Strings on auto loans risky for retirees - Stocks would be used for half of health-care trust

[Bozita]

I didn't see this story yesterday, but I think it's important.


http://www.freep.com/article/20081225/BUSINESS01/312250007

Strings on auto loans risky for retirees
Stocks would be used for half of health-care trust
BY KATIE MERX • FREE PRESS BUSINESS WRITER • DECEMBER 25, 2008
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Retirement health care for as many as three-quarters of a million Americans will be placed at high risk if conditions proposed as part of auto rescue loans are enforced by the incoming Congress and Obama administration, labor experts say.

At issue is a condition of the federal loans that calls for General Motors Corp. and Chrysler LLC to use company stock or the equivalent to pay half, or $10.5 billion, of the cash owed to a union retiree health-care trust.

"It's as if we, as a nation, learned nothing from Enron, essentially risking the health care of retired and active workers in such a cavalier fashion," said Harley Shaiken, a professor at the University of California, Berkeley who specializes in labor issues. "The great Enron lesson was: Don't put all your eggs in one basket. ... Putting half your eggs in the trust-fund basket is still a high level of risk."

Enron workers lost the lion's share of their retirement savings when the company's once fast-gaining stock became virtually worthless. Enron workers received their matching contributions in Enron stock -- then were prohibited from selling it until they were 50 -- and many invested their own 401(k) contributions in company shares.

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[ogneopasno]

1. Jesus Christ, we got into this whole problem by relying on the stock market!

WTF!

[Statistical]

2. No more risky then the risk taxpayers are taking.

The proposal will fund part of the $10B needed for retiree plan with GM & Chrysler stock.

So the retiree plan will only be in risk IF GM fails.
The taxpayers are taking a risk IF GM fails. Taxpayers will only be repaid if GM doesn't fail.

So there are three outcomes:
Big3 fail (stock = $0.00) = taxpayers lose everything = health plan loses half
Big3 struggle (stock prices remains the same) = repayment of taxpayer debt at risk/delayed = health plan doesn't gain anything
Big3 succeed (stock price appreciates) = taxpayers paid in full = health care plan sees value of assets rise

The proposal puts the GM/Chrysler retirees in the EXACT SAME BOAT as the taxpayers.

It's OK for taxpayers to assume the risk of Big3 failure but NOT ok for retirees of the same companies to assume the same risk?

[Bozita]

3. kick for the night shift