Thursday, February 03, 2005

Ponzi Security or SSI and how they fooled us again

Psst... Hey, you. Check this out. I have a great deal going here. What? You don’t like money? O.K. then, here’s the deal: I’m going to bring you in on the ground floor. You’re going to thank me for this later. Sure, it’s going to cost you some money, $5000 to be exact, but hey...don’t look like that. I’m telling you this is going to work, it’s working for me. You invest $5000 with me and I’m going to help you make $50,000 in ninety days. No, really. See, it works like this: we’ll invite 10 of your friends to invest in the business. Each of them will put in $5,000 and that’s your share. Then we get 10 of their friends to each invest. You’re not going to believe how fast this works - I got mine in less than ninety days! We’re all going to be rich!

Chances are none of you have had this conversation, but maybe some of you have. This is known by the FBI as The Ponzi Scheme, for Carlos Ponzi who made it really, really big for a while between 1919 and 1934 when he was finally released from prison and deported to Italy. Upwards of 40,000 people bought into his scams and passed to him somewhere in the area of $15 million.

Another scam is known as Airplane. Investors can buy a low-grade ‘seat’ and, by selling ‘seats’ to other investors, they move up to better classes and ultimately (theoretically) cash out with big bucks. In Missouri, they’ve given it a new twist describing it as “gifting networks,” the most recent being the “Original Dinner Party.” In this scam, entrants begin at the “salad level” and progress through the scam by bringing new people in and moving up the menu to the “dessert level.” As a genre, these scams are cumulatively known as Pyramid schemes because of the hierarchical nature of the scheme with one person at the top reaping the greatest benefits and many people at the bottom losing their shirts.

There was an enterprising fellow in the 1930s who saw great potential in ‘pyramiding’ and created a scheme that has survived to this very day. In his scheme 16 people would pay into an account for one person and that beneficiary could then live off the proceeds for the remainder of his life. Down through the decades, the novelty of the scam has worn thin and today only 3 people are paying into each account, but it’s still the most popular game going. It’s called Social Security Insurance.

It is interesting to me to note that Ponzi, Airplane, and Pyramid schemes are illegal everywhere, but when the government does it, it’s ok. In the same way, gambling and lotteries are illegal, until the government runs them! Supporting the elderly and those who are unable to earn a living is certainly a good thing. I could make arguments about the legitimacy and legality of taking money from one group to give it to another, but I’ll leave that for another time. What really moves me is the dishonesty of those who so vocally and viciously oppose George W. Bush.

The Democratic Party is simply dishonest and it’s high time Democrats should admit it. What is good for the country, and even their constituents, is just not what moves Democrats. When Democrats criticize “No Child Left Behind” you should understand one thing - the program isn’t what they oppose, it’s who put it forward. Hillary Clinton, acting for her husband, then Governor of Arkansas, attacked the problems hindering the school system of Arkansas. She headed a commission, held hearings, analyzed reports, and ultimately created a program to save Arkansas schools. What she came up with bears a striking resemblance to NCLB. She was hailed as a visionary and is considered “the most intelligent woman on the planet today.” When George W. Bush does essentially the same thing (and gets results, I might add) he’s a partisan “shrub” trying to undermine and destroy our education system. In the same way, Bush get’s no support from Dems on Social Security reform, not because it’s in good shape, but because Bush and the Republicans should never get any credit.

Democrats would like to cast Social Security as a system that needs only some “adjustments,” that it has “challenges,” that it is in no way heading for “bankruptcy.” Even Democrats recognize that by 2042 the program will not be able to fully pay benefits. When you go to your creditors and ask to resolve your debts for a percentage of your indebtedness, that’s defined as being bankrupt. Despite that, Democrats insist that Social Security is not a “crisis” and that Bush is fear-mongering and inventing a crisis. Democrats don’t like history (they created Social Studies to replace it so that people like me wouldn’t exist); what history tells us about Social Security is that it most certainly is a looming crisis: it was in 1998 when Bill Clinton, speaking at Georgetown University, described “the looming fiscal crisis in Social Security.”

The Democrats’ solution to the ‘challenge’ is to raise payroll taxes, but they won’t say that; instead they propose to remove the cap to the payroll tax. So, let me get this straight: you’ll raise the cap, take in more in taxes, but that’s not a tax increase! What they mean is that the ‘little people’ won’t pay more in taxes, only the ‘wicked rich,’ and we’re only making them pay their fair share, anyway - at least until the ‘little people’ get raises or the Dems need more funds. For more Democratic dishonesty, let’s exercise a little history again. Previous to speaking at Georgetown in 1998, Bill Clinton commissioned 3 separate panels to examine the “looming fiscal crisis in Social Security.” The Bipartisan Commission on Entitlement and Tax Reform met between 1993 and 1995. From 1994 through 1996 the Advisory Council on Social Security held hearings. The National Commission on Retirement Policy worked between 1997 and 1998. Individual ‘private’ accounts were included in the reforms suggested by each panel! Al Gore was opposed to private accounts, but Bill Clinton favored them, as reported by former Assistant Treasury Secretary David Wilcox, former Deputy Assistant Treasury Secretary Douglas Elmendorf, and a former aide in the National Economic Council Jeffery Liebman. So, when Nancy Pelosi, John Kerry, and Harry Reid call Bush’s plan for personal savings accounts “divisive,” “partisan,” and “conservative,” they are being totally and completely dishonest and worse.

Why didn’t Bill Clinton ‘fix Social Security’ when he had the chance? Wilcox, Elmendorf, and Liebman published “Fiscal Policy and Social Security Policy During the 1990s” in June 2001. In their conclusion they wrote: “President Clinton decided to pursue Social Security reform based on bolstering the Social Security trust fund rather than on creating individual accounts...this decision may have been influenced by the changing political dynamic in late 1998, as the possibility that the president would be impeached came clearly into view.” The Social Security trust fund is a pool of money that is very much like Clinton’s budget surplus. The trust fund doesn’t exist except on paper and never has. Clinton’s budget surplus never existed either, except on paper (does the phrase “10 year projected” ring a bell?), it was projected based upon taxes that would be paid in the ensuing ten years. It never became a reality because those taxes were projected from Internet- and technology-related business that crashed and burned and the economy went into a recession partly as a result of the collapse of that internet-bubble.

The most damning thing that Wilcox, Elmendorf, and Liebman say is that the Clinton “administration’s economic team was also aware of a significant group within the Democratic Party that downplayed the need for Social Security reform” back in 1998. We see that group today in Nancy Pelosi, Harry Reid, John Kerry, Teddy Kennedy, Charles Rangle and other Democrats. The strongest leg of the Democrat party are Social Security recipients - people who live in thrall to those who hold the purse-strings. If Democrats relinquish control over these people, how will they go on telling them their benefits are threatened each election cycle? The Democrat resistance to fixing Social Security is purely partisan politics and the lust for power with complete disregard for the welfare of the people of these United States.


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