Fly the Socialist Skies
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The United States Government now owns 23.4% of United Airlines.
That's on top of the 7% of USAir that the government owned as of a few months ago.
The reason we are descending into old-fashioned socialism is the Pension Benefit Guaranty Corporation, the guarantor of failed private pension plans. When a company files for bankruptcy protection, the PBGC steps in and assumes the assets and liabilities of the company's pension pan, thereby becoming a creditor, often the dominant creditor, of the firm. If the company reorganizes (as opposed to liquidates), then the creditors become stockholders, including the PBGC (which will itself soon be a failed program).
I warned against this practice previously, and my position is unchanged — the PBGC should be required by law to sell the equity holdings it received in bankruptcy reorganizations as quickly as possible without causing a liquidity shock in the security. If the PBGC or any other part of the government wants to gain equity exposure (i.e., "play the stock market"), then it should be limited to passively-managed index funds. The government should never, ever, be a direct stockholder. The potential conflicts of interest are simply too great.
And it deserves repeating: the great heavy industries of a past era — steel, autos and now airlines — that are now the crippled foster children of the PBGC, were also the great unionized industries, as were other now dead or dying sectors such as textiles and mining.
Ironic, isn't it? The socialists, who wanted government ownership of industry but had to settle for collective bargaining laws, wound up getting exactly what they wanted, if not quite in the way they wanted it.
Anyone still care to argue that unions have been — over time — good for American blue-collar workers?
And anyone still care to argue that the Social Security crisis isn't the exact same phenomenon doomed to the exact same outcome for the exact same reasons?
That's on top of the 7% of USAir that the government owned as of a few months ago.
The reason we are descending into old-fashioned socialism is the Pension Benefit Guaranty Corporation, the guarantor of failed private pension plans. When a company files for bankruptcy protection, the PBGC steps in and assumes the assets and liabilities of the company's pension pan, thereby becoming a creditor, often the dominant creditor, of the firm. If the company reorganizes (as opposed to liquidates), then the creditors become stockholders, including the PBGC (which will itself soon be a failed program).
I warned against this practice previously, and my position is unchanged — the PBGC should be required by law to sell the equity holdings it received in bankruptcy reorganizations as quickly as possible without causing a liquidity shock in the security. If the PBGC or any other part of the government wants to gain equity exposure (i.e., "play the stock market"), then it should be limited to passively-managed index funds. The government should never, ever, be a direct stockholder. The potential conflicts of interest are simply too great.
And it deserves repeating: the great heavy industries of a past era — steel, autos and now airlines — that are now the crippled foster children of the PBGC, were also the great unionized industries, as were other now dead or dying sectors such as textiles and mining.
Ironic, isn't it? The socialists, who wanted government ownership of industry but had to settle for collective bargaining laws, wound up getting exactly what they wanted, if not quite in the way they wanted it.
Anyone still care to argue that unions have been — over time — good for American blue-collar workers?
And anyone still care to argue that the Social Security crisis isn't the exact same phenomenon doomed to the exact same outcome for the exact same reasons?
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Posted by Kip on
17 February 2006
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