We learned early on in this economic Depression that some contracts are more sacred than others. We learned, for instance, how important it was to honor the $165 million in bonuses promised to AIG employees. (You remember, the same guys who labeled junk mortgage securities as sound investments because they were paid so much money to lie? Good times!) It was all about the rule of law:

LARRY SUMMERS: We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.

The government cannot just abrogate contracts. Remember that.

ROBERT KUTTNER: You don’t think when the auto workers come in as part of the auto rescue deal, they’re not being asked to abrogate contracts? Of course they are.

Let's look at the sanctity of contracts in New Jersey, since blowhard Chris Christie is a presidential hopeful. His administration used accounting tricks to cover a $168 billion pension shortfall.

First of all, New Jersey's pension problems came to a head in 1997, during the rein of one Christine Todd Whitman, who cooked up a high-risk scheme to finance tax cuts by refusing to make the state's mandated pension payments from general revenue. Instead, she and state treasurer Brian Clymer floated a $2.75 billion bond issue that would fund the payments.

In other words, she and Clymer were gambling that the market would generate enough money to cover their pension obligations, so they could borrow that money right away for tax cuts. (The state paid $23.9 million in bond fees, by the way. Plus interest.)

This was a radical idea for the time, and not everyone was thrilled with the plan. The mayor of Edison N.J. filed a lawsuit to stop it. The State Supreme Court refused a stay, saying the point was moot -- but agreed with the plaintiff that the bond authority was merely a legal shell created to get around the state's debt ceiling without putting it to a public vote.

Ironic, huh?

And of course the inevitable happened: Whitman's pension obligation bonds (and just about every other state's) became a ticking time bomb.

From I've read, the Whitman bonds made no payments for the first 12 years and then, during the last 18 years, they were supposed to pay both the deferred interest and the current interest. Whitman assumed that the irrational exuberance of the market would continue to generate high returns -- in other words, the state of New Jersey was looking at a massive balloon payment.

And that Republican governors have a gambling problem!

Just to make things interesting, average annual returns on the bonds haven't even been enough to cover the interest payments.

Let me point out the obvious: This is how politicians have passed the buck for decades, simply because the Reagan years made them so wary of the political fallout from tax increases. See how well that worked out?

When a state is in debt and cuts taxes, the cost of the tax cut is actually a loan that taxpayers will pay interest on, sooner or later.

And that's the real story of these pension funds. Elected officials gambled the money away, gave copious chunks of the pension funds in inflated fees and kickbacks to Wall Street donors, and spent the mortgage payments on tax cuts to help them get elected. They bet the easy money would keep on flowing, because they forgot the basic law of gambling: The house always wins.

This happened in so many states, I can't even keep count.

So when a politician starts a'splaining to you that public workers are just greedy, and the health of your state or municipality is dependent on stripping them of their pensions, they're lying. Someone gambled away those pension funds, and in a just world, someone would be going to jail. But we don't punish the people in charge anymore, just the people they screwed.

Ha, ha! Isn't that funny?