Social Security and Bernie Madoff…….

Not long ago I ran into my good friend and mentor Cranston Tucker who had recently decided to retire after a long and distinguished career in marketing. He proudly showed me his first Social Security check which he considered another life milestone.  As I looked at it he sheepishly said “it’s not exactly going to pay for my retirement in the south of France”

Looking closer at it, I was astonished at the amount; a grand total of $2038.00 monthly ! This was after 40 years in the work force paying FICA deductions on what I would consider substantial compensation. As we talked further, it turned out that his payout was on the high end of the scale and that Social Security payments to most retirees were significantly lower. Fortunately for Cranston he had other savings and this was merely a supplemental amount.

Like most of us I had never really paid very much attention to the Social Security system. It was a government run benefit program which I had no control over. It was going to extract a certain amount of tax from each paycheck, save it (so I thought ) and then pay me out at whatever rate the government felt was feasible at the time I retired.  It wasn’t  the kind of investment criteria that I would consider appealing but it did have the backing of Uncle Sam and that was something to be reckoned with in these economic times.

I decided to look into the Social Security system a little deeper and quickly discovered two facts that most people don’t think much about.  The first was that, the Trust Fund (where the excess FICA payments, not used to pay current retirees, are to be deposited) is non-existent! Yes, there is a Trust Fund and yes, there is the so called “Al Gore”  lockbox for the Trust Fund. However, the lockbox has no money in it!  All it contains are a bunch of IOU’s from the Treasury which has already spent the money on god knows what.

The second  fact, is that Social Security is just a system where today’s young wage earners pay into a pool to support current retirees. The reality is that our money, rather than being invested and kept in an actual Trust Fund, is immediately given to current retirees in Social Security benefits or Medicare benefits.  In 1950, there were 16 workers available to pay for each retiree, today because of our aging population there are just about 3 and it will get worse.

Looking at this premise in which early investors are paid with the proceeds from current investors, I can only think of one word: Ponzi! Yes, I know this has been written about, and I’ve now read lots of articles on why Social Security is or isn’t a Ponzi scheme. In my opinion it’s actually worse. In a Ponzi scheme you have to keep recruiting more investors (suckers), but the Social Security system is a forced universal system where everyone has to participate and there is no one left to recruit.

Social Security Ponzi Scheme

Social Security and a Ponzi Scheme

So what can we do about this? The Federal Government obligation keeps rising and the retirement payouts keep falling. Social Security is already the single greatest expenditure (20.8%) in the Federal Budget.  Congress has been spinning its wheels on this for years and anyone with the guts to tackle this problem is immediately accused of putting grandma in the shed. The situation keeps getting worse as there are more people entering retirement age than entering the work force.

To me the solution is obvious. Use government resources that are non-political and experienced in this type of investment strategy. Who comes to mind? Bernie Madoff.  He is a government asset, available for the next umpteen lifetimes at no salary, he is a master of Ponzi schemes and is right now sitting around reading books in a white collar prison. He would jump at the chance to redeem himself and maybe knock 50 lifetimes off his sentence. He would certainly know what to do.

This is a big task, and Bernie would need some help. My suggestion would be for him to recruit a staff from the numerous other white collar criminals in the system with hedge fund or other type of investment experience.  He could put a team together, much like in the movie The Dirty Dozen where success would lead to reductions in prison sentences. He could also be assigned a specific prison compound where his work would be carried out. His team members (some of the best Ponzi minds in this country) could meet periodically to report on progress. Sort of a Weekend at Bernies”.

Don’t you think this group could come up with ideas far superior to our politicians and economists (who just multiply everything by Pi)?  It would not be beholden to any constituency or political pressure and certainly couldn’t skip the country with any funds.  Our costs would be minimal and far less than our current expenditures. I think it’s worth a shot but I’m open to further ideas from you.

And that’s the way it is here: “a little left of right”

JT

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4 Responses to "Social Security and Bernie Madoff……."

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