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  #11  
Old 04-22-2009, 05:31 PM
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Aaron Brachowitz Aaron Brachowitz is offline
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I can get the article to appear but not the comments.

Millard's arguments seem pretty weak, essentially "the markets are down, so the PBGC's jumping in." I don't buy that argument with my own money, so I don't buy it for the PBGC's money either. Beyond that, the decision was made before the markets crashed and it was just dumb luck that the money hadn't been moved yet.
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Old 04-22-2009, 06:38 PM
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"Imagine you are a large institutional investor with an investment time horizon that is 30 years or more. "

What makes Mr. Millard think the PBGC has 30 years?

"How about closing the deficit with a congressional bailout along with proper risk adjusted premiums going forward?"

If the PBGC is the only insurer, what makes Mr. Gold think the proper risk adjusted premiums will be charged?
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Old 04-22-2009, 07:22 PM
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You have to ask who is ultimately guaranteeing the pension benefits. If it's the PBGC, then they should not make their assets riskier. If it's the Federal gov't, then, maybe the PBGC should take steps to reduce their projected deficit, even if that means making the assets riskier.

55% allocation to equities, real estate & private equity just seems way too high for the PBGC though. That's roughly the same as the pension plans they're guaranteeing.

A Federal bailout shouldn't happen before it's necessary to liquidate assets at a loss.
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  #14  
Old 04-22-2009, 09:33 PM
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Quote:
Originally Posted by Lane Meyers View Post
No, I don't "disagree wth Dr. J on principle". I have nothing against JG. Based on his work that I've read, I just have a different opinion than he does on many topics.

I'm not saying I have a better/best solution to the PBGC's situation, I just don't think that writing off the full amount of the debt as a given loss is a good idea. The PBGC is at least trying to make an effort that they think will help reduce some of the deficit. Whether their solution works or not has yet to be seen and probably won't be known for several years.
If you agreed with JG that PBGC's loss is a "sunk cost" and indistinguishable from other government debt, then either: 1) the PBGC should try gambling to get even, and/or 2) the rest of the government ought to borrow even more and invest it in risky assets "for the long run." If that works, we'll never pay taxes again.

If you don't think that losses on plans already closed are a sunk cost, what do you think they are -- an opportunity?
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Old 04-22-2009, 09:41 PM
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http://www.ritholtz.com/blog/2009/04...l-corporation/

Perhaps a couple of excerpts from the Globe article will make this concept more clear:

“But (Zvi) Bodie, the B.U. professor who advised the agency, questioned why a government entity that is supposed to be insuring pension funds should be investing in stocks and real estate at all. Bodie once likened the agency’s strategy to a company that insures against hurricane damage and then invests the premiums in beachfront property.”

“The worst case scenario is coming to pass,” said Mark Ruloff, a fellow at the Pension Finance Institute, an independent group that monitors pensions. He said the agency leaders “fail to realize that they are an insurer of pension plans and therefore should be investing differently than the risk their participants are taking.”
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  #16  
Old 04-22-2009, 09:48 PM
Dr T Non-Fan Dr T Non-Fan is offline
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Quote:
Originally Posted by tymesup View Post
If the PBGC is the only insurer, what makes Mr. Gold think the proper risk adjusted premiums will be charged?
You call him Doctor Gold, DOLL!!
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Last edited by Dr T Non-Fan; 04-22-2009 at 09:55 PM..
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  #17  
Old 04-22-2009, 10:01 PM
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PBGC should be shorting the companies' pensions it insures? That seems to be the proper A/L matching strategy.
And how would it do that, except to take opposing positions on all of its insureds' invested assets, I guess, plus base its own premiums charged on an indirectly proportional amount of funding contributions?

Disclosure: I don't know squat.
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Old 04-22-2009, 10:02 PM
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That would defeat the whole purpose of the PBGC.

No doubt. But if you create something with a purpose and operate it so that it can't fulfill that purpose, I don't want to be liable.
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  #19  
Old 04-22-2009, 10:09 PM
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Quote:
Originally Posted by JohnLocke View Post
No doubt. But if you create something with a purpose and operate it so that it can't fulfill that purpose, I don't want to be liable.
And if you create something with a purpose that ultimately cannot fulfill its purpose, then one should question the decision to create it.
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  #20  
Old 04-22-2009, 10:21 PM
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Is it unprofessional to RN someone in this forum?
I know it seems unprofessional to ask for one.
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