Compare and contrast Bernie Matloff and Social Security

Are not both classic Ponzi schemes? Both promised returns and paid out early participants well with incoming money. Both eventually ended up owing money with insufficient assets to cover them.

Matloff promised better returns than available elsewhere. Even if it worked, the return on Social Security wasn’t that great.

Matloff was voluntary, SS compulsory.

Matloff went to prison. Well so have a few congressman, but not for the SS fraud.

The government has seized Bernie’s assets and is trying to claw back profits others received to pay back his victims. The same government is talking about welshing out on SS. They are broke and will never be able to collect enough taxed to pay the promised benefits. So how do we compensate people that worked all their life and were forced to pay into a poor investment that won’t even meet its meager return? Sell any marketable government assets. They still have vast landholding in the West, power dams, navigational locks and dams, canals, Cape Kennedy, Big Bird, etc.

Of course many of the perpetrators are safe in the grave by now. However, many more that failed to do anything about the mess are collecting fine pensions and have an excellent health plan. Why not put all former presidents and congressmen on SS and Medicare? They are entitled to more? Why is it right to continue the benefits to the guilty while cutting their victims?

One of these things is not like the other things.

One difference: the details of how Social Security works are general knowledge, not hidden from any of the participants.

Another: Most people are happy to contribute to Social Security, knowing how it works, and how they are likely to benefit.

Who is Bernie Matloff? Isn’t he that investment lawyer that all those old people like?

I assume the Op means either Madoff or Meatloaf. But I’m not sure which.

So what you’re saying is that the government should have bailed out Madoff so that after the recession people could continue earning 20%?

The only problem with ponzy schemes (other than the illegal part) is that they depend on population growth to match investment growth. SS works great as long as the number of people entering the workforce slightly exceeds the number of people leaving the workforce. It also helps if after leaving the workforce people die quick and sudden deaths.

Ponzy schemes only crash when too many investors suddenly want out all at the same time exceeding the reserve. Hell, if Barnie had kept a more conservative cash reserve he would have been fine. And then after the crash people would have been throwing money at him faster than something that’s really fast.

Let me sleep on it; I’ll give you your money in the morning.

Madoff promised high returns and perfect security, which is impossible. Social Security is safe, and so provides relatively low returns, which is perfectly reasonable. If you don’t understand this concept, I advise you to not invest your money anyplace outside of a piggy bank.

Who is broke again? The Social Security trust fund has plenty of money, though some adjustment has to be made based on demographics. If you are saying the government is on the verge of collapse the market, as indicated by interest on treasury bills, disagrees with you.

Plenty of people have collected pensions and social security - my father, for example. I suppose it didn’t make sense to have two government pensions. BTW, people living when SS started thought it was wonderful. My grandparents who got Social Security up until they died did also. I don’t get it for another six years or so, but it is a nontrivial part of my expected retirement income.

Try again with a post showing some basic understanding of investment strategies and economics. Equating SS with a Ponzi scheme only indicates that you don’t understand either.

First of all, the structure of the Ponzi scheme has nothing to do with the risk-return mismatch of the investment. For example, Madoff could have promised simple S&P 500 returns (although with much lower fees), and it still could have been run like a Ponzi scheme (and it would have been just as illegal).

But I do see the point you’re making. Since the very first SS beneficiaries did not pay in, and were supported by the withholdings of the workers of that generation, the concept is similar (sorta kinda).

The difference is that SS was completely transparent to all, passed by a democratically-elected government, with no potential for a small preferred sub-group to make large and unfair profits.

Additionally, Madoff can’t tax or print money. The government has the option of increasing taxes to pay any shortfall. It also has the option to print money (which is the equivalent of a flat tax on anyone holding US dollars or debt). So any cost of mismanagement is shared by all, as opposed to a subset of investors that were not privy to the true details of the structure.

I see the conceptual relationship, but it is by no means a fair analogy.

The difference is that one’s like Macavity: You may meet him in a by-street, you might see him in the square, when comes the time to pay you back – Bernie Maddoff’s not there !

Who told you this?

You might want to contemplate how someone might profit by convincing a large segment of Americans to believe such a thing.

They will deliver full benefits for the next 30 years. then they could continue at 80 percent for a long ,long time. On what planet is that broke, planet Fox?
We could tweak it and keep it around forever. That would be a great idea.
Madoff was absolutely nothing like SS.

The only similarity between Social Security and a Ponzi scheme is that one generation pays the previous. That’s it. It doesn’t count on an ever increasing number of investors and it doesn’t prey on the hope that some people will not cash in and keep reinvesting. It really is nothing like a Ponzi scheme.

It’s like saying that Obama is like Hitler because both are/were leaders of a country.

Get rid of the cap and apply the tax to deferred compensation and carried interest and you are fully funded pretty soon and benefits increase.

Come to think of it, Meatloaf is probably ready for Social Security by now . . .

I consider it kind of a Ponzi scheme to start a thread and never return. I mean, talk about expecting a payoff and never getting it. What a rip.

I was hoping for an intelligent, factual discussion.

Then you should have set a better example.

Well that was a labdud. It did not take off with right wing vitriol that he thought would follow.

Social Security is not an investment scheme, nor a Ponzi scheme. In the simplest terms, it accepts relatively small contributions from workers over a long period of time to pay a larger amount to a small number of non-workers over shorter periods of time. It’s a transfer to others, not an investment for self.

All you need to make this work mathematically is a formula for tax and payout. Interest, if any, is a bonus, but not required.

The only problems you run into are not mathematical, but political. If the populace thinks that taxing 5 workers 20% of their income to support 1 retiree sufficiently, it works. If not, it doesn’t, or the numbers must be adjusted.