A Conservative Asset Manager talks about private accounts...

[housewolf]

From a new blog, "Cunning Realist"
http://cunningrealist.blogspot.com/


A bit about me: I am in my late 30's, a resident of New York City, and the founder and president of a Manhattan-based asset management firm. I have a BA from a top-ten university and an Ivy League MBA. I'm a lifelong conservative with a strong independent streak.

<snip>

Let's get right to it with some comments on the debate over Social Security. There is some excellent in-depth analysis on the web from many sources including Josh Marshall, National Review Online, and Nouriel Roubini, so I'll try to offer a unique anecdotal perspective. Through my job, I have frequent contact with insiders of public companies, both inside and outside the financial industry. This week, I spoke to an executive at a large publicly-traded technology firm

<snip>

This executive sees one shining beacon in the fog of increasingly strict accounting standards and a difficult business environment: The prospect of Social Security reform. He told me that he and many of this colleagues at other companies favor the creation of private accounts, because a new source of demand for his stock will help compensate for the increasing unattractiveness of his company from an investment perspective. This executive also made it completely clear (albeit in casual, friendly terms--which is perhaps the only way he would have voiced this sentiment at all) that he looked forward to private accounts "picking up the slack" that the new accounting rules and increasingly difficult business conditions in general will create.

<snip>

Make no mistake about it: This executive wants private accounts that invest in the stock market and his stock in particular. He sees private accounts as transferring risk from him to the public--risk, he surely knows, that is already being transferred through instruments such as IRA's, 401K's, and the explosion of mutual funds over the past decade. He's profited handsomely from that transfer of risk. From a corporate perspective he wants that transfer to continue, and from a personal one he needs it to continue to support his lifestyle.

<snip>

more...
http://cunningrealist.blogspot.com/2005/03/some-opening-comments-and-bit-about.html

[Erika]

1. But SS is used for disabilities and children

How does he factor that in?

[The Magistrate]

2. The Gentleman Is Quite Correct, Ma'am

At bottom, this is nothing but an attempt to prop up the price of shares today, at the expense of the retirement income of working folks down the road. If widely adopted, these "accounts" will bring a swell of new cash into the stock market, and this alone will cause the price of shares to rise, not because of any increased profitability or real capital value of the companies, but through the normal inflationary pressure of setting more dollars chasing the same quantity of goods. In the short term, this will provide great profits for current shareholders, and particularly for insiders with options to cash out. In the long term, these increased prices will be unsustainable, since they do not reflect the real values of the companies behind the shares. Fifteen, twenty, thirty years on, people will find their little accounts have not appreciated in value, but in fact have been drained by a species of swindle. The thiweves, of course, will be long gone with their swag....

"Some men rob you with a six-gun, and some with a fountain pen."

[LittleClarkie]

3. Would this be anything like the "dot.com" bubble we saw in the 90s?

That's the first thing that comes to mind.

[The Magistrate]

4. Indeed, Ma'am

The hope is that it will serve as a sort of replacement for it; a whole class grew rather accustomed to that "float" of unearned money in those years, and miss it....

[LittleClarkie]

5. Another phrase comes to mind, the proverbial "corporate welfare"

Perhaps these gentlemen need to pull themselves up by their own bootstraps.

[Squeech]

7. Yup

One reason the dot-com bubble happened was because of how many new investors, and how much new money, came into the market in the '80s and '90s with the advent of IRA's, 401k's, and other tax-deferred investment ideas. In the previous generation, maybe 15% of American families had investment accounts. By now it's well over 50%. And so supply and demand did its legendary thing, and The Market dutifully supplied these new investors with new stocks to buy, which in many cases turned out not to be worth the paper they were printed on.

This is an oversimplification, but good enough for sound bite purposes.

[Enquiringkitty]

6. private accounts are private accounts...there are broker fees and

everything else with these accounts just if you opened one on your own. We would just be forced to do so and money taken out of our checks. Those brokers will treat them like any other group funds.. The stock will go up or down with the market. 401Ks took a real punch and many people lost a lot of money so not many people are still in 401Ks. That is a great loss of income to the investment firms. Private accounts will replace about the same amount of income as they have lost with 401K...the fees are smaller but there are so many more people. This plan pumps up Wall Street and we have to take a retirement amount based on what the stock market is doing at the time. If up...your ok...if down...you're screwed!

[housewolf]

8. kick for a.m. n/y