Representative Virginia Foxx (R-NC) was recently quoted as saying that H.R. 397 is nothing more than a “full taxpayer bailout of private-sector multiemployer pension plans”. In a blog post from yesterday, I questioned whether this particular loan program would, in fact, be described as a bailout given that the U.S. Treasury Department was actually going to make money (25 bps above the prevailing 30-year Treasury when issued) on the loans authorized to these Critical and Declining plans.
It seems to me that whether or not you believe this proposed legislation is a bailout or not, the word itself seems to carry an incredibly negative connotation, particularly among some of our politicians. I think it would be beneficial to review the history of the U.S.’s largest bailouts – those being TARP (Troubled Asset Relief Program) and Fannie and Freddie. I suspect that many folks would guess that the U.S. taxpayer got hosed on this program, but the facts suggest otherwise.
Paul Kiel and Dan Nguyen, from ProRepublica, have been tracking the flows related to these bailout programs since their inception. In their latest update (February 2019), they have determined that the “accounting for both the TARP and the Fannie and Freddie bailouts, shows that $632B has gone out the door—invested, loaned, or paid out—while $390B has been returned. The Treasury has been earning a return on most of the money invested or loaned. So far, it has earned $349B. When those revenues are taken into account, the government has realized a $107B profit as of Feb. 25, 2019.
The biggest beneficiaries of the government rescue programs were the banks and financial institutions at $245B, Fannie and Freddie at $191B, automakers at $79.7B and AIG at $67.8B. Mortgage modifications, toxic asset purchases, and state housing programs another roughly $48B completing the list of recipients. The U.S. has recouped assets through Warrants, returns, dividends, interest, and other proceeds. Not too shabby! Especially since there still exists more profit potential from a variety of sources.
Have all of these entities contributed to the profit total? No, of the 780 investments made by the Treasury 633 have resulted in a profit. The .812 batting average looks pretty impressive. As a reminder, of the 114 Critical and Declining plans that Cheiron reviewed, only 3 were in need of additional PBGC assistance. If however roughly 19% of the remainder needed some additional time or assistance, wouldn’t that still be a pretty good batting average and worthy of this legislation going forward. Again, Washington DC seems to be playing chicken with these critically important benefits. It isn’t fair to the participants who were promised a benefit and who contributed to those promises in lieu of salary increases. Enough is enough.