Financial, Real Estate, Stock Markets Trends and Current Affairs

I recently recieved this email and thought it may spark conversation if I posted it to the general site.

I had some general finance questions about CA's massive debt. 

I read that CA issued 55 billion in new debt in the 10-11 year, I'm assuming much of this new debt are CABs (capital appreciation bonds) as CA can't really spend a dime more on any new debt as we're not paying our existing debt. 

Who is buying this "unserviced" debt and are they taking a 20-30 year "call bet" on the assets and collecting NO interest?  
Or are investors & funds booking "fictional interest gains" from CA's unpaid debt? (later to be written off)

If the "investors" of CA's CAB debt are getting interest, from whom are they getting the interest?

And do the payers of that interest get preference in claims over the bond holders?  
Other CA debt, CALPERS & the City of San Bernardino seem to be rewriting federal bankruptcy law avoiding the inevitable (default) I don't think bond holders will ever get their money back (except from their insurer LOL)
Water district debt, are you following the Central Basin Water district scene in LA County? 
Some cities made some uncompensated water withdraws (over $100,000,000.00 worth) from the "community water bank" unlike fiat currency banks water banks can't "cook the books", if you don't keep the water bank's "minimum funding standards" with real water (as opposed to certificates of water) the aquifer gets ruined with saltwater forever.
Now the aquifer is low, needs refilling, and the people that drained it are broke.

And on that note, from two and a half years ago as reported by the Wall Street Journal:

Stanford's Institute for Economic Policy Research released a study suggesting a more than $500 billion unfunded liability for California's three biggest pension funds—Calpers, Calstrs and the University of California Retirement System. The shortfall is about six times the size of this year's California state budget and seven times more than the outstanding voter-approved general obligations bonds. The pension funds responsible for the time bombs denounced the report. Calstrs CEO Jack Ehnes declared at a board meeting that "most people would give [this study] a letter grade of 'F' for quality" but "since it bears the brand of Stanford, it clearly ripples out there quite a bit." He called its assumptions "faulty," its research "shoddy" and its conclusions "political." Calpers chief Joseph Dear wrote in the San Francisco Chronicle that the study is "fundamentally flawed" because it "uses a controversial method that is out of step with governmental accounting standards."

Now let's take a closer look at that.

The Stanford study uses what's called a "risk-free" 4.14% discount rate, which is tied to 10-year Treasury bonds. The Financial Accounting Standards Board requirescorporate pensions to use a risk-free rate, but the Government Accounting Standards Board allows public pension funds to discount pension liabilities at their expected rate of return, which the pension funds determine. Calstrs assumes a rate of return of 8%, Calpers 7.75% and the UC fund 7.5%. But the CEO of the global investment management firm BlackRock Inc., Laurence Fink, says Calpers would be lucky to earn 6% on its portfolio. A 5% return is more realistic

Two years later... CalSTRS posts 1.8% return on investment:

West Sacramento-based California State Teachers’ Retirement System reported a low return rate of 1.8 percent on Friday. The public pension plan was considerably below its assumed rate of return of 7.5 percent for the fiscal year that ended June 30, according to CalSTRS. In comparison, it ended the 2010-2011 fiscal year with a 23.1 percent investment return.

The three-year return is 12.0 percent. CalSTRS CEO Jack Ehnes said in a statement. He said that investments alone can’t return the pension fund to solid footing, and that the government needs to enact a plan to increase contributions. Christopher Ailman, CalSTRS chief investment officer, said the slowing economy has hit long-term investors such as the public pension fund through instability in Europe and slowing global growth. CalSTRS predicts a 0.3 percent of return over five years, 6.5 percent over 10 years and 7.5 percent over 20 years.

Feel free to comment freely below.