Cities Should Beware Banks Bearing Bonds

Investment banks are encouraging cities and other governments to issue “Pension Obligation Bonds.” They should be avoided. POB’s are expensive and risky accounting schemes. They could be worthwhile if the cash was used to reduce pension obligations. But POB’s are used to increase pension assets, which produces only an accounting benefit and at the cost of interest, fees and risk. That’s because a city that issues a POB is simply renting cash with which to gamble on investment markets on which the city is already betting existing pension assets. Cities should avoid investment banks bearing accounting charades.

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