Vail Valley Voices: Taxpayers exposed
Vail, CO, Colorado
Editor’s note: This is the second part of a two-part commentary. The first, “GM’s sleight of hand,” ran Saturday and can be found at http://www.vaildaily.com.
Why may the taxpayer be exposed to even larger losses than the monies already loaned or spent in various programs propping up General Motors and Chrysler, and why may the current and past presidents have acted unconstitutionally?
• The latter issue was noted in a letter to President Obama by about 20 members of Congress in October that sought more transparency about the government’s involvement in GM, stating, “All of these (bailout) funds came from the Troubled Asset Relief Program – a bailout never intended for such purposes.”
The Congressional Oversight Panel wrote last month, “The use of TARP funds for the automotive industry raises questions regarding both president’s authority to use these funds under Emergency Economic Stabilization Act legislation and, more broadly, under the U.S. Constitution.”
• The former issue represents a serious economic threat. If you have read anything about the economy, you know that uncovered (underfunded) pension obligations are reaching crisis proportions at federal, state, local and private levels.
Now, my understanding of the theory behind the administration’s GM bankruptcy-bailout plan included the assumption that GM’s (UAW) pension obligations, if uncovered, would not accrue to the taxpayer but be covered by the Pension Benefit Guarantee Corp.
But was that a wise assumption?
The Pension Benefit Guarantee Corp. is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of more than 44 million American workers and retirees.
Ostensibly, the Pension Benefit Guarantee Corp. receives no funds from general tax revenues. Operations are supposed to be financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by the corporation and recoveries from the companies formerly responsible for the plans.
That is, in concept it was supposed to be self-funding. In reality, it has been in deficit every year since 2002. Who picks up the deficit? We do. At least those of us who pay federal taxes.
I suggest interested readers review the analysis at http://www.thetruthaboutcars.com/gao-pension-
The author notes, “As of last September, the Pension Benefit Guarantee Corporation had an accumulated deficit of a staggering $22 billion, largely due to the assumption of pension obligations in the manufacturing section. Nearly half of that deficit has been accumulated since September 2008, and another $14 billion of unfunded obligations currently hang in the balance from auto supplier firms alone.
“Furthermore, Each year, PBGC assesses its exposure to losses from underfunded pension plans sponsored by financially weak companies. At the end of fiscal year 2009, PBGC estimated that its exposure from reasonably possible terminations was approximately $168 billion, up from $47 billion a year earlier. A significant part of this increase was due to the dramatic increase in exposure related to manufacturing, which PBGC attributed primarily to changes in the auto industry.
“In short, if GM or Chrysler fail to make their minimum payments, and default on their obligations, an already staggering Pension Benefit Guarantee Corp. could collapse into complete insolvency.”
In addition, interested readers should review the Government Accountability Office’s reports that note taxpayers will probably lose $34 billion on the bailout of insurer AIG and another $126 billion (so far) that the administration has expended in propping up the mortgage finance companies Fannie Mae and Freddie Mac.
Now all of this seems to be going ignored. While some may be angry at Goldman Sachs and support the hearings that are ongoing, I noted to my congressional representatives that Goldman Sachs already has been charged by the Securities and Exchange Commission. So why burden the taxpayer with the cost of hearings, especially since the questioning simply served to demonstrate that our representatives and their staffs do not seem to even have a grasp of the basic financial terminology?
So instead of wasting time with Goldman Sachs, why not start Fannie and Freddie
The subprime debacle is one major cause of our financial meltdown.
Others are our loss of competitive business-manufacturing and services, increasing entitlements that cannot be funded and overall irresponsible spending patterns in local, state and federal government.
These are not all the causes, but I think they capture probably 60 percent to 70 percent of the overall causes. These are the key issues that need to be addressed.
John A. Valersky is an Edwards resident.