Is U.S. Far Behind Iceland in Battle Between Homeowners and Pensions?

Online, November 10, 2010 (Newswire.com) - Last month saw Iceland's citizens protesting outside their Parliament as homeowners who are 'upside down' in their homes (owing more than the homes are worth) demanded the government do something about it. According to an article in The New York Times on October 26, 2010, while first agreeing that mortgage debt might be forgiven, Iceland's government is now watering down initial plans after the pensions who own the debt stepped in to block any such actions. Financial advisor Dennis Tubbergen thinks both sides will ultimately lose if overdue home loans are forgiven.

Tubbergen, who is CEO of USA Wealth Management LLC, a federally registered investment advisory company, notes that a recent Bloomberg article explained Iceland's pension funds hold the bonds behind most of the country's mortgage debt. Initial plans earlier this month were to forgive some $2 billion in home loans that have gone bad.

"Pensions will be cut and homeowners will lose equity," forecasts Tubbergen. "That's just what happens when a global financial system reaches its debt capacity. And Iceland is likely the canary in the coal mine."

Tubbergen states a quick look at U.S.-based pensions reveal they are not in great shape, either. To make his point, Tubbergen lists a few items quoted in a recent Financial Times article:
• Pension plans sponsored by the City of Philadelphia can only pay pension obligations through 2015;
• Pensions sponsored by the Cities of Boston and Chicago will run out of money by 2019;
• Most pension plans are still using an assumed rate of return of 8% to calculate funding obligations; and
• Total municipal funding gaps in pensions nationally are about $574 billion. This is in addition to the funding gaps in pensions at the state level exceeding $3 trillion.

The study concluded that taxpayers in these areas are at risk for significant tax increases or service cuts. The study examined 77 pension plans sponsored by 50 major cities and countries covering 2 million workers.

"Can't you see it?" asks Tubbergen. "In the City of Philadelphia or any of the major cities listed here, residents could begin a mass exodus to avoid the increased taxes, making the problem even larger for those who remain."

Such a scenario could have residents seeing garbage picked up less frequently, police responding only to major emergencies, and classroom sizes increasing as teachers get laid off.

"It's Iceland all over again," concludes Tubbergen. "We're simply at a point that politicians at every level of government need to quit playing 'kick the can' with financial problems. Kick the can works until you reach the end of the road. While we're not at the end of the road like Iceland is yet, the end of the road may now be in sight."

For more information on Dennis Tubbergen's views, visit www.dennistubbergen.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.