Guest Post: Deficit Doubles for Government's Pension Benefit Guaranty Corp.

Submitted by TraderMark of Fund My Mutual Fund

So many future bailouts to look forward to, so little time.  So many
cans do kick down the road via accounting adjustments, so few feet do
keep doing the kicking.  While I read this piece I was struck by my own
reaction... not even $30 billion in deficit?  This is peanuts!  We've
become so numb to bailouts that anything less than hundreds of billions
seems like a normal part of Bailout Nation.  Yet just over a decade ago
the world was in a panic over hedge fund Long Term Capital and its gaping hole
of $3.6 billion.  How quickly we've adjusted to brushing off our
shoulders handouts and bailouts 10 times that size.  The cost for one
of the smallest handouts, Cash for Clunkers was more than the bailout
of LTCM in 1998.  Need to manipulate housing prices higher?  It's worth
it! Only costs $16 billion; or with Cash for Cul de Sacs v 2.0 -
$30B+. Peanuts.

So let's take a look at the Pension Benefit Guaranty Corp
- another Ponzi scheme in a country now running a series of them, full
tilt, concurrently.  Also known as "prosperity".  The PBGC bailout will
just be a pebble versus what could be faced in the greater pension
system as a whole... $1 trillion ?  Now we're talking real money.  [Mar 4, 2009: Bloomberg - Hidden Pension Fiasco May Foment Another $1 Trillion Bailout] 
Until then... kick the can son (and while you are at it, change some
accounting rules so we pretend this is not a problem - works for the
banks, zombie style!)

As an aside, we've covered this lovely fund once before - if you want
an eye opening look at the "investment acumen" of those running this
fund; a piece we wrote back in April .  [Apr 1, 2009: Pension Benefit Guaranty Insurance Fund Made Huge Switch into Stocks Last Summer] 
The managers decided it would be brilliant to go "all in" on stocks...
summer 2008.  Right before the crashes of Sep/Oct 08 and Jan/Feb 09. 
But not to worry - a few tens of billions of new printed US currency
and all our problems go away into the night. To see what happened to
Mr. Millman (he who made such a grand decision) see the end of this
entry.

Our thoughts from April:

Once more, this is not an April Fool's joke... it just feels like it is. Chalk up another one in the "future bailout via robbery of grandchildren's living standard" list.
From my estimates we shall see bailouts in insurance co. annuities,
commercial real estate, state pension liabilities, federal corporate
pension liabilities...

Might there indeed be a
great reason for the government to stoke this stock market by any means
possible? Nah, that would be tin foil-ish.

The scary thing is we only
have federal pension guarantee fund's results though Sept 30, 2008. And
it was already $11 Billion in the hole. Should be a DANDY report coming
up once we're updated

-->
Just months before the start of last year's stock market collapse, the
federal agency that insures the retirement funds of 44 million
Americans departed from its conservative investment strategy and
decided to put much of its $64 billion insurance fund into stocks. Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

-->
Charles E.F. Millard, the former agency director who implemented the
strategy until the Bush administration departed on Jan. 20, dismissed
such concerns. Millard,
a former managing director of Lehman Brothers, said flatly that "the
new investment policy is not riskier than the old one."

$11B in the hole at the end of Sept 2008 - they've doubled their
shortfall since then, up to $22B.  The bright side?  It's better than
$33B which was peak losses!  You might ask why all these government
agencies, pension funds, and the like continue to make larger and
larger risks.  It's quite simple - they have promised far too much to
the public sector employees, and realize they cannot make their
obligations using "relatively low risk" investments.  So the snake oil
salesmen from "the Street" come to them with cute products that
guarantee great returns for the snake oil salesmen (fees fees fees!) -
but usually end up blowing up for the investor.  Snake oil salesman
screams "Black Swan!" - and that they have a new scheme
investment that will help get investment fund back on its feet.  Keep
repeating this cycle over a 10, 20, 30 year lifespan and eventually the
financial oligarch makes a ton of money from the snake oil (if he does
not blow himself up i.e. Bear Stearns, Lehman) - and the transfer of
wealth is complete.  Left holding the bag?  Look in them mirror.

*****************************

Anyhow enough about that, let's see what you will be on the hook for in the future. Via AP:

• The government-chartered company that insures the pensions of one in seven Americans said Friday that its deficit this year nearly doubled to $22 billion. (not too shabby, only a doubling of loss from last year at this time; but really what's $11 billion more among taxpayer friends?)  That's an improvement over the Pension Benefit Guaranty Corp.'s midyear record deficit of $33.5 billion, which spiked as auto makers and other companies faltered and caused the insurance fund's liabilities to spike.  (see,
  told you there was a silver lining.... the fund had actually dropped
  from a $11 billion deficit to $33 billion before rebounding)

• Yet experts and officials say the long-term picture is grim. They say that without
  major changes, such as higher insurance premiums and less risky
  investments, the fund eventually will require a taxpayer bailout. 
  We could face much higher deficits in the future," PBGC acting director
  Vincent Snowbarger said in a statement. "We won't fail to meet our
  obligations to retirees, but ultimately we will need a long-term
  solution." (codeword: taxpayer)
• These fluctuations can hide the fundamental problems with
  the pension insurance system, said Bradley Belt, a former PBGC
  executive director and now CEO of the financial consulting firm
  Palisades Capital Advisors LLC.  "People focus too much on what the
  number is," Belt said. "A lot of what's going on is bookkeeping or accounting that mask, unfortunately, the long-term problem."  (which
  is identical to the masking going on in many individual pension plans
  as detailed in earlier pieces... remember, if you have a problem in
  America you don't want to admit to; just change the accounting) 

• The PBGC is responsible for the benefits of 1.5 million
  Americans. It sends checks each month to 740,000 pensioners. It is
  funded entirely by fees on the companies whose pensions it insures. 
  But Congress sets those fees, and it's been reluctant to raise them in the face of opposition from business and labor groups. Because the fund isn't expected to run out for a decade or more, there is little impetus to raise rates. (kick the can!)

Even better than kick the can, our forward thinking leadership is
doing the exact same thing it did about 20 months ago when it layered
Fannie and Freddie Mac with more risk - things we warned of LOUD and
CLEAR [Feb 27, 2008: OFHEO Increases Allowance for Fannie Mae] [Mar 19, 2008: Fannie, Freddie Layered with MORE Risk] .... as a way to "save the housing system".   How did that work out again?  [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Now Owned by You]  
Oh yes.  But rather than learn, I believe the mantra in Washington D.C.
is "repeat the same mistake but do it bigger and better"

• Indeed, some lawmakers have introduced legislation that experts say could further expand the PBGC's deficit.
  A bill introduced last month by Rep. Earl Pomeroy, D-N.D., and others
  would allow employers to reduce contributions to pension funds. 

So once more its the nexus of all America's ponzi schemes... make
promises to people that we all know no one can pay for (but help win
votes!).  Don't address it until it's an emergency, and in fact "pile
on" the mistakes because any vote by making someone (anyone) pay is
unacceptable.  Theen someday when it all blows up... call on the
taxpayer while invoking the "how could anyone have seen it coming!!"
routine.  Dumb, dumb, and dumber.  It's the exact same thing... over...
and over... and over... and over.  Promise the American people we can
have everything, with no need to pay for it.  Have our cake, eat it too
- and then give us a diet pill that makes the weight go away while we
sleep.  As the chosen people, we can have everything.

• Congress' reluctance to increase costs to employers has led to growing shortfalls. The PBGC has been in the red for 29 of its 35 years of operation. The fund still has plenty of money to operate now. But unless
  pension funds adopt less risky investment strategies or Congress raises
  insurance premiums, it eventually will run out of money to pay the
  pensioners it supports.

But "eventually" is at least a political cycle or 2 away right? 
If so, then we can't be bothered with it... in fact let's think of ways
to make the deficit worse.  I have votes to win and I can't be bothered
by asking people to pay for benefits, let my successor deal with it.

• That would force Congress to choose
  between bailing out the fund and depriving more than a million people,
  many of them elderly, of a key income source. Experts say an eventual bailout is almost inevitable.
• "The only loser in all this is the taxpayer," said Douglas Elliott, a fellow at the Brookings Institution who has studied pension insurance for years.

I have begun saving for the bailout (I have about 9 separate piggy
banks working, each for 1 of the future bailouts).  Shall I send my
checks directly to those people bailed out?  Or do I need to send it to
D.C. first?  What's that? We can just layer the debt from the future
bailouts onto future generations (print print print! borrow borrow
borrow!) rather than asking me to pay a dime?  Even better!   I'm going
to break open these piggy banks and go shopping!  What a country - all
gain, no pain!

p.s. you might be wondering what happened to Mr. Millard - he who came
from Lehman Brothers (whatever happened to those guys?) and decided to
go "all in" on stocks summer 2008 declaring there was "no extra risk".

• Earlier this year, a PBGC inspector
  general report alleged that former director Charles Millard had
  improper contacts with several Wall Street firms that were up for
  multimillion-dollar contracts to manage PBGC assets.

Wait so you are implying a former Wall Streeter made decisions
based on contacts with fellow snake oil salesmen?  Surely there is no
conflict of interest there.  Mr. Millard must of spoken out on his
innocence and impartiality in setting the stage of a massive bailout to
come.

• Millard invoked the Fifth Amendment when asked about allegations by a Senate panel in May.

Oh.

Comments

[Anonymous]

Maybe if you wrote the numbers like this...
$1,000,000,000,000,000,000,000,000.00.
Of coarse it would make your posts really long and
maybe it just makes me more numb anyway.

[TraderMark]

people find my posts already numbing enough but thanks for the suggestion haha

I alwasy try to quote things to people in "per citizen" or "per taxpayer" - that seems to be the only way

as in "dear fellow peasant"you do realize we have an unfunded liability of $344K per citizen or about $1.2M per taxpayer. 

that is offset by assets of $241K per citizen (inflated higher by the millisecond) but offset by $54K in private debt per citizen.

Oh yes we have not even touched on the national debt i.e. $110K per taxpayer.

http://www.usdebtclock.org/

Boo Yah.

[anynonmous]

Fear not an old compatriot of Car Czar Ratner will be taking the helm of the PBGC. Not only does Josh Gotbaum hearken back to Steve's days at Lazard but Josh's former employer, Blue Wolf Capital has been in the headlines of late along with Ratner's Quadrangle in regard to some alleged Pension shenanigans that everyone's fav Cuomo is looking into.

http://dealbook.blogs.nytimes.com/2009/11/10/blue-wolf-executive-to-head...

Leo had a good piece on the PBGC

http://www.zerohedge.com/article/risks-rising-pbgc

[Renfield]

And people still wanna say the US is not yet in hyperinflation...

PS: Marla, I bang on my desk demanding a tougher CAPTCHA. :-) 4 X 27? If we can do it in our heads before we even type the numbers, there goes the neighbourhood...I suggest adding a few more zeroes to boggle our impressionable minds. Works for Bernanke.

[Rainman]

The looming pension implosion receives too little attention. Thanks for this review.......and keep it coming. A sad state of affairs.

[Anonymous]

The best part of this is that the Lehman pension obligations have been assumed by - you guessed it - the PBGC.