Clueless Leadership

Today we learned a 'Pension Relief' bill whizzed through the U.S. Congress, passing both houses unanimously. Among the many popular items, was one in particular that caught our eye: easing the requirement that Corporate Defined-Benefit Pensions be fully funded. This comes just two years after the Federal Government toughened enforcement to protect workers and the Government Pension Insurance Fund.

No one likes to lose money, but pretending one didn't lose it doesn't help the situation. If a pension fund had terrible losses in the stock market this year, the employer should put more money in to ensure there will be enough to pay the retirees. If it can't cough up the bucks, then the benefits need to be cut. One can't go on paying out as if nothing happened.

This sort of thinking is not the exception these days. For another example, banks are being allowed to shuffle more of their impaired investments into the 'marked to make-believe' category of valuation to avoid writing it down to actual market values. The most extreme examples are to be found in the 'horror stories' of people who loose their income and yet continue spending on their credit cards all the way to bankruptcy and homelessness.

If any economic unit - be it household, business, or nation - is to emerge from the 2007 Depression not ruined, it must begin by fully acknowledging the painful losses that have already happened, and accept the possibility of further losses ahead. Only then can there be a truly appropriate response - which typically involves austerity and hard work. The glaring lack of leadership from elected representatives and regulators on this point is certain to have destructive consequences, namely: more insolvency, more income loss, and (as long as governments can pretend they have resources) more bailouts.