http://www.iSteve.com/05JanA.htm#milkenizing.social.security
A reader writes:
It just doesn't make any sense. If the government's planning to borrow a Trillion dollars, so that individuals can get better returns in the stock market, why don't they just invest the money in the stock market themselves and eliminate the middle men? If it's about "choice" how come they're choosing which investments we can make? If it's about "basic arithmetic" like John Snow's speech writers have him saying, why not raise the retirement age a bit, or slowly reduce benefits at the high end while keeping a floor?
It makes about as much sense as Iraq did. And I'm afraid it will be a far worse slow motion train wreck. We can still pull out of Iraq at a cost of mere hundreds of billions. This will be wasted trillions, gone like you said into the pockets of investment bankers and CEOs.
Jeez, I used to think I was a conservative. I still think I'm a conservative. What the hell is going on?
I must confess that I haven't given a lot of deep, intense thought to Social Security reform. But, then, do you really think Bush has either?
I just have a bad feeling about this.
I'm not saying that Social Security couldn't be reformed in an intelligent manner, but I am saying that Bush and the mob of yes-men and spinmeisters around him are the last people you should trust to come up with the plan.
It reminds me of Michael Milken's junk bonds. I talked to Milken once. I think he's really trying these days to be a nice guy and a fine human being, but he still gives the impression of being the leader of the hyper-intelligent reptiles from the planet Zwork. (I wonder if Oliver Stone met Milken before he came up with the name "Gordon Gekko" for Michael Douglas' character in Wall Street. It sure fits.) Now, I've never met George W. Bush, but I did talk to his brother Neil about a half hour before talking to Milken, and "hyper-intelligent" was not the word that came to mind.
Anyway, there were two ideas behind Milken's "high yield" bonds: interest payments are tax deductible and you don't have to jump out the window anymore if you go bankrupt. So, you borrow a gazillion dollars at ridiculously high interest rates and buy a company. If you hang on somehow and keep paying the interest until you can cash out, you become a gazillionaire through the magic of leverage. If you don't, well, it's not like it's 1929 and you have to kill yourself just because you are ruined. The creditors just have to take a haircut. Heck, if you live in Texas, you can keep your mansion. Indeed, you just move on and you'll probably be back in the game soon.
Before Milken, financiers felt that overly exploiting these two openings was Just Not Done. But Milken said, Just Do It.
The problems with Milkenizing Social Security, however, are that:
A. The tax deductibility of interest is irrelevant to federal government borrowing.
B. If they bankrupt the U.S., well, some of us can't just move on. As Patrick Swayze says in Red Dawn: "We live here."
C. And what's the reward for all this risk? If you pull off a junk bond leverage buyout, you become rich beyond the dreams of avarice. But if the Republican succeed with Social Security, what will they get: control of the White House, the Senate, and the House? Oh, wait, they've already got all that.
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