Wall Street's Social Security takeover attempt is self-destructive
Wall Street's blind, obsessive greed and stupidity constantly amaze me. Privatizing Social Security sounds great in concept. And if Bush is reelected Wall Street will finally win this fierce 10-year battle. Unfortunately, privatization is a dumb move -- for Wall Street! Money is in the hands of America's richest 10 percent, millionaires who can afford Wall Street's excessive fees, not Main Street investors whose average assets are less than $50,000.
You can see it coming: If Wall Street gets its wish, the very next day it'll wake up to this cruel reality, moan and groan and regret the day it pushed to privatize this low-margin, government-controlled investment business catering to average investors with few financial assets.In spite of all the fancy rhetoric about "freedom of choice," Wall Street knows average Americans will not make bigger returns in privatized accounts, although they will take bigger risks. But as usual Wall Street denizens just don't care, because they assume they'll make megabucks skimming management fees off the top of the new accounts. In fact, Wall Street sees privatization as a transfer of huge sums of retirement money out of the government's Social Security Trust Fund and into stocks. Net result? Over a short period Wall Street could wind up with a trillion dollars more in assets, earning financial-services firms billions more management fees.No wonder Wall Street desperately wants privatization! Unfortunately, it's a stupid theory and the returns aren't worth the risks -- to Main Street America or Wall Street!
Wall Street's greed will ultimately hurt America
Naturally privatization pundits disagree. Wall Street wants us to believe it just wants to help American investors make higher returns by investing their retirement money in solid American companies that will generate higher returns than the Trust Fund's low-yielding Treasuries. That's the spin. Theoretically, privatization favors free-market capitalism over government control. But, just as Wall Street is ignoring the fuzzy logic of wage growth, they're also ignoring the harsh realities of bear markets with negative returns, like 2000-2001. Put another way, Wall Street has conveniently forgotten an ancient truth -- that higher returns come with higher risks. Of course, that doesn't appear on Wall Street's radar, because Wall Street is blindly committed to accumulating more and more assets under management, charging higher and higher fees -- even in a down market when investors lose out.
Unfortunately, in their obsessive drive to accumulate more assets Wall Street types are also ignoring the fact that the fees will be so small that the new system will likely backfire. They are blind to the irrational inconsistency of going after the low-margin privatization accounts when at the same time they are also betting on high-net-worth accounts that do in fact have big bucks and are in fact willing to pay big fees!Vanguard's founder Jack Bogle warns us that "the costs of offering mutual funds to millions of small accounts making weekly or monthly contributions would be even larger than today's already excessive level of fund costs." A new layer of expenses could result in below-market returns, "even less than the current yield on the U.S. Treasury bond."Now that should scare the hell out of Wall Street. But apparently Wall Street's oblivious to this reality.
rest of the article
http://cbs.marketwatch.com/news/story.asp?guid=%7BF32D2C6D%2DA6EA%2D4BA5%2D8B74%2D48D119ED4F7E%7D&siteid=mktw
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