The Next Bailout: Pension Funds Imploding

It is in times like these that Pension Fund Managers, and the Other People's Money crowd in general, are showing how they earned their pay, or didn't.

Aren't you glad the Bush Administration did not achieve its objective of putting the Social Security Trust Fund into the stock market?

Although its not clear how much difference that is going to make in the long run.

We are still in the calculated and deliberate 'general looting of the country' phase and the tide has not yet turned. The financiers are still in control.


Chicago Business News
Pension bombs going off
By: Paul Merrion
March 02, 2009

Exploding pension fund shortfalls are blowing billion-dollar holes in the balance sheets of some of the Chicago area's biggest companies, forcing them to make huge contributions to retirement plans at a time when cash flow and credit are already under stress.

Boeing Co.'s shareholder equity is now $1.2 billion in the hole thanks to an $8.4-billion gap between its pension assets and the projected cost of its obligations for 2008. At the end of 2007, Boeing had a $4.7-billion pension surplus. If its investments don't turn around, the Chicago-based aerospace giant will have to quadruple annual contributions to its plan to about $2 billion by 2011.

Stock market losses also pounded pension funds at Abbott Laboratories Inc., Caterpillar Inc. and Exelon Corp., with others sure to emerge as companies file their annual financial reports with the Securities and Exchange Commission in coming weeks.

The pension gaps underscore a growing conundrum. Unfunded pension liabilities have to be subtracted from shareholder equity, weakening balance sheets at a time when it's already tough to borrow money. Barring a reprieve from Congress, companies may be forced to make more layoffs or curb capital investments to divert cash to shore up pensions....

The Chicago companies are symptomatic of nationwide woes. Last year, the 100 largest corporate pension funds in the U.S. saw their net assets decline by 21%, while liabilities increased 1.2%. Applying those averages to any of the region's top funds puts almost all of them into the red by at least $1 billion....

Thoughts for a Sunday Evening in Times of Uncertainty

"God has created me to do Him some definite service; He has committed some work
to me which He has not committed to another. I have my mission. I may never know
it in this life, but I shall be told it in the next.... I am a link in a chain,
a bond of connexion between persons. He has not created me for naught. I shall
do good, I shall do His work; I shall be an angel of peace, a preacher of truth
in my own place, while not intending it, if I do but keep His commandments and
serve Him in my calling.

Therefore I will trust Him. Whatever, wherever
I am, I can never be thrown away. If I am in sickness, my sickness may serve
Him; in perplexity, my perplexity may serve Him; if I am in sorrow, my sorrow
may serve Him. My sickness, or perplexity, or sorrow may be necessary causes of
some great end, which is quite beyond us. He does nothing in vain; He may
prolong my life, He may shorten it; He knows what He is about. He may take away
my friends, He may throw me among strangers, He may make me feel desolate, make
my spirits sink, hide the future from me --still He knows what He is about."

John Henry Newman, Meditations and Devotions

The Bubble In US Treasuries and Its Implications

The Treasury bubble is likely to be much less destructive than the Internet and Housing Bubbles.

The bubble in the US dollar, however, if one wishes to consider it as an adjunct or outcome of the bubble in Treasuries, has the potential to be disruptive and devastating


Reuters
Buffett says U.S. Treasury bubble one for the ages
By Jonathan Stempel
Sat Feb 28, 2009 9:31pm GMT

NEW YORK (Reuters) - Warren Buffett, whose Berkshire Hathaway Inc. sits on $25.54 billion (17.8 billion pounds) of cash, said worried investors are making a costly mistake by buying up U.S. Treasuries that yield almost nothing.

In his widely read annual letter to Berkshire shareholders, the man many consider the world's most revered investor said investors are engulfed by a "paralyzing fear" stemming from the credit crisis and falling housing and stock prices. Treasury prices have benefited as investors flocked to the perceived safety of the "triple-A" rated debt.

But Buffett said that with the U.S. Federal Reserve and Treasury Department going "all in" to jump-start an economy shrinking at the fastest pace since 1982, "once-unthinkable dosages" of stimulus will likely spur an "onslaught" of inflation, an enemy of fixed-income investors.

"The investment world has gone from underpricing risk to overpricing it," Buffett wrote. "Cash is earning close to nothing and will surely find its purchasing power eroded over time."

"When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s," he went on. "But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary."

DISMAY OVER MORTGAGE PRACTICES

Investors' flight to quality followed years of excessive borrowing, especially in housing, and Buffett used his letter to make plain his dismay with a variety of mortgage lenders.

He said many ignored Lending 101 by not checking customers' ability to pay off home loans, or foisting "teaser" rates that reset to higher unaffordable levels.

In contrast, Buffett said, Berkshire's manufactured housing unit Clayton Homes had a 3.6 percent foreclosure rate at year end on loans it made, up from 2.9 percent in 2006, though more than one in three borrowers had "subprime" credit scores. The unit was profitable in 2008, earning $206 million before taxes, though earnings fell 61 percent, Berkshire said.

"The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability," Buffett wrote. "Home purchases should involve an honest-to-God down payment of at least 10 percent and monthly payments that can be comfortably handled by the borrower's income. That income should be carefully verified."

HSBC Expected to Cut Dividend, Raise Capital in $17 Billion Shares Offering

This could make Monday's trade interesting.

The Economic Times (India)
HSBC plans $17 bn share sale to raise funds
28 Feb 2009, 1100 hrs IST

SINGAPORE: HSBC, Europe's biggest bank, plans to raise more than 12 billion pounds ($17 billion) in a share sale aimed at propping up its capital base in order to cope with the economic crisis, a media report said on Saturday.

The report said the share issue would likely be announced alongside its full-year 2008 results due on Monday.

The report quoted unidentified people involved in the discussions as saying the offer price for the sale had not been set and the deal could still be postponed.

The bank is also expected to announce a cut in its dividend, the report said.

It said the share sale was underwritten by Goldman Sachs and JPMorgan Cazenove and the deal could set a new record in Britain for a rights issue funded by private investors after Royal Bank of Scotland's 12 billion pound share offering last April.

HSBC has traditionally been one of the best capitalised banks in the world and has not raised capital while rivals have scrambled for cash as the credit crisis has deepened.