Tuesday, April 6, 2010

Throw Another $14.5 in Liabilities Onto the Govt Debt Logpile...

Sounds like the Taxpayers will be stuck with at least $14.5 billion in GM/Chrysler pension obligations, especially if Geithner believes that both Companies will be around long enough to honor their retirement benefit commitments. Geithner probably expects us to believe in the tooth fairy as well, since it's so easy for him to take from the Taxpayers and give to the Big Banks.

But the General Accounting Office, the accounting "watchdog" unit of the Congressional Branch of Government, and typically the least politically biased/motivated and therefore the most (on a relative scale) honest in assessing this country's fiscal catastrophe, would beg to differ with Turbo Tax Timmy: "The Pension Benefit Guaranty Corp., however, could be on the hook for about $14.5 billion if the two domestic automakers remain mired in losses and move to terminate plans, the GAO said in a statement, citing prior estimates." Here's the link to the article: What's $14.5 billion among friends?

Please note that the degree to which these pensions are underfunded is based on typically overzealous actuarial assessments of the expected rate of return over time on assets. As an example, a good friend of mine who liquidated a midwest auto supply company and transferred the pensions over to the PBGC told me that most big company pension funds are underfunded by at least 50% and that the rate of return assumptions being used are way too high at 8% - 9%. Moreover, big companies like GM and Chrysler historically used accounting schemes to enable minimum annual pension fund contributions in order to manage earnings higher. Basic accounting that seems to have escaped the scrutiny of the big accounting firms like Price Waterhouse and Ernst & Young AND the scrutiny of the SEC (see the picture at the top right of the blog).

The bottom line is that, not only is the PBGC one massive underfunded black hole of pension guarantees that have been shifted to the Taxpayer - as of September 2009, it was estimated that the PBGC was already underfunded by $33.5 billion LINK - but it now looks like that black hole will be getting bigger by at least another $14.5 billion.


  1. "I'm ready to tell you my secret now"
    "I see dead fiat money"

  2. I'd rather pay you to fly out to Denver and grill up some of those beef ribs you featured on our blog!

  3. They must be planning on a massive devaluation of the dollar.

    It's the only way they can meet the all the various pension obligations of at nominal terms.

    Good news! You're going to get your pension (and Social Security)!

    Bad news! We're going do this by destroying the purchasing power of your pension/SS by 90%!

  4. Agree. Good news, we're not going to lower your pension benefits. Bad news, you'll need a wheelbarrow full of cash to buy a loaf of bread.

  5. By the way, nice blog you have, Dave Narby!

  6. Stormtrooper: Let me see your Pension fund spread sheet.
    Obi-Wan: [with a small wave of his hand] You don't need to see his Pension fund spread sheet.
    Stormtrooper: We don't need to see his Pension fund spread sheet.
    Obi-Wan: These aren't the funds you're looking for.
    Stormtrooper: These aren't the funds we're looking for.
    Obi-Wan: He can continue to do business as normal.
    Stormtrooper: He can continue to do business as normal Move along.
    Stormtrooper: Move along... move along.