So I meant to make this post awhile ago but didn't get a chance. I just wanted to voice my opinion on what went down.
States and municipalities were faced with a decision years ago to diversify their investments. One investment opportunity was in CDOs (credit default obligations) which have the coveted AAA stamp of approval from the ratings agencies meaning in their opinion this is as safe of a bet as treasury bonds. Don't worry that they're really just tranches of mortgage debt. Besides, they also offer a better yield! Not your flavor how about a synthetic CDO (bundled credit default swaps), oh you don't know what that is? Here's a pretty brochure and salesman to tell you how "there would have to be 15 Enrons for this to go sour" In the meantime just kick back and enjoy the free money that's going to help solve your budget problems. Oh and why you're here, have you heard of a interest rate swap? Well it turns out these investments weren't as secure as they had hoped and along with everything else in the financial collapse they tanked.
So now states are faced with a difficult decision. They've squandered money by making poor investments and someone is going to have to pay for it. No bailout for you sir! Why not target public employees? Throw out some arguments about how they're overpaid compared to their private sector counterparts without any qualifications for equivalent education levels.
In the end the natural conclusion is to get angry and want to blame someone, but unfortunately there's probably a lot to go around. The state/municipality fund managers for not bothering to do due diligence in researching what exactly they were investing in. The investment banks for offering these and not disclosing in some cases that they were actually betting against them. The ratings agencies for rating these pieces of crap as AAA because why not? After all its just their opinion and they suffer no repercussions if it turns out they're wrong. Way at the bottom of the list is any possibly difference in pay between private and public sector employees but that's a lot easier to put in a talking point and diffuses the spotlight from those that are actually responsible.
I really wanted to share this clip from The Daily Show as well because its so well done:
