Felix Salmon

Nick Denton’s paradoxes

Felix Salmon
Mar 3, 2011 20:59 UTC

I enjoyed my chat with Nick Denton at PaidContent 2011 today. He wasn’t shy about ducking questions he didn’t want to answer — he wouldn’t put a number on Gawker’s revenues, for instance, and he wouldn’t say why Gawker refused to publish that Scientology story. And to nobody’s great surprise he was still very bullish about the Gawker redesign — even after admitting to having made big mistakes in rolling it out, and even with the site far from being fixed, three weeks after the launch. I asked him about his bet with Rex Sorgatz; Denton said he’d recently offered to double the stakes.

For me the most interesting part of the conversation was how aggressive Denton was when it came to AOL’s acquisition of the Huffington Post. Before we went up on stage, he leaned over to me and told me to be sure to ask him about the deal, which he has been very vocal about criticizing. As he was today: he claimed to be very disappointed in Arianna Huffington’s decision to sell. “They should have gone all the way and become the liberal Fox News,” he said. “They could have bought MSNBC.”

This comes as little surprise, coming from Denton: when Jason Calacanis sold Weblogs Inc to AOL in 2005, Denton said he’d sold “10 years too early”. And Denton himself made very clear, later on in our conversation, that Gawker is not for sale and will not be for sale. If you want to buy a stake in Gawker, he said, he might be open to that — but only on the explicit understanding that you’re buying a very long-term income stream, rather than a chance to get rich quick.

I don’t really understand Denton’s position here. At AOL, Arianna Huffington has much deeper pockets to be able to invest in growth, not least by trying to get some real value out of the hugely expensive Patch franchise. And I’m pretty sure she has more freedom now to build something great over the long term, than she did when her company was owned by venture capitalists looking for an exit. Denton is highly prejudiced against AOL for reasons which aren’t entirely clear: while admitting that some AOL franchises, like Engadget and Joystiq and Techcrunch, are excellent competitors, he still said that attacking AOL was like “kicking a blancmange”.

Denton’s reference, I think, is to a wonderful Clive James review of Judith Krantz from 1980, where he wrote that “to pour abuse on a book like this makes no more sense than to kick a powder-puff”. The review is required reading for anybody who thinks that snark didn’t exist before the Internet — but it’s worth noting that James’s review in a highbrow, low-circulation magazine, and its subject was a huge bestseller which tapped straight into the mass market which Denton so covets.

There’s a longstanding tension in the Gawker universe, between cultivating smart and important and witty readers, on the one hand, and building a mass audience, on the other. Denton was very complimentary about my post on the end of micropublishing — and it’s my feeling that if he wins his bet with Sorgatz, it will be by gaining more of a mass audience while further eroding the amount he’s read by the media elite. On the other hand, if you look at the people Denton hires, they tend to be funny in a very Clive James kind of way, as opposed to having the mass appeal of say Sugar, the network Denton reckons AOL should have bought. Denton likes to sacrifice the highbrow for a mass audience anyway he can, and boldly said he’d be bigger than HuffPo next year. (I’ll take that bet.) But sometimes he can’t help himself.

The statement of Denton’s which got the most pushback on the Twitter backchannel was when he said that Gawker was a technology company rather than a media company. I agree with the snark mob on this one: for all that Denton has invested a lot in technology and is very proud of what he’s built, he knows journalism in a way that he doesn’t know technology. (He could take over as editor of Gawker any time he likes; he could never take over as CTO.) Gawker has a long history of technological chaos, and the relaunch mess only serves to underline how difficult it is for Gawker to get its tech ducks in order. Denton wants to be a tech company. But he’s not.


Let’s be real. Nick sold Gawker too late.

I used to piddle around a couple of his sites. The new redesign is so bad I don’t even know what I’m looking at.

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Felix Salmon
Mar 3, 2011 03:53 UTC

Wherein I talk to Amy Eddings about LCD Soundystem tickets — WNYC

Is McKinsey & Co. the Root of All Evil? — Ritholtz

“Advice to Galliano’s lawyer: Tell the press your client was referring to another Hitler, maybe a hitherto-obscure designer of hats” — Atlantic

NYT Magazine articles now include name & email address of author and editor — NYT

Cricket can be a gripping sport — Guardian

Lindgren on NYT Mag: “it needed an improvisational, we-just-did-it-this-week kind of feeling” — Yahoo


@TFF Perused Baker’s report and must say; very readable analysis. As for your not at all dumb question #1: That chart looks like the returns of a classic terrible investor. Now the question is: after their investment managers suffered such deep drawdowns in ’08 did the people running the pensions fire them and hire more conservative managers at exactly the wrong time? Or did the same managers save their jobs by switching to more conservative strategies at exactly the wrong time?

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Roubini’s big muni report

Felix Salmon
Mar 2, 2011 22:44 UTC

The RGE report on muni bonds is very good, and I’m sad I’m not allowed to share it with you. (On the other hand, according to former CEO Camille LeBlanc, “pick a bank, pick a hedge fund—they’re probably a client.” So if you know anybody on Wall Street, they might well have a copy lying around somewhere.)

I can, however, share the five-word executive summary from authors David Nowakowski and Prajakta Bhide: “Overblown default risk, underestimated problems.” It’s a neat formulation, since it helps to concentrate attention on the real fiscal issues facing the states, without getting alarmist and unhelpful about a possible wave of defaults.

There have always been some muni defaults, of course, and chances are that number is going to rise over the next few years. But RGE isn’t all that worried on the default front. For one thing, muni bonds tend to be pretty robust in downturns, for another, defaults will likely be clustered in non-rated issues. And from a systemic perspective things look even better: banks and other leveraged institutions don’t hold much in the way of muni bonds, and it tends to be leverage, rather than default itself, which causes the real damage.

On the other hand, the effects of avoiding default will be large and painful, with layoffs and tax hikes seemingly unavoidable.

RGE takes a very long view, looking at the history of US municipal debt since 1790. The worst that it ever got was the 1873 Long Depression, when muni bondholders suffered 25% defaults and 15% losses. They write, plausibly enough:

In RGE’s view, this period following Civil War, Reconstruction and Carpetbagging, and economic collapse goes far beyond stress tests and even most tail risks.

Two datapoints underline just how bad the 1873 depression was: indebtedness in the south was 295% of GDP, much of it money which had simply been trousered by corrupt politicians. And wealth in the south fell by 59% between 1860 and 1870. We’re nowhere near that bad today, or in the foreseeable future.

My own view of the the tail risk in the muni market is that it’s linked to monoline wraps: that if defaults rise high enough that munis can’t borrow any more, the political cost of default is diminished by the fact that bondholders will still get paid by insurers. In other words, you don’t need economic collapse for munis to default, you just need a critical mass of lots of other people doing it, and a colorable claim that default will be painless for most of your constituents. But RGE’s point is well taken — munis are pretty tough, as 220 years of history demonstrates. Let’s not write them off just yet.

And if you’re holding general obligation bonds, there’s another thing helping to support them: the diversification of revenue sources available to state and local governments.


You can see this graph as bad news, showing that states are increasingly reliant on fiscal transfers from the federal government. Or you think of it as good news, showing that when push comes to shove the government is willing and able to bail out the states, which are after all too big to fail in many cases. And as for the other revenues, only income taxes have failed to bounce back from the financial crisis. All other revenues, even property taxes, have stayed pretty stable, as tax rates have tended to rise to offset any fall in property values.

All that said, the fiscal situation facing the states is pretty bad. Fiscal transfers are certainly going away for the next couple of years, and expenditures are growing even as revenues aren’t. The figures for a state like, say, New Jersey are alarming indeed: a 2011 deficit of more than $10 billion, unemployment of 9.2%, and a debt-to-gross-state-product ratio of 11.8%. There will be cuts, and they will be harsh.

Finally, there’s the question of legal protections, and it turns out that bondholders are pretty well situated on that front:

The laws regarding debt restructuring are complex, and the status of bondholders in such cases is much higher in the “capital structure;” in many cases, more akin to secured creditors at an operating company level than a typical senior unsecured corporate bond at a holding company level…

The U.S. court system is highly unlikely to allow a state to impose permanent losses on investors in GO debt…

Bond security is very strong for most debt issuances, and is provided for in state constitutions, statutes, covenants with bondholders, and local ordinances. U.S. state and local government bonds are usually secured by a general obligation of the issuer. For local governments, this is generally accompanied by an unlimited property tax pledge and such taxes are senior to the property’s mortgage obligation. Other commonly issued municipal bonds are secured by a first lien on sales or income taxes.

The RGE report is very strong on this, and has set quite a few of my worries to rest. I feared that bondholders would have little recourse in the event of default, but it seems the opposite is true: they really hold all the cards, and even in the case of Chapter 9 bankruptcy they’re pretty well positioned.

None of this means, of course, that muni bonds are going to go up in value rather than down. If retail investors leave the asset class and institutional investors are forced to step in, they’re likely to demand much higher yields since they don’t get the same level of tax benefits. Or to put it another way, just because default risk is low doesn’t mean that credit spreads are going to be low too — there are a lot of supply-and-dynamics going on here which can pull prices far away from their fundamentals.

But it does seem that the main thing to worry about is muni bond prices falling, rather than municipalities actually defaulting. If prices fall, there will always be talk of default — but talk is cheap. Default, by contrast, at least for the time being, remains very expensive.


“And wealth in the south fell by 59% between 1860 and 1870. We’re nowhere near that bad today,”

If you mean there wasn’t a civil war that destroyed 1/2 of an entire country…you’re right…

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Tail risk in microfinance, Muhammad Yunus edition

Felix Salmon
Mar 2, 2011 16:26 UTC

On Monday, it looked like Muhammad Yunus was going to survive as head of Grameen; today, it looks as though he’s out. As David Roodman explains, it’s all very complicated and murky, but the base-case scenario is that everything will be decided in court, and that the courts will side with the Bangladeshi government.

This is a major diplomatic issue: if Yunus is indeed ousted, the US has promised to end all high-level diplomatic interaction with Bangladesh. Yunus has powerful friends, but that doesn’t seem to have helped him here.

Yunus himself, of course, will be fine whatever happens. The worry is what happens if and when the Bangladeshi government seizes control of Grameen. It seems that the attempt to oust him is a reaction to his anti-corruption campaigns, and the obvious risk here is that Grameen itself will become a vehicle for graft — especially if, as prime minster Sheikh Hasina reportedly wants, the government’s stake in the bank is raised to 60%. (Right now, it seems that the government owns about 3.4% of Grameen, although by law it’s meant to own 25%.)

Nick Kristof is clear about how important this is:

If Grameen is turned into a state bank, that would be a catastrophe — above all for the impoverished people who depend on it. And if a Nobel Peace Prize winner can be shunted aside, then all of civil society is in jeopardy.

This would be dreadful, too, for the broader cause of microfinance. Grameen is the shining example of how microlenders can avoid disastrous implosions by dint of being owned by their borrowers. If that changes and it becomes the shining example of how governments can swoop in and seize ownership and control for their own ulterior motives, then it becomes very hard to envisage any ownership model which looks strong and sustainable over the long term.

Today’s news, then, is a stark reminder of the huge amount of tail risk in microlending. The weakness of the model isn’t in high default rates, it’s in the way that extreme events, often orchestrated by politicians, can strike even the biggest and most successful lenders. If Grameen and Muhammad Yunus aren’t safe, then no one is.


@christofurio: Actually it seems very likely that microfinance has played a small role in poverty reduction whereever it has been used. That doesn’t mean no role, but a small role. All of the high quality evidence on the impact of microfinance basically tells the same story: small but important benefits of the poor; no large scale impact on poverty.

Compare Bangladesh to Pakistan for instance. Penetration of microfinance in Bangledesh is far higher than Pakistan; neither country has what could be called effective government or policy. When you compare HDI scores for the two countries over the last 30 years, Pakistan does better.

Back to Felix’s point: Yunus and Grameen should be defended from all attacks from the Bangladeshi government using whatever reasonable means are to hand.

But, and this is a big but, I really hope that all of those defending Yunus from Hasina will take the next step of defending Grameen from Yunus. A big factor in the tenuous situation that Grameen is in now is Yunus’s failure to create an institution independent of himself. He has routinely pushed out anyone within the organization that appears to challenge his authority and power. Grameen can’t afford to lose Yunus right now because it doesn’t have a good succession plan and doesn’t have the leadership talent to easily replace him.

No one is at fault for that other than Yunus and the “Friends of Grameen” that have abetted his reluctance to separate Grameen from himself for the good of the people that it serves.

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When bonds lose their bid

Felix Salmon
Mar 2, 2011 15:14 UTC

A couple of big names are out with cautious bond market views this week. For the big picture, turn to Bill Gross, who’s worried about what’s going to asset prices — both bonds and stocks — when QE2 comes to its scheduled end on June 30. He has two main points:

  • For the duration of QE2, the Fed has been buying 70% of all new Treasury-bond issuance, and foreigners have been buying the other 30%. When the Fed stops buying, who will step in to replace it? After all, with a $1.5 trillion budget deficit, there’s a lot of new supply coming.
  • Treasury yields are about 150bp too low. The yield on the 10-year Treasury is typically the same as the GDP growth rate; it’s now 150bp below that. Real 5-year Treasury yields are normally about 1.5%; they’re currently negative. And, of course, the Fed funds rate is artificially low. All of this implies that yields will rise. When that happens, it’s reasonable to assume that discount rates and credit spreads will rise along with them, driving all asset prices lower.

This need not happen immediately upon QE2′s demise, but it might: Gross foresees “immediate uncertainty and fear” come June 30, and strongly implies that he’s not going to be venturing far out the curve unless and until rates rise significantly. For the time being, he’s derisking: “PIMCO’s not sticking around,” he tells us.

Meanwhile, on the state level, David Nowakowski and Prajakta Bhide of Roubini Global Economics have a big report out called “States of Despair,” in which they estimate that muni defaults could reach $100 billion over the next five years. They do stress, however, that the recovery value on those defaults is likely to be very high — roughly 80 cents on the dollar — and that “state and local debt problems are not systemic in nature, and will not infect the financial system, though they will dampen economic recovery.”

Indeed, the report is actually bullish on the muni market: if recoveries really are 80%, then you’d break even buying the MCDX index even if the five-year default rate hits 34%. In other words, even if there are $100 billion of bond defaults over the next five years, you’d still make good money buying munis at these levels.

There’s lots of very good analysis in the report, which I’ll come back to later today. But my main takeaway is that this is clearly a market requiring good analysis — it’s not something that individual investors should buy blithely, as they have in the past, on the assumption that muni bonds are not only tax-free but also risk-free. As such, the muni market has a similar problem to that facing the Treasury market: when the biggest buyer of the bonds goes away, who will replace them? So far, the answer in both markets is very unclear.


Thanks for the thoughts, hb10. Much to ponder on.

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Felix Salmon
Mar 2, 2011 05:00 UTC

Full Text RSS Feed Builder — Full Text RSS Feed

New paper suggests JPM’s Madoff profits almost double what was previously thought, $907m — SSRN

“Climategate” and epistemic closure — Grist

Frank Rich, a true blogger, moves house as the NYT moves to a paywall — NYMag

Neil Barofsky, TARP’s outspoken overseer, will resign — WaPo

Be careful who you show off to, Rajat Gupta edition

Felix Salmon
Mar 1, 2011 22:26 UTC

John Carney asks why Rajat Gupta might have done what he’s accused of doing:

Gupta ran McKinsey. He sat on the board of Goldman. He is the ultimate insider.

One of the reasons we rarely see insider trading charges against people who have the stature and wealth against Gupta is that insider trading makes so little logical sense for such people. There’s really no reason Gupta should leak confidential information to a hedge fund manager. He doesn’t need money, access, prestige or any favors at all.

If he did tip off his hedge fund manager friend, it was something darker than greed or ambition. It was something close to sociopathic narcissism—perhaps a belief that he was somehow above the law, immune to the rules that govern the rest of us.

“Sociopathic narcissism” is one way of putting it, but I think there’s something very human here. And John and I see it every day, at CNBC and Reuters: reporters get phoned up by very rich and important individuals, and get told information which can’t conceivably benefit the person doing the leaking, except psychologically. It doesn’t matter how rich or how important you are, the idea of being able to show off like that — to demonstrate that “I know something you don’t know”, to be cultivated and praised and effusively thanked — is very appealing.

Gupta, if he did give inside information to Raj Rajaratnam, wasn’t doing it for the money. He was doing it to feel important, to get the respect of his friend, to demonstrate just how plugged in he was to some of the most important decisions being made at the height of the financial crisis.

The moral of this story, then, is that if you ever feel that human need for validation and need to unburden yourself of a valuable secret, make sure you phone a journalist, rather than a hedge-fund manager. That’s not illegal, and it’s just as gratifying.


Worth looking back at Texas Gulf Sulphur case in 1964. Circumstances almost identical: a director of TG (Thomas Lamont, retired Vice-Chairman of Morgan Guaranty) left a TG board meeting and called Longstreet Hinton, then head of MG’s pension investment to tip him off that rumors of a huge multi-mineral strike by TG in Ontario were true. Hinton then bought stock for various accounts (including his own). SEC did not bring criminal charges, and the issue bled away in a dispute, largely terminological, over what news about itself TG had made public when. Regarding motive in the Gupta matter, Naftalis, G’s lawyer, pointed out that his client had lost $10 million with Raj. Might there have been an agreement involving a make-whole? $10 million was probably real money to Gupta.

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When Goldman’s board meetings leaked

Felix Salmon
Mar 1, 2011 17:37 UTC

Back in April of last year, I was indignantly informed by Rajat Gupta’s PR people that he wasn’t being investigated by the SEC, just examined. “This is an important distinction,” they told me. Well, it seems that either the examination subsequently turned into an investigation, or else that the distinction wasn’t that important after all:

The SEC’s Division of Enforcement alleges that Rajat K. Gupta, a friend and business associate of Rajaratnam, provided him with confidential information learned during board calls and in other aspects of his duties on the Goldman and P&G boards. Rajaratnam used the inside information to trade on behalf of some of Galleon’s hedge funds, or shared the information with others at his firm who then traded on it ahead of public announcements by the firms. The insider trading by Rajaratnam and others generated more than $18 million in illicit profits and loss avoidance. Gupta was at the time a direct or indirect investor in at least some of these Galleon hedge funds, and had other potentially lucrative business interests with Rajaratnam.

The insider dealing seems to have been pretty blatant: minutes or even seconds after getting off board conference calls with Lloyd Blankfein, Gupta would pick up the phone and call Rajaratnam, who would then make huge trades in Goldman stock:

A Special Telephonic Meeting of the Goldman Sachs Board was convened at 3:15 p.m. on September 23, during which the Board considered and approved a $5 billion preferred stock investment by Berkshire in Goldman Sachs… Gupta participated in the Board meeting telephonically, staying connected to the call until approximately 3:53 p.m. Immediately after disconnecting from the Board call, Gupta called Rajaratnam from the same line. Within a minute after this telephone conversation, at 3:56 p.m. and 3:57 p.m., and just minutes before the close of the markets, Rajaratnam caused the Galleon Tech funds to purchase more than 175,000 additional Goldman Sachs shares…

Gupta dialed into the October 23, 2008, Board meeting around the time it was scheduled to start and remained on the call until 4:49 p.m. Just 23 seconds after disconnecting from the call, Gupta called Rajaratnam… The following morning, just as the financial markets opened at 9:30 a.m., Rajaratnam… explained that Wall Street expects Goldman Sachs to earn $2.50 per share but that Rajaratnam had heard the prior day from a member of the Goldman Sachs Board that the company was actually going to lose $2 per share.

It wasn’t just Goldman, either: the SEC complaint says that Gupta did substantially the same thing with inside information about P&G, where he was also on the board.

This is just a civil complaint at this time, but if the SEC wins I fully expect criminal charges to be forthcoming. And the question must be asked: is it fair to blame Goldman for hiring Gupta to its board? I’m not sure about that. On the one hand, it’s impossible to catch all criminal tendencies of potential board members. On the other hand, Goldman historically didn’t seem to care much about its board, which seems to have existed largely to rubber-stamp the decisions of management. I think it cares more now, however. It’s learned its lesson.

Update: Gupta’s counsel has released a statement.

Statement of Gary Naftalis, Counsel for Rajat Gupta

The SEC’s allegations are totally baseless. Mr. Gupta’s 40-year record of ethical conduct, integrity, and commitment to guarding his clients’ confidences is beyond reproach. Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder. There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo. In fact, Mr. Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime of honesty and integrity.


of course he’ll walk away freely

the movie ‘Inside Job’ is a very accurate indicator of where we are in corporate society..

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Why states shouldn’t adopt defined-contribution pensions

Felix Salmon
Mar 1, 2011 16:58 UTC

Steven Greenhouse has a long article in today’s NYT about an attempt by the states to deal with their “strained” pension funds by moving to defined-contribution pension plans. Here’s the lede:

Lawmakers and governors in many states, faced with huge shortfalls in employee pension funds, are turning to a strategy that a lot of private companies adopted years ago: moving workers away from guaranteed pension plans and toward 401(k)-type retirement savings plans.

What’s a “huge shortfall”? Amazingly, nowhere in the 1,500-word article does Greenhouse actually say. Instead, we get incomprehensible tales like this:

Utah decided to adopt a 401(k)-type plan after the stock market plunge in 2008 caused the shortfall in the state’s pension plan to balloon to $6.5 billion…

Under the new plan, [state senator Dan] Liljenquist said, the state’s retirement contributions for new workers will be roughly half that for current employees, potentially saving $5 million a year for every 1,000 new workers hired.

So, the state of Utah has been putting insufficient money into its pension plan, and now there isn’t enough money there to meet upcoming liabilities. And the solution here is for the state, in future, to contribute “roughly half” of what it’s been spending up until now in pension contributions.

Needless to say, this makes no sense on either front. The liability to existing workers doesn’t go away if a different plan is adopted for new workers, so the problems at the pension plan aren’t being addressed. On top of that, it’s hard to see how contributing much less to new workers’ retirement is going to help them at all, either. From a pensions perspective, there’s no winner at all: the only entity better off is the state, from a cashflow perspective.

On top of that, Greenhouse makes no attempt to put numbers like $6.5 billion or $5 million in any kind of context. Are they big? Who knows.

The only way I could make any sense at all of Greenhouse’s article was to read it in parallel with Dean Baker’s paper on the origins and severity of the public pension crisis. The table he includes, which includes all state public pension funds, is invaluable; here, for instance, is Utah.


What this shows is that the Utah pension fund, at the end of 2009, was about $2.8 billion in the hole. If it rose by 15% in 2010, which is a pretty reasonable assumption given the performance of the stock market, the gap is likely to have been all but eliminated. But even the gap at the end of 2009 was less than one tenth of one percent of Utah’s state income.

All of these numbers are fuzzy, of course. Valuing assets is hard enough; coming up with a present value of future liabilities is much harder, and depends crucially on which discount rate you use. But Baker’s numbers are pretty reasonable, and show that there really isn’t anything to panic about here.

More generally, as Teresa Ghilarducci notes elsewhere on the NYT website (but not in the paper), the idea that moving from defined-benefit to defined-contribution plans is going to help anybody at all is highly problematic.

401(k) plans are bad deal for taxpayers. Dollar for dollar, a traditional pension plan yields more pension benefits than do 401(k) plans because 401(k) management and investment fees are three times higher. And professionals who manage money in pooled pension funds usually get higher returns than workers who manage their own 401(k) accounts. The only clear winners when pensions switch over to the 401(k) plans are brokers and bankers…

The unintended effect of widespread 401(k) plans is more volatility. In contrast to traditional pensions and Social Security, 401(k) plans fuel bubbles and make recessions worse. When the economy is booming, 401(k) plan asset values soar, making people spend more and work less. Not what you want in an expansion.

Worse, when the economy plummets and takes 401(k) assets with it, people do the opposite; they cling to the labor market and rein in spending – again, two things you don’t want in a recession.

On top of that, defined-benefit plans have a mutual-insurance component to them: shorter-lived workers subsidize longer-lived workers, helping to increase everybody’s standard of living.

The fact is that the states’ move to defined-contribution plans is a blatantly political one, born of Republican ideology conflating such plans with individual freedom and choice. For rich professionals who jump from job to job every few years, 401(k) plans do make a certain amount of sense. For public servants spending a lifetime in the police force or in elementary schools, by contrast, they emphatically don’t. As for the state pension plans, the only way that the state governments can help them make up their actuarial liabilities is if they pour more money into them. Not less.


Yes, that kind of buyout can be a win-win for everybody involved. The schools save enough on ONE year of salary for the veteran to pay for the buyout. And typically the buyouts I’ve seen are structured in a way that they credit towards the “final three years salary” calculation for the pension. The teacher accepting the buyout typically settles for less than an 80% pension, but if you are 60 years old and your health is failing, a 50% pension sounds a whole lot better than dying on the job (as a 65 year old Fitchburg teacher did after breaking up a fight).

I’ve worked with teachers who accepted a buyout. A new teacher always struggles a bit the first year on the job, but their students are STILL better off than with an embittered veteran who is simply hanging on for the pension (and calling in sick a dozen times a year). And by the second or third year, a good young teacher will be doing pretty well.

There is value to having some veterans around the department (we hired a couple for balance when all of the originals were retiring en masse), but teaching effectiveness doesn’t substantially improve beyond the fifth year on the job. After that point it is simply a question of how much energy the teacher has to give her students.

I have mixed feelings about public education these days. It isn’t nearly as bad as people seem to believe, at least not in the suburbs, but without public support it struggles to survive. Unions can negotiate salaries and benefits — but they can’t negotiate other critical factors such as staffing levels or supply budgets (ever try feeding newsprint through a copier because the school ran out of white paper in the middle of May?). It would be hilarious if it weren’t so sad.

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