Pension Ponzi Bailout: Democrats Sponsor US Treasury Bailout Scheme

Authored by Mike Shedlock via www.themaven.net/mishtalk,

Most defined benefit pension plans are nothing but Ponzi schemes. Plans are now unraveling because of demographics. An increasing number of retirees, needing untenable returns, are supported by fewer and fewer people putting money in the system. Democrats sponsored a bailout scheme. Will it pass?

Sen. Sherrod Brown, D-Ohio, plans to introduce legislation that would allow struggling multiemployer pension funds to borrow from the U.S. Treasury to remain solvent.

 

The bill, co-sponsored by Rep. Tim Ryan, D-Ohio, could be introduced later this week or shortly after. It would create a new office within the Treasury Department called the Pension Rehabilitation Administration. The funds would come from the sale of Treasury-issued bonds to financial institutions. The pension funds could borrow for 30 years at low interest rates. One restriction for borrowers is they could not make risky investments.

 

The bill would also fund a program at the Pension Benefit Guaranty Corp. to finance any remaining needs of pension plans borrowing from the new program. "Any money needed for the PBGC would be a tiny fraction of what it would otherwise be on the hook for if Congress fails to act," said an analysis by Mr. Brown's office.

Mr. Brown told a group of retired Teamsters in Ohio on Monday that the bill will be out shortly.

It Begins: Pension Bailout Bill

A reader asked me to comment on the story after reading ZeroHedge's take: It Begins: Pension Bailout Bill To Be Introduced This Week.

"It's bad enough that Wall Street squandered workers' money — and it's worse that the government that's supposed to look out for these folks is trying to break the promise made to these workers. Not on our watch. We won't allow that to happen," said Brown.

 

No, instead what will happen "under his watch" is that funds collected from taxpaying Americans will be spent to satisfy the ridiculous retirement promises and obligations made over the past few decades, and while the immediate recipients of the funds, i.e. those looking at near-term retirement will be made whole, everyone else, i.e., taxpayers will lose.

 

And now that the machinery for pension bailouts is finally in motion, we look forward to the next, and possibly final, tear in the American social fabric, that between workers who can't wait to retire to the generous pension promises (see "Why Illinois Is In Trouble - 63,000 Public Employees With $100,000+ Salaries Cost Taxpayers $10 Billion " and "Mapping The $100,000+ California Public Employee Pensions At CalPERS Costing Taxpayers $3.0B"), and all those other unlucky taxpayers, who will have to fund these promises.

Private Union Bailout

It's important to note that the bill addresses private pensions covered by the Pension Benefit Guarantee Corporation, not public pensions. I wrote about private pension haircuts several times.

Retirees vs Full-Time Equivalents

There are over 200,000 retirees backed by 60,000 or so employees contributing to the plan. Moreover, the plan assumes 6% returns at a time when 10-year treasuries 2.4%.

This is a Ponzi scheme about to go bust.

Leverage

The only way demographically-challenged plans can achieve the necessary returns is via leverage. That is precisely what Democrats Brown and Ryan propose, perhaps without realizing it, perhaps not caring.

Regardless, borrowing money to invest in stocks is the equivalent of using margin.

If the stock market heads lower, losses will be massive, requiring more and more funding. Margin funding can backfire unless there is an infinite pool of money available to borrow.

Can It Pass?

Just because two financial illiterates or Ponzi scheme backers propose a bill, does not mean the bill will ever see the light of day.

I doubt Republicans would back such a scheme and I doubt it will ever make it out of committee. I also think the Fed would weigh in negatively on such a scheme.

Let's assume I am wrong on both counts.

If they do pass such a scheme, bear in mind that it is for a limited situation, at least for now.

Then it is nearly guaranteed to blow up in proportion to the amount of leverage used. If so, it's highly unlikely the program would be expanded to cover public pensions.

Some Other Scheme

I do not think this is the final scheme, for reasons stated, but it is the opening salvo. Expect to see even more "creative" ideas when public union pensions such as CALPers blows sky high.

What ultimately happens may depend on which party is in office when the Ponzi scheme is widely recognized for what it is.

 

Comments

W270 Sonder Mon, 11/13/2017 - 11:33 Permalink

I am not a boomer but am very curious where your hate derives from.  Certainly your an educated individual and you obviously know the source your ire.  Oh wait you don't know, but it is so convienent to place the blame on anybody but yourself.  Get off of your ass and start working for your future you lazy #$#@. 

In reply to by Sonder

Sonder W270 Mon, 11/13/2017 - 13:56 Permalink

My hate derives from the fact that I'm young and was born into a thoroughly corrupted, bankrupt, and demographically screwed country. The worst elements of which were endorsed and adopted by the Boomer generation. I work a full-time job and I work on growing a small business with a couple of partners in my free time. What little capital I do have has been largely invested in this business endeavor. Nice strawman though.

In reply to by W270

richsob Haus-Targaryen Mon, 11/13/2017 - 11:07 Permalink

Don't diss all Boomers.  Some of us did work our asses off our whole lives instead of wasting hours/weeks/months/years fucking around with social media and other worthless wastes of time.  Some of us fought for this country so you could enjoy the benefits of a safe existence.  Some of us paid a lot of taxes to support your schools and pay your teachers.  Some of us did try to set a good example by not living beyond our means.  Some of us aren't sitting around on our asses blaming everybody but ourselves for not having any money, wishing we hadn't wasted years on a worthless college degree and wishing the government would make everything easier for us.

In reply to by Haus-Targaryen

Haus-Targaryen richsob Mon, 11/13/2017 - 11:54 Permalink

Yes, this is all well & good. The problem is your generation has spent the past 30+ years voting for the continuation of this completely unsustainable ponzi scheme, while as a generation not having enough kids to keep it going. While there are many many many great boomers, your generation as a whole is among the worst since the inception of the American experience. These pension issues should have been discussions in the 80s when it became apparent that birth rates aren't going to keep up with retirees starting in 2012 (first year boomers began to retire).  

In reply to by richsob

richsob Haus-Targaryen Mon, 11/13/2017 - 12:34 Permalink

That's a good point although I personally didn't support the BS of promising people retirements that were a financial fantasy.  My honest question for you is if this is all true and your generation is going to suffer the consequences of these unrestrained promises then why do you vote for Democrats?  Seems to me you would be swarming into a new party of conservatives (not Republicans!) who truly want to get spending under control so you can have a decent future.  Can you please answer this for me?

In reply to by Haus-Targaryen

RafterManFMJ eclectic syncretist Mon, 11/13/2017 - 09:58 Permalink

Precisely why I’m buying a nice box truck, stripping it, and outfitting it as a stealth camper; I got woke 7 years ago, and finally realized there’s no saving this system - and it will eat those who actually work and produce.

So, time to just “float around the system”

“They say if you give a man a fish, he'll eat for a day, but if you teach a man to fish.... then he's gotta get a fishing license, but he doesn't have any money. So he's got to get a job and get into the Social Security system and pay taxes, and now you're gonna audit the poor cocksucker, 'cause he's not really good with math. So he'll pull the IRS van up to your house, and he'll take all your shit. He'll take your black velvet Elvis and your Batman toothbrush, and your penis pump, and that all goes up for auction with the burden of proof on you because you forgot to carry the one, 'cause you were just worried about eating a fucking fish, and you couldn't even cook the fish 'cause you needed a permit for an open flame. Then the Health Department is going to start asking you a lot of questions about where are you going to dump the scales and the guts. 'This is not a sanitary environment', and ladies and gentlemen if you get sick of it all at the end of the day... not even legal to kill yourself in this country. Thanks again, John Ashcroft, you weird bible addict, can't even handle your own drug. You were born free, you got fucked out of half of it, and you wave a flag celebrating it. [audience member]: Hey, don't hold back! [Doug]: You got an argument? [a.m.] No, keep goin'! … The only true freedom you find, is when you realize and come to terms with the fact that you are completely and unapologetically fucked, and then you are free to float around the system.”

Doug Stanhope

In reply to by eclectic syncretist

MoreFreedom eclectic syncretist Mon, 11/13/2017 - 15:07 Permalink

Sadly, the motivation is to join with those advocating using government to steal from others. As De Toqueville observed long ago, once people learn they can vote themselves money, it's not long before a democracy goes bankrupt. Let's hope our political leaders realize soon that governments are instututed among men to protect our lives, liberty and pursuit of happiness.  And it's not government's job to join criminals to steal from producers, as that turns government's purpose on its head, and then harms us instead of protecting us.

In reply to by eclectic syncretist

MozartIII Mon, 11/13/2017 - 09:45 Permalink

Private pension fund out of country, may be worth looking into. We all know they would never nationalize all of them in some way, shape or form.

Shift For Brains RonBananas Mon, 11/13/2017 - 11:20 Permalink

But what about the commercial where the old guy is walking along the beach holding hands with a big breasted woman 20 years his junior...And that is EXACTLY why you never, ever give up your penis pumps. It's right in the fucking Declaration of the Constitution somewhere or the Tenth Commandments or whatever. Look it up, I'm not your personal librarian.

In reply to by RonBananas