The Mercury News - August 22, 2004 – Entire Article   

Shifting obligations of pensions an outrage

By Dan Gillmor
Mercury News Technology Columnist

In the 1980s, some sharp but ethically challenged financial types realized they could enrich themselves in the savings-and-loan industry.

Under the cover of inadequate laws and almost non-existent regulation, they made risky loans and collected big fees. And when their institutions went broke, the federal government's deposit insurance fund was left holding the bag.

They did it pretty much in plain sight, and a few watchdogs did bark. But by the time most regulators, politicians and the public caught on, federal taxpayers found themselves on the hook for hundreds of billions of dollars.

History doesn't repeat itself precisely. But whenever people spot a way to stick taxpayers with their own obligations, they will try -- and they're succeeding again.

Corporations are trying to shift pension and health obligations to the people to whom they've made extravagant promises, or if that won't work, onto governments. Home-mortgage lenders are making incredibly risky loans and selling the paper to giant financial institutions that may need mega-bailouts of their own one of these days.

Everyone is acting in self-interest. But the law is allowing self-interest to threaten the public interest.

The most obvious such situation at the moment involves corporate pensions. Ailing companies in fiercely competitive industries, such as steel and airlines, are using bankruptcy laws to break promises they've made to employees and let the government's pension guarantee arm pick up the tab.

United Airlines, operating under bankruptcy protection, recently withheld a pension-plan payment. On Thursday, the company said it wanted to get out from under the obligation altogether. Its stance has prompted an angry but possibly empty rebuke from the Pension Benefit Guaranty Corp., the federal agency that may well end up paying off United's underfunded pension plan, as it did for several other companies in recent years.

The agency is running a deficit already, and it could end up on the hook -- with a taxpayer bailout required -- for vast sums if other companies start doing this. The other troubled airlines have made it clear that they'll consider precisely this tactic if United gets away with it, on the principle that they need to compete on even terms. Outrageous, but not surprising.

Meanwhile, consider last year's Medicare drug legislation, which was mostly a giveaway to big drug companies under the guise of helping seniors with escalating drug costs. The law provides a subsidy that supposedly encourages companies to maintain drug benefits for retired employees, but the government recently estimated that at least a third of major corporations will drop coverage and let the taxpayers take care of it.

Shifting health care and other burdens to taxpayers is a time-honored tactic, especially by businesses that rely on low-cost labor. One notorious example is Wal-Mart Stores, the mega-retailer. A recent study by the Labor Center at the University of California-Berkeley, which Wal-Mart naturally disputed, showed that California taxpayers subsidized the company on health care and other public programs to the tune of some $86 million in 2001.

In fact, taxpayers probably should cover catastrophic health-care costs under a single-payer system. The way we handle health care now is a disaster in its own right. But letting some companies off the hook while others pick up the tab is bad business and bad policy. At least let's be clear on what we're doing.

A supposedly private approach is in the works, but it may be another invitation to a bailout. Senate Majority Leader Bill Frist, a Tennessee Republican, has proposed what he nicknamed ``Healthy Mae'' -- a federally chartered yet privately run business that would create a secondary market for health insurers, effectively an insurance pool to spread the risks. Sounds nice, but it gives me chills.

Here's why. Fannie Mae is a government-sponsored enterprise that deals in home mortgages. It buys them from the originating lenders, creating securities that it then sells to investors. But there's at least some reason to worry that Fannie Mae's prolific operations, implicitly backed by taxpayers, may be encouraging the expansion of a housing price bubble.

If Fannie Mae were ever to hit serious trouble, it would need the mother of all bailouts. Who'd get the bill? You and me, again. Should we be trying this with health care, too?

Accountability for one's obligations used to be part of capitalism, and of American values. The S&L folks -- some of whom did nothing illegal -- weren't the first to see a way to make the rest of us pay while they got rich, just some of the most brazen. Here we go again.
Dan Gillmor's column appears each Sunday and Wednesday.