A few state and local governments have pension liabilities that are manageable and can be paid down if we enter a period of decent economic growth and normal investment returns. But a number of them have large debt burdens in their pensions. How big is that burden? JPMorgan Chase prepared a confidential report earlier this year that concludes the pension liabilities are enormous nationwide and will cause serious problems in some states and localities in a few years, according to Charles Gasparino of The New York Post. Gasparino thinks the bank kept the report private for a couple of reasons. One is that it didn’t want to spook investors and potentially damage the economy. The other reason is that JPM didn’t want to offend a lot of governments, because the bank makes a lot of money as one of the nation’s leading underwriters of state and local bonds.
The scandal isn’t simply that most public officials are misleading the public about the enormity of the problem and what steps must be taken to address the matter. As the Morgan report notes, many of the real liabilities are located “off balance sheet,” hidden from the public’s eye, and lax accounting standards let cities and states minimize their enormity.
It’s also that JP Morgan itself kept the report’s findings a secret except for a few big clients, mostly hedge funds and large institutional investors, who got the inside tip on which states and cities are most likely to default on their debt as their pension liabilities fester.
Yes: Default is a very real possibility, because the solutions are far from easy.