Monday, October 13, 2008

The Continuing Economic Ripple Effect

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We've only seen the beginning of the problems we'll face going forward into the great unknown future that the mortgage meltdown has led us to. Today investors are happy and the market is currently up 450 points, tomorrow, who knows?

This cataclysm is just starting and the future is more unknown than at any time in 70-years. The blowback is coming in ways we've not even had the opportunity to appreciate.

Every action has a reaction and this event is like a stone thrown into a pond, the initial turmoil from the rock hitting the serene water shook things up but the radiating ripples could develop into a tsunami if the conditions are right. The initial explosion saw great American companies like Lehman Brother, Merrill Lynch and Wachovia go poof in a matter of days. The expanding ripples will reveal further, deeper problems.

One thing I've not read much about is the impact this will have on major pension plans including trade unions. Teachers, electricians and Teamsters will get their quarterly statements in the near future and will see exactly what the meltdown did to them. They await the bad news but have no idea of the actual impact unless they've opted to follow it daily via Internet. The unions did fight to get help in the bailout package but failed to win that battle putting them on the defensive against their own members.

Furthermore, hypothetically, say a union laborer is planning on retirement next year, his pension benefits have been pooled with other LIUNA members and that money was invested in a wide range of corporations across the spectrum. Will that money be there next year for him when he is eligible to collect? Chances are that union pensions will take a severe beating over the next few years. Or perhaps he sees the economic problems and continues to work instead of retiring, He'll be another person that needs employment or is working in a spot which a younger employee would have filled but now cannot because it's not vacant. Add to that the inherent corruption in every union and it's a recipe for disaster with more than a few union benefits execs doing the perp walk.

Think of the chaos that will ensue if major unions like the NEA, United Federation of Teachers, Teamsters, the International Union of Operating Engineers, the AFL-CIO (who has billions tied up in real estate and mortgages--link in PDF) and SEIU cannot meet their pension requirements. An Obama administration will bail them out, that's a given but what if McCain wins? Either way, we're talking a severe hit to the economy.

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