no third solution

Blogging about liberty, anarchy, economics and politics

Can the Government Fix 401(k)s?

April 7th, 2009

The only reason I read/watch any mainstream news any more is to find out what sort of bullshit the vast majority of people are swallowing, daily. This article about 401(k)s at Bloomberg News made me laugh.

Lobbying groups representing mutual funds, banks and Wall Street say workers like employer-backed individual plans, especially being able to manage their own accounts. They continue to invest in them…

Of course most people continue to invest in them, because for most people, most of the time, it’s stupid to give away what is essentially “free”, albeit deferred, income. Even though prior to profit-sharing my account was down 40% for the past 12 months, that was all essentially “house money.” Neglecting to contribute to my 401(k) means practically zero marginal take-home income. I “like” my 401(k) the same way I “like” finding a quarter in the parking lot

And then the fear-mongering sets in. Financial industry lobbyists want to see some political action on 401(k) accounts, up to and including a “system similar to plans in Australia and the Netherlands, where professional managers make investment decisions.”

I would be very surprised to learn that “professional managers” aren’t already making the lion’s share of 401(k) investment decisions. After all, they’re the ones who determine which assets constitute which funds, at all times — and since most 401(k) “investors” have a relatively limited group of funds from which to choose (which are ambiguous to all but the most discerning and savvy investors), delegating the final decision-making to some other financial industry insider with a mandate to buy something, anything no matter what, differs from the status quo in no meaningful manner.

“Over the last year, we’ve seen the damage some of the financial wizardry has done,” said Steve Abrecht, director of benefits and capital stewardship at the Service Employees International Union. “Traditional 401(k)s don’t provide enough protection to investment risk.”

Oh, the hilarity! Since people contribute to them without thinking and fund managers are obligated to buy anything, even when all that’s on the ticker is junk I believe 401(k)s are likely the next big economic bubble, predominately because traditional 401(k)s are too restrictive to permit individuals to manage their risks.  For example, I’ve been blogging about the housing/mortgage/real-estate bubble for the better part of 4 years now — or, since I first became aware of the problems in graduate school; there are/were simply no satisfactory funds available to me. It looks like “cash” would’ve been the least-bad option, even though I would’ve been massively ripped off by inflation.

“Wizardry” is a clever term, because it conceals the truth: What we have seen is the damage that can be done by a government, its printing presses, and a banking cartel which depending on who you ask, is either pulling the strings and orchestrating the crimes, or accomplice to the government’s thievery.

In either case, neither the government, nor the financial industry is fit for the task of “fixing” the ways individuals save and invest for the future.

no third solution

Blogging about liberty, anarchy, economics and politics