Robert Reich: Balance Sheets Still Unbalanced

[reprehensor]

Balance Sheets Still Unbalanced

America's largest companies are overstating assets by hundreds of billions because the SEC won't get pension rules in order.

By Robert B. Reich

The SEC studied 200 companies, including America's hundred largest, and found their pension plans underfunded by about $86 billion. But on their financial statements, these companies showed net pension assets of $91 billion, which they used to pump up their balance sheets.

The maneuver has led to some whoppers. United Airlines projected its pension fund would earn $740 million back in 2000, making the company look profitable. In fact, United’s pension fund gained only $21 million. If the company had used this real figure it would have shown an overall operating loss. Two years later, of course, United filed for bankruptcy. And now it's ended its pension fund, $10 billion in the hole.

David Zion, with Credit Suisse First Boston, has analyzed the reported earnings of America's 500 largest companies. He found that stripping out their hypothetical pension returns and other non-market pension values reduced their total earnings in 2001 and 2002 by 67 percent. That's more than $100 billion in each of those two years. We're talking big money here.

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[teryang]

1. leveraged fraud

if you consider the inflated market capitalization as some multiple of real assets, the problem is even greater than the balance sheet reflects.