Beware Banks Bearing Bonds

Investment banks are encouraging cities to issue “Pension Obligation Bonds.” They should be avoided. POB’s are expensive and risky accounting schemes. It would be different if cash obtained from such a bond was used to reduce pension obligations. But POB’s are used to increase pension assets, which just produces an accounting benefit at the cost of interest and fees. They also boost risk. That’s because a POB issuer is renting cash with which to gamble on investment markets on which the issuer is already betting existing pension assets. Cities should avoid investment banks bearing expensive and risky accounting charades.