It seems to me that everyone ought to step back and take a deep breath on this issue.
When IRAs first came out, they were extremely limited (compared to what they are now.) Same with 401k's. What happened? Well, when they first came out, the ninny nannies among the congress-critters said that "ordinary Americans" would be too unsophisticated to handle things if they could just invest anywhere. But once those same "ordinary Americans" started to see what was happening with those accounts, they wanted more: more investment options, more redemption options, higher "contribution" limits, and so on. Suddenly, those same congress-critters discovered that those "ordinary Americans" were also "voters" and they saluted and began giving those voters what they wanted. Now, you can invest in a "self-directed" IRA through a brokerage where you select individual stocks and bonds for your "IRA account" to purchase. 401k's have "loan" programs for purchasing a house, and some other expenses, and "contribution" limits have been raised. If Reagan had tried to get it all pushed through at once, it would never have happened. Instead, he pushed through what was possible and got the important things taken care of. The rest became an irresistible force that moved Congress. The same thing will happen here. The early program will come out with restrictions such as "it can only be invested in a stock, bond or money-market mutual fund which does not invest in commodities or futures contracts." If "self-directed" investing is allowed, it may be only "companies in the S&P 500", or the "Wilshire 1000", or something like that. In other words, it will be an attempt to avoid having people put their money into speculative stocks or junk bonds. There are a few ways that Social Security really IS different from an IRA or a 401k. First, SS is also an "Insurance program". If you become disabled (after you've worked under the system for some number of years), then SS takes care of you. There are "survivor benefits" to a spouse. And one of the principles I've heard Bush talk about is the idea that if you take the investment option and things go bad, he wants you to still get what you would have gotten if you'd opted to stay in the original program. I'm not sure I agree with this latter principle, but if it becomes part of the program (VERY likely), then that creates some issues that need to be dealt with. If the "insurance" portion is retained, then that will have to be paid for in some way. (Never mind the transition costs, for now.) Either the government will need to set up and collect money for a fund that takes the "premiums" or it will have to set up a mechanism for insurance companies to do so--or both. If the "benefits guarantee" is retained, then the government has a stake in ensuring that people don't "blow their wad." I believe that the situation where the government "guarantees" an investment and then does not (adequately) regulate or watch over those investments is what economists call a type of "moral hazard." There is no (or little) incentive to be careful with the investment and so people "shoot the moon" and then get the government bailout when their gamble failed. This was the sort of thing that happened with the S&L crisis a decade and a half ago. S&L operators got the laws changed so they could invest in almost anything. The regulators weren't (or were prohibited by law from) keeping careful watch over what was going on and investors (aka "depositors") weren't concerned about doing their homework either since the government would bail them out. It would be the same sort of thing, here. "Sure, I'll invest in 'Cracked Jack's Gold Mining Company.' If it goes belly-up, I'll still get the normal SS benefits." Congress will get a lot of pressure to allow this sort of thing. Since "we the taxpayers" will likely be guaranteeing it, I hope that Congress will resist the pressure (or at least put in some rules like, "you can only do it once you've got SS assets greater than 3 times your average annual earnings for the last ten years--and only with the lower of that portion of those assets that exceed that amount or 5% of your total assets." Or, perhaps they can find a way to remove the guarantee--at least partially--for someone who wants to speculate. The trouble is, what will politicians do when someone who's signed away the guarantee goes crying before the sympathetic cameras that "I didn't know...."? If you don't trust politicians to stand by their principles (OK, an oxymoron already--how about "the principle"?) then you better make sure that someone gets prosecuted if anyone ever needs a government bail out. In other words, you make up some rules for conservative investing. Lowell C. Savage It's the freedom, stupid! Gun control: tyrants' tool, fools' folly. _______________________________________________ Libnw mailing list [email protected] List info and subscriber options: http://immosys.com/mailman/listinfo/libnw Archives: http://immosys.com/mailman//pipermail/libnw
