April 29, 2003
From the desk of Jane Galt:In case you haven't heard, the big Wall Street investment banks yesterday reached a $1.4b settlement with regulators, which included the SEC, the National Association of Securities Dealers, the New York Stock Exchange and state regulators led by New York's Eliot Spitzer. The settlement is supposed to cover the improprieties of the Bubble Economy, and includes a lifetime ban for Jack Grubman and Henry Blodget, who both had to pay millions in personal fines. They probably aren't any guiltier than the other equity analysts, but they were unlucky, and Wall Street does nothing more efficiently than punish the luckless.
The settlement is fine, as far as it goes. I don't feel particularly bad for Grubman or Blodget, not because they skewed their research for clients -- I don't know that it was ever that explicit -- but because equity research is taken as gospel by uninitiated investors, and research analysts know it, and they keep cranking out "buy" recommendations as if that had any meaning. Perhaps it is not their fault that investors somehow manage to delude themselves into believing that people with special insight into the future of the market are for some odd reason willing to write these insights down for the benefit of the common man rather than trading themselves rich, but the fact that people often behave like idiots does not impose some sort of obligation to exploit their folly, though many of my business school classmates seemed to believe otherwise.
But the terms of the agreement dispel the notion that this is about much else besides making Eliot Spitzer more famous. It's window dressing: get rid of analysts, make some cosmetic changes, call the press so Eliot can preen.
The agreement sets new rules that will force brokerage companies to make structural changes in the way they handle research. Analysts, for instance, will no longer be allowed to accompany investment bankers during sales pitches to clients. The pact also requires securities firms to have separate reporting and supervisory structures for their research and banking operations, and to tie analysts' compensation to the quality and accuracy of their research, rather than how much investment-banking fees they help generate.Moreover, stock research will be required to carry the equivalent of a "buyer beware" notice. Securities firms, regulators said, must include on the first page of research reports a note making clear that the reports are produced by firms that do investment-banking business with the companies they cover. This, the firms must acknowledge, may affect the objectivity of the firms' research.
The settlement would be fine, as far as it goes, except that of course this is not as far as it goes. Eliot Spitzer is turning himself into a sort of legal blackmailer: give me a ton of money, or I'll get all the guys in my gang and we'll put you out of business. You'll call the law? Ha! I am the law!
I mean, there were obviously improprieties. I can be heard arguing that the entire structure of the investment banking industry is rotten (although before the lefties get too excited, I can also be heard arguing that the reason it's rotten is SEC over-regulation). But how much does this lawsuit have to do with improprieties, and how much with the fact that everyone's mad because they lost a ton of money, and hence it's good press for the regulators?
The analysts didn't cause the bubble. They fed on it, but let's be honest: the real cause of the bubble was the willingness of a large number of Americans to believe that they could make large sums of money without working. They didn't have to read a balance sheet, analyze a business model, or even understand a product - just plunk down your money see it magically double.
And this settlement has unleashed a really unattractive belief in a growing number of Americans: we wuz robbed. Buying Webvan at $200 wasn't our fault -- it was those robber barons in the banking industry who made us do it. If they hadn't conspired to tell us, through research we never read written by guys we'd never heard of, that we could make money for nothing, we wouldn't have blown our retirement savings on Priceline stock.
Already I'm seeing lawyers crawl out of the woodwork to proclaim, on television and in print, that they can get the money back. Just hire us, they say, and we'll get justice for you. Justice? The market didn't drop by a third because Jack Grubman touted the AOL/TIme Warner merger, and ol' Henry didn't come to your house and shake the money out of your pocket to buy Amazon. Moreover, even if the investment banks disgorged every penny of profit from the last seven years it wouldn't make their clients whole. The Nasdaq has lost 4/5 of its value. You could liquidate the Bulge Bracket and still not recover all that was lost, because most of it has already been pissed away on television advertising and Aeron chairs and corporate retreats on the Riviera and two-bedroom condos in Palo Alto that are now trading at a fraction of their value. We all went on a spending spree in the late nineties, and now the visa bill's here we want to call up Bergdorf's and dispute the charge. That isn't justice. It's an infantile refusal to admit that we acted like idiots, and now the money's gone and it's not coming back. The only person it's going to enrich is lawyers. And if we don't admit that we were foolish -- if we blame our folly on evil conspirators -- it only makes it more likely that we'll do the same stupid thing again.
So while I would certainly like to see just desserts for the people who made a killing off the inevitable fact that 95% of the country is not competent to manage their own investments, I don't want this to be the opening act in some morality play, directed by Spitzer, in which the rest of America is absolved for speculating wildly on investments they don't understand. It's an expensive lesson, but it will be even more expensive if we don't grow the hell up and acknowlege that the easiest man to cheat is the guy who's looking to get something for nothing.
Posted by Jane Galt at April 29, 2003 12:04 PM | TrackBack | Technorati inbound links"95% of the country is not competent to manage their own investments"
Ah, I knew there was a reason I'm opposed to Social Security privatization!
Bravo, Jane! Great commententary. This whole settlement stinks to high heaven; no doubt we shall see Mr. Spitzer move on to bigger and better political offices because he "fought" for the common man.
To Kevin:
Just because a certain percentage of Americans are not competent to manage their own investments doesn't mean I want the US government managing my retirement. Most retirement advice (for investors under 30) can be summarized: read all you can about savings, save 10-15% of your income and put your money in broad market index funds or ETFs.
How about not having social security at all? Or just call it what it is: a transfer tax between workers and retirees, put an income (or wealth) limit on eligibility and be done with it.
Social Security is 95% of Americans managing their own investments -- and yours. And they decided to invest it in. . . the Robert C. Byrd Memorial Parking Lot (formerly known as the state of West Virginia).
"Ah, I knew there was a reason I'm opposed to Social Security privatization!"
Kevin Drum has committed a sort of Freudian slip. I now understand why bewilderingly he remains within the liberal Democrat camp. He shares their arrogance that only elitist yuppies know what’s best for the vast majority of Americans. The latter should remain childlike and deferential to Drum and his ilk. Am I getting carried away and making more of his comments than I should? Nope, Kevin Drum has revealed his true self.
Hey Kev,
How about - 95% of American's aren't capable of making lfe and death decisions so I'm opposed to legalized abortion?
or
95% of American's don't understand basic economics or internatinal affairs so I'm opposed to democracy.
fun game.
M
Well, well, well. It sounds like Kevin rattled the cranky tree.
Jane basically calls the investing public a bunch of greedy, lazy ignoramuses, and Kevin gets taken to task for pointing out a perfectly consistent continuation of Jane's logic.
And the vitriol. Why I can nearly smell David Thomson's bile way over here in Europe. Gee David, I just don't quite get how citing the post's author (in a quote that has a tinge of arrogance and elitism of its own) makes the commentor arrogant and elitist.
But then again, I'm just not as insightful as you.
Cheers,
>>Social Security is 95% of Americans managing their own investments -- and yours. And they decided to invest it in. . . the Robert C. Byrd Memorial Parking Lot (formerly known as the state of West Virginia).
Is this a coded Sell recommendation on US Treasury bonds? Should international investors be paying heed to this advice? You see the problem here.
And can't resist a quick offtopic riposte:
>>How about - 95% of American's aren't capable of making lfe and death decisions so I'm opposed to legalized abortion?
How about -- 50% of Americans have no business having an opinion on the subject of abortion?
82.3% of Americans enjoy debates filled with meaningless statistics!
Gee, d-squared -- does that mean that the majority of the population who aren't Catholics married to nasty, spendthrift spouses aren't entitled to have an opinion if said Catholic decides to rid themselves of the inconvenience?
(I'm not pro-life myself, but the logic of telling someone they can't oppose murder unless they have a potential interest in committing one themselves escapes me.)
Now can we get back onto the topic of equity analysts?
OK Jane,
Back to equity analysts. I'm afraid I have to say that this case is about more than your original post let on, and you know it.
Market efficiency is best served by transparency and information flow. The reason this is important (and I'll assume you'll agree with me thus far) goes to the heart of what's supposed to be a cornerstone of the country's economic future - Mom and Pop America investing on Wall Street.
In the optimistic view, average Americans move some of their capital to the Street. It may not be a lot on an individual basis, but the capital mobilized in aggregate nationwide can do wonderful things for the economy. However, if the market is viewed as less than transparent, an insiders' game of three-card Monte, then there will clearly be a disincentive to for anyone - incompetent or not - to invest.
And even if we take your view that 95% of the American public is incompetent to invest, what about the remaining 5% ? These folks, though maybe not having graduated from a prestiguous MBA program, can still muddle through a balance sheet and maybe spot pro-forma shennanigans. Don't these folks deserve the most transparency that an admittedly imperfect market can deliver ?
I'd hate to think that this cohort (what I'm assuming was the investing public in the day before the investing public became everyman) has to fight through institutionalized murkiness because the analysts are in bed with the corporate shills while the investment bankers take Polaroids from their Aerons.
The case may not be perfect (I don't know a whit about Spitzer's ultimate motives), but I do know that something was rotten in New Amsterdam, You acknowledged as much yourself.
Cheers,
Jane, how unreasonable asking D2 to stay on the topic.
1. I'm surprised that no managers or supervisors were fined. Who was watching the kitchen, as these analysts were cooking.
2. Kevin Drum misses the point about private accounts for social security. First, we are giving the ss beneficiaries the same opportunities provided for federal and state employees. Second and related, Drum must also be against 401K and similar plans. I would suggest that $1 invested in a mixed fund (investment grade bonds and equities-50/50)in either 1990 or 1980, outperformed $1 invested in the current social security program.
I'm shocked and horrified that anyone is inferring that market bubbles (as compared to tiny bubbles)are new.
I clearly remember the european affinity for tulip bulbs, or america's affinity for radio stocks (in the 30) or how about property values in Japan (wasn't the royal palace equal in value to California). Folks shit happens, the bust in the dot coms had nothing to do with transparency, damn they weren't generating any free cash flows and everyone was dumping on traditional analysis.
Let's get a grip.
I'm shocked and horrified that anyone is inferring that market bubbles (as compared to tiny bubbles)are new.
I clearly remember the european affinity for tulip bulbs, or america's affinity for radio stocks (in the 30) or how about property values in Japan (wasn't the royal palace equal in value to California). Folks shit happens, the bust in the dot coms had nothing to do with transparency, damn they weren't generating any free cash flows and everyone was dumping on traditional analysis.
Let's get a grip.
"But then again, I'm just not as insightful as you."
That's right, you are nowhere near as insightful as me. It’s about time that you came to this rational conclusion. Americans must be encouraged to act like adults regarding their finances and not rely on so-called benevolent government bureaucrats to take care of their responsibilities. I have mixed emotions concerning the legal settlement. A number of investment firms were indeed guilty of suckering the hoi polloi while enriching the corporate elites. However, the investors must still accept some responsibility for their own choices.
The main point is this: our economic policies must encourage growth---and not focus on risk aversion. The Germans and the other Old Europeans have made a mess of their economies. We must not make the same mistake. One also wonders how much worse the situation would be if the Old Europeans had not been accepting bribes from Saddam Hussein. What are they going to do now that Iraq is no longer a viable customer for their weapons?
Rofe, I'm not arguing that these guys shouldn't be punished if they broke the law. But the combination of a public slap on the wrist on vague charges, and the growing pretense that the market bubble was somehow the fault of Frank Quattrone, disturbs me. Moreover, these guys had nothing to do with the balance sheet shenanigans, and I think you'll find I was quite hard on those perps. I just want to make sure we're punishing the bankers for breaking the law, not because they're unpopular.
In Spitzer's case "AG" *really* stands for "aspiring governor".
From Timmy: "First, we are giving the ss beneficiaries the same opportunities provided for federal and state employees. Second and related, Drum must also be against 401K and similar plans."
I don't think that's an apt analysis. 1) State and federal employees do contribute to SS, right? (I know it's true of federal employees).
2) In my state, the state employees retirement system is centrally managed, and in the federal Thrift Savings Plan, investment choices are significantly more limited than with a typical 401(k).
3) 401(k) and similar plans function differently than SS, at least in my view (and I would guess in Kevin's). SS is a baseline minimum that is guaranteed to be there for every worker (in theory; in practice I don't count SS as part of my retirement nest egg because like many 30-somethings, I'm not sure it will be there in another 30 years). My fear is that if we let people gamble away their SS contributions, they will still be asking for a minimum threshold for their golden years, and then I'll have to pay for that too.
Sorry, Jane, for straying back off equity analysts. To add something of relevance there, my understanding is that about $400 million of the settlement will go to restitution, of which about $100 million is expected to go to administration costs. As $300 million will not come close to making investors whole, this does seem to pave the way for a bunch of class actions. I don't know enough to have an opinion on whether this is a bad thing. (I'm not someone who thinks damage suits are per se evil.) But you're certainly right that the market bubble can't be pinned entirely on analysts.
Timmy doesn't understand that Social Security is a pay-as-you-go plan, not an investment plan. Secondly, unless your 401K is invested in treasury notes or bonds, you took a beating during the Bush market. However, it was Jane who said that 95% if investors don't know what they are doing, not Kevin.
"However, it was Jane who said that 95% if investors don't know what they are doing, not Kevin."
It was, though, Kevin who argued that individual Americans should not decide how best to prepare for their own retirement. He deserves to be taken to task for his benevolent paternalism.
I'd consider discussion of whether Americans should be able to invest their SS kinda on topic; abortion manifestly is not.
With Jane's quasi-blessing:
"It was, though, Kevin who argued that individual Americans should not decide how best to prepare for their own retirement. He deserves to be taken to task for his benevolent paternalism."
I disagree. The fact that there is SS at all is "benevolent paternalism." If we're going to have it, then we should let it serve its function, which is to set aside certain funds in a safe place so we will have that principal (granted not much growth) to fund a portion of retirement.
My question for David is if we are benevolently paternalistic enough to require workers to set aside a given percentage of income for retirement, yet not enough to place limits on investment of those funds, what do we do with those (and there will definitely be some) who whether by poor judgment, malfeasance on the part of another, or just rotten luck, have lost everything by the time of retirement?
Second question, for those who think SS should be privatized, do you believe most Americans are competent investment managers? ("More so than the government" is an insufficient answer.)
dsquared: the "saving grace" is that despite how badly the US economy is being "managed" by the US Federal government, the rest of the world generally does worse.
"I can be heard arguing that the entire structure of the investment banking industry is rotten (although before the lefties get too excited, I can also be heard arguing that the reason it's rotten is SEC over-regulation)."
Interesting. What's the Jane Galt Plan for remaking the capital world?
I'd enforce anti-collusion rules and rules against outright fraud, eliminate the corporate income tax, put the notes in bold type before the financial statements, force a "caveat emptor" warning on every financial statement and research report, force analysts to list all holdings in all stocks, and otherwise stand back. I'd eliminate attempts at social engineering such as the law forbidding expensing of executive salary over $1m, which did such a nice job of encouraging companies to move compensation off the balance sheet. I'd take the green laws designed to prevent hostile takeovers off the books. I'd inform the American public that if they gamble on teh stock market, they get no more assurance from the government as to the results than if they gamble in Atlantic City. My personal opinion is that taking the regulatory apparatus largely out of the system would remove the barriers to entry that protected the outrageous fees charged by an effective banking cartel. Those fees are the reason that equity research was turned to investment banking ends, just as the amazing profits in 80's mortgage bond trading produced amazing corruption.
There is no way to do what a lot of people want to, which is make equity investing safe as houses. I don't know of any effective way to stop a bubble except that a lot of people get burned and don't speculate any more. I also don't know what to do about the fact that Americans aren't generally competent to manage their own investments, any more than I know what to do about the fact that I get ripped off by car mechanics. A good start would be to repeal the law forbidding people to pay their financial managers a percentage of the profits on their portfolio. I do what I can, which is tell people to buy diversified funds, not to put all their money in equity, and not expect miracles. But that advice always gets drowned out by teh prophets of the sure thing.
I didn't realize my comment would derail this discussion. Sorry, Jane.
But just to clarify with a little more seriousness: I think it's a political certainty that if people lost a lot of privatized SS money during a crash, the government would bail them out. The moral hazard implicit in this is pretty obvious.
As it happens, I agree that we should stop the nonsense about SS being an investment of any kind. It's just a transfer payment, and that's how we ought to treat it. Discussions of investment strategy become meaningless in this case, of course.
As for whether we should have SS at all, it seems to be pretty popular, no? Old people like it because it pays them money, young people like it because they don't have to support their parents in their old age, and it has a salutary smoothing effect on the economy as a whole. Seems like a winner to me.
"I just want to make sure we're punishing the bankers for breaking the law, not because they're unpopular."
Somehow I don't think these guys coughed up $1.4 billion because they felt unloved.
And they can afford pretty good lawyers.
I totally disagree, Bernard. If you've got the state AG's all on board, the adverse publicity alone could kill a brokerage. Toss in friends in teh legislature who can help you with the law, and it's not so hard to see why you'd settle.
"I think it's a political certainty that if people lost a lot of privatized SS money during a crash, the government would bail them out. The moral hazard implicit in this is pretty obvious."
I'm not quite that pessimistic, but I see your point.
"young people like it because they don't have to support their parents in their old age"
That doesn't make sense. Young people support their own parents, and everyone else's living parents, through the payroll tax. The only difference is that they don't get any choice in the matter.
"Second question, for those who think SS should be privatized, do you believe most Americans are competent investment managers?"
Most Americans can follow simple financial rules with the proper incentives. If that weren't the case, you'd have a hell of a lot more people getting thrown out into the street after blowing all their rent money on God knows what.
So getting rid of Social Security would involve another simple financial rule: Put some of your money into an index fund and forget about it for 40 years. The incentive: if you don't, you'll be working until you drop dead.
Mike, Timmy does understand that the current Social Security program is a pay-as-you-go plan which provides both insurance coverage and retirement funds. Timmy also understands that there is no lock box.
Timmy understands, that ss program may not survive his retirement. Timmy therefore would like to fix the program and the partial invesment of social security taxes has positive elements.
Kevin, this doesn't mean that all ss taxes would be placed in private investment funds.
State workers are not in the SS program, state workers' are invested in a diverse group of financial investments under a common fund. Where Timmy made a mistake was making any reference to federal workers. Mea culpa.
back to the topic
Jane, I love the idea about eliminating corporate federal income taxes. the current tax regime is a detriment to equity capital formation given the tax advantages related to debt. As the current tax regime distorts the cost of capital, optimum capital structures are not achieved.
You've inferred that the government is not enforcing or is aiding and abetting malfeasance. Did I miss the thread.
Your suggestion to place "caveat emptor" warning on every financial statement is an empty statement. What information is the public to rely upon (if not the financial statements) in making a decision about the risk and investment profile of the underlying entity. Finally, anyone who reads financials and doesn't read the notes first is a fool.
"State workers are not in the SS program, state workers' are invested in a diverse group of financial investments under a common fund. Where Timmy made a mistake was making any reference to federal workers. Mea culpa. "
Extending this concept to the Social Security system is a dumb idea. Giving the state the power to pick acceptable retirement options for a handful of government workers is one thing. Giving the feds the power to pick acceptable retirement investment options for the entire population is quite another. Could you imagine the power that the bureaucrats in charge of drawing up that list would have over the entire corporate world? Can you imagine the amount of sheer power that would be up for sale in short order?
I'd take Social Security over that monstrosity.
A real reform would be to reduce the payroll tax - don't "divert" two percentage points, just don't collect it in the first place. Gradually raise the retirement age, or reduce benefit amounts, or some combination of the two, and justify it by the reduced payroll tax collections. Repeat until Social Security is safely in the dustbin of history.
To David Thomson:
I'm definitely a bench warmer in the insight league if a starting spot in the lineup requires leaps like the one from the transgressions of equity analysts to European weapons sales to Saddam Hussein. (OT, but Russia is not part of Old Europe - and they sold most of the weapons; weapon sales by France to Iraq are a minute portion of French GDP; etc.)
Jane:
Of course I'm not saying that any equity analysts doctored anyone's financial statements. (One could, however, talk about the relationship between the necessity to meet analysts' expectations and financial statement shennanigans, but that's a separate topic.)
All I'm saying is that there is substance to this episode, and it goes well beyond the poor public image of investment bankers and equity analysts. It goes to the trust the investing public has in efficiently functioning financial markets. From everything I read, there have been plenty of material conflicts of interest in addition to whatever laws were broken.
So, yeah, if the public is settling for cheap villification of investment bankers (though that's pretty low-hanging fruit in the villian sweepstakes), then I'm dismayed like you. But there's a more fundamental issue at stake here.
Cheers,
I still don't see what it is. You haven't pointed to any criminal wrongdoing; merely to the fact that they had a conflict of interest, which is true but is not in itself illegal. And this is rather the problem with the suits: they're being hung not because of any specific wrongdoing (both allegations and punishments are vague window dressing), but because we feel cheated by the bubble and want to lash out. Nor do I think you can blame the analysts' expectations for fraud; that's like saying "I had to cheat on my math exam because my parents wouldn't let me go to Aspen unless I got an A."
1. I seem to remember incriminating
e-mails wherein the analysts in question were dissing the very same stocks that they were touting to their public. This wasn't like a student getting a question right on a test by looking at what the guy next to him wrote down.
2. How could the AG be helped by the state reps who write the laws? The Constitutions prohibition against ex post facto laws applies to state laws as well, so I can't unmderstand how that is relevant.
I dunno . . . they managed with teh tobacco companies.
The incriminating emails weren't really that incriminating. When you think of how many emails the AG had to shift through to get the three he found, go back into your email and see if you can't find an out-of-context quote that would make you look bad. There are a number of pathologies in IB, but not the ones for which I think we've prosecuted the analysts.
Jane,
Conflicts of interest can degenerate into collusion. Covering up collusion can lead to obstruction of justice. I think that you'll agree there are a couple criminal activities in that bunch. However (and I suppose you're a delicate shade of purple over such hypotheticals, but bear with me) the real damage doesn't correlate solely with the level of criminal activity. If the integrity of the market is tainted, the market will suffer. And I think that what's gone on has certainly tainted the market's integrity.
As to specific criminal activity, fraud (Salomon Smith Barney, CSFB and Merrill Lynch) and obstruction of justice (Frank Quattrone) seem like criminal charges to me.
Yes, I believe in innocent until proven guilty. However, see my comment above on tainted integrity. And if these banks (or Quattrone) were guiltless, do you really think they're so afraid of Eliot Spitzer that they're willing to ante up for nothing. Or maybe, as oftens happens with settlements, they're looking to avoid more damaging revelations.
Regarding the bubble, maybe some skepticism about the I-banks wouldn't be misplaced. Far more astute observers than I seem to agree, "Investment banks helped create the bubble, issuing shares in companies unready to come to the market, selling them to their investment clients and supporting them with absurdly overoptimistic research." (FT, June 7, 2002) To be fair, the FT also supports your case, too, "Even retail investors must take some responsibility for their actions. Blinded by a greedy belief in the bull market, they were naive to think that analysts paid by an investment bank were independent." (FT, April 29, 2003)
The bottom line is that I may simply be out of touch with American public opinion. However, I really haven't seen the sheep being led to slaughter suddenly reverse course with fangs bared to form a wolfpack going after I-bankers. Some folks may be pissed, but given what's happened they have every reason to be. And not just at themselves.
Apologies for rambling.
Cheers,
Jane,
I dunno. Maybe we're at semantical loggerheads. But it seems to me that management has to meet the market's expectations (or suffer the consequences) and those expectations are 'personified' by the analysts' expectations.
It also seems to me that management struggling to beat its numbers every quarter has some powerful incentives to put the best face forward on its business. Does that mean fraud ? No. But it does mean a temptation to move earnings around. And while much of the tinkering is perfectly legal, some of it can obscure the underlying fundamentals of the business. And some of it can move beyond that.
Transparency, please.
Cheers,
I'm not arguing that they weren't sorely tempted to fraud, but temptation is not a causus belli. As for the post above -- you're not really arguing that the state should punish innocent people (or people not provably guilty) in order to restore confidence in the market, are you?
No, no, no. I think we must be talking past each other.
I'm saying that damage to the market goes beyond the level of criminality involved. Or, to flip that, transgressions don't have to be criminal to be damaging.
Therefore, whatever else Eliot Spitzer has for motives ('preening', I think, was your term), his investigation is a critical element in restoring integrity.
Cheers,
Yes, but only if it prosecutes people for criminal acts, not if it uses the fear of prosecution to punish people against whom no wrongdoing can be proven.
"That doesn't make sense. Young people support their own parents, and everyone else's living parents, through the payroll tax. The only difference is that they don't get any choice in the matter."
All social security does is make everyone's retirement cost about the same. Without it, there's a chance that your parents won't need any support from you, but there's also a chance that they'll be completely impoverished, and depend on you 100%. It just spreads around the risk (which does have a financial benefit).
Jane, your list looks good I guess, but it's more like swapping around than deregulation. All the stuff you want is way hard to get passed too, while the stuff you want to get rid of is way easy to get rid of.
"A good start would be to repeal the law forbidding people to pay their financial managers a percentage of the profits on their portfolio."
It's actually a law that they have to take a percentage of assets, instead of a percentage of profits? Boggling here.
Dave Thompson took time out from being battered on Brad DeLong's Comments threads to write"
'Kevin Drum wrote:
"Ah, I knew there was a reason I'm opposed to Social Security privatization!"
Kevin Drum has committed a sort of Freudian slip. I now understand why bewilderingly he remains within the liberal Democrat camp. He shares their arrogance that only elitist yuppies know what’s best for the vast majority of Americans.'
If we're assuming that most Americans are managing their outside-SS portfolios optimally, with the knowledge of what income they will receive from SS, why should it matter? SS is long in T-bonds, you want more stock; right then, short bonds, buy more stock. You've taken on more risk, but that's what you wanted, right?
And if you don't think that American are optimizing their portfolios (or have the resources to do so), doesn't that prove Kevin's point about SS in the first place?
Comments are Closed.