Delphi Bailout, Treasury's Actions Should Be Congress's Responsibility

The Pension Benefit Guaranty Corporation bails out Delphi as the Treasury madness slips into gear. Is YOUR pension fund solvent? Just ask the oracle of Delphi.

On Wednesday, the Pension Benefit Guaranty Corporation (or PBGC) announced it will take over payments for 70,000 workers and retirees from the bankrupted Delphi (DPHIQ.PK), the large auto parts maker per the Wall Street Journal. This "mini-bailout" is to the tune of $6.2 billion. (Oracle of Delphi photo courtesy Patar knight license)

The PBGC is an agency of the US government, created by the Employee Retirement Income Security Act of 1974. It is the government's pension equivalent to the FDIC, which "insures" bank accounts. (For more on the FDIC debacle, please read "Off a Cliff with No Airbags: The FED Banking System Quivers in Fright".) The PBGC claims to "protect" the pensions of nearly 44 million American workers, but the reality is that the agency is insolvent with a deficit of $33.5 billion per the WSJ. Since there are political implications from the GM bankruptcy, more or less, Delphi employees and retirees are just lucky to receive this charity money from the government. These days, even some who ARE able to withdraw from other retirement plans, like a 401k, are having issues obtaining their funds, as I reported on here "Wall Street Journal Reports 401k Withdrawals Frozen or Slowed".

This news comes on the heels of CalPERS, the nation's largest pension fund based in California, announcing a yearly loss of $56.2 Billion, and the separate California Teachers' Retirement System losing $43.2 Billion per the LA Times. CalPERS assets dropped from $239 Billion to $181 Billion. California Teachers' Retirement System assets dropped 25% from $162 Billion to $119 Billion. Perhaps it is worth mentioning that the majority of pension funds across the US were already underfunded even prior to last year.

Why is this even important for those without pensions? Well, when our nation's teachers, police officers, and other pensioners start getting nervous - which they should already be - they are organized enough to start marching. And desperate people make for desperate times.

In other news, the Treasury Department also announced it will offer nearly a quarter-trillion USD ($235 Billion) in Treasuries in the remaining auctions this month. This is a lot, but when the government runs an annual $2 Trillion deficit, I suppose it is about right.

Now, we arrive at my point. Both the Delphi bailout and the Treasury's actions are really the responsibility of Congress. As predicted in F.A. Hayek's 1944 The Road to Serfdom, the legislative body assigns powers to other appointed governmental entities to not ONLY shield itself from controversy and direct responsibility, but also because economic central planning is impossible.

You see, there are simply too many variables for our central planners sitting in Congress to figure out. Yes, planning must be done, but economic planning is best done in the millions of individual, free transactions done for the mutual benefit of both parties, not by central planners like the Congress, the PBGC, Summers, Geithner, and Bernanke. Socialist central planning simply does NOT work in the long-run as we saw with the U.S.S.R. (See "Why Obama's Stimulus Plan Will Fail... and a Better Alternative" for more details).

Disclosure: No position in PGBC, CalPERS, California Teachers' Retirement System

Comments

[Jake Towne:]

Oops, forgot to add no position in Delphi, GM either.

Link to cartoon version of Road to Serfdom
mises.org/books/TRTS/

Jul 24 09:51 AM

[malcolm davis:]

so will delphi retirees from the oak creek plant loose or get a reduced amount from pbgc looks like the system is becoming overloaded

Jul 28 05:36 PM

[Rich F:]

off topic
What happens to stock that has been held in Delphi for the past 3 years ???

Sep 08 03:10 PM