Over the past year we have provided extensive coverage of what will likely be the biggest, most politically charged, and most significant financial crisis facing the aging U.S. population: a multi-trillion pension storm, which was recently dubbed "one of the most heated battles of a lifetime" by John Mauldin. The reason, in a nutshell, why the US public pension problem has stumped so many professionals is simple: for lack of a better word, it is an unsustainable Ponzi scheme, in which satisfying accrued pension and retirement obligations requires not only a constant inflow of new money, but also fixed income returns, typically in the 6%+ range, which are virtually unfeasible in a world where global debt/GDP is in the 300%+ range. Which is why we, and many others, have long speculated that it is only a matter of time before the matter receives political attention, and ultimately, a taxpayer bailout.
That moment may be imminent. According to Pensions and Investments magazine, Democratic Senator Sherrod Brown from Ohio plans to introduce legislation that would allow struggling multiemployer pension funds to borrow from the U.S. Treasury to remain solvent.
The bill, which is co-sponsored by another Democrat, Rep. Tim Ryan, also of Ohio, could be introduced as soon as 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. The one, and painfully amusing, restriction for borrowers is "they could not make risky investments", which of course will be promptly circumvented in hopes of generating outsized returns and repaying the Treasury's "bailout" loan, ultimately leading to massive losses on what is effectively a taxpayer-funded pension bailout.
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.
Sen. Brown's angle was naturally populist, and aimed squarely at those whose pensions are likely to recoup pennies on the dollar under the current investing climate: union workers. Brown told a group of retired Teamsters in Ohio on Monday that the bill will be out shortly.
"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," he said.
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 unluckly taxpayers, who will have to fund these promises.