Trouble Asset Relief Program

Annette has made a good observation about the potential for unintended consequences. The success of capitalism - it ability to create wealth and jobs, depends on competition. Capitalism, just like evolution, is based on the premise of survival of the fittest. That is, success and all it permutations continues, while failure is liquidated. Socialism, largely excessive socialism, attempts to rewrite the rules of capitalism through too big or important to fail. This is done despite clear warnings of unintended consequences from history.

Money interests understand the drivers of capitalism. Those that attempt to rewrite the rules of capitalism will always face the unintended consequences of their actions. It is these consequences that siphon away productive resources away from the private sector. As the pendulum shifts from pure competition towards socialism, it increases resistance within the system. As long as this continues money, which always seeks the path of least resistance, will find alternatives to the dollar.

Dear Mr. Sinclair:

The refrain of a popular song from 1950s Germany comes to mind when I read reports such as the one just released:

Wer soll das bezahlen,
Wer hat das bestellt,
Wer hat so viel Pinke-Pinke,
Wer hat so viel Geld?

(Note this is only for the auto industry)

TROUBLED ASSET RELIEF PROGRAM
Automaker Pension Funding and Multiple Federal Roles Pose Challenges for the Future

In early 2009, prior to the new companies assuming sponsorship, PBGC estimated that its exposure to potential losses for GM’s and Chrysler’s plans to be about $14.5 billion.

Meanwhile, automaker downsizing and the credit market crisis have created significant stress for suppliers and their pensions. During 2009, there was a rise in the number of supplier bankruptcies, liquidations, and pension plan terminations. In July, the nation’s largest auto parts supplier, Delphi Corporation, terminated its pension plans with expected losses to PBGC of over $6.2 billion. Across the auto sector as a whole, in January 2009, PBGC estimated that unfunded pension liabilities totaled about $77 billion, with PBGC’s exposure for potential losses due to unfunded benefits of about $42 billion, leaving plan participants to bear the potential loss of the $35 billion difference through reduced benefits.
Moreover, until Treasury either sells or liquidates the equity it acquired in each of the companies in exchange for the TARP assistance, its role as shareholder creates potential tensions with its role as pension regulator and overseer of PBGC in its role as pension insurer. In particular, tensions could arise if decisions must be made between allocating funds to company assets (thereby protecting shareholders, including taxpayers) or to pension fund assets (thereby protecting plan participants).

link:
gao.gov

Regards,
CIGA Annette