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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: reaper who wrote (4135)	4/12/2004 11:14:44 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

The following post on Pensions is from RR on the FOOL ========================================================= Our government has a magic wand that it has been using to inflate corporate profits. It guarantees obviously bad corporate practices so that they can show large profits. The spell will eventually wear off with taxpayers picking up the tab. U.S. Pensions are currently underfunded by $350 Billion because companies have been making overly optimistic assumptions about their future returns. (If the market returns to historically average valuations, the $350B number is way too small.) Through 2003, the Pension Benefit Guarantee Corp. was running already running a deficit of $11. 2 Billion from paying the benefits for employees of companies that have gone under without adequately funding their pensions. So what does our government do? It passes a bill that allows companies to put even less into their plans so that more of them will avoid bankruptcy longer. Of course the companies that put off bankruptcy will eventually leave the government with even larger bailout costs. Meanwhile, strong companies that aren't in danger of going under will have to eventually cover their pension liabilities, which will impact future earnings. At least it will make corporate profits look better in an election year: Here's how it looks when the PBGC picks up the tab for a failed company's pension plan: pbgc.gov On a much larger scale we have FNM backing up banks who make bad loans by purchasing those loans and turning them into securities. Banks can make as many bad loans as they like, and in the end, the taxpayers are guaranteeing FNM's securities. FNM isn't adequately accounting for the likelihood that a huge amount of mortgages will eventually go bad. Then there's the whole FDIC. The amount of money institutions have payed into the insurance fund is trivial compared to how much will be needed if we have a big financial crisis. Underfunding of the FDIC means better short term profits for banks and bigger bonuses for execs, but it is a recipe for disaster down the road. An eventual FDIC bailout could make the old S&L bailout look tiny. All of this would of course be at taxpayer expense.