A Market Question

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Crashfun

Funny as this might be, I thought the debate over this was always misguided — there’s a huge difference between insurance and investing, and SS has always been an actuarial based insurance type program.

via Southern California Real Estate Bubble Crash Blog

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  1. Tom C., Stamford,Ct commented on Jun 7

    Regarding: “SS being an actuarial based insurance program”- You’re kidding right? Barry, please tell me you’re kidding!

  2. David commented on Jun 7

    Insurance type program it may be, but one that could become insolvent.

    Insurance companies also invest in the market as you know, to generate the returns on the float required to pay claims.

    If Social Security is “insurance” it is also extremely expensive insurance because of its low yields. Off the top of my head, and because I’ve been trying to help my widowed mother-in-law with her life insurance proceeds invest, I can think of plenty of vehicles that would pay better than Social Security. Even deferred annuities. As Social Security is actually a deferred annuity, I would note that plenty of privately-available deferred annuities pay a guaranteed 6%, with ratchets,etc, that far outstrip Social Security’s paltry payouts.

    There might be high fees associated with deferred annuities, but the highest fee of all is a paltry return from Social Security.

  3. ArizonaChartist commented on Jun 7

    “there’s a huge difference between insurance and investing, and SS has always been an actuarial based insurance type program.”

    Don’t insurance companies invest their excess capital? Oh yeah, I forgot. The excess capital represented by contributions outpacing payouts has been invested *cough* *cough* in Treasury Bonds.

  4. Fred commented on Jun 7

    “Still feel like investing part of your SS in the stock market?”

    Yes sir! Or perhaps you’d like the smart gub’ment folks, putting together all those economic numbers managing your stash. I’d take a global stock index, with a laddered global bond portfolio anyday.

  5. Fred commented on Jun 7

    That is a cute cartoon though…but little did you know that scrawney “naked” investor has a rocket launcher under that barrel. ;o)

  6. Tom C., Stamford,Ct commented on Jun 7

    It is not an insurance program. The court has ruled in the past that there is no contractual obligation in force between ‘contributors’ and social security. It is a transfer program, there is no ‘insurance’. Social security COLA rules are largely responsible for the incomplete and unrelaible inflation numbers issued by the BLS. The lower the ‘inflation’ the lower the payments. One of the legacies of the ‘Clinton Budget Surplus’ you guys love crowing about.

  7. ilsm commented on Jun 7

    Tom C,

    SS is no more an insurance program, than the military industrial complex is in the business of the “common defense”.

  8. DavidB commented on Jun 7

    Barry,

    you should check out Canada and what it has done with it’s CPP(Canadian Pension Plan). They allowed their pension plan to invest in the market some years ago and are getting quite healthy returns. As good as any mutual fund. Arm’s length independence helps

  9. Pool Shark commented on Jun 7

    By the time I’m eligible to recieve SS benefits, I will have been paying into the system for 51 years.

    Had I instead been allowed to take that 12.4% of my gross earnings (including employer matching) and hid the money in a mattress; even adjusting for inflation, the return would have been far better than the paltry payout I am likely to receive (assuming the system even remains solvent until I retire).

    LET ME OUT OF THIS PONZI SCHEME!

  10. Vega commented on Jun 7

    Pool Shark, I totally agree with you!

  11. Ghost of Tom Joad commented on Jun 7

    Gotta love Kudlow. He thinks it’s just silly that the market is going down. He thinks it’s a very short term blip. Oy!!

  12. Fred commented on Jun 7

    Ghost…I imagine you had a similar opinion in March when we had similar lopsided trading. Bill Gross (aka – Mr. DJIA 5000) gave the bulls a gift today.

  13. wunsacon commented on Jun 7

    Tom,

    >> The court has ruled in the past that there is no contractual obligation in force between ‘contributors’ and social security.

    I think you’re stretching the meaning of the ruling. That there is no “contractual obligation” doesn’t disqualify it as an “insurance” program as most people think of that term. It helps a lot of people get by who have little or nothing else, including people with disabilities. It’s an insurance program where the benefits (and buying power) are not guaranteed.

    Could it be solvent? Sure. Raise the age for retirement benefits. I don’t know why some people (not necessarily you) are against that. People are living longer than when the plan was created and it only makes sense to extend the age for obtaining benefits.

    Could it be better? Sure. Since another poster posted a link, I’ll probably read what the Canadians did.

  14. wunsacon commented on Jun 7

    Tom,

    I think ilsm’s basic point is that SocSec is a bloated bureaucracy whose mission and reach has been grossly distorted and overextended. I wouldn’t want to infer beyond that. (I can appreciate the analogy, even if I wouldn’t necessarily agree with whatever ilsm would like to do to fix it.)

  15. Winston Munn commented on Jun 7

    Barry:

    Don’t look now but the government wants to cancel our insurance. From USA Today:

    “Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

    The federal government does not follow the rule, so promises for Social Security and Medicare don’t show up when the government reports its financial condition.

    Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

    The Financial Accounting Standards Advisory Board, which sets federal accounting standards, is considering requiring the government to adopt accounting rules similar to those for corporations. The change would move Social Security and Medicare onto the government’s income statement and balance sheet, instead of keeping them separate.”

    And here’s the clincher….

    “The White House and the Congressional Budget Office oppose the change, arguing that the programs are not true liabilities because government can cancel or cut them.”

    This sounds about right for this WH and Congress – Social Security and Medicare ex-benefits payments.

    Great insurance if you never need retirment income and never have to worry about medical bills – wait, that would be the top 1% again.

    Unfortunately, the one thing we cannot ever seem to elect is government/politicians ex-lies.

  16. Tom C., Stamford,Ct commented on Jun 7

    Wunascon-

    Tell that to your mother’s annuity underwriter. They’d like knowing they’re under no contractul obligation to her.

    The point of the court’s ruling was to clear up all of the misunderstandings developed by the method used to pass the 1937 legislation that implied social security was an insurance program rather than a transfer program like any other transfer program and can be discontinued at any time. The original social scurity act was sold as old age insurance. The ‘contributions’ were minimal and 20 workers suported each recipient. The simple fact is that the program tied ALL of the population, rich and poor, into a dependent relationship with the federal government while broadening the tax base to levels unimaginable in the past. Payroll taxes since that time have increased by a factor of 10 in order to meet the so-called obligations. Money is transfered from workers to retirees and current ‘contributions’ are used to fund the general budget. If an ‘insurance’ company were managed in a similar fashion the principals would be locked up for life.

    Calling it insurance doesn’t necessarily make it insurance.

  17. ilsm commented on Jun 7

    Tom C,

    The point is things that go through Washington are not going where you think.

    That whole federal thing is a ponzi scheme.

    At the moment SS OASDI surplus are “investing” in such high return items as Iraq.

  18. blam commented on Jun 7

    In 1981, following Reagan’s budget busting tax cuts for the wealthy, the “maestro” engineered the concept of the SS trust fund whereby working stiffs payed double to cover the cost of the “pay-as-you” go current retirees benefit and a “trust” to put away the cash to pay for the boomers retirement.

    It was sold to the public as a “sinking fund” pension program.

    Well, it’s a sinking fund allright. Congress and every administration since grabbed the cash and spent it on current, unrelated, outlays. In 2000, with the balancing of the fiscal budget, the “maestro” and Bush went for more tax cuts for the wealthy, thus ensuring that the SS “trust” fund would remain a fraud.

  19. muckdog commented on Jun 7

    Of course, we’d be better off if Social Security was run like a target retirement fund. But the liberals are going to grandstand this and treat the symptoms rather than the disease. I can only imagine band-aid fixes in the form of higher taxes, higher retirement ages, and/or means testing in our future.

  20. blam commented on Jun 7

    I fail to see how the facts of SS are a liberal or conservative issue. They are what they are.

    A tremendous tax increase to our children, grand children, and great grand children. The trust fund SS taxes that have been collected since 1981 have not been saved but spent on the general budget.

    That means that future payments have been shifted to future generations. Period.

  21. Tom C., Stamford,Ct commented on Jun 7

    Government doesn’t ‘invest’ it buys votes and creates bureaucracy. Take a guess on how much money, adjusted for inflation, was flushed away on ‘The New Deal’, ‘The War on Poverty’, federal subsidies for ‘urban renweal’, public housing, agricultural subsidies etc., etc., Your head will explode. There is no ‘surplus’ only debt obligations collecting interest. Only in D.C. will a ‘surplus’ cost money to carry.

  22. Eclectic commented on Jun 7

    Charlie has got it right, Barringo:

    http://tinyurl.com/2ktaba

    …and just in case you’re wondering, the answer is no, I’m not hiding.

    Bernanke is caught in the middle of:

    **Zwischenzug**

  23. Mary commented on Jun 7

    I am trying to turn amish, they are exempt from the social security system.

  24. Joe commented on Jun 7

    Seeing as insurance typically covers something that may or may not happen, and, well, growing old and retiring is something that happens to everyone, how exactly does SS count as insurance? What exactly are we insuring against?

  25. Eclectic commented on Jun 7

    Cartoon reminds me of a Mother Hubbard joke from my youth.

    Cut to the chase:

    Couple of guys go to Mother Hubbard’s for some horizontal refreshment. During the selection process they see a sign: “For $5 more you can get f’d by Mother Hubbard — up these stairs,” so they each pay the money and follow the stairs behind the sign.

    Next level up there’s a better selection but another sign, “For just another $10 more, up these stairs you can get f’d by Mother Hubbard,” so they pay again and scurry up the stairs from that sign and find a door with a sign saying, “Mother Hubbard.”

    They rush quickly through the door and both fall 3 stories into a dumpster… and there’s a sign… “You’ve just been f’d by Mother Hubbard.”

  26. John commented on Jun 7

    Barry,

    Social Security is, was, and probably always will be welfare.

  27. Eclectic commented on Jun 8

    Let’s see now… hmmmm?… New Zealand…. hmmmm?

    So now, NZ has got 74% higher dairy prices… Okay, and why would that be?

    I suppose it might be that cows need corn to make milk, and corn needs fuel for cultivation and transportation, and both corn and fuel are highly priced and going higher maybe, and both for the same reasons… Too much muddy water in the Mid-East, and thus too much risk premium in oil, and thus too many ‘Merican farmers drinkin’ ethanol and dreamin’ about raisin’ it to substitute for oil demand.

    So, milk goes higher everywhere and in NZ too, and NZ jolts the bond market with a surprise blow against the milkman, no less.

    Well, now in the U.S. we’ll be ass-deep to a giraffe in corn in a few months, because they’re digging up road signs where I live and planting corn there, and anywhere it might take root.

    That’s because fuel costs are high and ethanol TomFoolery is even higher… so I reckon that situation is going to eventually cure itself (TomFoolery is its own natural buffer), and it has nothing to do with relative inflation. It’s all about relative insanity instead.

    In the meantime, NZ seems to think that raising its interest rate (and thus also chasing its exchange rate even higher) is going to hold down dairy price increases.

    Fat chance, NZ… your economy is approximately a GDP of $100 Billion, and you’ve got too many insane Iowa, Arkansas, Nebraska and other American states farmers chasing your corn, fuel and… milk prices higher, on ethanol fumes, and their economy is $1-3,4-0-0 Bil-l-l-l-lion, and the chances of your funky rate increase doing anything about your dairy inflation is **Zip**

    All you’ll do is beat the ever-lovin’ crap out of your working capital costs, and put your export markets at currency exchange rate risk, and you won’t cure your own problem.

    Meanwhile, back at the old U.S.A. Ranchero Grande, we’ll be paving the roads with corn this fall… and when the true equations of ethanol production from corn production work their way through to reality (a quite un-Brazil-like reality I might add), every product that corn is a component of will go down in price just as fast as it went up.

    Oh, I can taste those milkshakes now.

    But, in the meantime, the attempted medicine is a kind of castor oil for working capital, both in NZ and in the U.S. and castor oil doesn’t taste very good… witness the minus 198 day today, and that’s something that Dr. Benber N. Anke is likely to worry a bit about.

    Nope, Uncle Barringo, Bondie’s not lost all hope yet, cause she knows that Dr. Anke can flip-flop faster than Mrs. Big Pic can say chicken-shiite.

  28. Francois commented on Jun 8

    “I’ll probably read what the Canadians did.”

    It is quite simple: They can invest part of their Public Pension Funds in the stock market because of the way their political system works.

    In Canada, as in the UK, the top civil servants outlast governements and insure stability and continuation of the State.Too much stability can generate stagnation and conflicts between the mandarins of the Civil Service, who will make sure THEIR interests are served first.

    Here in the US, a new president can pretty much reshape the upper crust of the Civil Service as he pleases. Too much ease of change can bring situations like…hmmm…the political perversion of the whole Justice Department for instance.

    Anyway, the fact is that Senators and Ministers in Canada CANNOT interfere politically with the process of investment of the Public Pension Funds. An agency (can’t remember the name now) is given a simple mission….boost the returns please. Once the Cabinet and parliament approved the deal, the agency acts as a fiduciary of the Fund. As such, max returns and low fees paid to brokerage firms are rules of the mandate.

    The results are pretty clear. Canada and quite a few of the Provinces have pension funds that are in great shape. La Caisse de Dépots et Placements du Québec has something like 130 billions invested to satisfy the eventual pension needs of 6 millions of Quebecers.

    I wonder if the SS can boast a similar ratio.

    Francois

  29. hl commented on Jun 8

    It’s an insurance program in concept, but with no asset mix strategy, and no actuarial liability discipline.

  30. Eclectic commented on Jun 8

    http://tinyurl.com/2sk82m

    I earlier stated that NZ dairy prices were up 74% (implying 1 year change), but I neglected to mention that was in “world prices” according to the article I derived the information from:

    http://www.stuff.co.nz/4085919a13.html

    I suppose it would be more accurate to quote the increase in terms of NZ dollars, and apparently that was only 49% — and the thrust of my piece also overlooked the effects on regional dairy prices from a drought in Australia:

    http://www.iht.com/articles/2007/04/02/business/sxmilk.php

  31. stevez commented on Jun 8

    Actuarial based? Insurance? Are you kidding?

    Social Security is only a transfer payment system from today’s workers to today’s retirees. We’ll worry about tomorrow later.

  32. Fred commented on Jun 8

    “the fact is that Senators and Ministers in Canada CANNOT interfere politically with the process of investment of the Public Pension Funds…..The results are pretty clear. Canada and quite a few of the Provinces have pension funds that are in great shape.”

    LOL!!! The “pension funds” may be ok, but all the private retirement funds were F’d by the (Conservative) party that lied and broke their promise on taxation of the Income Trusts. To save 500 mill C$, they created billions in losses for the Canadian retirees. What a crock o’ shite.

  33. Brendan commented on Jun 8

    People, stop deluding yourselves! Do you people really believe that if you take umpteen trillion dollars and stuff it under a mattress or invest in the the stock market that it will blossom into houses and food in 30 or 40 years? SS is a commitment by each generation to provide minimal benefits to the generation that is at retirement age. That’s really it. Investing money in the stock market isn’t going to put groceries on tables or roofs over heads and more than putting it in the government’s treasury. If you want a retirement plan, go get a 401K. If you don’t want the elderly to be homeless and starving, like they were prior to SS, then you do a government sponsored program like SS (like every 1st world country). Investing all that money in the market would just enhance inflation and/or make your return on other investments less valuable over the long run. Come-on, look at the big picture here and stop thinking that the no SS will work (we’ve already proven that it doesn’t) or the SS should be a retirement plan (that’s not what it was created for).

  34. DavidB commented on Jun 8

    Eclectic,

    Milk is bad for you. It was designed by it’s creator to turn a small cow into a big cow. If you want to look like a big cow, drink milk

    (;

  35. Fred commented on Jun 8

    “Investing all that money in the market would just enhance inflation and/or make your return on other investments less valuable over the long run.”

    HUH??? Clear as mud on that point.

  36. Eclectic commented on Jun 9

    DavidB,

    You’re an anti-milk-ite!… That’s it!… You’re a flamin’ anti-milk-ite!
    (Kramer emulative)

    You’re also right, hehehe.

  37. tjofpa commented on Jun 9

    Means Tested Benefits…

    WTFUMF(*#)_@_%$*%^$&Q(Q)%*#^%#*@Q!)

  38. DavidB commented on Jun 9

    You’re an anti-milk-ite!… That’s it!… You’re a flamin’ anti-milk-ite!

    I resent that. I prefer to call myself neowater.

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