By: Wayne Brown
The people of America seem to apply a double-standard when it comes to the scrutiny they place on corporations versus the jaded eye with which they view similar actions on the part of our federal government. When particular events occur in the corporate world the public cries for someone’s head, points to the corporate management as bunglers, and demands, along with media that someone go to jail. Regulatory agencies of the government get involved, committees are formed, hearings are held, and if there appears to be any form of crime, charges are forthcoming. Not so in our government, I am convinced.
Let us take an example from the pages of the past in terms of Corporate America and see if we can bring some parallel to the table which will demonstrate what I have discussed above. Let us then create a large, fantasy of a corporation which employs thousands of people nationwide; a company which is very desirable to have in the community because it provides good-paying jobs with plenty of benefits including healthcare and a retirement program or pension plan. People line up to work for companies like this and enjoy the spoils which come with their job. Not only are they paid a competitive wage but the company also throws money into the pension plan to match whatever they are obligated to pay into it each pay period. The jobs offer immediate income and a sense of long-term security.
You might not realize it but corporations are monitored and regulated in many aspects, especially their dealings with employees. One aspect which is closely watched by federal regulators is the funds which are invested in pension plans. There is an expectation on the part of the employee as well as the government that the individual paying into this plan has every right to expect a return from it in the future in the form of a retirement income. In carrying out this regulatory role, the government regularly reviews audits of these corporate pension plans to determine that the plans are healthy financially and contain an adequate amount of funds to handle the projected future retirees of the corporation.
Once audits are conducted and the health of the pension plan is determined then follow-on actions are defined by the regulatory agency. If the audit discovers that the pension plan is in a state of being “under-funded”, then the corporation has a limited period of time in which to bring the funding up to acceptable levels or incur the wrath of the federal regulatory powers. On that basis, most corporations would rather not cross that line if they can avoid it. That prospect is controlled many times by the financial health of the company over a period of years. If the economy dives into a recession and remains there with stagnant economics, the production and sales of the company may suffer such that extreme difficulty is encountered in providing the adequate funds to the pension plan. In those audits in which the plan exceeds targets then those surpluses are used as a margin until the corporation again falls below targets providing some years of temporary relief on the revenue stream.
There are options open to these corporations for funding and the accounting management of these companies tries to take advantage of every angle. In publicly-held corporations (stockholder companies), those options include using shares of corporate stock in lieu of cash to bring funding into balance with required targets. Thus, these companies tend to fulfill their short-comings on fund levels with stock over time giving the body of employees an involuntary investment of size in the company. In fact, in many cases, the entire pension plan investment rides on the financial health of the company stock.
Competition in the marketplace leaves little room for error in Corporate America these days. Make the wrong decisions; let quality issues arise, or let overhead get out of hand and suddenly a company is in deep financial trouble and teetering on the brink of bankruptcy. Stock prices plummet and along with it goes the value of the pension plan causing it to fall well below dictated target levels for the future. More and more of the low-priced stock is required to salve the wound reducing the amount of stock in circulation to be bought and sold in the marketplace. Reduced stock volumes can quickly reduce pricing volatility cramping the stocks ability to make gains on the market and the hole gets deeper. Less and less investors are willing to stay for the long-haul fearing a loss on their initial investment. Consumers turn to other suppliers, sales drop, profit disappears, and at some point there is nowhere to turn except the bankruptcy court.
The creditors and the regulatory agencies line up in court all making some input as to how the affected corporation either returns from bankruptcy through a salvage plan or liquidates and then ceases to exist. At this point consequences arise of an ironic nature. The employee has spent decades and decades working for the company; placing money into the pension plan and expecting an outcome. The pension plan is regulated and somewhat guaranteed by the presence of the government but the stock which has made up the plan is now worthless thus rendering the pension plan worthless. For all practical purposes, the management of this corporation has squandered the funds of this company on poor choices and decisions driving it into bankruptcy and taking down the future of every one of its employees with it. All that security which the employee was depending on seems to have disappeared in a matter of days and no one wants to claim responsibility and because of the looming financial black cloud made up by the pension plan, no investors step forward to salvage the company. Everyone loses.
As you read this, I am sure you are angered by such an outcome and feel the employees have been cheated out of what was justly due them yet when the truth is known, for all the regulation and oversight of the federal government, the employee heads out to look for another job empty-handed and likely becomes employed by yet another corporation regulated in the same manner. I know of one instance in which a corporation bought out a struggling competitor in the same business. The corporation paid over $800 million dollars to acquire the company. Half of that price-tag was just debt to be paid. In addition, the acquiring corporation bought into a “unionized shop” operation and ended up having to lay out over $400 million dollars to bring the former company's pension plan to target due to it being funded with the near-worthless stock of the former corporation. Needless to say, this acquisition almost bankrupted the acquiring corporation. The company did not return to a health financial situation for over a decade and the employees carried the burden of that situation in terms of raises, etc. along with a fear for their long-term security.
Of course, now it becomes obvious why the news media and the public wants someone to go to jail in these situations…misdeeds have taken place; too much risk has been taken; funds have been improperly handled…someone must pay with their head! Common sense says that is a fairly natural outcome…one which would be expected, given the circumstances. In a word, there is a demand for “accountability” not only by the media but by the employees and the public as well.
Now that we have a corporate model of impending disaster, let us turn to our federal government and, in particular, discuss Social Security. Once the Social Security program was established by the government, the people who worked were required to pay into it out of their check each pay period. The employee never saw the money as it was held out prior to their being paid. In addition, the employer also paid a matching amount of funds for each employee. The government, in receipt of those funds, was charged with the responsibility of safeguarding them for the future, insuring they were adequate for the projected needs, but in reality not having any real “skin in the game”. Initially, more people were paying into the system than were receiving benefits thus there were “surpluses” which made the program look all the more successful.
Along comes the 60’s and Lyndon Baines Johnson’s concept of the “Great Society”. Johnson was convinced that he could eradicate ignorance and poverty during his term of office if he just concentrated enough people and money on the concepts. Money was tough to come by as the Vietnam Conflict was consuming billions annually in military-related spending. But Social Security had all this surplus revenue. Rather than the government going out and borrowing money, why not create some legislation which would allow the government to “borrow” the funds on the basis of an IOU from the government? In a sense, the government was creating that same involuntary stock purchase plan to guarantee the future funds of Social Security.
Over time, government deficit and debt continued to grow. Johnson failed in his attempt to create the “Great Society” allowing poverty and ignorance to continue to hold forth in America. Social Security revenue continud to be spent for everything but its original purpose. The cookie jar was full of IOU’s from the government. The days of surplus funding were quickly disappearing. But that seemed okay at the time as no one envisioned a scenario in which the U.S. Government could possibly fail.
Fast-forward to today. The “Baby-Boomers” are retiring at a rate of 10,000 per day all looking for the Social Security check which they were promised many years ago. Over the past few years, more and more social programs have been added to the mix but the load seems to fall back on the revenue stream of Social Security because, you see, at one time it had a surplus so it only makes sense to keep placing additional loads on it until that surplus is erased. At this point, I think that has been effectively accomplished.
Our government officials want to now refer to programs like Social Security as “entitlements”…a word they use to describe “something which has come to be expected from the government”. They want to act as if no one put their money into this involuntary program. They want to be remembered for standing up and stopping those evil people who suggested that maybe a portion of Social Security be invested in the private sector thereby offering individuals who elected to do so the chance for increased benefits in the future. Oh no…that cannot happen for you see, that move would require the government to actually produce the money for the investment and in a Ponzi Scheme of sorts, producing the money is the last thing you want to do. No, no….as Al Gore was prone to point out, “Social Security is safe…they funds are under lock and key…lockbox protected”.
So here we are with an out of control beast of a federal government which devours the revenue stream of Social Security and all other taxing options and still squanders over a trillion dollars a year in deficit spending on borrowed money. Any sane person will quickly admit that is nothing less than a recipe for disaster. Meanwhile, we have the President and his liberal left cronies describing our current financial situation as a “revenue shortfall” suggesting that the answer to the problem has little to do with reducing the spending of government and everything to do with raising taxes on the wealthy…the wealthy being the “scapegoat” for a good place to start. Much like gun-control, taxation has to have a place to get started so that it can be justified in all the other areas where it will eventually be desired. Tax and spend mentality is like an incurable cancer which has not yet been detected but rapidly destroying the vital organs of the patient.
Social Security has been swept into the bin of “entitlements” making it almost as palatable as “welfare” as it comes off the tongue. Entitlement in the government’s eye is not something that you deserve but something which you have come to expect. Thus, the conclusion is that maybe you expect too much and therefore have an irrational perspective on what the government should be doing for you. In effect, the government has not and is not doing anything for you except possibly setting you to believe that your expectations of Social Security as erroneous.
Where is the media outcry? Where is the public outcry? Whose head do we want on a pole for this squandering of our future and the funds designated for it? There are three elements in this relationship…government, the people, and the press. So far, the government has totally bungled the situation with its creative accounting and spending habits due in great part to the efforts of both sides of the aisle. The media is more interested in who from Hollywood is visiting at the White House and the apathetic public has assigned itself to the old song of “Take an Old Cold Tater and Wait!” The future for Social Security for those now receiving it is in jeopardy and for those who continue to pay into it…non-existent.
When we talk about “mortgaging” the future for our younger generations, there can be no better lesson than what we are seeing here today. We are rapidly approaching the point at which more people will be receiving Social Security than will be paying into the program. Those younger generations will soon be bearing the deficit aspects of Social Security from their current paychecks with a strong possibility of having no expectation of any type of return on it…a tax for the sake of tax and that is all. If you are a member of that younger generation and still “hurrahing” the current crop of elected officials, then God help you for being so blind.
Where is our demand as a public for “accountability” in our government? Do we wait until our futures are totally squandered before we throw off our coats of apathy and scream in outrage at the disinformation and outright lies coming out of Washington in these three-act dramas of late all designed to make everyone up there look like they care and are working hard for the little guy? How far off the track does the train have to travel before the passengers arrive at the crash-site? Certainly, if we can see the downfall of a pension plan in Corporate America, we should be able to recognize the actions of failure in our own government. But, we can worry about that another day, for now, we are of the opinion that we must first rid ourselves of the chains of that evil free-market and the capitalism which fires it. Someone told us that was the priority…and apparently we believe.
©Copyright WBrown2013. All Rights Reserved.
15 April 2013