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General Motors Financial Problems

General Motors (perhaps I should now say "Government Motors") had many financial problems. Clearly, the company had insufficiently funded reserves to pay for pensions. Full funding of these obligations as they were incurred would have kept any recent cash problem from arising, would have had the accounting virtue of assigning the costs to the right time periods, and possibly avoided the recent bailout/ bankruptcy scenario.

Did we get into this situation because:

Congress dropped the ball under ERISA (the Employee Retiree Income Security Act) and succeeding legislation;
The FASB (Financial Accounting Standards Board) didn't promulgate appropriate principles (I'll lump the SEC in here as well); or
Corporate malfeasance?
Or is there more than enough blame to go around?

Clearly, there are other financial issues as well. Please feel free to comment on them.

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General Motors:

The market interest rates and market swings caused the pension fund from General Motors to fluctuate between being under funded and over funded. This led to the company to borrow heavily so as to pay off its pension plan and this led to hefty interest payments. The value of the assets in the General motors portfolio exceeded its liabilities as long as its market remained high. The change in the discount rate could also a cause big swing in the status of the plan's funding. What led to the collapse of the company's pension plan was the decline in the ...

Solution Summary

The expert examines general motors financial problems.

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