The American Dream
December 30, 2010

Do you hear that rumble in the distance? That is the Baby Boomers – they are getting ready to retire. On January 1st, 2011 the very first Baby Boomers turn 65. Millions upon millions of them are rushing towards retirement age and they have been promised that the rest of us are going to take care of them. Only there is a huge problem. We don’t have the money. It simply isn’t there. But the millions of Baby Boomers getting ready to retire are counting on that money to be there. This all comes at a really bad time for a federal government that is already flat broke and for a national economy that is already teetering on the brink of disaster.

If we are not careful all of these Baby Boomers are going to push us into national bankruptcy. Photo: U.S. National Archives.

So just who are the Baby Boomers? Well, they are the most famous generation in American history. The U.S. Census Bureau defines the Baby Boomers as those born between January 1st, 1946 and December 31st, 1964. You see, after U.S. troops returned from World War II, they quickly settled down and everyone started having lots and lots of babies. This gigantic generations has transformed America as they have passed through every stage of life. Now they are getting ready to retire.

If you add 65 years to January 1st, 1946 you get January 1st, 2011.

The moment when the first Baby Boomers reach retirement age has arrived.

The day of reckoning that so many have talked about for so many years is here.

Today, America’s elderly are living longer and the cost of health care is rising dramatically. Those two factors are going to make it incredibly expensive to take care of all of these retiring Baby Boomers.

Meanwhile, the sad truth is that the vast majority of Baby Boomers have not adequately saved for retirement. For many of them, their home equity was destroyed by the recent financial crisis. For others, their 401ks were devastated when the stock market tanked.

Meanwhile, company pension plans across America are woefully underfunded. Many state and local government pension programs are absolute disasters. The federal government has already begun to pay out more in Social Security benefits than they are taking in, and the years ahead look downright apocalyptic for the Social Security program.

If we are not careful all of these Baby Boomers are going to push us into national bankruptcy. We simply cannot afford all of the promises that we have made to them. The following are 16 statistics about the coming retirement crisis that will drop your jaw…..

#1 Beginning January 1st, 2011 every single day more than 10,000 Baby Boomers will reach the age of 65. That is going to keep happening every single day for the next 19 years.

#2 According to one recent survey, 36 percent of Americans say that they don’t contribute anything at all to retirement savings.

#3 Most Baby Boomers do not have a traditional pension plan because they have been going out of style over the past 30 years. Just consider the following quote from Time Magazine: The traditional pension plan is disappearing. In 1980, some 39 percent of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15 percent, according to the Employee Benefit Research Institute in Washington, D.C.

#4 Over 30 percent of U.S. investors currently in their sixties have more than 80 percent of their 401k invested in equities. So what happens if the stock market crashes again?

#5 35% of Americans already over the age of 65 rely almost entirely on Social Security payments alone.

#6 According to another recent survey, 24% of U.S. workers admit that they have postponed their planned retirement age at least once during the past year.

#7 Approximately 3 out of 4 Americans start claiming Social Security benefits the moment they are eligible at age 62. Most are doing this out of necessity. However, by claiming Social Security early they get locked in at a much lower amount than if they would have waited.

#8 Pension consultant Girard Miller recently told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities. When you break that down, it comes to $22,000 for every single working adult in California.

#9 According to a recent report from Stanford University, California’s three biggest pension funds are as much as $500 billion short of meeting future retiree benefit obligations.

#10 It has been reported that the $33.7 billion Illinois Teachers Retirement System is 61% underfunded and is on the verge of complete collapse.

#11 Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars. So where in the world is all of that extra money going to come from? Most of the states are already completely broke and on the verge of bankruptcy.

#12 According to the Congressional Budget Office, the Social Security system will pay out more in benefits than it receives in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead these “Social Security deficits” are scheduled to become absolutely horrific as hordes of Baby Boomers start to retire.

#13 In 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers. In 2010, each retiree’s Social Security benefit is paid for by approximately 3.3 U.S. workers. By 2025, it is projected that there will be approximately two U.S. workers for each retiree. How in the world can the system possibly continue to function properly with numbers like that?

#14 According to a recent U.S. government report, soaring interest costs on the U.S. national debt plus rapidly escalating spending on entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every single dollar of federal revenue by the year 2019. That is before a single dollar is spent on anything else.

#15 After analyzing Congressional Budget Office data, Boston University economics professor Laurence J. Kotlikoff concluded that the U.S. government is facing a “fiscal gap” of $202 trillion dollars. A big chunk of that is made up of future obligations to Social Security and Medicare recipients.

#16 According to a recent AARP survey of Baby Boomers, 40 percent of them plan to work “until they drop”.

Companies all over America have been dropping their pension plans in anticipation of the time when the Baby Boomers would retire. 401k programs were supposed to be part of the answer, but if the stock market crashes again, it is absolutely going to devastate the Baby Boomers.

State and local governments are scrambling to find ways to pay out all the benefits that they have been promising. Many state and local governments will be forced into some very hard choices by the hordes of Baby Boomers that will now be retiring.

Of course whenever a big financial crisis comes along these days everyone looks to the federal government to fix the problem. But the truth is that after fixing crisis after crisis the federal government is flat broke.

At our current pace, the Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.

But our politicians just keep spending money. In order to pay the Baby Boomers what they are owed the federal government may indeed go into even more debt and have the Federal Reserve print up a bunch more money.

So in the end, Baby Boomers may get most of what they are owed. Of course it may be with radically devalued dollars. Already we are watching those on fixed incomes being devastated by the rising cost of food, gas, heat and health care.

What is going to happen one day when prices have risen so much that the checks that our seniors are getting are not enough to heat their homes?

What are we going to do when those on fixed incomes are buying dog food because it is all that they can afford?

We are rapidly reaching a tipping point. As the first Baby Boomers retire the system is going to do okay. But as millions start pouring into the system it is going to start breaking down.

No, there is not much that we can do about it now. We should have been planning for all of this all along. Americans should have been saving for retirement and governments should have been setting money aside.

But it didn’t happen.

Now we pay the price.

How Allstate Used Sampling To Confirm BofA/Countrywide Lied About Virtually Everything When Selling Mortgages

Tyler Durden
Zero Hedge
December 29, 2010

A few days ago, news broke that MBIA was allowed to use statistical sampling in its ongoing Bank of America fraud lawsuit. This happened despite the Countrywide acquiror’s loud protests. And now, courtesy of today’s brand new lawsuit against BofA (and Agent Orange himself) filed by Allstate, in which the insurer “seeks unspecified damages, alleges fraud, negligent misrepresentation and violation of U.S. securities laws” we know just why Bank of America was so very against allowing sampling to be used by plaintiffs. According to the full report (pdf attached below), Allstate has determined that Bank of America misrepresented virtually everything in its prospectuses: from the percentage of owner-occupied properties reped in prospectuses (about a 10% differential), to the LTV thresholds on represented loans (both at the 90% and 100% threshold), while inbetween finding willful and malicious intent to defraud and deceive. We are confident that none of this, however, will result in a prison sentence for Mozillo, as laws in America are meant to be broken by anyone who can demonstrate an LTV more than 100,000% or have more than $100MM in annual income (including that derived from golden parachutes).

From the just released prospectus, which opens a green light for everyone who believes that the banks or its predecessor was dishonest in representing any and all deal components, and wishes to do so using statistical sampling, which is now permitted:

Allstate’s sample sizes of Mortgage Loans are more than sufficient to provide statistically-significant data to demonstrate the degree of misrepresentation of the Mortgage Loan characteristics. Analyzing data for each Mortgage Loan in each Offering would have been cost-prohibitive and unnecessary. Statistical sampling is an accepted method of establishing reliable conclusions about broader data sets, and is routinely used by courts, government agencies, and private business. As the sample size increases, the reliability of its estimations of the total population increase as well. Experts in RMBS cases have found that a sample size of just 400 loans can provide statistically significant data, regardless the size of the actual loan pool, because it is unlikely that so large a sample would yield results vastly different from results fro the entire population.

So having used this sapling method, here is what Allstate found:

…statistics show that despite Countrywide’s representations, a much higher percentage of borrowers did not occupy the mortgaged properties:

…Overall, 18.3% of the loans sampled had recalculated LTV ratios of more than 10% higher than was claimed in the offering materials, and 6% of the loans sampled had recalculated LTV ratios of more than 25% higher than what was claimed in the offering circular. This overvaluation affected numerous statistics in the Offering Materials…For instance, the Offerings each made representations about the percent of loans that had LTVs higher than 90% provide the lender little value cushion to protect against borrower default and loss upon foreclosure.

However, the AVM indicates that a much higher percentage of the loans had LTVs higher than 90%.

The Offerings uniformly represented that none of the Mortgage Loans that collateralized the Certificates had LTV ratios greater than 100 percent, meaning that the size of the loan is greater than the value of the property. (aka: being “underwater”) Loans with over 100% LTV afford the lender no equity cushion and leave the lender with inadequate collateral from the outset of a loan. Allstate’s analysis has found that, despite Countrywide’s representations, a substantial number of Mortgage Loans had LTVs greater than 100%, as follows:

Allstate has also analyzed the weighted average LTV of the Mortgage Loans in each pool and has found that the weighted average LTV was also overstated, because of the overstatement of individual Mortgage Loans within the pools.

All these lies, and much, much more, can be found detailed in the filing below. At the risk of cheeiness, this is just a sampling of the sampling. And it demonstrates as all those who purchased loans from CFC/BofA that were repped to be in order, will find, following sampling or loan by loan analysis, that Brian Moynihan’s bank committed acts of fraud after fraud, putting not only itself, but its underwriter counsel at risk time again. In fact, if there was anything remotely close to a working legal system in the US, what happened to Lehman’s Repo 105 auditor, E&Y, should promptly befall every single underwriter’s counsel which is jointly liable in representing that the data set forth by the underwriter is correct. But just as importantly, it means that of the hundreds of hundreds billions in loans sold by BofA to hapless dimwits, arguably the bulk of it is now subject to putbacks, and is of far worse quality than previously expected. It also means that the GSEs: those infinite receptacles of mortgage biohazard, are lying consistently when representing the state of their own books, which are likely orders of magnitude worse than the monthly status reports will indicate. 

This is just starting to get interesting.

The full Allstate filing which is a must read for everyone is presented below.