Friday, April 8, 2016

Carrots, Sticks, And Great Heaping Mounds Of Dollars

     Into what sort of investments does your IRA or 401(k) plan – I assume you have one or the other – put your contributions? Stocks? Mutual funds? Corporate bonds? Possibly a little goes into an interest-bearing money market fund? They’re all quite common in such plans. Most of the ones an investment advisor is likely to recommend are pretty good: that is, they won’t make you rich, but they’re unlikely to crash and burn and take all your money with them.

     But then, your investment advisor is a private party, probably the employee of a company that specializes in that sort of work. A private company or self-employed financial advisor must perform or go under. One that underperforms for two or three quarters is likely to get a serious talking-to by his management. One that underperforms for two or three years is likely to take up residence in a cardboard box. And by “underperform,” I don’t mean “lose money;” I mean “doesn’t keep up with market averages,” at the very least. The ones that advise so poorly that they actually lose their clients’ money are in much worse trouble than that.

     Now imagine that instead of that private advisor and his supervisors if he has any, your retirement savings were managed by a state government...or perhaps by the federal government itself.

     Changes the whole picture, doesn’t it?

     I’ve written before about an attempt to seize your retirement savings (and your pension plan, if you’re one of the fortunate few who still has one). It wasn’t a new idea then, and of course it isn’t now. The Ghilarducci proposal was too barefaced to pass muster. It was an outright proposal to steal from approximately half the population of the United States; it couldn’t possibly command enough support to pass Congress...though I have no doubt that were Congress to pass it, Obama would sign it, cackling with glee as he did so, and put it into effect upon the instant.

     But have a gander at this:

     President Obama’s regulators aren’t slowing down, alas. And on Wednesday they unveiled another part of their plan to push Americans out of private investment accounts and into government-run plans.

     The Department of Labor says its so-called fiduciary rule will make financial advisers act in the best interests of clients. What Labor doesn’t say is that the rule carries such enormous potential legal liability and demands such a high standard of care that many advisers will shun non-affluent accounts. Middle-income investors may be forced to look elsewhere for financial advice even as Team Obama is enabling a raft of new government-run competitors for retirement savings. This is no coincidence.

     Labor’s new rule will start biting in January as the President is leaving office. Under the rule, financial firms advising workers moving money out of company 401(k) plans into Individual Retirement Accounts will have to follow the new higher standards. But Labor has already proposed waivers from the federal Erisa law so new state-run retirement plans don’t have the same regulatory burden as private employers do.

     This competitive advantage could be significant. Last month the board of California’s new “Secure Choice” retirement plan wrote to state legislators about their “exciting win” in Washington. They reported that employers enrolling workers in the new government-run plan “would have no liability or fiduciary duty for the plan.” Score! The California bureaucrats added that “we have been given the green light to auto-enroll workers into an Individual Retirement Account (IRA).”

     Into what sort of “investment” do you suppose the state of California, now many billions of dollars in the red, would put the money thus entrusted to its “management?” Given that its “advisors” would suffer no penalty for losing every last dollar? Given that the account “owners” would have no recourse regardless of developments? Remember also that state governments are thralls to Washington, kept docile and submissive to federal demands by threats to which a Fidelity or a Vanguard are not exposed.

     Scared yet? If not, check your pulse: you may have died but failed to notice.

     The total invested in pension plans, IRAs, and 401(k) plans, in current dollars, is about $19 trillion. The total federal debt is slightly more than that. The aggregate of all state and local governments’ debts is about $4 trillion. Moreover, those figures don’t account for the famous “unfunded liabilities” represented by Social Security, Medicare, Medicaid, and government pension programs.

     To say that America’s 88,000-plus governments are eager to find new sources of revenue is quite an understatement. There’s a reason most of the revenue from state lotteries doesn’t go anywhere near the educational institutions they supposedly fund. It’s the same reason the Supreme Court ruled against Suzette Kelo.

     The stick the Department of Labor’s new rule brandishes at private investment advisors in the form of enhanced legal liability will nudge them toward government-approved investments: state and local bonds and Treasury bills. The carrot it offers to the state governments will be eagerly snapped up. The consequence will be a diversion of a significant part of the flow of retirement funds toward loans to governments. The debtors can default on those loans without consequence, leaving the “investor” with no money and no recourse.

     The Soviet Union did that several times.

     A government bond is a certificate of guaranteed confiscation. – Franz Pick

     Gradualism has eroded the core out of the Constitutions’ provisions for limiting government. It’s also bled the purchasing power out of the dollar. Today it’s at work on the remnants of liberty: freedom of expression; freedom of association; freedom of religion; freedom of movement, both intranationally and internationally; the security of one’s person and possessions, real or movable, against arbitrary search and seizure. The one significant retardant to our descent toward complete, rightless subjugation is the cost of enforcement.

     I think those for whom totalitarianism is the end in view might have found the financing they’ll need. I think they might have found a technique for putting it over on us without alarming us into resistance until the seizure is complete and irrevocable. That technique would also leave the elderly completely dependent on the good will of the Omnipotent State.

     I’m already elderly; thus I fear both for myself and for the investment advisor who’s served me loyally and well for many years. What about you, Gentle Reader? Feeling a chill just yet?

1 comment:

Linda Fox said...

Yeah. I have a very small amount of retirement money coming from OH's teacher retirement - I chose to take it early, because I didn't trust them to pay me if I waited (generally, it's a Ponzi scheme - first out gets paid).

I'm also vested in SC's teacher retirement - they SEEM to be tightening their belt to keep the system stable. In SC's case, they didn't over-promise, like the northern states, so I think I should be OK.

I also have TSAs (Teacher Savings Accounts) - similar to an IRA, but organized under a different bill. Each time I moved to a different school, I had to put the money in whatever fund they were working with. So, I have 4 different funds.

I'm going to use some of that money to beef up my SC pension by 2 years. I'll be retiring next year in June.

We live fairly simply, and, once we unload the Cleveland house (our son is currently staying there, as much to make sure that it is secure as anything), we'll be able to pay down any remaining loans/credit cards/whatever. We totaled it up, and there is money enough to live on, and even save for a rainy day.

I pity my children. They don't deserve the country we're leaving them.