Catherine: I’ve dealt with state and local government in many different – you know, just as a citizen or dealing in business or – and it’s amazing. Everywhere you go, you get somebody that you like and his highly competent and really knows their stuff, and it makes an enormous difference to the day-to-day life… from page 9

Catherine: I had a very funny – when I was FHA commissioner, I had a – the security – it was the SIA, not the MSRB, but it was this securities association wanted to meet with me. So finally, I had them over to my house for lunch one weekend. And the chairman came over and this one banker from a firm I will not mention that starts with – whose initials are GS – and the guy basically said something to me that was a complete lie. And I looked at him, and I said, “How – you know, I can understand why you’d want to lie to a regulator to get what you want, but why would you lie to somebody who knows you’re lying?” And the chairman of the SIA just went right – he just went under the table, he was so embarrassed. I can say this because I was one of the investment bankers – you see that kind of aggressive lobbying year after year after year, and it’s part of the challenge of what the government officials have to deal with.

Page 5 of Joe Mysak transcript.

Catherine: Well, here’s – here is one of the questions that I don’t know the answer to, and I’m fascinated to hear what you have to say, which is one of the things that municipalities are struggling with is the pension fund requirements. And I would love to know what you think is coming over the next ten years in terms of their ability to continue to fund and support the pension funds.

Joe: Well, once again, if you look back at the year – I think it was 2000, almost all the pension funds were 100 percent funded, which is amazing to think after reading so many stories in the press you’d swear that municipalities and states have been shortchanging pension funds forever. But, no. What really happened? They lost money in the stock market. And what’s going to happen? They’re going to make money back in the stock market and other investments that they’ve made. They’re not going to get crushed by these pension obligations. There’s also the obligations of the unfunded pension – you know, the mainly healthcare benefits that they’ve handed out. They are making cuts and adjustments. They already have done a lot of that. I forget which association it is – it might be the Retirement Administrators – but they come out with a report saying, “Well, you know, 40 states have already made various adjustments,” and this goes on every year. So I don’t see this massive wave – this tsunami coming and wiping out all the pensioners. There are bad spots and hot spots, if you will.

But, you know, guess what? Things go along, and there’s going to be taxes raised, and there are going to be various reforms put in. So just like – how can I say it? Muddling along is probably the way that most municipalities and states are going to be handling their pensions. Ten years? People don’t know what’s going to happen in two years, so I can’t even – as I say, if you look back at 2000, 100 percent funded. And you know, there’s a problem with that, too, because once the politicians and the lawmakers see that a pension is 100 percent funded or more, they start playing games, and bad things happen then.

So I’m not thrown completely by this. I know there’s certain people who think that it’s going to be this absolutely crushing burden, and that it’s the end of the world. But, you know, it just – no, that doesn’t happen.

Catherine: Well, I don’t think we’re going to see Armageddon whatsoever, but I do think that you’re going to see municipalities right at the heart of this vice , because the federal government for now can just print paper, and that drives everybody’s expenses up, including municipalities. But they have to balance their budget, and they can’t print paper. And that means their incomes fall as the unemployment and the household incomes have fallen. And so they get more dependent on the federal money, and they get squeezed just like every one of us is squeezed in our own household budget. And so they’re in a position where they have to balance the budget. So they’re going to make the choices.

Joe: It’s going to be very difficult. This is not an easy job. This is a – you know, maybe – maybe
if everyone doesn’t go to Wall Street like they did for – I don’t know – the last decade – maybe decade and a half – maybe if you have lots of smart people who go into public sector for a few years, maybe that’ll be a big help. It’s going to be a very challenging job.

From pages 7-8 of transcript