401k stuff

Well, it isn't, but it really is. If this is the start of a trend, then it's as much part of baseball as it is part of any other industry that's been doing the same.

Many, not all, but many of the investment houses don't have any feeling for the larger picture, although it's starting to hit home for more and more of them. At the 10,000 foot level, a level few if any traders I've met ever think about, all the trades and the players are part of a banking ecosystem. The most sophisticated analysis of such systems comes from a place that's far removed from the experience of those versed in statistics and probability, mathematical ecology. Such systems are capable of transitioning to different parts of their state space. For the market in derived instruments, that can mean a collapse in prices, one that can't be accommodated by any existing statistical models. That's because it isn't about statistics, it's about non-linear dynamics. Statistics samples one wing of the attractor in that state space. When the system slips over onto another wing, it's all over but the shouting, and there's a bit of that.

My feeling is that we could have a much safer and saner system than the one that's been built to service the investment desires of the financial sector. A system of guaranteed retirement benefits with a well-funded insurance pool worked well for a long time. The current system looks too much like a casino with periodic heavy losses that can't be covered by the house since the Brinks truck is always hauling commissions/bonuses away. That's when the government has to step in, not by some well-defined process with payments from the insurance fund, but by the kind of mad scramble we saw in 2007-2008. That's an easy choice for me, though the narrative is much less exciting - fewer made-for-tv movies.

In a nutshell, this isn't capitalism, and for all the complaints about risk with a pool, that looks a lot like regulated sanity.

That is a great article, and a very good analysis.

We have that system in Social Security.
I'm not sure I disagree too much with the meta-analysis, but I think this misses the mark when looking at the specifics between a defined benefit and defined contribution plan.

The 2007-2009 period saw over a trillion dollars in losses in defined benefits plans, as well as the myriad of losses in DC plans. DB plans are not risk free -- they only mitigate risk through public insurance. That is a weird way to run a system: it imposes multiple costs in order to simply generate a new Soc Sec system. If you are in favor of an employer based increased to the soc sec system, simply be in favor of that (which will mean greater reliance on govt systems). But, a DB system is not the way to get there. DB's hide the true inherent risks by increasing plan costs in an effort to create public, costly, and limited insurance over those plans. Getting rid of that insurance blanket over the plan transfers wealth from the public to the private sector, and the balance of that transfer b/w ER and EE is determined by the relative bargaining power of the two groups. But, the net drag is certainly lower overall.

I don't think it really is part of the larger problem, though.

Yes, agreed. I think you are confusing accounting concepts with causality. But, in the end I certainly agree that we have an overeliance on individual debt (I'd like to see if there was a significant correlation between accounting (e.g., government spending) and that sector's debt level; I suspect the correlation is weak - after all, government spending as a proportion of GDP has decreased since the 1950s but public debt has increased).

MLB players do not have any use for a 401(k) b/c they are too highly compensated for it to be useful, and additionally the mechanics will be very different (e.g., players have shorter careers, etc.). I don't think the difference in bargaining power really explains much there.

The move from DB to DC plans certainly hurts 50-60 year old employees; it is not at all clear that it hurts younger employees. There is a large amount of research indicating that employees (especially younger ones concerned with portability/mobility) are in favor of the shift.

Public employees (who tend to be older on average) are generally against this shift, but they have different employment expectations.

The MLB players have a pension plan, but not a 401K. Why would players be "too highly compensated" for a 401K to be useful, but not too highly compensated for a pension plan to be useful? Further, why would MLBs owners care what's useful to retired players? Other non-unionized personnel do not have pension plans but have a 401K.





Seems pretty obvious to me. X makes money by selling to Y. Therefore X can only grow if Y grows or if X lends to Y. Increased income inequality is the main reason for the explosion of debt.  Families still want a house, healthcare and to send their kids to college.  As these things become more expensive, the only way they can afford these things is by taking on debt, which eventually will be called.


Don't be the guy who argues that when one person eats all of the cake, everyone else, who now has less cake is better off.

There is no "meta-analysis" as distinct from the details, josh. Mathematics doesn't work that way. It's a system and it needs to be examined as a whole.

When you make the point that defined benefit plans lost a trillion dollars, all your doing is punching my ticket. During the height of the crisis, the Fed pushed 1.2 trillion out the window in just one day. I called my broker and asked why my boy's college fund had dropped 20% and all he could do was meekly apologize, admitting he'd been unaware of the way derivatives had been wired into supposedly safe instruments. I ask you, is that anyway to run a business? I stopped relying on outside advice and informed myself about what had been going on. The smartest guys and gals in the room don't understand the tyranny they've become part of. Time to call that out.

You can't really be surprised that all the investment's in every portfolio tanked can you? Of course businesses watched the value of their plans deflate. It happened to everything. The ad hoc investment machine that was put together with all that networked computing power is really dangerous. My point is that, given a choice, I'd like to stay away from systems with catastrophic transitions. And letting the investment houses get their hands on the Social Security funds so that they could take those to the craps table as well would have been pure insanity. That's exactly what was being proposed.

Social Security is solvent till 2032. In Internet time, that's a billion years. The fact that the system has been looted by our elected representatives doesn't change that. And the notion that Wall Street could do a better job is entirely reliant on a stable market place. The one we've allowed to develop isn't stable.

Bullshit.

Private companies last year spent $914B on share buy backs. Most of this benefited the very few who own stock or were awarded stock options. Don't tell me that you are poor when you are shopping at Nordstroms!

Yeah and do you see that stopping?  The pensions will get restructured before the stockholders have to suffer.

The unsustainable comment is mostly about government pensions.  Illinois and California are so screwed, it's just a matter of time before we're all paying for them.  The private bailouts I was referring to were the usual suspects, like the car companies and airlines that we bailout over and over again.

Though on the other hand, the Republicans are probably scheduled to win soon to break all these pensions and unions for good.

Well, if you are simply the guy who thinks that the government hides the numbers, then I suppose there isn't much room for conversation.

I feel sad when I read something like this. It represents a lack of knowledge about unions and an over-reliance on the marketing of the right that is funded by a very few looking to keep their self interest.

If the Republicans were to "break" all public sector unions the state or federal government would then have to contribute to social security and medicare in it's place. Further as retired public sector employees started to lose their benefits, that money comes out of the economy and in some cases is forced on tax payers.



Restructured and reformed absolutely. There already has been significant pension reform in Massachusetts for instance. But they will not be discarded. For one thing, those making the decisions are also beneficiaries of these same pension plans. Think they are going to make decisions that will greatly reduce their retirement benefits? Think again.

I didn't say it was laziness.  Just that it doesn't serve the interest you think it does.

Yeah, moonstone2 is right - if you get a public pension (not something I'm really trying to focus on here), you generally will not get Soc Sec b/c you likely did not buy into it. State/muni employees do not pay into (and are not eligible for) soc sec. However, those that do not get a public pension generally are eligible. The SSA has a flier on it.