The Corner

Economy & Business

Black Hats and White Hats, Still

Traders work on the floor of the New York Stock Exchange in New York City, January 7, 2019. (Brendan McDermid/Reuters)

When I write about the lack of intellectual rigor in our nationalists’ critique of American businesses — that it is another game of blacks-hats/white-hats — I mean this sort of thing. Michael Brendan Dougherty writes:

Sometimes private-equity outfits do take advantage of our laws to extract value from existing companies for shareholders, charging fees while passing on pension burdens to the public.

Private-equity firms often deal with failed or failing companies, many of which go into bankruptcy, and the failures of those businesses sometimes threaten their ability to pay defined-benefit pension costs. These end up being “burdens to the public” through the Pension Benefit Guarantee Corporation, which is a bit like the FDIC in that it performs the role of guarantor and regulator at the same time. PBGC doesn’t sit around waiting for failed pensions to fall into its lap: For example, it stood in the way of Brookfield’s acquisition of bankrupt Westinghouse; Brookfield had agreed to assume financial liability for Westinghouse’s underfunded pension plans, but PBGC didn’t think that there was enough money on the table, and demanded $120 million in additional contributions to the plan. PBGC has been in ongoing negotiations with Sears to ensure that its pensions are covered. It is very worried about any number of union plans, estimating the odds that they will become insolvent in the near future at 90 percent.

One should always be skeptical of claims that these federal corporations are not taxpayer-funded, but PBGC gets its funds from insurance premiums charged to pension sponsors and through its own investments (it doesn’t only acquire pension liabilities; it acquires the assets in pension funds, too), including private-equity investments. Which is to say, the private-equity investment that MBD here turns his nose up at is part of what makes sure that these pension benefits get paid. Private equity is in fact a pretty common mode of investment among pension funds.

So, back to my original question: What do the critics here actually want? Do they think that the working class would be better off if there were no PBGC? If there were a larger and more active PBGC? Do they object to its financial organization? (It currently runs a small surplus.) Do they want to leave it to the pensioners to sue bankrupt firms for their benefits? Are they looking for broader reforms of bankruptcy law?

No. Not a word about any of that. They’re just saying, “Oh, look at these awful businessmen, out there making money from the failure of other businesses.” But businesses do fail. They always have. If MBD et al. have an alternative program for dealing with that reality, then we are all ears.

But they don’t give much evidence of having such an alternative or being interested in one.

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