Wednesday, September 21, 2011
Are 401(k)s Ponzi schemes?
Everyone is talking about whether Social Security is nothing more than a big Ponzi scheme.
But has anyone made the same argument about the private 401(k) plans of average American investors? Just throwing out the idea. Think of all the recent rogue trader stories we’ve been reading of late. They and their non-convicted financier colleagues ultimately get first dibs on “institutional” money invested by mutual fund companies, etc. They extract fees. They take home huge portions of investment-return profits. They pay themselves first – and then retire first (often buying professional sports teams as a post-retirement hobby – but I digress). The average investors get what’s left over.
But even the left-over crowd depends on a healthy stream of new investors (i.e. the young) to keep pumping money into the system to prop up or drive up the prices of stocks, commodities and other investment products, until the left-over crowd can retire, leaving the newest investors (i.e. the young) holding the left-overs bag. The entire process repeats itself … until the system collapses, like, say, what happened in 1929 or 2008.
Of course, one could argue the 401(k) game is nothing more than a generational version of Musical Chairs – just like Social Security. Still …
As I said, just throwing out the Ponzi-scheme parallels, since so many seem determined to bash Social Security these days, including financiers, who’d just love to get their hands on all those privatized Social Security dollars via 401 (k) accounts.
Hey, look! It’s a ghost from rogue traders past!
Everyone is talking about whether Social Security is nothing more than a big Ponzi scheme.
But has anyone made the same argument about the private 401(k) plans of average American investors? Just throwing out the idea. Think of all the recent rogue trader stories we’ve been reading of late. They and their non-convicted financier colleagues ultimately get first dibs on “institutional” money invested by mutual fund companies, etc. They extract fees. They take home huge portions of investment-return profits. They pay themselves first – and then retire first (often buying professional sports teams as a post-retirement hobby – but I digress). The average investors get what’s left over.
But even the left-over crowd depends on a healthy stream of new investors (i.e. the young) to keep pumping money into the system to prop up or drive up the prices of stocks, commodities and other investment products, until the left-over crowd can retire, leaving the newest investors (i.e. the young) holding the left-overs bag. The entire process repeats itself … until the system collapses, like, say, what happened in 1929 or 2008.
Of course, one could argue the 401(k) game is nothing more than a generational version of Musical Chairs – just like Social Security. Still …
As I said, just throwing out the Ponzi-scheme parallels, since so many seem determined to bash Social Security these days, including financiers, who’d just love to get their hands on all those privatized Social Security dollars via 401 (k) accounts.
Hey, look! It’s a ghost from rogue traders past!
