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Thursday, September 25, 2008

Time The Conqueror

For those of you wondering what the Oregon Investment Council is doing to shore up the PERS Fund against the current Wall Street meltdown, the answer is pretty much the same as before. Ron Schmitz, from the Treasury, told the Oregonian that the investment mix they have is solid and that their losses this year are manageable without going into "risk managment." When the OIC met yesterday, it didn't discuss the meltdown at all in its morning meeting. But in the afternoon, they brought in a economic expert who talked about the causes of the current crisis. He attributed the crisis to "excess leverage" and equated it to "pouring lead into the stream that everyone drinks from". He supports the bailout plan before congress, but with some measures to protect homeowners from losing their homes in foreclosure.

Time will tell whether the OIC's decisions bear fruit, but the OIC's track record is certainly admirable up to this point. I don't think this year is going to be good for any accounts without a guarantee, and those with a guarantee will chew up enough of the reserve that the PERS Board will have a ready-made excuse to not pay anyone over the guarantee for another long stretch of time. I think they were considering a possible payment over 8% in this current year had Wall Street performed like it had since 2003. But alas, the sticky terms of HB 2001, passed in 2003 make this year's result dial the clock back again to the beginning so that PERS will have to replenish the reserves again when the market goes up, and hold the reserves stable for 3 consecutive years. As I've predicted before, HB 2001 has always been diabolical and pretty much guarantees nothing more than the guaranteed rate, whatever it is, for the rest of the Tier 1 members' life expectancies. Time conquers all.

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