Down 25% from June 30 is still ahead of the S&P. On the face of it then - based on this # - the "max alternatives" strategy would seem to be working: They're outperforming. In any case, it is impossible to judge a strategy by a brief period of past performance like this. There are bad trades that work out, and good ones that don't.

One of the interesting things here is how the private equity market will handle the pressure from LPs seeking - *needing* - liquidity. The secondary market for PE fund interests seems to have some evolving to do.

Richard A Ippolito developed a theory of pension underfunding - and of ERISA / the PBGC - here:

"The Economic Function of Underfunded Pension Plans," Journal of Law and Economics, Vol. 28, No. 3 (Oct., 1985), pp. 611-651

In short, corporations underfund pensions as a way of "keeping labor honest" (my language, not Ippolito's). If labor demands too much of the pie, shareholders will walk away.

The endgame of this strategy is now playing out before us. Over and above the PBGC's funding problems, the (especially glaring) case of the auto-makers (or at least GM) is complicated by a) their scale, and b) their role in ensuring our national security.

There seem to be two basic ways out of the underfunded pension mess:

1) Ippolito asks, at the end of his paper: "Why do firms not cheat workers by terminating the pension plan, satisfying their legal obligations by paying nominal pensions, and thereby imposing substantial capital losses on workers?..."

I.e., make the workers eat it -- which you could argue - if you could take the heat - would be the fair thing to do.

2) The PBGC pays up -- and the Federal government insures the PBGC.

I.e., make the taxpayer eat it -- which also has its appeal.

It will be interesting to see how these options are played against each other in the debate re whether - and how - to bail out the Big Three.

Is the press covering this adequately? I don't read enough to know, but am skeptical based on what I do read. How, for example, can you talk about GM without talking about the PBGC - and vice versa? Yet people seem to.

If you want to get really far out, you might speculate about how the PBGC's travails may affect the Deal struck between Capital and Labor going forward. Heady stuff!

Not that you seem to need any encouragement, but I'll look fwd to whatever you come up with on this.

Interesting.... Maybe. Whether it's BW3 or something (ahem) softer, there's definitely going to have to be serious global cooperation. Sadly, we are so(!) far from that now. Trichet says they're talking with the Fed constantly, "which is great!," but he's also said the "ECB Can't Intervene in Bank Solvency Issues." Meanwhile, the free for all in Europe is really counter-productive -- to say nothing of the outright denial of the likes of Steinbrück! (That guy should be fired yesterday!...)
As far as the mkts go, the indiscriminate selling reminds me at least that volatility is a two way street. On the other hand, when the mkts become politicized like this, and the politics are SO out of whack, it's hard to imagine what news could possibly be taken as a queue to start buying....
Between those two, I am starting to think that the indiscriminate selling is now outweighing the absence of any justification to get in here....
What did they used to say?... Caveat emptor?...

Minor point: Illiquidity (aka "There is no market for something") does not mean that "it is worthless." There's "no market" for the Mona Lisa, and it's (arguably) not worthless.

At its root, this is a conceptual problem: By definition, "market value" is composed of a) "value," as in a distribution of expected returns, and b) "market," as in the means by which that value is realized, via exchange for a liquid asset. This obviously presents a challenge for FASB types.

Still, I completely agree that any step away from "mark-to-market" is a step in the Wrong direction.

Mark-to-estimate will not only reduce the quality of the information available to investors re companies' assets, but also reduce the liquidity of the market for those assets, thereby prolonging the resolution of the problem.

As Barry says above, there's a lot of Schumpeterian creative destruction to go through here. I'm inclined to say, "Let's get on with it!" but I do believe that the government has a role to play here. Eliminating short-selling and scrapping mark-to-market are not part of this role.

Aren't they just making back money they'd lost though?... Judging from the pop in the stock, I may / must be missing something, but haven't these been long-standing positions? Or do we know somehow that he bought the dip?...