By Paolo von Schirach
April 25, 2013
WASHINGTON – Felix Rohatyn, veteran investment banker (and former Ambassador to France), knows a thing or two about insolvency crises. He helped New York City avoid bankruptcy many years ago, back in 1975. And now, in an FT op-ed piece, he warns America that this is happening again, not in New York this time, but on a national scale. Simply stated, elected leaders in cities and local governments nationwide, over a period of many years, have made too many expensive promises they cannot keep. Hence the looming fiscal crisis. Unfortunately, our bitterly divided politics make needed compromise on spending cuts and tax hikes much more difficult.
Saving New York City
Rohatyn recounts how difficult it was back in 1975 for his task force, composed of bankers and union leaders, to come up with a strategy aimed at saving cash strapped New York City. Negotiations leading to an agreement were extremely complicated because there was deep distrust between labor leaders and the finance representatives.
Well, given our totally poisoned national politics, today such an undertaking would be much, much more arduous. And this why Rohatyn almost implores the parties that will have to sit around the table, (elected leaders, civil servants, business people and union representatives), in order to deal with impending municipal and statewide fiscal crises to come together –now, before it is too late.
Projected pensions shortfall
But just how bad is the looming fiscal crisis? Well, here is a morsel for you. Rohatyn quotes from a recent report issued by the State Budget Crisis Task Force: “pension funds for state and local government workers are underfunded by approximately $ 1 trillion according to their actuaries and by as much as $ 3 trillion if more conservative estimates are used”.
Got that? The official, optimistic data kept by the states say they are missing $ 1 trillion. The truth is probably much, much worse. Hence Rohatyn’s call to unity. This is bad. Really bad. No way that this enormous shortfall, caused largely by unwise politicians who over promised, can be solved without a new spirit of compromise and cooperation. Indeed.
Felix Rohatyn, has spoken, on the basis of real experience. Question is: “Anybody listening?”