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View Diary: Bwahahahahahaha! American Airlines and Bain Capital. (282 comments)

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  •  It's called counterparty risk (4+ / 0-)
    Recommended by:
    VClib, johnny wurster, Palafox, bbrown8370

    Everyone who is ever owed money has it, whether you're Goldman Sachs, a French bank, a credit card company, or a pension fund. No matter who you are, there is a risk that a counterparty who owes you money can't or won't pay.

    This risk is a known factor you must take into account when you make investment decisions. Employee unions could have always demanded no or smaller pensions and big 401k matches. They did not do so, preferring to take what might be considered a gamble on AA and the economy's continued solvency. The gamble didn't pan out.

    Also, keep in mind that a judge must approve all bankruptcy settlements.

    (-5.50,-6.67): Left Libertarian
    Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

    by Sparhawk on Mon Feb 06, 2012 at 06:54:58 PM PST

    [ Parent ]

    •  Actually, it was the company that assumed (8+ / 0-)

      the risk.

      They were happy to assume 5% returns off into the distant future and funded the pensions accordingly.

      AA should have budgeted more conservatively.

      The pension holders had no say in that process.

      •  Re (2+ / 0-)
        Recommended by:
        johnny wurster, bbrown8370
        The pension holders had no say in that process.

        AA workers aren't unionized? They couldn't have demanded correct actuarial accounting for their pensions?

        No, they were perfectly happy to believe a lot of idiotic blather about 5% returns when private sector annuities are far more conservative (it would take you a lot more money than their pension contributions to buy an annuity from, say, Prudential).

        AA should have budgeted more conservatively.

        They should have, but they didn't. So now AA goes bankrupt and so do their counterparties and investors. In the free market, that's what happens.

        (-5.50,-6.67): Left Libertarian
        Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

        by Sparhawk on Mon Feb 06, 2012 at 07:44:16 PM PST

        [ Parent ]

        •  So sparhawk does that mean that AA executives (15+ / 0-)

          will share in the financial pain?  Of course not.  The free market is not free.  The deck is stacked in favor of the Kleptocracy.  For goodness sake, AA spent twice as much on Bain and other consulting firms in Dec. as they contributed to their pension fund.

          I'm truly sorry Man's dominion Has broken Nature's social union--Robert Burns

          by Eric Blair on Mon Feb 06, 2012 at 08:57:47 PM PST

          [ Parent ]

          •  Re (1+ / 0-)
            Recommended by:
            bbrown8370

            A judge will work all of this out. I am going to assume that the judge knows the internal matters of this case better than either of us.

            The pension fund and the government are going to have representation in the proceedings to ensure that executives aren't just looting the company.

            (-5.50,-6.67): Left Libertarian
            Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

            by Sparhawk on Mon Feb 06, 2012 at 09:02:07 PM PST

            [ Parent ]

            •  Tell it to all the lucky Enron employees... (5+ / 0-)

              ... who watched their profit sharing and 401k plans evaporate.

              •  Yup (1+ / 0-)
                Recommended by:
                bbrown8370

                When there is no money to cover obligations, there is no money. It certainly sucks, but it highlights the foolishness in all cases of having a retirement plan too dependent on an employer.

                (-5.50,-6.67): Left Libertarian
                Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

                by Sparhawk on Tue Feb 07, 2012 at 05:28:03 AM PST

                [ Parent ]

                •  But up thread you were siding with the poster (2+ / 0-)
                  Recommended by:
                  middleagedhousewife, JVolvo

                  ... Extolling 401ks and "taking risk" as having the answers.

                  •  The Enron employees in question... (2+ / 0-)
                    Recommended by:
                    bbrown8370, Argyrios

                    ...had 401ks primarily in Enron stock, which is not unlike having a pension that requires your employer to remain solvent long enough to make payments to the plan.

                    You are far better off (or at least, less at risk) with your retirement invested in things that have nothing to do with your present employer. It is far better to have your eggs in different baskets.

                    Are you at risk of a stock market collapse even so? Sure, but everyone is all the time regardless of their investment strategy (and you can always put a 401k into "safe funds" that pay 2% but don't lose money in a crash).

                    (-5.50,-6.67): Left Libertarian
                    Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

                    by Sparhawk on Tue Feb 07, 2012 at 09:00:25 AM PST

                    [ Parent ]

                    •  This is know as diversification... (0+ / 0-)

                      Financially speaking, people should consider shorting the companies they work for. In the case the company crashes, the employees will be financially okay for a while.

                      Of course, this should never happen, because of the bad incentives it sets up for employees, but that's another story.

        •  Yeah, what you said... (0+ / 0-)

          Workers did have a say, but workers don't know what returns are going to be over the next 50 years either. You get the smart people to make a conservative guess. That's the best you can do. They're usually pretty close, but sometimes not.

          Now is sometimes for a lot of firms.

          To say AA should have budgeted more conservatively means they would have had to send cash away to a pension and not invest in the company (and keep up with their competition), potentially leading them to be outcompeted and run out of business all together by other airlines - resulting in massive AA job losses.

          It's a balancing act.

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