tdaxp

I'm not anywhere close to being a Bush fan, but both this and the Social Security reform are starting to change my mind.

Posted by: Adam | Thursday, February 10, 2005

Remind me to thank you for converting when Wall Street profit-takers and James Baker / Kenneth Lay, Jr. execute some massive market manipulation and bankrupt you whilst purchasing themselves a small island somewhere.

Welfare to unprofitable business can go. Welfare to the securities industry, or giant handouts, as SS Privatization will be, should go too. Or is it that farmers can't afford to contribute enough to the campaign to get favors?

Posted by: aaron | Monday, February 14, 2005

I'm not sure what your first paragraph gets at. Considering how George Soros made billions on a very open speculative attack on the British Pound, government-backed securities (especially non-open-market securities as those held by SSA) are hardly without risk from attack.

If you can provide a source on how the federal workers' Thrift Savings Accounts ammounts to "giant handouts," I'd be interested. It is a lot easier to demagog than argue on merits.

Posted by: Dan | Monday, February 14, 2005

Because it'll flood the market with new capital that previously wasn't there. It'll be a more significant than the dividend tax cut. Like 150 million times... I don't even want to think of the figures. People who make money off the markets will get a free legup, while the people at the bottom with no investment will get nothing. Maybe some firms will raise pay rates, but with an increasingly globalized labor market, there probably won't be much benefit to Joe Sixpack.

Supposedly, the government will be appointing fund managers, etc. How long before the private sector can provide a more agile, better service? That's what I'm talking about, a government-prompted handout to everyone who lives off the securities industry.

Don't tell me it's anyone's choice to invest or not. Paint it like this:
"possibly make more money"
or
"definitely make decent money"

The ill-informed of America will jump for "possibly make more" a significant portion of the time. A lot of people who should probably just leave things be will be subscribing whole-heartedly to something they don't understand and won't try to. And as long as they have columnists on payroll shilling the pros of SS Privatization, no one will say "whoa, maybe I should abstain, or be less aggressive" I have yet to hear anyone on the Bush staff say "this might not be a good idea..." I see plenty of clips where Bush is saying "I want to hear everyone's ideas, whether they're Left or Right, I want to hear them." All the while, ignoring a large portion of the country, including AARP, who say resoundingly "Leave it alone."

George Soros' is no saint in my book, either, regardless his affiliation. The British Government wasn't playing their cards right. Someone saw an opportunity. I'd hope that my government would avoid running down the value of my currency if I were investing in it. I voted along those lines, but my prudence was overruled by fear, ignorance and bigotry. I'm making enough money to have investments on top of what the Government is taking out for me. But not everyone is. I can afford to lose something, as I have SS to fall back on. For now.

If the securities industry is going to make a fortune off the government-led redistribution of America's wealth, I want them to throw a bunch of money at the telco industry as well. Surely that's somehow good for the economy. Let's pay for a big warehouse full of cable modems and telephones so that I can get paid more.

Posted by: aaron | Monday, February 14, 2005

Thanks for the clarification. I thought you were arguing Bush's SS plan is welfare because of account management projects. Your point assumes that Bush's plan will divert net capital into stocks. Paul Krugman (NYT columnist, genius, partisan shill) disputes this, but I think you are right. So...

Who benefits from a long-term net increase in stock values?
1. Publicly listed corporations (who can get cash by selling shares)
2. All who depend on corporations (workers, workers families, consumers, etc)
3. Current Investors
4. The World (increased worldwide production, increased growth)

Your point "Maybe some firms will raise pay rates..." is misplaced. Assume the U.S. continues it's low-wage strategy. Real wages remain stagnant, production increases, cost falls, the people are still ahead. In the same way the falling price of automobiles increased the living standards of even the bottom quintile of Americans over the past 20 years, who also experienced a real decrease in wages.

"Suppose the government will appoint..." Bush's proposed system is modeled on the federal workers Thrift Savings Account. So I guess I don't understand your point.

"Don't tell me it's anyone's choice to invest or not." SS "insurance" has been mandatory since the 1930s. So again I don't understand.

"The ill-informed of America will jump..." Any problems with irrational risk-taking should be currently realized in the TSAs. Are they? Second, a free economy does not rely on perfect information. If we were capable of perfectly understanding the situation, state planning would make a lot more sense.

"...including AARP..." AARP is a very large insurance (approx billion dollar) and cash-positive insurance and investment firm that further rakes in $200 million from elderly members. They are structured to be arch-conservative. They are hardly an objective voice.

"George Soros' is no saint..." At the risk of being childishly contrary, he is very close to a saint in mine. His Open Society initiatives are part-and-parcel with the Global War on Terror.

"The British Government wasn't playing their cards right" My point is that government-securities are not risk-free. Even if you completely sure the government will meet its nominal obligation, this does not tell you much. Soros's actions devalued the pound and greatly reduced the real international-market value of the British bonds. In the same way "no risk" federal bonds have lost a good fraction of their real global-market value because of the current devaluation.

Even if SS "insurees" actually owned their government bonds, a portfolio built entirely on government bonds is much more risky than a diversified portfolio.

"government-led redistribution of America's wealth" Bush's plan limits redistribution. Whether this is fair or not is a different discussion.

Posted by: Dan | Tuesday, February 15, 2005

I'm not implying SS is optional, just the diversion. From what I've heard, people will have a choice to divert a certain percentage to private accounts. What I'm saying is that giving people the choice to participate or not is almost pointless, as when given the option of making more at higher risk, people are going to go for it, especially with all the talk right now of how successful it "will be". I understand that Bush and Co. are trying to drum up support and paint their program in a positive light, but will the ill effect be that most people think the plan is foolproof?

I don't think that government bonds are without risk either. But what I do think is without risk is US Government solvency. Regardless of the strength of the bond that the accounts are drawn on, I believe the Government has an obligation to pay the benefits promised and will do so. That might mean a budget deficit or cuts in certain programs. Perhaps we could cut welfare for repeat customers or some other abuser of government good-will, instead of cutting benefits for people who have (documentedly?) paid into the system and contributed to the betterment of American society.

What I'm concerned about here is probably fairness, not legality or viability. Well, I am concerned about viability. I'll be toasting Bush's plan in 20 years if no one loses any money on the market and no Tyco execs ruin my parents' plan to retire comfortably to the Black Hills. But I'll be rather sore if all the things that I've said "but what about..." over end up happening.

I have great faith in the markets. As I've said, I'm doing quite well in them. But I was brought up in an investment atmosphere. I know what terms like valuation and P/E mean. But I worry that a great portion of the now practically-mandatorally investing will see the risk scale on their forms and go all in. And I think the only people who are going to profit off this are the people that already profit enough. Career investors, corporate board members, and the securities industry. Am I sore that I chose the wrong profession to benefit directly from Bush's plan, instead of indirectly? Perhaps. If it was a win-win situation for everyone involved, I'd probably just have to get over it. But I don't want your average American to lose for the sake of the already well-off.

A situation I envision is thus:
Joe Sixpack's quality of life, a value I'd be hard-pressed to quantify, raises slightly. Because of the flood of new market capital, enough corporations are able to do enough that now he can afford Applebee's twice a week and his wife can shop Old Navy instead of Wal-Mart. Meanwhile, Joe Chardonnay's income rises 35% and he takes two vacations in Hawaii a year. I understand that thanks to our occasionally booming market, we live better than most countries on Earth. But I think that's no consolation to the guy with the Ford pickup who thinks the only way he can be happy (thanks to the media and retail industries) is with more posessions, and ones he can't necessarily afford.

Maybe it all boils down to my recurring fear: I am worried that as the other half lives better and better, the lower/middle classes will aspire harder and harder to fit in. I'm perfectly happy with Levi's or anything else I can get at ShopKo. However, I'd say I'm a rarity. Easy access to horribly high interest credit drives more and more of the unwashed into debt. Now, I know the Republican party is earnestly trying to erod away the concept of bankruptcy for individuals, but that's an argument for another day. I'm worried that some day not too far off, there's a great reckoning in the credit industry, and as a result, those of us who are responsible end up taking it in the shorts. Maybe interest rates skyrocket, or maybe they plummet. Maybe there's a period of economic instability. Maybe all the execs sail away on private yachts and the companies simply fold. It's hard to say.

I think keeping a great deal more money in the lower/middle classes is a boon for our economy. More liquid assets means more opportunity to patronize corporations and more money to borrow against. I think the lower/middle classes being able to afford decent loans for a nice home keeps interest rates low, due to competition between banks. If you can't afford to pay the loan, you won't be taking it out, obviously.

And now I'm wandering. Anyways, I call shenanigans on this plan because I see the only people tangibly benefiting from it being the rich.

Posted by: aaron | Wednesday, February 16, 2005

"Perhaps we could cut welfare for repeat customers or some other abuser of government good-will, instead of cutting benefits for people who have (documentedly?) paid into the system and contributed to the betterment of American society"

Do you believe that reward from a system should be tied to contributions to that system? Are you for immediately cutting SS benefits (because current elderly receive far more than they paid in) and cutting SS taxes for the young (because current young workers will pay in far more than they get)?

Posted by: Dan | Wednesday, February 16, 2005