U.S. Economic/Financial News
Northwest, Delta Bankruptcies Could Dump Billions on PGBC
The bankruptcies of Northwest and Delta airlines, announced Sept. 15, could dump another $11.2 billion on the Pension Benefit Guaranty Corporation, if the Bankruptcy Court allows it. The PBGC released estimates the same day that Delta's pensions are underfunded by $10.6 billion, of which the PBGC would be responsible for $8.4 billion; and Northwest's are underfunded by $5.7 billion, of which the PBGC would have to cover $2.8 billiona total $11.2 billion loss looming before the overwhelmed PBGC.
In response to the Chapter 11 filings, PBGC Executive Director Brad Belt issued a press release, warning that "Northwest Airlines and Delta Airlines are required to make minimum pension contributions under ERISA and the Internal Revenue Code.... [N]othing in the bankruptcy code requires companies to skip their pension funding payments."
At the end of its 2004 fiscal year, the PBGC's deficit had doubled to $23.3 billion. So far in 2005, bankruptcy judges have allowed United and U.S. Airways to dump their pensions on the PBGC, for a combined total of $8.5 billion. If the Bankruptcy Court allows Delta and Northwest to dump their pensions, the PBGC deficit will rise to over $43 billion, and increase the pressure for a taxpayer bailout of these grossly mismanaged companies.
N.Y. Fed, Big Banks Jawbone About Credit Derivatives
The New York Federal Reserve held a meeting Sept. 15 with major banks and securities firms to jawbone about credit derivatives. The central topic of the meeting was allegedly the financial institutions' failure to erase a backlog of paperwork in the $8.4 trillion credit-derivatives market. Some reports in advance of the meeting, predicted that the Fed would push these firms to reduce delays in confirming trades. The Counterparty Risk Management Group, led by former New York Fed president, now Goldman Sachs managing director, Gerald Corrigan, warned in July that banks and securities firms "risk being overwhelmed by investors seeking settlement of contracts in a corporate default."
Represented at the meeting were reported to be: Bank of America, Barclays Capital, Bear Stearns, Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Lehman Bros., Merrill Lynch, Morgan Stanley, UBS, and Wachovia Corp., plus U.S., British, German, and Swiss financial regulators.
Hospitals Lost in Katrina-Hit States Over Past Two Decades
Forty-four hospitals were lost in the three states hardest-hit by Hurricane Katrina, from 1980 to 2000, setting the conditions for the inadequacy of resources to be used in the current emergency.
* Alabama: between 1958-1980 the state added 23 hospitals; from 1980-2000 it lost 22.
* Louisiana: between 1958-1980 it added 27; from 1980-2000 it lost 13.
* Mississippi: between 1958-1980 it added 14; from 1980-2000 it lost 9.
Natural Gas Prices To Soar This Winter
The Federal Energy Information Administration recently forecast a 71% rise in natural gas prices in the Midwest this winter USA Today reported Sept. 13. According to George Coling, the executive director of the National Fuel Funds Network, Katrina will be a "disaster" for poor households, due to the expected rise in heating costs. The Network represents non-profit groups providing supplemental assistance from the Federal Low Income Home Energy Assistance Program (LIHEAP) to more than 5 million households each year.
L.A. Hit with Huge Power Outage
Much of the city of Los Angeles and some surrounding areas were blacked out midday Monday, Sept. 12. The cause of the major outage of the fragile power grid was reported to have been workmen cutting through a cable. The Department of Homeland Security quickly reported that, "at this time there's no indication of a nexus to terrorism." The day before, a self-described al-Qaeda member, an L.A. native who converted to Islam, issued a tape played widely on ABC, naming Los Angeles and Melbourne as terror targets.
Outages were reported in downtown Los Angeles, Koreatown, North Hollywood, Burbank, and the San Fernando Valley. Some power was returned after about an hour, and most by the end of the day.