Wednesday, May 20, 2009

Another Government Failure

The below story is another great example of what happens when our government gets into the business of business. Government's role is not to provide financial services, health care, or any other consumer services.

Here is a list of failed government run enterprises. Social Security; will be financially insolvent in a few more years. Medicare and Medicaid; both will be financially insolvent in a few years. The U.S. Post Office is slowly bleeding itself dry and I am sure will collapse within a few more years. Fannie Mae and Freddie Mac are both in financial trouble due to mismanagement and government regulations. The School System; show me a school district that isn't crawling on its knees begging to raise taxes while providing poor quality results.

Now our government is going into the auto business following the socialization of the banking system. Do you really believe the government will be able to produce quality automobiles and compete with the foreign car makers? All the while keeping the FAT CAT UNION BOSSES happy.

How about the government takeover of your health care? This should scare you to death!

People; PLEASE wake-up and smell the coffee! Your government is not your friend.

"When the people fear their government there is tyranny; when the government fears the people, there is liberty. " Thomas Jefferson

By DEB RIECHMANN, Associated Press Writer Deb Riechmann, Associated Press Writer – Wed May 20, 3:12 am ET

WASHINGTON – In an ominous setback, the government agency that insures the pensions of 44 million Americans has amassed a record $33.5 billion deficit — triple what it was just six months ago.

The bleak financial snapshot, in a report obtained by The Associated Press, raises new fears that a federal bailout eventually will be needed for the Pension Benefit Guaranty Corp. The beleaguered agency is being saddled with the underfunded pension plans of companies going bankrupt in the worst economic slump since the Great Depression.

A rare midyear financial update requested by Congress shows the $11.1 billion deficit the agency posted at the end of its fiscal year on Sept. 30 has swelled by $22.5 billion to its highest level in the agency's 35-year history.

The agency's acting director says, however, that the more than 640,000 people who currently receive PBGC checks need not worry about the deficit.

"We have plenty of money to make those monthly payments promised to them for the near future," Vince Snowbarger said Tuesday. "We're comfortable that for the time being we've got a way to make sure those payments are going to be there. Long term there is going to have to be some resolution of that deficit. I think at some point in time it's going to require congressional attention."

The agency does not insure 401(k) plans, but its fate is important not only to the workers covered by more than 29,000 employer-sponsored benefit pension plans but to all taxpayers who could be asked to foot the bill on a bailout if the agency ever becomes insolvent.

Its balance sheet has taken heavy hits in recent years. Nine of the 10 largest pension plan terminations in its history, including United Airlines, Bethlehem Steel and Kaiser Aluminum, have occurred since 2001. On Tuesday, the PBGC announced that it has assumed responsibility for two pension plans covering about 4,300 workers and retirees of Lenox Group Inc., a bankrupt maker of tableware, giftware and collectibles based in Eden Prairie, Minn.

Created by Congress in 1974, the agency quietly operates in a brick office building a few blocks from the White House. When a company's pension plan is terminated, the agency takes over and pays benefits to the retired workers covered by the plan — although retirees don't always get 100 percent of what their employer promised. The maximum guaranteed amount currently is $54,000 a year for a person retiring at age 65.

Compounding the agency's fiscal problem are investigations into allegations that its former director, Charles E.F. Millard, had inappropriate contacts with three Wall Street firms that recently won multimillion-dollar contracts to advise the agency on a new strategy to invest its assets more heavily in stocks, real estate and private equity rather than more conservative fixed-income treasury securities.

A PBGC inspector general report released last week said that Millard's office had hundreds of phone conversations and e-mails with Wall Street firms bidding for the work at the same time that he was actively evaluating their proposals. In October 2008, Goldman Sachs, BlackRock and JP Morgan won awards to invest up to $2.5 billion of PBGC assets in real estate and private equity in return for up to $100 million more in fees over 10 years.

So far, no agency assets have been transferred to the three firms. Snowbarger said the staff was working with the agency's board of directors to decide whether the contracts being questioned should be terminated.

Millard has denied any wrongdoing, saying his actions were legal and ethical. He has been subpoenaed to testify Wednesday at a Senate Special Committee on Aging hearing on the agency's ability to take over a rising number of underfunded pension plans from companies going bankrupt.

Democratic Sens. Edward Kennedy of Massachusetts and Max Baucus of Montana and Republican Sens. Charles Grassley of Iowa and Michael Enzi of Wyoming have asked the inspector general to further investigate phone calls and e-mails that suggest Millard sought help getting a job in the weeks after the contracts were awarded to the Wall Street firms. The House Education and Labor Committee also has opened an investigation into the allegations against Millard.

A flurry of pension plans that have either been terminated or probably will end up being taken over by the PBGC is the largest reason for the agency's rising deficit. Declining interest rates was listed as the second-largest reason for the shortfall. Investment losses from the stock market were only the third contributing factor.

"Despite ongoing deficits, the PBGC has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly — spread over the lifetimes of participants and beneficiaries, not as lump sums," Snowbarger said. "Nevertheless, over the long term, the deficit must be addressed. How soon depends on what happens in the next several years."

The agency is closely monitoring the auto, retail, financial services and health care industries, all in financial distress. The PBGC estimates that pension underfunding in the auto sector alone is $77 billion. "Participants in auto sector pension plans and the other stakeholders of the pension insurance program are at substantial risk of loss if these plans are terminated," Snowbarger said.