[ale] Way OT - the death of Twinkies

[Phil Turmel]

On 11/22/2012 01:27 PM, simontek at gmail.com wrote:
> You know if you have 2 billion in sales, and 2.5 billion of debt, or
> loss per year, it doesn't mean your doing well. They just mention the
> revenue. Not the profit.

Not only that, but they don't mention the pension obligations.  When
demand shrinks, the supplier(s) must also shrink.  But companies that
haven't phased out defined benefit pensions can't shrink those future
payments.  So in addition to cutting the workforce *count*, the supplier
must cut the *remaining* worker's pay and benefits to cover the promises
to retirees and soon-to-retire workers.

While I don't know the details, I suspect there are legitimate
grievances about executive compensation in the failing Hostess company,
but those are numerically insignificant to crisis as a whole.

Not that work rules and other burdens unions place on employers aren't
problems, either, of course.  The real tragedy is the faith generations
of Americans have placed in "traditional" pensions and ideas about
retirement.  (The whole idea of retiring while still healthy, at a set
age, is hardly "traditional".)

Brace yourself, because the defined benefit bind that Hostess is being
eviscerated by is the same ratio problem of current workers (payers) vs.
retirees (payees) that is building in our Medicare and Social Security
systems.  Other than scale, the only difference is that Hostess can
neither borrow at Fed rates, nor print its own money.

(Government also plays by different rules on maintaining appropriate
pension reserves, but that doesn't address the fundamental flaw in
defined benefit systems.)

Lots of big companies figured this out years ago, and started protecting
their employees with defined *contribution* plans.  That seems to many
to be a bad trade, but I'm sure Hostess retirees would be delighted
today if they had them.

Phil