed by Richard Vaughn is a useful tactic.
A "think" product is one where a consumer heavily considers before purchasing. These type of products usually involve a high amount of research and personal effort by the consumer before purchasing.
A "feel" product is one where emotion plays a pivotal role in the buying process.
A "high involvement" product is one where the consumer is heavily involved in the buying decision. These products are generally more expensive, but not from just a fiscal perspective. It can also be something that once purchased, will require a lot more time to change, or it has significantly more impact from a long-term perspective. For instance, opening a retirement account is a "high involvement" purchase. A wallpaper purchase is also a "high involvement" purchase.
"Low involvement" products tend to err on a more impulsive or spur-of-the moment purchase. Once a consumer decides they need this product, not much time will be spent researching because it involves a low margin of error if a decision was incorrectly made. The price of the product is usually low.
If the product the company sells is a "high involvement"/"think" product, the consumer is going to spend significantly more time researching the product, including reading/watching product reviews, identifying product features, assessing if this purchase is worth the cost, etc. As a result, the content strategy for such a product should involve plenty of information on the product features, the benefits of the product, as well as growing the product and brand awareness, so that consumers will both discover and search for the product.
If the product the company sells is a "low involvement"/"feel" product, more time should be invested to connecting with consumers and appealing to their emotions. These products should also focus their efforts on building brand loyalty and retention of customers because these products tend to be repeat purchases.
Julian Cole, the Head of Comms Planning at BBH, breaks down this process in great detail in his "Working Out the Business Problems" slide deck.
Trend 2: Determining the key metrics to measure content's success will be more important
Traditionally, traffic and page views have been the longstanding metrics to gauge a piece of content's success by. Although there are clear value propositions in having increased traffic (such as increased brand awareness and increased/potential revenue for publishers and bloggers), these metrics on their own can be misleading. More importantly, solely focusing on traffic and page views as a metric of success can lead to unintentional behaviors and misguided motivations. These can include an overemphasis of click-worthy headlines, overuse of keywords in a title, and changing the focus from creating content for users (building for the long-term) to creating content for page views (short-term wins).
Ultimately, determining the right metrics for an organization's content depends on the goals for the content. Is it to maintain an engaged community/develop brand advocates, build brand awareness, and/or to convert users into paying customers? Perhaps it is a combination of all 3? These are all difficult questions to answer.
At Distilled, we're currently working with clients to help them define these metrics for their content. Sometimes, the best option is to use a combination of metrics that we want to analyze and target. For some clients, a key metric could be combining organic traffic + % returning visitors + tracking changes in bounce rate and time on site. For instance, if a user finds exactly what they're looking for and bounce, that's not necessarily bad. Perhaps, they landed on an ideal landing page and found the exact information they were looking for. That's a fantastic user experience, especially if the users have a long time on site and if they become a returning visitor. Looking at any metric in isolation can lead to tons of wrong assumptions and while there is not a perfect solution, combining metrics can be the next best alternative.
For other businesses, social metrics can be a great conversion metric for content pieces. A Facebook like or a Twitter retweet signals some engagement, whereas a share, a comment, or becoming a "fan" of a Facebook page signals a potential brand advocate. Although a share or a new "fan" on a Facebook page may be worthy more, all these activities demonstrate the ability of a piece to gain a user's attention and that awareness is worth something.
Content Marketing Institute has a great list of key metrics that B2B and B2C companies use to measure the effectiveness of their content.
Trend 3: Increased interest in content integration (content will be produced for multiple channels)
Some of the biggest challenges involved in content often times have nothing to do with content. For many of my clients, the biggest struggles usually involve decisions regarding proper resource allocation - lack of time to implement all of the goals, lack of budget to implement these strategies in an ideal way, and the constant battle with readjusting priorities. These hard constraints make marketing especially challenging, especially as more and more channels develop and digital innovation advances so quickly. While there is no perfect solution to this problem, the next best alternative to balancing out hard resource constraints with the constant need for innovation is to develop better integration methodologies. A poll of CMOs have put integrated marketing communications ahead of effective advertising when it comes the most important thing they want from an agency.
Why is this so important? It's because there is a change in the way consumers shop. Accenture conducted global market research on the behaviors of 6,000 consumers in eight countries. One of the top recommendations was the important of providing consumers with a "seamless retail experience." This means providing an on-brand, personalized, and consistent experience regardless of channel. That seamless experience will require content to be heavily involved in a multitude of channels from online to in-person in order to provide potential and current customers with one consistent conversation.
The chart below shows statistics about the way Millennials shop. Although Millennials tend to be exceptionally digitally-savvy (especially when it comes to social media), studies show they still like to shop in retail/brick-and-more stores. Millennials use the internet to research and review price, products, value, and service and have shown to have an impact on how their parents shop.
The integration of content does not apply to just consumer retail stores. For instance, British Airways has a billboard in London that is programmed to show a kid pointing to a flying British Airways plane every time one passes over the billboard. Here is the video that shows how the billboard works.
Last year, AT&T launched a 10,000 foot digitally enhanced store to showcase an apps wall, as well content dedicated to lifestyle areas, like fitness, family, and art. Start-up food blog, Food52 (who is starting to go into ecommerce) is launching a holiday market pop-up store in NYC.
Content Marketing Institute's 2014 Report for B2B content marketers indicates that B2B content marketers still view in-person events as their most effective tactic. The seamless transition of content from online marketing channels (via social media conversations, PPC and display ads, and content on the site via case studies and videos) to in-person conversations and consumer experience will only grow in importance.
Trend 4: Experimentation with content in new mediums
Technology and digital innovation are experiencing rapid increases in growth. PCs are now a small percentage of connected devices, wearables, and smart TVs are about to go mainstream. As competition for attention increases, companies will be increasingly willing to experiment with content in new mediums to reach their intended audiences.
This graph is just one depiction of how quickly technology evolves. As marketers, having the ability to quickly adapt and scale to new trends/opportunities is critical. This past year, marketing agency, SapientNitro, released a 156-page free guide entitled Insights 2013 that talks in detail about some of these trends, such as in-store digital retail experiences, the future of television, sensors and experience design, and customer experience on the move to name a few.
One of their case studies talks about Sephora. Sephora has developed great content in retail stores, such as several interactive kiosks that allow users to explore different fragrances or gain understanding about skincare. IPads surround the store that provide how to makeup tips and items can be scanned to reveal product information. Sephora's mobile app has content that speaks to their core customer base and is in line with their other online and social media content. All of the content can be easily shared via email or through social networks.
Other brands, such as Nivea mixed print advertising with mobile innovation. In this case, Nivea's print ad also doubled as a solar ad charger for phones.
Finally, PopTopia is a mobile game that has a mobile phone attachment, called Pop Dangle that will emit the smell of popcorn as you play the game. The game works because the attachment plugs into the audio jack and at a certain frequency, it will signal to spread the smell of popcorn. These examples all show brands who have embraced new mediums for content.
2014 will be an exciting time for the future of content. As technology evolves and competition for user attention increases, marketers need to be agile and adapt to the growing needs and expectations of their customers. The future of businesses will absolutely be critical upon businesses having a very clear unique value proposition. Why is this so crucial? This is the pivotal foundation from which marketing strategies and execution will grow. Our job as marketers is to use that information to pinpoint the metrics we need to measure and prioritize all future marketing strategies. This task is very difficult, but our role is to continue to embrace these challenges in order to seek solutions. Now is the ideal time to begin.
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