States Going Belly Up Part 9 - State Pensions Are Getting Slaughtered

Illinois is in a world of hurt, from Zero Hedge -

...at the 61% underfunded, $33.7 billion Illinois Teachers Retirement System (TRS), which just happened to lose $4.4 billion in 2009 (a year when, courtesy of America's conversion from capitalism to socialism, the market rose 60%), and 5% in2008. Yet underperformance can be explained. What can not, is that the TRS has now become a shadow AIG. As Harris notes "TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default, that were blamed in part for the 2008 collapse of Lehman Bros. and bailout of insurance giant American International Group Inc., or AIG.

The Real Effect
As I posted back on November 16, 2009 -

States will declare bankruptcy, Republicans will point at Democrats and Democrats will blame Republicans.

While it hasn't happened yet, we are at most a one to two years away from this realization. Now the Feds may come in and guarantee that debt and we might see some bookkeeping shenanigans, but the states will be bankrupt none-the-less.

Now just who is going to invest in these funds? The citizens? They're broke. States? Hardly. Perhaps the Feds?

President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid "massive layoffs of teachers, police and firefighters" and to support the still-fragile economic recovery. 

And again on November 24, 2009 -

Basic boil down - the consumers are broke, this is breaking the states and the Fed will back some amount of state debt. This is and will lead to a Federal debt bubble. This is the last line of defense and when this bubble breaks, all hell will break loose.

And as if prescient, precisely one year ago today I posted this among other things- 

States will declare bankruptcy, Republicans will point at Democrats and Democrats will blame Republicans.

 But wait! There's more! Stay tuned for the Real Celebration...