Sunday, May 08, 2005

Parallels, Cliffs, Lemmings

I was driving down the Sam's Club with the wife when I noticed three Chevy trucks in front of us. They all still had their paper dealer plates.

The hourly radio news was talking about Social Security.

It struck me that I know nothing about GM's problems and not really much more about Social Security except that it's a racket and going to collapse. Instapundit and many other blogs have been my main source of info on Social Security, but I've been limited to only the MSM soundbites that GM (and Ford, to a lesser extent) are facing a cash crisis due to declining sales of some model lines and underfunded pension obligations. Until now, that is.

I just finished a quick Google of "Social Security GM pension fund" and came up with some interesting results. Jane Galt mentions the different mechanisms at work in the looming challenges facing both programs here, and the resulting thread makes for some pretty interesting reading about how liability and actual debt is defined, and lots of contradictory opinions are represented.

Another site,, retells in part the story of how industry practices for funding pensions evolved during the early nineties and up until today:

"Apart from competitive market factors for car sales, foreign competition, rising commodity and labor costs, and rising oil prices, the areas of greatest concern are GM's underfunded pension liabilities and corporate debt. In 2003, GM faced the largest pension fund shortfall of any U.S. corporation - $25 billion, requiring it to float an extraordinary $17.6 billion bond issue, bringing its long term debt to over $300 billion. This still left GM with a deficit of over $50 billion in its health care fund. The magnitude of this becomes more apparent when you consider that GM's market capitalization is now just $16.6 billion.

GM's pension woes are not likely to improve. In a report for The Detroit News Auto Insider Ed Garsten states that GM currently provides health and income benefits to 461,500 retirees and their surviving spouses. As of October 2004 GM retirees and their dependents outnumbered the company's active workforce by three-to-one. This imbalance will continue to grow as more and more retirees are supported by fewer and fewer workers."

Wow. A company liable for pensions of over 400K people. That's a little intimidating. It's not like GM has the power to print money and just keep right on going - this story from Yahoo News was what actually started me thinking about the similarities of the situations.

"The downgrade means that many fund managers might be forced by their investment guidelines to dump billions of dollars of GM and Ford bonds. The two companies account for 10 percent of total US corporate debt."

The U.S. government has ponzied Social Security for decades and has accrued a multi-trillion dollar long term debt in the process. We'd expect the perpetrators of a scheme like this to have been perp walked long ago... except that the U.S. government has never defaulted on a debt.

That's not to say they haven't just printed what they needed, or borrowed even more money to cover immediate calls - but a real business, one that has to conform to SEC standards and market realities - doesn't have those options at hand.

Does anyone know of more articles on this subject? Any opinions?

I think what we are seeing in our auto industry struggles is a preview of 2017's Social Security collapse. We need solutions - fast - and the Democrats seem willing to politicize the issue right up until the lights go out.

I don't expect to see any Social Security, and I'm only forty four. What about you?

(Edited for clarity at 1:22 PM MST)

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