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Denying Pension Math and the Coming Zombie Takeover

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A few weeks ago I posted over at the Lumesis blog about the first public pension bankruptcy in US history. In short, a small US protectorate owes retirees about $1 Billion and has about 30% of that. So they are filing for bankruptcy.

This was a big deal because there is a huge pension problem in the US right now. Municipalities are a trillion dollars in the hole on this, and it is likely that other cities/states will consider bankruptcy. Numerically this is similar to what is happening in Europe now,

Except… the ruling two weeks ago was that the pension fund can’t declare bankruptcy. It’s against the law.

Now I certainly support the pensioners right to petition, and that they should be paid. But it is clear that there isn’t enough money to go around.

Governmental agencies that aren’t able to pay and aren’t able to restructure become zombie cities, similar to zombie banks. Somewhere between dead and alive, they stumble around aimlessly. Harrisburg, which tried to file for bankruptcy, had its receiver quit in frustration and the new one is threatening to sue the city council, and it’s unclear who is legally in charge. The city has been seeing it’s unemployment rate spike compared to the rest of the state. It’s unclear if any governing is actually happening. Harrisburg is a zombie.

There are good reasons for bankruptcy laws: allowing people and organizations to fail and start over fresh is crucial to making them productive. There’s a shrinking pie and pensioners shouldn’t be the only (or even primary) people impacted. But judges cannot deny the insolvency of these institutions forever.