Bush: There is No Trust!

The BBQ Pit
41

Also, I think we might be wrong in thinking that income taxes are going to suddenly shoot up in 2018 (when we start needing to cash in the trust) because we have to pay back the trust fund. It’s not like deficit spending started in 1983 (when the trust was created), we just started selling less debt to the public then so we could sell some of it to the trust. Given that we’re currently paying back the public for the part of the debt that they hold, when we start paying back the part of the debt that the trust holds, presumably there won’t be as much publically held debt anymore to be paying back, and the net amount of money will be about the same.

Of course this is simplified as I’m assuming that total deficit spending stayed the same, but you get the idea.

42

No.

43

Yes, but then it was shown that the trust fund in this case isn’t being run as it would be if it were a private entity.

I stated the nature of the fund as it exists today, and you did concede that point when shown a cite demonstrating such by Liberal.

44

I’ll be the first to admit I don’t know much about trust law. However, Social Security has no relation to this bit of contract law, as my cite of the Supreme Court decision shows.

How Muffy and Buffy get their shoe money has no bearing on the discussion at hand.

45

True – morality and ethics have no place in discussions of law. As you and your compatriots are making quite clear.

46

Poly, this same stuff has been going on for decades now, through Democratic and Republican administrations alike. Could you please tell me what exactly your point is?

47

As far as I’m concerned, this here is the key point. Mind you, I disagree almost completely with the (snipped) bulk of this post. I firmly believe that some sort of old age social insurance is only the right thing, and that a purchase of U.S. Treasury Bonds is a trust of sorts. If the U.S. begins to default on bonds, we’ve got a lot worse problems than Social Security.

In 1935, the life expectancy in the U.S. was 61.7 years; in 2001, it was 77.2. With valid exceptions for disability, I can see no reason why the Social Security retirement age should not be moved well upward. Personally, I fully intend to work as long as I am physically and mentally capable. Right now, I can retire on full benefits at 67 1/2. That should be at least 70 for me, and higher ages for the cohort after me.

In conjunction, there should be strict and enforced anti age discrimination laws.

My two cents.

48

Ok.

The OP here is that Bush sucks because he was full of shit when he said there was no trust fund.

Since there is, in fact, no trust fund this anti-Bush rant on those grounds is looking pretty grim.

The Op’s error is one of ignorance. He shot his mouth off without knowing what he was talking about.

A word to the wise:

A firm opinion founded on a lack of knowledge is a bad combination.

I see several other people repeating the Ops mistake, most notably the usually prudent and thoughtful Polycarp.

I will be happy to explain some history here in a nonpartisan fashion, so that people may have informed opinion.

When FDR proposed SS he promised the program would be strictly voluntary, only take 1% of pay, that the funds would not be commingled but be held in a seperate account.

As proposed, it was a nice idea offered for sound reasons. The treasury could provide this benefit, where few, if any others could.

That was not the program we ended up getting. The program was the ponzi scheme, designed from the ground up to be a tax disguised as a benefit. However, at this time, there were actual present moneys being held in the trust funds.

Something fateful happened in 1968. The President and the Congress, in a wonderful gesture of bipartisan cooperation and magnanimity that brings tears to my eyes decided to take the money from the trust funds and commingle them with the General Funds.

The sole reason for doing so was to make it difficult to keep up track of A: How much it had B: How much it was spending. and C: How much it was taking in. This way they could pay for the Vietnam war without alarming anybody by showing how much it actually cost.

At that point in time, the contents of the trust funds became imaginary dollars invested in imaginary securities. Strictly hypothetical.

Now, let me tell you what the theory is behind Bush’s proposal. I will tell you that it makes sense and is logical. Whether or not it’s the right thing to do, I’m not sure, but I’d like you to understand it so you can judge for yourself. I will do my best to represent the arguments for and against as fairly as I can.

What Bush wants:

Most experts tend to agree that this large hypothetical is going to bite us in the ass as it grows and gets bigger. Not all, just most. It will bite us in the ass beginning when Social Security is taking more out of the general in a consistent fashion than it is putting it. At that point in time, either the deficit must grow, the government must print more money (and risk significant inflation) or change the benefit structure. In any case somebody is going to get screwed.

What Bush wants to do, is to begin screwing us now in the hopes that this will mitigate the screwing we will receive down the road.

He is growing to screw by taking some of the hypothetical debt and turning it into real debt by floating actual real treasuries now, while interest rates are still relatively low. A portion of the money realized by floating these bonds will go into seperate accounts, replacing a proportionate portion of the hypothetical Social security obligation. This money may be invested in certain government approved programs and funds including certain funds that may invest in the stock market.

Some people think this is a good idea because the government actually has a very good track record of regulating retirement funds through ERISA. Funds invested with due diligence through ERISA following the prudent man guidelines tend to do pretty well over 10 year time frames and up regardless of specific market performance.

By realizing some of the debt now, the government softens the future blow of having this debt come due all at once. People now have diversification besides the one hypothetical social security fund. Everybody thinks diversification is a good idea except for total idiots.

People will get a larger benefit because of the performance of these securities. Their portfolio will be safer overrall (this last is an empiric fact of Modern Portfolio Theory. A portfolio diversified so that it approaches the capitol market line gains in efficiency. It does better in good markets and not as badly in bad markets. The risk of inflation is partially diversified away under this model thus realizing a net gain in efficiency.) Finally Social Security remains solvent and everybody lives happily ever after.

Those people who think it’s a bad idea think so because they beleive that we cannot afford to realize this hypothetical debt now. Doing so will accelerate current inflation which will compound over time, reducing the net real benefit and increasing the shortfall as expressed in real terms.

They also may think the fatcats in Wall Street will run amok with this money and make profits while those who are intended to receive the benefit will essentially have their accounts looted by expenses and bad sales and investment practices.

They may also think that it will artificially inflate security prices, leading to a crash.

They may also think that it actually simply creates a larger expense and more complicated structure for an already complex and expensive structure without providing any actual benefit to anybody.
There is something to be said about both sides of the argument. Personally, I think diversification is key. I trust ERISA guidelines as they are backed by empiric evidence and I think moving debt obligations into the real world is a good idea.

I will be happy to answer questions or provide links for anybody who is seriously interested in having an educated opinion on this subject. I think it’s important as it concerns us all.

49

Scylla, I wouldn’t mind if you posted or emailed me a link to the ERISA prudent man guidelines you refer to. Other than that, you can chalk me on the “Those people who think it’s a bad idea think so because …” list.

50

The problem I had with your earlier post was that you said “If I write an IOU to you, you now have an asset. However, I can’t write an IOU to myself and call it an asset. All it would be is a sort of reminder.”

This statement is incorrect, and gives the impression that the government couldn’t have set up a trust fund of the type that it was happy to give the impression that it had set up. The government in fact could have set up exactly the sort of scheme that you imply was impossible, it just didn’t.

This is what I suspect Polycarp and others are getting indignant about. It’s not that people believe (in the teeth of the evidence) that there is a trust fund that there isn’t, it’s that the govt has given the impression that there is one, so it is deserving of scorn when it finally comes clean and admits that this thing that it has been implying it has, doesn’t exist.

I suppose it’s a bit like this: your friend tells you he’s just going to borrow your car, but actually he sells it and fritters away the proceeds:

You: “Give me back my car”

Friend: “Face up to reality, dude, your car is gone and I don’t have the money.”

You: “You said you were just borrowing my car, now it’s time to give it back, GIVE THE FUCKING THING BACK AND DON’T GIVE ME ANY FUCKING EXCUSES.”

You know it’s gone, but feel like that shouldn’t have to be your problem, and that you have every entitlement to make an impossible demand.

51

This Year’s Model:

Here are three links on Erisa:

http://www.dol.gov/dol/topic/health-plans/erisa.htm

http://www.eric.org/forms/documents/DocumentFormPublic/

http://www.benefitslink.com/erisa/crossreference.html

What Erisa is, is a series of rules for investing retirement assets and structuring retirement plans, as well as detailing recourse when these rules are violated or broken.

The “prudent man rule” is pretty simple actually. It means fiduciaries can’t act like idiots. A fiduciary is a person in a responsible position for other people’s moneys’.

They are required to act in a way than an informed, rational and reasonable person would act and they don’t get any excuses. They are required to exercise due diligence which means it’s their responsibility to get the information they need to make a good decision.

How this applies to ERISA and modern portfolio theory is throught the Uniform Prudent Investor Act which outlines the behaviors and responsibilities of a prudent man in this context.

Here it is:

http://www.law.upenn.edu/bll/ulc/fnact99/1990s/upia94.htm

52

Thank you, Scylla. I need a day to absorb this, please. A quick question though: I’ve seen nothing reflecting this sort of guidance in the SS privatization thought coming from the administration. Would you approve or disapprove of the government putting controls and limits on how people used the privatized portion of SS?

53

Actually, I have heard that the investment vehicles will be strictly limited.

54

Everything I’ve heard suggests it will be strictly controlled. While there are no details about exactly what it will be, examples have been drawn that will emulate say, the TIAA-CREFF portfolios, and balanced funds in general. The portfolios will all have a degree of balance.
Much of this and how it will work is speculation. This is what is being talked about. Oftentimes of course there is a big difference between what we are sold, and what we actually get, so we’ll see.
Do I approve or disaprove. Hmmmm. I disaprove on principle though probably not in practice. There need to be controls and limitations to prevent people from gambling or committing financial suicide through ineptness or ignorance. Generally speaking though, I’d like to see it be as free and open as we can reasonably make it. I have to beleive that you and I can both decide what is best ourselves better than the government. I think that’s true of most people, though sadly not all.

55

I thought the idea was that the investment vehicles would be the exact same as what are used for government employees. Really, really sober mutual funds. As I think I said before, I bet I could beat the mutual fund with an index fund–but that won’t be an option.

56

Is it that you think I believe that there is a pile of money sitting somewhere under a yellow sticky that says “Trust Fund - Do Not Touch”?

I don’t.

I believe that in 1983 a Greenspan led effort resulted in me ending up paying more in payroll deductions for the express purpose of funding the Social Security system, generating excess revenue in what has been referred to as a trust fund.

I object to Bush telling me it doesn’t exist, in much the manner that Princhester suggests you might respond to someone telling you your car doesn’t exist, except that I have a bunch of paystubs that says a very small portion of it does.

If all the money is all the same, let’s have the SSA sell the bonds to the Commerce Department, Defense, the NSA, and NASA. When they run short, we can jerk a thumb over our shoulder at Bush.

Your opinion that they are hypothetical and imaginary is well, your opinion. And worth about as much.

57

Asterion:

That’s correct. The TIAA-CREFF portfolios are like the government mutual funds. They’re pretty poky, but that’s not bad for what we are talking about.

58

My understanding of economics is so limited that I should barely be reading this discussion, much less participating. But I have to speak up about this common statistical fallacy.

The huge differences in life expectancy that are often quoted are almost entirely due to differences in infant mortality, which understandably drags down the average by quite a bit. Among those who died in 1950, those who had lived to be 65 had an expectancy of 13.9 more years, while those who died in 2002 had 18.2 years. While there may be something to be said for that difference of four years and change, it isn’t the crushing chasm that the numbers usually imply.

Bush himself used a similar fallacy when he said that SS was a bad deal for African-Americans because they had shorter life expectancies than caucasians. At age 65, the difference is 18.2 years for caucasians and 16.6 years for African-Americans. By that logic, t’s just as much of a bad deal for men (19.5 for women, 16.6 for men).

59

I don’t know what you believe, but I strongly suspect that the opinion is not well qualified.

That is a statement of beleif wholly and completely without meaning. If I change the last two words of your statement from “trust fund” to "banana boat, (or to anything else,) the actual meaning of your statement has not changed at all.

I understand. It’s an objectionable statement due to its unpleasantness. Your objection has no bearing on the fact that it is literally true.

All money is not the same. Money has a time value. Money is fungible. It is exchangeable. That is what makes it money. The government has used the present value of this money and exchanged (spent) it. What you have left has no present value, nor is it fungible. What is left is not money. It fulfills none of the qualifications of it.

The hypotheticality is not a matter of opinion. It is a statement of fact. I have tried to be very careful to seperate my opinions from facts in this discussion.
As for the worth of my opinion on this subject? You’d have to ask those who pay for it. It’s a large part of what I do for a living, and I speak professionally on these and related subjects in the course of my business.

60

I felt I was on pretty solid ground heading into this discussion. I’ve studied this issue a fair bit, and was confident what I knew about it was correct.

I still think I’m right, of course, but I’m now quite aware that my information on the subject, though right, is somewhat cursory.

So it was a real pleasure reading your information, Scylla. I learned a lot. It is quite nice to find real experts in discussions here.