Problem?
I got my hands on the report not from an disgruntled employee looking to even up the score with his old firm, but from someone who believed the reason JP Morgan kept it a secret stinks to high heaven: Bankers there are afraid of upsetting state and city officials who hand them large fees to underwrite municipal bonds.
And why draw attention to an issue that might spook investors, cut off funding for municipal governments and for the fees the bank collects on that funding? A muni-market panic could land the bank in far hotter water than its current London Whale travails.
But Morgan’s discretion may have broken the law: The report’s dire predictions didn’t make it into investor-disclosure documents on at least some bond deals that Morgan underwrote for states with the biggest liabilities. Legal experts say that could violate federal anti-fraud statutes.
All of which sounds like far more onerous than anything the Senate Banking Committee could come up with last week: It grilled Dimon over $2 billion trading loss at his London office, while his firm was hiding evidence of a $4 trillion pension disaster.
http://www.nypost.com/p/news/opinion/op ... z23YGKVEgC
What is a Pension?
A pension is a fixed sum paid regularly to a person, typically following retirement from service. Traditionally, retirement plans have been administered by institutions which exist specifically for that purpose, by large businesses, or, for government workers, by the government itself.
http://en.wikipedia.org/wiki/Pension
History
Growing Situation
About 80 percent of public pensions are defined-benefit plans, meaning that the plan’s sponsor promises to pay a specified income that is predetermined by years of service, final average salary, and other factors. To fund the promised income, both the employee and employer typically contribute to a pension trust. The trust invests these payments in a portfolio of assets whose returns are expected to pay the lion’s share of the benefit obligation.
Unfortunately, these expectations are not always met. Historically, public pension plans have invested a large share of funds in stocks, which have offered relatively high returns when averaged over long periods. Since the stock market’s peak in 2000, however, equity returns have been sharply lower than expected. As a consequence, the value of assets held in public pension trusts has not kept pace with the growing promises the plans have made, leaving them substantially underfunded.
http://www.clevelandfed.org/Forefront/2 ... ter_08.cfm
(Pension plans can become underfunded in a variety of ways. Interest rate changes, a weak stock market, mergers and bankruptcies can all greatly affect company pensioners. During times of an economic slowdown pension plans are most susceptible to becoming underfunded.
http://www.investopedia.com/terms/u/und ... z23YToqrND)
An underfunded pension program can signal deeper systemic problems, but it doesn't mean the program is insolvent or unable to meet its obligations. On average, state pension plans are funded at 78 percent, which means they have enough assets and cash on hand to pay participants obligations up to 78 percent. "There's nothing magical about being 100-percent funded," Kim says. "It's essentially like a mortgage. If you buy a house and pay 78 percent of that mortgage and have that 22 percent left, that's not a bad thing."
Pension plans have three streams of income: employee contributions, investment returns, and employer contributions (the state or local government entity). While investment returns have recovered somewhat in recent months, low tax receipts due to the recession have caused many plan sponsors to shortchange their contributions.
http://money.usnews.com/money/personal- ... on-problem