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Bair: “Bank Bailout NOT a good thing”; Pension Benefit Guaranty Corp (PBGC) Bailout Coming

Bair: "Bank Bailout NOT a good thing"; Pension Benefit Guaranty Corp (PBGC) Bailout Coming

Courtesy of Mish

Yesterday I stated FHA Bailout By Taxpayers On The Way. The FHA denies a bailout is coming.

Please consider Inside the FHA’s financial audit, with David Stevens, FHA commissioner and CNBC’s Diana Olick.

The Term Bailout Does Not Apply

David Stevens: "Bailout is a term widely used with financial institutions. FHA is a government agency so let’s just be clear. …. FHA does not operate under the same context as a typical financial institution. So the term bailout really just does not apply technically"

Lovely

Given that Fannie Mae and Freddie Mac are institutionalized, I guess the term bailout technically no longer applies to them either.

This is good news because it means no bailout will be needed for PBGC either.

Bair calls U.S. bank bailout "not a good thing"

Inquiring minds note that Bair says U.S. bank bailout "not a good thing"

Leading U.S. bank regulator Sheila Bair said on Friday that the government’s capital injections into the largest banks was "probably not a good thing."

Bair, the chairman of the Federal Deposit Insurance Corp, said the billions of dollars of capital infusions last year had a terrible impact on public perception of the financial industry and government regulators.

"I think at the time it sounded like the right thing to do and, again, it was part of an international effort, but I just see all the problems it’s created," Bair said during an interview with PBS NewsHour. "I think we would have tried to dissuade Treasury from making these capital investments."

Public outcry followed the investments, which largely came to be referenced as government bailouts. Lawmakers raced to attach more conditions, such as restrictions on compensation, to the capital injections.

"It’s had a terrible, terrible impact on public attitudes toward the financial system, toward the regulatory community," Bair said. "It’s created all sorts of issues about government ownership of these institutions, what happens if they get in trouble again."

PBGC $22 Billion In The Hole

Inquiring minds are reading the PBGC Annual Management Report for Fiscal Year 2009

The Pension Benefit Guaranty Corporation (PBGC) ended fiscal year 2009 with an overall deficit of $22 billion, according to the agency’s Annual Management Report submitted to Congress today. The result compares with the $11.2 billion deficit recorded at the previous fiscal year-end on September 30, 2008.

In an interim report to Congress in May, the agency showed a record deficit of $33.5 billion, based on unaudited numbers at the fiscal year mid-point on March 31.

The main factors for the year-over-year decline in the single-employer program’s net position included a $10.6 billion charge due to an unfavorable change in interest factors, $4.2 billion in losses from completed and probable terminations, a $3.9 billion charge due to passage of time, and $383 million of administrative and other expenses.

The Passage Of Time

Please note that $3.9 billion of the deficit is due to "passage of time". You can’t make this stuff up, it’s too bizarre.

Also note that the deficit was $35 billion in March. Hmmm. Guess what happens if the stock market goes down again.

Finally note that a "$10.6 billion charge due to an unfavorable change in interest factors." Think 0% interest rates has anything to do with this?

Calculated Risk says "With companies moving away from defined benefit plans, there will be fewer companies paying for insurance in the future – and the ‘long-term solution’ will probably involve some sort of bailout."

Clearly Calculated Risk is not thinking technically, and neither am I. A huge bailout is coming and the next market decline will exacerbate the losses.

Mike "Mish" Shedlock


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