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Froma Harrop
Froma Harrop
9 Feb 2016
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Schemes We Have Seen


During the push to privatize Social Security, the idea's foes were accused of not trusting the American people to manage their own money. The naysayers prevailed, and aren't we glad.

How interesting that the buildup to the mortgage meltdown employed many of the same sales tactics as the Social Security privatization scheme. Resentment, fear, flattery and hype — plus scant details on fees and other costs — all went into the pitch.

When a former Fed official called for rules to tame the subprime mortgage business, the peddlers howled. This was an attack on low-income people, particularly those of color, they said. Without lax lending practices, fewer minorities would have enjoyed the blessings of homeownership.

It turns out that many never really "owned" much if any of their homes — they just held a lot of expensive debt that let them put their names on a deed. People losing their houses may find themselves poorer than before they started.

Many blacks and Hispanics with solid credit were steered into subprime loans when they could have qualified for far less expensive prime mortgages. The administration did little to stop that practice. But when the subject was Social Security privatization, studies were waved showing that under the current setup, blacks tended to collect less benefits than did whites. The reason was that blacks died at younger ages.

The housing bubble-blowers stoked fears that people who didn't borrow heavily to buy today would only face higher home prices tomorrow. In truth, mortgage mania had itself inflated house prices. Those who waited and rented are now enjoying a buyers' market.

Likewise, fears were fanned that Social Security would soon turn belly up and today's young people would never collect. Speaking in West Virginia in April 2005, Bush warned, "There is no 'trust fund,' just IOUs."

Yes, there is a trust fund, and the IOUs are invested in Treasury securities backed by "the full faith and credit of the United States." Interestingly, Bush later said that people who want low-risk investments in their private accounts could choose, of all things, Treasury securities, which he noted, are "backed by the full faith and credit of the United States."

Every scheme relies on a no-lose proposition.

For example, stocks always produce good returns over the long term. Historically, that has been true. But many ordinary people don't get "long term." If the folks now approaching retirement saw their private Social Security accounts suddenly lose 10 percent of their value — as have many conservative stock portfolios — we'd be hearing demands for a Social Security bailout on top of a mortgage bailout.

Even sophisticates buy into the myth of ever-rising prices — witness all the prime borrowers who are also in trouble. We read of Don Doyle, a computer engineer with a six-figure income and, at one time, a sterling credit rating. He holds a $740,000 mortgage, which is more than his California home is currently worth.

Like many subprime borrowers, Doyle took out an adjustable-rate mortgage with a low teaser rate that has since ballooned to require giant monthly payments. And like his troubled subprime brethren, he assumed that his home's value would continue to grow, letting him borrow more money or sell the house at a profit.

As a taxpayer, I'm relieved that Americans who don't read their sales contracts and assume that prices can't fall didn't have an opportunity to hand their Social Security money over to Wall Street. This should be the deal: The workers may invest, spend or gamble their money as they please — but not before something gets taken out of their paychecks for a boring but reliable Social Security benefit that they can't mess with.

To find out more about Froma Harrop, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at




3 Comments | Post Comment
It is unfortunate that the majority of people including Ms. Harrop don't understand what is happening with the SS surpluses that will will be gone in the next 8 years. She says she is glad that the money is invested Government guaranteed securities. She does not understand the difference between investing in a debt security or issueing a debt obligation. If you wanted to save for your own retirement and lets say you needed to save $10,000 a year to do so. The problem is I don't make enough to cover my expenses and save for my retirement so I am going to issue a $10,000 promissary note to my retirement fund each year. After 20 years with accrued interest my retirement account has grown to $300,000. Is the IOU that has now reached $300,000 an asset that can be sold to use for my retirement or a worthless promise? Our Gov't has spent the 2 trillion in surpluses in the general fund and replaced them by issuing debt, not purchasing debt. The gov't has perpetrated a fraud of the highest order on it's citizens by taking retirement monies and spending them on other projects and issuing a worthless IOU.
Comment: #1
Posted by: Craig Walters
Sat Feb 16, 2008 7:44 AM
Nice try Ms. Biggov't.

You say that the naysayers to social security reform prevailed, and they are glad. Why should they be glad? All they did was make the inevitable more so. Why can you NOT do the math? Either we do nothing to address the social security trainwreck and we ALL pay the price(our kids pay the ultimate price), or we do something to make it viable for the long run and run the risk that a few can't manage their own basket of mutual funds.

Period. Simple. Was that too hard for you liberals to wrap your mind around.? This is a mathamatical cercainty, not an argument. Personally, I'd rather risk losing a few between the cracks than having all of us go over the cliff together. That way, we can help those who fell between the cracks.

By the way, try this fact on for size... the average rate of return for almost any actively managed Mutual fund over the last 1, 3, 5, 10, 15, 20, 30, 40, 50, & 75 years have been around 10% per year! Look it up. In fact, I'll bet you own these very mutual funds inside your 401k, as do most Americans. And yes, that does include the lastest January correction and is net of all fees. It is especially true if this money is held in a tax sheltered plan, like a Roth or Traditional IRA. (or a 401k) (or a social security retirement account)

Please check your facts next time, if that isn't too much of an inconveinience for you.
Comment: #2
Posted by: Jim
Sun Feb 17, 2008 5:42 AM
So, the financially illiterate Froma Harrop wants to write about Social Security and the stock market, two things she apparently knows nothing about. She crows that she is glad people were 'saved' from having market based accounts for portions of their SS, over a timeframe when the market has advanced more than 25%. Yes, save us from the evils of making money! Regarding her assertion that there is a SS trust fund, that 'fund' consists of IOU's written by the government to the government. A T-Bill is an asset if held by an individual (the gov't owes the individual), but when the government holds T-Bills it owes itself. It is the same as saying I have a million dollars because I wrote myself an IOU saying I owe myself a million dollars. Those T-Bills have to be paid off with future tax money, the money that bought them was spent long ago. Her assertion that SS is 'boring but reliable' is laughable. It relies on future politicians and taxpayers maintaining the status quo, and paying ever escalating taxes. When the baby boomers start retiring, the system will break, with more retiress than workers paying into the system. Moving to market based accounts that belonged to individuals and offered real returns was the only way to save the system. Unfortunately, ignorant people like Harrop helped to defeat that proposal and doom future generations to a looming financial disaster.
Comment: #3
Posted by: gary miller
Mon Feb 18, 2008 8:11 AM
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