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Post by joshv02 on Jan 13, 2015 15:33:34 GMT -5
A 401K shifts risk from the employer to the employee. It's just another example how middle class workers in the U.S. continue to get screwed. Just so we're clear, this offloads the responsibility for investing in retirement for employees from corporations to taxpayers. How? We just had a shining example with the mortgage/derivative fiasco. When those investments went south, as they were destined to do given the trash they were filled with, investment funds collapsed to the tune of a 20%-30% drop in their value. Those are the funds that IRA's are inested in. They might have continued cratering, right to the center of the earth, were it not for the Treasury and the Fed stepping in to save the so-called capitalists from their own greed and stupidity. That re-floating of the financial sector comes courtesy of all of us, either through additional taxes, a busted-out economy that takes years to recover, and the fees the banks pay the Fed for wet-nursing them, also derived from the public at large. And that's before we talk about so-called quantitative easing. That's a fancy name for the Fed printing money to buy up all those junk-laden derivatives, as well as forking out money to the counter-parties - the casino gambles who bet against the idiots and cleaned up. All the endless bleating about moral hazard flies right out the window when the suits are involved. It goes on, and on, and on. It's entirely possible to imagine 401(k)'s as being useful instruments for building retirement funds. But as long as the wolves on Wall Street are managing the bulk of those funds, we can expect the same sort of periodic collapse, even as their take of bonuses and commissions puts them all on easy street. Despite the fact that I think most of this is a simplified version of reality (and mainly irrelevant), the real issue is just 401ks vs. defined benefit plans. Both have risks. For a defined benefit plan (e.g., pension) the risk is bankruptcy risk and is tied into one business (unless the risk is backed by a public entity, like the PBGC). A 401k can spread the same risk around multiple entities. Putting aside the public insurance plan of the PBGC, a defined benefit plan is very, very risky, but that risk is hidden and harder to see. It is worse than a 401k risk b/c the same risk that the employee has in continued employment (bankruptcy) is also tied to the employee's retirement. So, not only is the risk in the investment concentrated, the equity stream associated with continued employment has the same risk as the equity stream in future defined benefits plans. 401ks are not obviously less risky than defined benefit plans (absent insurance). This isn't really a right/left, middle-class/downtrodden issue. Plus, this isn't really baseball =)
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Post by Oregon Norm on Jan 13, 2015 16:09:00 GMT -5
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.
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Post by moonstone2 on Jan 13, 2015 17:48:37 GMT -5
This of course is part of the larger problem.
Employee wages are about the same as they were 30 years ago adjusted for inflation. Meanwhile corporate profits, have soared. These corporate profits flow mostly into the hands of the very few. Since 80% of GDP is consumer spending, to keep corporate profits high, employees must borrow against future wages and the government must borrow against future tax payments. In otherwords the 1% have to lend to the 99% to keep the economy afloat and growing. This isn't sustainable because eventually, the debt doesn't get paid and the lender is left with underwater collateral.
The reason for this is a decrease in employee bargaining power due to the demise of private sector unions. You don't see the MLBPA looking to switch to a 401K and you won't. Why? Because those workers have bargaining power and non-uniformed personnel do not.
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Post by joshv02 on Jan 14, 2015 8:25:02 GMT -5
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. 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.
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Post by jimed14 on Jan 14, 2015 8:43:35 GMT -5
The other issue with defined benefit plans is that they pretty much are 100% unsustainable and will likely be propped up by taxpayers, even some of the private ones.
There just seems to be no avoiding this crap as the people in charge always make stupid decisions and don't think about further into the future than next week. That's someone else's problem.
If anyone actually cared about old people, they would realize that hidden inflation (food, taxes/fees, housing, health insurance, energy aren't counted) and artificially low interest rates are what screw everyone. It is a disincentive to save money because it basically is a hidden theft of savings.
If these things weren't imposed on people, everyone could easily save enough money to live comfortably. But of course, that's not how it works. Let them eat iPads and flat screen tv's.
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Post by joshv02 on Jan 14, 2015 9:09:28 GMT -5
This of course is part of the larger problem. 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.
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Post by joshv02 on Jan 14, 2015 9:18:32 GMT -5
hidden inflation (food, taxes/fees, housing, health insurance, energy aren't counted) No, all these items are included in CPI (though, I'm not sure what you mean by taxes/fees). However, they BLS also produces a CPI minus food and energy. That measurement is NOT the measurement used for social security COLA (CPI-W).
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Post by moonstone2 on Jan 14, 2015 10:54:44 GMT -5
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.
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Post by jimed14 on Jan 14, 2015 11:02:01 GMT -5
A 401K limits your contributions to the point where it would be like a change jar for professional baseball players. If they are smart, they don't need a retirement account. They just need to invest their money wisely.
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Post by Oregon Norm on Jan 14, 2015 11:03:47 GMT -5
...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. 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.
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Post by jimed14 on Jan 14, 2015 11:06:26 GMT -5
hidden inflation (food, taxes/fees, housing, health insurance, energy aren't counted) No, all these items are included in CPI (though, I'm not sure what you mean by taxes/fees). However, they BLS also produces a CPI minus food and energy. That measurement is NOT the measurement used for social security COLA (CPI-W). BLS reported inflation is complete nonsense. Taxes/fees are all taxes and fees that continue to increase. Car registration, cell phone fees, local income tax, whatever. There are thousands of them. Even speeding tickets or any other revenue generating law. It always goes up and more for the poor (retired) than anyone else. And in an unrelated note, if unemployment keeps getting reported like it is, it won't be long before it's negative.
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Post by moonstone2 on Jan 14, 2015 11:09:49 GMT -5
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!
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Post by moonstone2 on Jan 14, 2015 11:13:30 GMT -5
A 401K limits your contributions to the point where it would be like a change jar for professional baseball players. If they are smart, they don't need a retirement account. They just need to invest their money wisely. But they do have a retirement account which was collectively bargained for because many of them are not that smart. There is a high incidence of bankruptcy among retired professional athletes so yes they do need it.
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Post by jimed14 on Jan 14, 2015 11:14:32 GMT -5
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.
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Post by joshv02 on Jan 14, 2015 11:31:31 GMT -5
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. Because employees who are “highly compensated employees” fall into a different category under IRS rules and make 401k administration difficult from an ER point of view. Also, marginal tax benefits for highly compensated employees are not very useful or high (pre-tax income going to a 401k is not useful if it doesn’t really save money), while for a lower-paid employee its easier to see the benefit. MLB owners care b/c the HCE rules make their life difficult, plus the incentive for players (who cannot save enough in a 401k for it to be meaning over a short period anyway) is different than non-players. Yes, I think you are misunderstanding the accounting mechanics. If the causation you saw was real, then you’d see debt levels for C, I or G correlate with their percentage of the GDP pie. I don’t think that happens. For example, as G (in the GDP equation) goes up in the 1950s to over 50%, nonetheless the % of national debt/GDP goes down. Similarly, corporate debt has increased as a percentage of GDP recently, while I has gone down. In other words, the relationship you are claiming has not held and the reason why I think is b/c you are confusing simple accounting for something causal. Nonetheless, I do agree (for other reasons) that the debt level for individuals is way too high and that is a huge strain on the 99%, so to speak; I also agree that that debt is structurally created/encouraged. I’m making the much more specific point that the relationship you are pointing out is just not very tight, so far as I can tell. But, perhaps you have better data to back it up. I doubt it is a point you really care about - I think the broader point that you make about structural issues hampering people who make less is generally correct. Strawman. If you think I’ve said anything close to that, you haven’t been reading very closely.
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Post by joshv02 on Jan 14, 2015 11:32:20 GMT -5
No, all these items are included in CPI (though, I'm not sure what you mean by taxes/fees). However, they BLS also produces a CPI minus food and energy. That measurement is NOT the measurement used for social security COLA (CPI-W). BLS reported inflation is complete nonsense. Taxes/fees are all taxes and fees that continue to increase. Car registration, cell phone fees, local income tax, whatever. There are thousands of them. Even speeding tickets or any other revenue generating law. It always goes up and more for the poor (retired) than anyone else. And in an unrelated note, if unemployment keeps getting reported like it is, it won't be long before it's negative. 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.
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Post by joshv02 on Jan 14, 2015 11:44:25 GMT -5
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. Yes, I don't disagree with that - brokers (having defended them for years) have no good reason to be smart, there is no regulatory requirement that they be so, etc. But these same people also managed DB accounts, so really I'm just concentrating on the difference b/w DB and DC. I'm 100% in agreement with relatively low risk, diversified, fund approach; opt-out for 401k accounts (see the literature by Cas Sunstein, one of my favorite intellectuals, for example), etc etc. This is not an intellectual first principles argument for people controlling their own money. Its really about the specifics. DB plans simply hide risk. I'm all for social security, of course. The question is just: in 2015, should a company offer a DB or DC plan to future employees. Right, but what you really want is insurance pools, and DB plans aren't really that either. Yeah, I'm not for privatizing social security at all. But, DB plans are run by money markets who take a cut (larger than Vanguard, for example).
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Post by moonstone2 on Jan 14, 2015 11:55:12 GMT -5
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.
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Post by jimed14 on Jan 14, 2015 12:09:39 GMT -5
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. People who get these public pensions also get Social Security and Medicare. So I don't know how the costs increase. I'm not saying any of this because I agree with it. It's just how it is. I don't vote because both sides are going to screw everyone in one way or another for the benefit of Wall Street. They don't give a damn about the real economy, they can substitute Wall Street economics of free money being created out of thin air being pumped into the market while ignoring the fact that wages aren't going up, half the country is on food stamps, and companies are not investing in research or development, just outsourcing more. You feel sad because it is sad.
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Post by moonstone2 on Jan 14, 2015 12:16:30 GMT -5
False
You can help by educating yourself and participating. For instance, your statement that "half the country is on food stamps" isn't even close to being true. By sticking your head in the sand and giving up, you only hurt yourself.
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Post by jimed14 on Jan 14, 2015 12:20:36 GMT -5
Go on and continue to vote for someone who will continue to screw the people over. I won't. My vote is precisely in not voting. It's not laziness or hiding. It is a calculated action. I refuse to participate in something that will never ever fix itself. Gandhi got England out of India by preaching non-participation.
Do whatever you want and so will I. I'm plenty educated. I was being sarcastic about food stamps. I wouldn't be surprised if it's more than 50% of people living on Social Security though.
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Post by moonstone2 on Jan 14, 2015 12:24:21 GMT -5
Go on and continue to vote for someone who will continue to screw the people over. I won't. My vote is precisely in not voting. It's not laziness or hiding. It is a calculated action. I didn't say it was laziness. Just that it doesn't serve the interest you think it does.
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Post by jimed14 on Jan 14, 2015 12:26:54 GMT -5
If enough people stay away from voting booths, politicians would have a huge credibility problem that they would have to do something about for the world to see our elections as legitimate.
I'm not going to change your mind or anyone else's. Just something to think about.
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Post by joshv02 on Jan 14, 2015 12:30:01 GMT -5
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.
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Post by moonstone2 on Jan 14, 2015 12:30:59 GMT -5
Go on and continue to vote for someone who will continue to screw the people over. I won't. My vote is precisely in not voting. It's not laziness or hiding. It is a calculated action. I refuse to participate in something that will never ever fix itself. Gandhi got England out of India by preaching non-participation. Do whatever you want and so will I. I'm plenty educated. I was being sarcastic about food stamps. I wouldn't be surprised if it's more than 50% of people living on Social Security though. If you are so educated then why do you keep making statements that are incorrect? It is also not true that half of the US population is receiving social security. As to your second statement, if the people stay away from the polls then the few that do go the polls would make all of the decisions. If you think that these decisions will be in your best interest, think again.
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