I decided to stop playing at being a pundit and actually look at the numbers. Remember that Enron, Worldcom, et. al. reported their shady dealings to the letter of GAAP, it’s just that no one except accountants understands GAAP. If you can read and understand a set of financial statements then they assume you’re a fellow rich guy and they’ll let you in on what’s happening. Here’s what I found:

Under no circumstances must GM be allowed to fail.

I watched a bunch of CBC and TVO documentaries last night, mostly on GM and Pakistan because those are my two pet thinking projects at the moment. [Aside: Good job with TVO, Ontarians. I want my BCTV.]

I got to thinking: What is the actual argument for not letting GM fail? As I’ve mentioned, I don’t buy the supply chain collapse theory — it reeks of political engineering. We learned this in Operations Management at UVic Business. Essentially: If you’re Boeing and you produce one part for a new fighter jet in every state, no politician will vote against the procurement bill for the jet — they’ll be seen as anti-employment back home. Similarly, no politician can let GM collapse because they’ll destroy voter support (everyone thinks tough love only applies to other people).

Pensions are what I settled on. The government doesn’t want GM to fail because old people need their pensions, have no other means of support, and vote. So why doesn’t the government just assume GM’s pension liability and let the market get on with tearing the crippled beast to shreds? I wonder if pensions in the US are government-backed anyway? I’m not sure.

I pulled up the last 10-K, GM’s 2008 annual report, and took a look. Dear lord, GM is in a lot of trouble!

I have a full page of notes, but I think one number will sum it up for you: Their estimated total pension liability — the amount they think they’ll have to pay over the rest of their employees’ lives if they stopped hiring today, in 2008 dollars — is…

$190.8 BILLION!!!

And that’s not the worst part. That number assumes interest rates won’t increase from December 31, 2008 levels. This hasn’t been the case. It also assumes 8.5% growth in portfolio assets. Whoops again (plus, Warren Buffett said that planning on more than 6% growth going forward is unrealistic — the US economy is so big that it has to wait for its trading partners to catch up). And, for those who know what I’m talking about, their pensions are defined benefit — bling bling!

GM cannot be allowed to fail because taxpayers will have to bail out their pensions to an unknowable extent*, probably greater than any Wall Street bank. Better to get them on their feet and make them pay up. They’re asking for a lot less than $200 billion in bailout funds.

Remember, this is the company that makes the Cadillac of automobiles. They have the brand power to win. If they just pull their heads from betwixt their proverbials and hire good designers (and fire pretty much everyone else) they might — might — be able to keep Grandma rolling in the cookiedough.

* Pension accounting deals with a lot of uncertainty — actuarial data, inflation, interest rates, asset returns, plan contributions, etc. Essentially you have to recalculate the pension liability every year and expense the difference, you can’t just set it up like a normal liability account.