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Archive for the ‘Ponzi Scheme’ Category

US Pension Benefits Guarantee Becoming Heading Towards Insolvency

Posted by Steve Markowitz on December 3, 2014

Milton Friedman once said “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”  Friedman’s quip was not far from reality.

Alex Pollock recently posted an op-ed in the Wall Street Journal titled “A Federal Guarantee Is Sure to Go Broke” in which he outlines yet another example of a mismanaged government program that will ultimately cost taxpayers billions.  This relates to the near insolvent finances of the Pension Benefit Guaranty Corp (PBGC).  This organization created in 1974 is a private corporation, but with the implied backing US government.  Its goal is to protect pensioners from the failure of private pension funds that pay them.  However, it is but another Ponzi scheme that will ultimately need a governmental bailout meaning that some taxpayers will lose and others will win.

According to economist Pollock:

  • The PBGC insurance fund has a negative worth of $62 billion for 2014, up from a deficit of $36 billion the year before.
  • The PBGC’s total assets are $90 billion with total liabilities of $152 billion. A company disconnected from the government with such a ratio would be shut down.

The government has demonstrated that when these quasi-governmental corporations become insolvent, taxpayers end up bailing them out.  History includes the bailout of Federal Savings and Loan Insurance Corp. costing taxpayers $150 billion in the late 1980s.  More recently it was the Fannie Mae and Freddie Mac debacles that cost taxpayers billions.

One piece of evidence that the PBGC program is a Ponzi scheme is the corporation’s misleading statements to the public.  PBGC’s annual report states: “the U.S. Government is not liable for any obligation or liability incurred by PBGC.”  Its website further states: “PBGC receives no taxpayer dollars and never has.”  Those statements are just not credible.

The type of pension plans guaranteed by the PBGC are high risk since they guarantee returns based on assumptions that are little better than guesswork.  In addition, increasingly frequent and larger governmental interventions have made such plans irresponsible from a financial standpoint.  Governmental interventions into the economy significantly affect the return rates of these pension plans.  Guaranteeing such plans would not be possible without governmental tacit promises.

Was the PBGC created merely out of bad business judgment or as a plan to reward certain taxpayers (mainly union workers) at the expense of others?  This type of discussion is never held when governmental programs fail.  Instead, those that created the programs have long since departed with huge pension supplied by the government.  In addition to this slap in the face, taxpayers of forced to pay the damage through bailouts.

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FDR’s Social Security Myth

Posted by Steve Markowitz on September 25, 2011

Governor Rick Perry, a Republican presidential candidate, created a firestorm a few weeks ago when he suggested that Social Security was a Ponzi scheme.  While some didn’t like the analogy, it accurately depicted the Social Security program that allows beneficiaries to receive more they put in and is dependent on still more new funds coming in to pay its ongoing obligations.

Perry was attacked more for his overall political views, rather than for the claim itself, a claim that has also been made by some on the Left.  For example, ultra liberal and renowned economist, Paul Krugman, in 1996 wrote:

“Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in.  So it does not look like a redistributionist scheme.  In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in.  Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).” [Emphasis added.]

While the Left castigated Perry, it continues to revere Krugman.  Similarly, the Left views Franklin Delano Roosevelt as the father of modern Progressive thought. . A review of FDR programs tells an interesting story, especially when it comes to Social Security.  In his newsletter this week, economist John Mauldin but FDR’s Social Security program into proper perspective.

In 1935, when FDR created the Social Security Act, the retirement age was set to 65.  At that time, the life expectancy in the United States was 61 years.  That meant the typical American would have died four years before receiving any benefits.  That’s quite a scheme!

Today the life expectancy is 79 years and growing.  However, under today’s laws, Social Security benefits begin in a range of 62 to 67 years.  Using FDR compassion as the rule, that would result in the current age for receiving Social Security benefits to be 83.  How many Progressives who continually invoke the name of Franklin Delano Roosevelt truly advocate his policies?

Social Security was set up by FDR in a way to ensure its survival by paying only a minority those that paid into the program any benefits.  Progressives have since increased the scope of the program by adding to those that are eligible for benefits.  More significantly, the government has not increased the retirement age in sync with growing life expectancies.  Adding fuel to the fire, Cost-of-Living Adjustments (COLA’s) added decades after the program began, ensure that the growing number of recipients are not hurt by inflation.

Social Security is a huge Ponzi scheme heading for a perfect storm created by changes to the Program and demographics.

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Madoff and the Social Security Ponzi Shames

Posted by Steve Markowitz on December 15, 2010

On the two-year anniversary of the outing of the Bernard Madoff Ponzi scheme, his son Mark committed suicide.  Madoff’s fraud continues ruining lives.

While most Americans are aware of the illegal Ponzi scheme committed by Madoff, many remain unaware of a similar scheme used by the American government called Social Security.  While Social Security is on the road to insolvency, last week the President and Congress included in the “compromise” tax deal a 2% holiday for employees paying into the Social Security fund putting it father in the hole.

A comparison of the Madoff and Social Security schemes that is making the email circuit is posted below.  While presented in a tong and check manner, it is not a laughing matter.

So Simple a caveman could understand:

Why did Bernie Madoff go to prison?  To make it simple, he talked people into investing with him.  Trouble was he didn’t invest their money.  As time rolled on he simply took the money from the new investors to pay off the old investors.  Finally there were too many old investors and not enough money from new investors coming in to keep the payments going.

Next thing you know, Madoff is one of the most hated men in America and he is off to jail.  Some of you know this, but not enough of you.

Madoff did to his investors what the Congress has been doing to us for over 70 years with Social Security. There is no meaningful difference between the two schemes, except that one was operated by a private individual who is now in jail, and the other is operated by politicians who enjoy perks, privileges and status in spite of their actions.

Do you need a side-by-side comparison here?  Well here’s a nifty little chart.

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The Social Security Fraud

Posted by Steve Markowitz on October 17, 2010

Social Security is the world’s largest legal Ponzi scheme.  It began under the Franklin Roosevelt (FDR) Administration as a forced and self-paid retirement plan for Americans.  It has since become a bloated program heading towards insolvency.  The blame for this disaster falls on the Progressives who have continually expanded its beneficiaries and payments.

In simple terms Social Security’s problem is that people collect more than they put in.  The program has been morphed by Progressives into a huge entitlement, instead of the retirement plan promised by FDR.  Congress continually added to those who could collect benefits.  In addition, life-expectancies increased without proportionally increasing the age at which benefits could be collected; a recipe for disaster.

Instead of addressing the increased life-expectancy time-bomb, in the 1970’s Congress doubled down on a bad bet.  They added a COLA (Cost of Living Adjustment) clause to the Program.  This meant that when a certain basket of consumer costs increased, the benefits paid to Social Security recipients increased by a similar percentage.  On its face this sounds like a reasonable idea.  How could one argue with seniors’ benefits being made whole in the face of inflation?  But like so many government ideas with good intentions, Social Security’s COLA led to unintended consequences.

One consequence of COLA should have been foreseen; increased dependency on government.  There are now 59 million Americans receiving Social Security or Supplemental Security Income.  That means about one in every five Americans receive funds from this entitlement and have come to expect yearly increases, which has occurred every year since 1975 with the exception of last year.  More to the point, now about 20% of Americans are less concerned about inflation and governmental policies that lead to it since they feel protected by the COLA.  Their motivations naturally will focus on personal short-term gain instead of whether Social Security will bankrupt the Country in the future.

A few facts helps understand the extent of the Social Security nightmare:

  • The Social Security Administration says its unfunded obligation is $15.3 trillion, greater than the entire U.S. national debt.
  • The U.S. government does not include its Social Security obligation as debt on the Country’s balance sheet as private companies are forced to do.
  • Peter Orszag, Obama’s recently resigned Director of the Office of Management and Budget, told America in August 2008 not to worry about Social Security since the first year that benefits would exceed revenues would be in 2019.  At the same time he stated that the Social Security trust funds would not be exhausted until 2049.
  • This year, for the first time and nine years earlier than Orszag projected just two years earlier, Social Security is paying out more than it is taking in; the end game for any Ponzi scheme.
  • The Social Security Trust Fund has accumulated $2.3 trillion to make up for shortfalls like the one that occurred this year.  However, they project that it will now run out in 2037, twelve years earlier than projected just two years ago.  Even that estimate does not factor in the continuation of the current economic slowdown that would make this day of reckoning much sooner.
  • While Social Security shows an accumulated surplus of $2.3 trillion, that is but a mirage.  Congress has already spent that surplus for its general fund and has given Social Security in return an I.O.U.  So let see; we have the insolvent U.S. government giving itself I.O.U’s to cover its own obligations.  That is madness, if not downright fraud!  Bernie Madoff is in jail for no more dubious actions.

One would think that the above facts would demand action to stop a train-wreck that is foreseeable and preventable.  But just the opposite is occurring.  Not only is the government ignoring the problem, but Obama and Pelosi suggest adding to it.

Last week the Social Security Administration announced that since inflation was very low in the previous year, there will be no increase in benefits paid out.  Through this announcement they merely followed the COLA law enacted in 1975.  Makes sense, right?  No, not for the Progressives in Washington who have since said:

Nancy Pelosi – Pelosi promised to schedule a vote after the November elections on a bill that would provide one-time payments of $250 to all Social Security recipients.

President Obama – Obama has endorsed the Pelosi plan.

Harry Reid – Announced last week that in the post-election session: “I will be working hard to gain Senate passage for a proposal that ensures that America’s seniors are treated fairly.”  Mr. Reid, why should seniors be treated any more fairly during this recession than other Americans?

By suggesting that we increase benefits paid to Social Security recipients whether inflation goes up or down, these Progressive knuckleheads give new meaning to the con of: “Heads I win, tails you lose.”

Obama, Reid and Pelosi should be well aware of the predicament that the Social Security time bomb has created for America.  This begs the question as to why they continue to march down a path that has no good ending.  The answer rest in one of, or a combination of, the following:

  • They are ignorant and don’t know better.
  • They offer the $250 payment as a bribe for the upcoming elections.
  • The Progressives’ goal is to make more American’s wards of the State so that they become beholding to Progressives in future elections.
  • The Social Security train-wreck will not occur on their watch and they do not care what happens after they retire.

None of these answers are good for America, but they do demand that Progressives be exercised from our government.  Sounds like a good reason to justify the Tea Party.

Let us conclude with the Securities and Exchange Commission’s definition of a Ponzi Scheme:

A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.  Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.  In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.”

With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue.  Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.



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