Take my retirement - PLEASE!

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H/T Francisco González

The financial sector has been after Social Security for a very very long time. At least during the last 4 presidencies as far as I can remember. The method is always more or less the same. Keep repeating that it is insolvent (it isn't) or that it will soon be, or that it is a parasitical socialist entitlement (it isn't, people paid for it throughout their lives), or that it is the main cause of the Federal deficits (an unbelievably huge lie, this). The nerve with which we are lied to is just breath taking. Now, in the Age of Bailouts, money can be created by the trillions out of thin air any time a crooked financial institution is declared too big to fail, so that it can continue to practice the same brand of crookedness forever.  And simultaneously we are told that since Social Security may not be quite self-sufficient a number of years into the future, we need to put it in the hands of private money managers, starting now.

The following are excerpts from an interview with Michael Hudson in 2003, explaining it all very well.

http://www.counterpunch.org/schaefer07122003.html
[...]

The problem facing money managers is that the domestic U.S. savings rate has fallen to zero (actually, it is negative, as indebtedness is building up more rapidly than new saving is being accumulated). Despite this unprecedented development, employees are obliged to accumulate forced savings, in the form of the income withheld from their paychecks by F.I.C.A. withholding for Social Security and Medicare, and put into government bonds in the accounts of these two government agencies.

The financial sector is looking at these funds like a shark that sees nice juicy prey swimming in the water. They would love to get their hands on Social Security and Medicare funds to manage, at a 2% fee. Even just 1% this would amount to tens of billions of dollars annually, not including the speculative gains that could be made on the turbulent market run-up.

Chile in the mid-1970s was a dress rehearsal for the immense management fees that the large financial conglomerates could rake off from privatizing Social Security. The financial conglomerates given control of these funds were well connected to the Pinochet dictatorship, and they were told to buy domestic Chilean stocks--the stocks of other companies in the Chilean zaibatsu whose banking arms were managing these investments. Stock prices then were allowed to collapse once the insiders had taken their money out, South Sea style.

The financial insiders made off well, but the workers lost their savings. The plan then was revamped with management turned over to U.S. and other international companies, with the stipulation that the pension savings had to be invested in the stocks of large Chilean companies.

This was the scheme thought up by the Chicago Boys brought in by the military junta. Their experiment with the "free market" thus was introduced at gunpoint. This also became the case elsewhere in Latin America, where labor unions organized riots to protest their forced saving being turned over to international stock-brokerage firms. But the privatization is being done as an inside job by the Chicago Boys with strong arm-twisting by the IMF and World Bank acting as the financial sector's international lobby.

[...]

This brings us to the scenario for privatizing Social Security. If the system's gigantic holdings of government bonds are sold off (with the Federal Reserve Bank supplying the funds to monetize the requisite credit) and put into the stock market, this rush of funds is going to push up stock prices. It will inflate the new bubble that is being promised, which will be called a "recovery." Stocks will be pushed up for a few years as more paycheck withholding is channeled into Social Security than out-payments are made to retiring Baby Boomers, the Big Generation born right after World War II.

The big stock-market institutions will speculate on a boom and make much more than simple capital gains through their leveraged derivatives trading. Smaller investors will use some of the gains to buy real estate, bidding up prices for housing, commercial buildings and other property.

SS: This sounds like a winning political program. If it makes Americans richer--or even if it just makes them feel richer--shouldn't they support a financial boom along these lines?

MH: The turning point will come just before the point is reached where more people retire than are entering the employment market. Stocks will begin to be sold off as institutional money managers dump their holdings, mainly onto their clients and small investors who do not realize that the wind is changing.

The stock market will collapse, as it did in 1710 in England and France. But the policy will have succeeded in getting people to give up their claims on the government for payment. When the dust settles, the government balance sheet will be freed of its Social Security and Medicare obligations. That's the basic objective.

Public officials and newspaper commentators will wring their hands and exclaim, "Well, you see the madness of crowds. People are greedy." But who really will be to blame? The crowds will have been doing what the professionals advised them to do. This bubble is a symptom of the madness of crowds mainly to the extent that it is a psychologically orchestrated disinformation program.