Say Anything Blog

mcair: You might consider that the union-backed pension demands might be unrealistic, which they are, and that the unions leveraged the corps into such unrealistic pensions by demanding even more unrealistic financial demands if they didn’t comply with the pension schemes. 

The S&L crisis was caused by the TEFRA act of 1986, which removed real estate as a tax shelter.  This was a move by the Dem-controlled congress to show how "fair" they were.  Since the S&Ls held most of the paper on those investments, their investments went bad overnight, causing the tragedy.  It was the worst deal Reagan ever signed.  Of course, the Dems broke their promise to cut spending, which was their part of the deal, but even if they had kept their word, it wouldn’t have saved the S&Ls.

Obviously, companies that default on contracts they sign with their employees should be held accountable to the full extent of the law.

That being said, I can only hope this will encourage more people to be more independent when it comes to planning for their health care and retirement.  Far too many Americans look away from themselves when it comes to providing for themselves in retirement.

It is time for more individualism. 

When the people fear their government, there is tyranny; when the government fears the people, there is liberty.

-- Thomas Jefferson

Rob’s recently listened-to songs:

I think the way they are getting out of these pensions is by declaring bankruptcy.  The bankruptcy judges look the situation over and see that there is no way the assets will cover the liabilities. That being said, it seems that the pension-holders have a higher right than the stockholders.  About as fair as it can be.

 On the other hand I don’t see Liberals like the author of this piece agreeing that the ultimate pension scam is Social Security.  The promise is there but the Congress has spent our retirement money. 

So where’s the outrage Mcair? 

On the other hand I don’t see Liberals like the author of this piece agreeing that the ultimate pension scam is Social Security.  The promise is there but the Congress has spent our retirement money. 

I’m with you on this. How could the President and his party keep proposing cuts in Federal income tax when the treasury was using the trust fund to cover shortfalls? Remember the 2000 debates? The candidates were scrambling to explain how they would divvy up the surplus generated during the Clinton years. 

One candidate proposed a "lock-box", whereby the trust fund would be shored-up first, before any cuts in income tax. He was mocked for being so practical.

The other candidate was more anxious to pay off his donors to worry about rebuilding the trust-fund - an asset introduced by Reagan when he raised payroll taxes towards the end of his presidency.

the ultimate pension scam is Social Security.

Social Security is a pension and disability insurance policy. It is not a retirement plan. Individuals are responsible for their own financial needs when they reach retirement, SS is designed to provide a very basic cost of living. It also provides for those that become disabled and are unable to work.  

How pathetic.

Currently the Social Security tax raises much more money than is needed to pay current retiree’s.  So you’d think that money is being saved to use when more of us retire.

 It’s not.  FDR started the raid just as soon as he invented Social Security.  Unfortunately every Congress since then has kept spending our retirement money.

 By the way Tax Cuts don’t cause deficits.  Spending more money than you’re taking in does.  Maybe you can blame some Republicans for that, but the Democrats have been doing it for a long long time to.

The only pension plan that works, no matter what you call it, is an investment plan.  The money set aside has to be put to work.  A "lockbox" doesn’t work, either.  The money is there or it isn’t.  You can’t legislate creation of wealth.  Wealth happens when you put your money to work.

 By the way Tax Cuts don’t cause deficits.  Spending more money than you’re taking in does. 

Again, no argument from me there. But the GOP understands that cutting social programs incurs a penalty at the ballot box, and they also insist on providing corporate welfare for the industries they are beholden to - Energy, Pharmaceuticals etc.etc. Either way, the Republicans in power have been fiscally irresponsible the past few years.

Regarding FDR: he introduced Social Security, the raid began when the country started running huge deficits, in the 1980’s. Reagan, Bush I and Clinton understood that, long term, running deficits would undermine the economy to the point where growth could not restore it. The profligacy exhibited by the current administration is creating a financial disaster that will require a future president to raise income taxes substantially.

Robert 108,

If I recall correctly what would have been a serious problem because of TEFRA, instead became a catastrophe when Congressional Democrats quietly slipped in a rider which upped the FSLIC guarantee per account to $100,000, thus increasing the government’s un-funded liability. 

Per what Robert108 just said, the entire foundation of any pension plan is rotten--it presumes that investments will yield enough to guarantee a certain return in the future. 

Think about it--does any sane financial consultant guarantee results?  Why then should we be surprised when pensions, based on the success or failure of investments, become insolvent? 

It certainly doesn’t help that certain pension-granters (e.g. Duluth MN’s city council) never bothered to consult a competent actuary when granting pension and other benefits, or that others made promises with no intent of keeping them.  That said, however, the key issue is simply that pensions require something that the financial world cannot deliver.

Bat: Yes, it made bad legislation even worse.

Robert:  If you use a safe investment plan, you get about 5-6% per year, compounded, which is a very good return over 20-40 years.  Govt plans have no guarantee either, because they don’t pay for themselves.  The illusion is that either the taxpayers or the corps will continue to be fleeced in perpetuity, and that just ain’t so.  Investing in the prosperity of the free enterprise system is always a good idea;  you just have to do it wisely, like everything else.  There is no automatic pilot.  Govt makes a false promise there, along with unions.

You confuse an individual giving a financial guarantee with the proven track record of our economy as a whole.  Diversification and wise management are the keys to success here.  "Eternal vigilance is the price of liberty,"-TJ 

"...the raid began when the country started running huge deficits, in the 1980’s."

Actually, the "raid" began in 1968 when President Johnson and a Democratic Congress changed to what became a "unified" budget.  This meant that all federal trust fund money, including the Highway Trust fund and Social Security wnet into one General Fund budget, rather than being spearately acocunted.  The effect was to hide the true cost of the Vietnam war, and the deficits incurred by LBJ’s "guns and butter" spending policies.

As has been well-documented, there is no money in the Social Security Trust Fund, only below market rate IOUs which will eventually have to be paid out of General Fund tax revenues.

In other words, the "Trust Fund" money was spent a  long, long time ago. 

As has been well-documented, there is no money in the Social Security Trust Fund, only below market rate IOUs which will eventually have to be paid out of General Fund tax revenues.

Ding-ding!! We have a winner. How exactly will the IOU’s be repaid? By continually running deficits?  Be realistic and let’s hear your proposals for spending cuts and tax increases.

Robert108, that sounds very nice until you realize that, in the 120 or so year history of the DJIA, the actual return after inflation is accounted for is less than 3%.  Still better than nothing, but the actuarial tables presented at the 401K contribution table ("you’ll have this much!" greatly overstate returns by neglecting inflation and choosing a very favorable time period--starting at 1945, when stocks were still at a very low level due to investment in War Bonds, and ending at a point where P/E ratios are double their historic level. 

It also probably won’t help markets much when boomers retire, and it certainly won’t help matters that the birth rate is now, excepting immigrants, below replacement.   Exactly who is going to buy the IRAs held by the boomers is, in a matter of speaking, not entirely clear, and I’d suggest that the markets may suffer for it.

The DJIA is only one part of the Market, and an old one at that.  It’s another tradeoff of freedom for security, IMO.  Pyramid schemes just don’t work;  you have to reinvest to make the system go.  Anyone who thinks they can "guarantee" a return is an idiot.  Apple stock, btw, has returned very nicely for a number of years.  Just like anything else that creates value, it takes time and effort.  Skill also helps.  You can’t get a doctorate without cracking some books and attending classes.  Value in leads to value out.

mcair said, Be realistic and let’s hear your proposals for spending cuts and tax increases.

Why are you so adament on tax increases when the reality shows that a cut in tax rates stimulates the economy and actually produces more government revenue? Why do you avoid this simple and proveable truth?

Agreed, Robert108--anyone who thinks they can guarantee a return is an idiot.  Hence, any retirement plan based on that assumption ought to be jettisoned, no?

And here’s a short list of programs that should be ended to reduce spending:

Social Security, Medicare, DoEd, BATF, PBS, NPR, NEA, NEH, Agriculture.......and the rest of the 70% of federal spending not authorized by the Constitution.  I’d even be ready to get rid of the standing army and go to a militia model.

I agree with all but the last;  that one would be foolhardy.

If a man whose top annual earnings for the past ten years has been a modest $60,000 were to retire next year at the age of 65, and draws Social Security til he dies at the age of 77, after which his widow draws her spousal benefit for an additional 5 years, what would be the overall return on his "investment" in Social Security?  Let’s assume he went to work at the age of 22 (I will stipulate that his meager earning power was not the result of a "classical" education.)

Now which would have been a more rewarding investment for this man.  Social Security (let’s not forget to add in his "employer’s matching contribution" which is really part of his compensation), or the DJIA?  How about the broader market S&P 500?  Any bets?

Bat: Good bottom line.

McAir -

Do you think you’d get more people agreeing with your positions, which may or not be right, if you skipped the hate and venom towards the GOPs?

And be sure to report back on Likwid’s comments, you know the ones.  The ones about tax cuts being provably effective…

Of course, if we invested the SS money in some safe market, as well as the big corp pension funds, it would stabilize that market tremendously.  It would dampen the fluctuations of the speculative players. 

Bat Man--the "return" currently on Social Security is about 2%, but is slated to go down as the # of recipients grows beyond the # of contributors.  For anyone under 40, the return is null to slightly negative.  (of course, this depends a lot on how this particular Ponzi scheme is run)

Quick point, though; given that SS is drawn from income, which correlates to the size of the economy and hence the stock markets, it is not altogether clear that securities (stocks & bonds) actually will have higher returns over a long period than Social Security.  It is certainly better to have the money doing something in private enterprise, though.

Quick point #2; regarding government investing in securities, do you really want nameless bureaucrats voting about corporate governance on proxy forms?  Think about this before you endorse said plan!

And regarding the militia model; yes, it’s totally impractical, which is why this model has kept the Swiss out of wars since the time of Napoleon.  It takes some dedication, but it can work.

Robert: I, for one, don’t want faceless bureaucrats doing anything with my retirement funds.  The only reason the Swiss have been out of wars since Napoleon is that they carefully keep a low profile.  There is no parallel with the US here.

Actually, the Swiss haven’t kept that low of a profile.  They never tried to take territory or colonies, but they did allow Kaiser Wilhelm to visit their war games before WWI, and that emperor asked soldiers what would happen if the half million man militia were confronted with a German army of a million.  The answer; we’ll shoot twice and go home.

In WWII, the Swiss would actually shoot down or force down both German and Allied warplanes that came over their airspace in WWII.  Contrast that with the "neutral" Swedes, who sold Hitler the iron ore he needed for his tanks.

Note also that the Swiss are one of only two nations that Bismarck didn’t wage war upon--the other being Russia.

Hence, I’d argue that a nation that takes a militia seriously (as in mandatory training for all who are not conscienteous objectors) can make that model work.