Social Security buying stocks?

Rohit Khare (
Sat, 17 Feb 96 03:59:01 -0500

This is a nutty load of hooey...

I mean, I can't even begin to enumerate how stupid this sounds to me. First,
it's because they're right: stocks and private investments vastly outperform
the gov't, but it's because they're a bunch of lilly-liverwed, weakwilled
souls without the courage of their convications to say, "yes, and that's why
we should take the goveernment OUT of the damn loop".

Let people invest their own retirement savings. They're not fools, they're
not stupid, and they don't need a Big Nanny to tell them to salt away their
earnings in crappy investments. Least of all a system as punishingly
high-burden as 15% SS taxes, one which takes *no account* or life-cycle
contributions allowing young people to put less in and older people more, or
even vice-versa.

The nutty part is the notion that the extra returns come risk-free. The stock
market is NOT an external shock absorber, it's in a bubble now -- and if a
depression strikes, well, the gov't, i.e. *us schmucks* will have written call
options on the entire economy. Just think what's next: what about all those
minority and small business not on NYSE? How about a venture fund; yeah,
that's the ticket.

Of course, *what money* are they trying to invest, anyway? There's no damn
gold in the coffers -- it's all an IOU gambit. Funds diverted to the market in
the form of real money only leaves a corresponding gap in bond sales finance
-- raising bond rates -- raising interest rates -- raising income taxes to pay
off the debt burden, eating away the gain of moving the money.

Years of experience have shown that social-investing state and public pension
funds don't work. Making the same mistake at large is a gov't specialty.

Every dollar down FICA is down a black hole as far as I'm concerned...

Rohit "I'm mad as hell, and I'm going to (finally) vote [and these are the
simpering morons I get to choose from?!]" Khare


Plan Would Put Social Security Into Stock Deals


WASHINGTON -- A federal advisory panel appointed by the Clinton
administration plans to recommend a radical change in policy for Social
Security: investing billions of dollars of payroll contributions in the stock

The panel, whose proposed recommendations appear in a confidential draft of a
report to be issued this spring, is also discussing whether payroll tax
revenue for Social Security should be kept in one big pool, as it is now, or
whether some should be diverted to individual accounts, so workers could
invest it in stocks and bonds of their choosing.

Such discussions would have been unthinkable just a few years ago.
Politicians have been extremely reluctant to change Social Security because
any misstep could provoke explosive reactions from the program's 43 million

But this year the issue has surfaced in political debates. It provoked a
bitter exchange last month between two candidates for the Republican
presidential nomination, Steve Forbes and Sen. Bob Dole.

When Forbes suggested that a portion of younger workers' payroll taxes go
into private retirement accounts, Dole ran television advertisements
denouncing the idea as "a radical untested plan that would end Social Security
as we know it." But since then, Dole himself has expressed interest in the

Gene B. Sperling, deputy assistant to President Clinton for economic policy,
said tonight that the administration had opposed efforts to "privatize Social
Security," but would review the recommendations.

Since the creation of Social Security in 1935, money paid into the program
has been invested exclusively in interest-bearing government securities,
mainly long-term bonds. But the 13-member advisory panel says in its draft
report that the United States could obtain a higher return on investment and
increase retirement savings for the baby-boom generation by channeling some of
the money into the stock market.

"Stocks have outperformed bonds by a significant margin over long periods of
time," said Edward M. Gramlich, professor of economics and dean of the School
of Public Policy at the University of Michigan, who is chairman of the panel,
the Advisory Council on Social Security.

The draft says that, while stock market investments would entail "a slight
increase" in risk for Social Security, the risk is manageable.

The advisory council, appointed in June 1994 by Donna E. Shalala, the
secretary of health and human services, includes business executives, labor
union leaders and pension experts chosen to represent self-employed workers
and consumers in general.

Panel members have significant disagreements on such questions as: How much
Social Security revenue should be invested in stocks? Who would manage the
investments? How many private investment options should be allowed?

At least 8 of the 13 panel members say the money should be invested in mutual
funds or some other portfolio of securities linked to a broad gauge of market
performance, like the Standard & Poor's index of 500 stocks.

"Very few investment managers can beat the index year after year," said Marc
M. Twinney Jr., a council member and actuary who was pension director of Ford
Motor Co. until he retired last year.

The Social Security trust fund now takes in more money in taxes and interest
than it pays out in benefits. But federal officials say the program will not
be able to pay all the benefits earned by members of the baby-boom generation
because, under the latest estimates, the trust fund will be depleted in 2030.

Robert M. Ball, a Democrat who was commissioner of social security from 1962
to 1973 and is a member of the advisory council, said Friday: "Some of the
trust fund money should be put into the stock market. I want to do it to get a
better return for the Social Security system. Historically, long-term
Government bonds have had a real return, after inflation, of 2.3 percent a
year, compared with 6.3 percent for stocks."

Under the approach favored by Ball, up to 40 percent of the money in the
Social Security trust fund would eventually be invested by the government in a
broad selection of private stocks intended to mirror the overall performance
of the market.

Some critics say Ball's proposal would concentrate too much power in the
hands of the government, giving federal officials leverage over private
companies. But Ball said he would prohibit the manipulation of investments for
political purposes and would require the government's money managers to
purchase the same mix of securities as used in a standard index of the market.

Ball's proposal, supported by five other council members, would keep the
level of Social Security benefits envisioned in current law. It would not
change payroll taxes for workers, but would increase income taxes on benefits
for some retirees.

Other members of the council want to create an investment account for each
person covered by Social Security.

Under the approach favored by Gramlich, the government would require each
worker to contribute a small amount each year beyond their current level of
payroll taxes.

"The accounts would be held by the Social Security system, but individuals
would be free to choose whether to invest their accounts in stock index funds,
bond index funds or some combination," he said. People would have perhaps 5
to 10 investment options, he added.

When a person retires, Gramlich said, money accumulated in the account would
be paid out in the form of an annuity, supplementing regular Social Security

Gramlich said individual accounts would give people an enhanced "sense of
ownership" in Social Security, increasing confidence in the program. "At
present," he said, "the system seems like a black box to most workers."

The creation of such individual accounts would fundamentally change the
nature of Social Security. Some benefits would still be guaranteed, but the
remainder would depend on personal investment decisions and the performance of
the market. People making identical contributions could end up with very
different benefits.

Economists disagree on how stock markets might be affected by the infusion of
huge amounts of money. The financial services industry would presumably
benefit, but banks, mutual funds and insurance companies have just begun to
study the issue.

To improve the financial condition of Social Security, Gramlich would
slightly scale back retirement benefits for high-wage workers and would
gradually increase the age of eligibility for full benefits.

Still other members of the council want to give workers even more control
over the investment of their retirement money. Under this approach, Social
Security would pay a modest flat benefit, about half of the average benefit
now paid to retirees, and 40 percent of payroll taxes would be diverted to
"personal security accounts."

A panel member who favors this approach, Sylvester J. Schieber, said:

"Our proposal would give people the widest choice of investment options.
People could invest their Social Security money as they invest the money in
their individual retirement accounts. Beyond the floor of protection provided
by Social Security, we should let people participate fully in this economic
miracle that we call America. It's paternalistic to assume that people cannot
take action in their own self-interest."

Schieber is research director at Watson Wyatt Worldwide, a management
consulting concern that specializes in employee benefits.

Edith U. Fierst, a lawyer who serves on the council, criticized Schieber's
proposal, saying: "It could be disastrous for women, especially nonworking
women, because they would have no entitlement to income from the personal
savings accounts of their husbands. This would be a particular problem for
women who divorce or outlive their husbands."

In its draft report, the council pleads for early action to revise and
supplement Social Security. "Actions taken now to cut benefits or raise taxes
can generate revenues right away, these revenues can be invested in equities
right away and these investments can raise benefits for younger workers," it
says. "The younger the worker, the more there is to be gained from early

The council supports the current practice of automatically increasing Social
Security benefits to keep pace with inflation. It rejects any suggestion that
retirees with large amounts of other income forgo their Social Security
benefits. Such a "means test" would discourage savings as people approach
retirement, it says.