More on California Pensions

I mentioned last week that over 9,000 retirees in California are receiving pensions in excess of $100,000 annually from public entities. One of the reasons cited for high pensions is that high risks taken by public safety workers lead to shorter life spans (so, the high pension is a compensating wage differential offered in exchange for a shorter life). Sounds reasonable, yes?

Unfortunately, the data indicate that retired public safety workers have similar life spans to non-safety-workers. Oops.

18 minute talk from the author of "Predictably Irrational"

Why don't businesses try this?

Anyone who has read our textbook understands the problem with business "best practices."--you cannot infer causation from correlation (if a business gets better that is using a certain practice, there is no guarantee that the practice was causing the improvement).  Instead, try something like this.

Will IMF debt be used to roll over old Greek debts?

Typically, when a firm is near bankruptcy, to attract new lending, it must offer to pay back the newest debt first, before it pays back other debt.  Otherwise, there is the risk that the new debt would be used to pay back the old debt, which would not help the new firm survive.  This is a type of moral hazard. 

It turns out that IMF is financing about 30% of the Greek Bailout; 40% of which is coming from US taxpayers. The issue is that the IMF debt would be used to pay back other Greek debt holders.

What that means is that US (and Canadian and British, etc.) tax payers will be giving money to Greece who will use a lot of it to roll over old bonds, letting European banks and funds reduce their exposure to Greece while tax-payers all over the world who fund the IMF assume that risk. And does anyone really think that Greece will pay that debt back? IMF debt should be senior and no bank should be allowed to roll over debt and reduce their exposure to Greek debt on the back of foreign tax-payers.

I don't think I signed on for that duty. Why should my tax money go to help European banks? This is just wrong on so many levels and there is nothing seemingly we can do. Oh, well. Thanks for listening.

Tickets to Restaurants

Chicago chef Grant Achatz's next restaurant, called Next Restaurant, will sell tickets for seatings. As the NY Times reports:

Anyone wishing to eat at Next after its scheduled opening in the fall will pay in advance on its Web site. Like airlines, Next will offer cheaper tickets for off-peak hours. A table at 9:30 on a Tuesday night, say, would cost less than one for Saturday at 8. Ticket prices will also vary based on the menu, but will run from $45 to $75 for a five- or six-course meal, according to the site, nextrestaurant.com. (Wine and beverage pairings, bought with the ticket, will begin at $25.)

Two questions:

1. How will they respond to scalping?
2. When will they move to auctions to set the price?

Hat tip: kottke.org

California Pension Obligations

One of the big budget burdens for the California government are hefty pension obligations. Over 9,000 retirees draw pensions in excess of $100,000 per year according to figures gathered under the Freedom of Information Act from the California Public Employees Retirement System (CalPERS). How can someone end up with such a huge payment?

In California, public safety workers such as police, firefighters and CHP officers, can retire at age 50 – at 90% of their top salary. The pension formula is to take 3% of their top salary – then multiply it by the number of years they worked – so after 30 years on the job, their pension would be 90% of their highest salary.

Under former Governor Gray Davis, thousands of civil servants not in the line of fire were also given elevated benefits

Habits to stay out of debt

From Andrew Housser

1) Learn to create and use a simple budget
2) Live within your means
3) Get into a savings habit
4) Pay bills on time
5) Start saying "no"
6) Manage a credit or debit card
7) Pay credit cards in full
8) Build and manage your credit score

Policy Ineffectiveness

I like how this simple graphic encapsulates the ineffectiveness of the "War on Drugs." What is surprising is how much supply must have shifted out, despite government intervention. Where there is demand, there is a profit motive.

Hat tip to Reflectionof.me

Housing demand is more elastic than we thought

Don't try to forecast demand by assuming that there will be 2.5 people/household:

Last year, 1.2 million households disappeared as unemployed adult children moved back home and seniors moved out of assisted living to share living space with their grown children. This will linger until the economy begins to recover and seniors can sell their homes and live near but not with their relatives.

Should the Fed have been able to spot the housing bubble?

Calculated Risk shows they talked about it.  Steve Oliner, Director of Research, was a classmate of mine:

I don’t want to leave the impression that we think there’s a huge housing bubble. We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there’s a part of the increase that is hard to explain.