Pension and Investments reports Sen. Sherrod Brown to Unveil Multiemployer Loan Program Legislation.
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.
April 21, 2016: One of Nation’s Largest Pension Funds (Truckers) Will Reduce Benefits or Go Broke by 2025
May 20, 2016: Rejected: Central States Fund Proposes 60% Pension Cuts, Treasury Dept Says “Not Enough”
May 24, 2016: UPS Fears $3.8 Billion Liability Over Bankrupt Central States Pension Plan
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.
Mike “Mish” Shedlock
The State is that entity which exercises the legitimate use of violence AND FRAUD within a given geographic area.
“Can It Pass?”
I expect the millions of “new 1st worlders” brought in specifically to en-solvate western boomers pensions will say FU in future elections.
All the white Libtard nonsense will be swept into the dustbin of history along with the white Libtards.
This is straight-up abuse of the PBGC, which was NEVER intended to bail-out pensions unless the underlying corporate structure was technically & officially bankrupt. Rather, these pensions operated exactly as-planned & as-promised… but those PRIVATE plans & PRIVATE promises failed. These private pensions are private contracts entered into voluntarily – there is ZERO justification or jurisdiction for federal bail-outs of private pensions absent the bankruptcy/insolvency of the pension’s corporate sponsor. If such bail-outs of (non-bankrupcy) private pensions ever occurs, then expect to see the last shreds of the US social fabric to disintegrate into dust… and it would also be a structural blow to the $USD, as many americans would finally grasp the meaning of ‘fiat’ and begin to question the purpose/value of their own currency…
As you point out, this is going to be a huge ponzi. However, you incorrectly assume it will ‘enrich’ plan beneficiaries. This may be the case, but remember, it was the corporations (or public entities) who made the promises. What has devolved over the years is corporations want to shed the plans and will plead poverty to do it, or in the extreme, go bankrupt, shed the plan, then continue in business. Thus, the real beneficiary in the ponzi is employers who will now be bailed out. Workers, will, however, be ancillary beneficiaries. The patsies: Taxpayers!
Mish, you are spot on with this analysis, but left out the larger issue, that it is employers who setup these plans and are ‘responsible’ for setting the benefits, and ensuring their funding from corporate coffers. While the PBGC originally stepped in to protect workers in plans where the corporation went bankrupt, your piece shows a slow drift where they are ‘subsidizing’ ongoing plans when corporations can’t or won’t ensure proper funding.
“One restriction for borrowers is they could not make risky investments.” So are we talking about US Bonds only? Does the confiscation begin in earnest here? The statement sounds specific without actually specifying anything. The devil is in the details.
“This is a Ponzi scheme about to go bust.” Every bubble tends to deflate back to where it began. Every boom is like a Ponzi scheme. Every boom has ended in a bust, just like a Ponzi scheme does.
Soon to be followed by the State Help Initiative Program (S.H.I.T.) to bail out bankrupt states like Illinois.
is it because only they can run a ponzi scam?
“the Fed would weigh in negatively on such a scheme”
well-defined PENSION PLANS exist mostly in government jobs. Note that ELECTED OFFICIALS vote for and benefit from these programs. Let’s end this non-sense once and for all time.
Anybody remember back in the ’90s when the Clintons floated the idea of raiding rich, private pension funds for the US gov’s general fund? It was one of those “contributions,” Bill talked of with a twinkle in his eye and a nod to Animal Farm.
@Bam_Man: While not literally infinite, they can print until the median American taxpayer is in the same situation as his colleagues in Venezuela is right now. Or perhaps a little longer, as Americans are, if anything, even more willing to bend over and regurgitate whatever hype their favorite Man on TV tells them to, than Venezuelans are.
This is outrageous. Pensions that aren’t properly funded should go bankrupt, and we should have only defined contribution programs in the future, never defined benefits.
today every economic problem can be solved with a mouse clik (control P),moar (overt) qe is certain to come.And with so much to buy,fed will beshoppin till they drop,pensions,stocks,bonds,oil,nat gas,flooded vehicles off dealer lots,moar mortgages,student loan bailout,when you can print into infinity the world is your oyster
It is not infinite. It will stop being considered “money” long before reaching infinity.
As luck would have it, there is an infinite pool of money available to fund pension obligations, right over at the Federal Reserve. At the end of the day the Fed will bail out the public pensions, whether through a federal scheme or by buying plan-issued bonds directly.