Page 1 of 1 pages
When I was a kid playing Monopoly on a rainy day, it was common for the winner to keep the game going by giving a few bucks to the other players.
The big boys today have an added incentive
Posted by whattheheck on Jan 25, 2008 at 7:11 AM
Insulting is the idea that we are to consume with the stimulus rather than do the right thing and pay off debt. That buying things is better for the economy than fiscal conservatism. I guess I must be dumb as I would assume that the companies that so many Americans owe money to, somehow wouldn’t benefit by having the bills paid down. Wouldn’t the big credit card companies of New York (CitiGroup for instance) welcome some cash after all the billions in write-downs?
The Bush economic plans (remember after 9/11 we were told to go shopping?) is nothing but imitate the government. The government spends money on credit, so should we. You absolutely never hear anyone in the government explain to Americans that debt costs them more money and that the fiscal and prudent thing to do is to stay out of debt. Yes, sometimes debt is justified when dealing with large purchases long term (homes, cars) but raising debt for simple things such as food, gas, minor consumer items is a sign of lack of spending control. This is truly an imitation of the policies of our national government. Do as we say AND as we do.
Posted by Jon B on Jan 27, 2008 at 4:16 PM
“As usual, We the People are told to wait patiently as moneyed interests claim their latest gift from Washington.”
Since when is a tax cut a ‘gift’? If you believe that tax cuts are a ‘gift’, then you are making the assumption that the government is the rightful owner of every dime you earn and that we should be grateful when they let us keep the meager scraps that are left over after Uncle Sam takes his stake.
Keep in mind the idea that ‘big business’ pays taxes is a fraudulent one promoted by the greedy politicians. Businesses collect taxes, they do not pay them.
Where do businesses collect the money they use to pay their taxes? One of three places:
1. By increasing prices on goods and services (consumers pay the tax).
2. By reducing capital investment in the business (fewer new jobs, elimination of jobs, reduce or eliminate raises, fewer purchases of capital equipment, etc.) Who suffers? Employees and suppliers.
3. By reducing dividends paid to shareholders. Keep in mind that half of American households own stock. So, its not just the ‘rich’ CEO’s whose dividends are cut - it could also be the widow down the street that relies upon stock dividends for her income.
If anyone is to blame for the economic problems of today, it is the Federal Reserve and its artificial manipulation of the interest rates; the federal government (Bush admin, etc.) and their profligate spending; and the federal government’s ability to monetize debt (create money out of thin air), which in turn reduces the purchasing power of every dollar that is legitimately earned by working Americans.
The total debt of the federal government (when including future debt obligations from entitlement programs) is estimated at $50 - 75 TRILLION! This is debt that will be passed on to your children and grandchildren.
Everyone looks to the government for a free handout. Well, guess what? There is no such thing as a free lunch.
The politicians created this mess, and they have no intention of getting us out of it.
Posted by JT_Lancer on Jan 27, 2008 at 6:21 PM
JT, I can agree with much of what you say, but…
3. By reducing dividends paid to shareholders. Keep in mind that half of American households own stock. So, its not just the
Posted by Jon B on Jan 28, 2008 at 12:44 AM
To add something about stock ownership by regular Americans. Are 401K plans really a benefit if at the same time people are paying interest on debt? Particularly credit card debt which is at an all-time high for both the amount of credit card debt per household and the amount of households carrying credit card debt.
Trying to make 5% margin in the market is better than paying say 10% every month on the credit cards? We’ve become a society gambling on the future because we can’t control our present spending. But this is what we are told to do. We are advised to invest in a 401K plan (despite big penalties if we should ever need that money prior to retirement) and relentlessly advertised to consume via credit.
Posted by Jon B on Jan 28, 2008 at 1:00 AM
“After all, most people have been hurting for quite a while. “
Most? Really? Maybe some, but not most or even close!
“And with word that there are now 195,000 homeless veterans nationwide”
One might wonder why the vets are homeless. I doubt it is very strongly correlated with economic opportunity. Much more likely it is due to: 1) the same reasons other people are homeless (drug abuse, alcoholism, etc); 2) mental problems directly associated with their service to the country (which would include some of 1 above, but only a fraction). We certainly should attempt to help, but there is only so much we can do, unless we decide to “help” them against their will, perhaps by incarcerating them in mental facilities.
From Jon B “I’ve always felt 401Ks were a scam to really allow the rich stock owners and institutional traders to make more money.”
Probably not, seeing as one can “only” put ~20K a year into 401Ks (the limit a decade ago was $10K) . While this may seem like a lot of money to some, it certainly won’t put anyone into the “very rich” category, even over a lifetime.
But if one saves just $5K year, invests it into stocks (which historically return about 11-12% year), after about 30 years they can expect to have ~500K. Not bad for a retirement next egg, particularly if you add in Social Security.
Posted by wolf on Jan 28, 2008 at 1:55 PM
I agree with the posts about 401(k) and economic benefit. I have argued for years that we should allow small venture capital or direct business loans with the billions of dollars going into mutual funds each year as long-term retirement savings. Bundle contributions and invest or loan $100,000 a year for 5 years, as an example, to a start-up business. That would let an entrepreneur pay herself or himself a living wage, hire a contractor or two, maybe an employee, do some marketing, and otherwise have time and resources to really make a go at a business. As it is, many of those people are getting loans that are too small to do more than cover living expenses or are using credit cards and having to live very inexpensively to keep the debt load manageable. An added benefit of direct loans/investments is that the part-owners will have a vested interest in helping to promote the business, a major problem with many new enterprises.
Posted by SillyLeftist on Jan 28, 2008 at 10:57 PM
JT & Jon B,
I agree on the idea that 401(k) is a scam, or at least a dodge. It was instituted to allow corporations to escape from the corner they had painted themselves into with pensions. In addition by shifting the responsibility to the employee it gave Wall St. a big new category of control and politicians the ability to claim we nearly all now benefit from the “free market.”
n reality, as you point out, the employee has very few options for investing. The non-401(k) shareholders have far less ability to control the companies they “own” since the big fund managers have much more clout. Just partnership of lobbyists (corp. agents) and Congress controls government, the fund managers control our money.
Wolf,
How many are hurting is open to discussion, but the general long term direction is not encouraging. I recently read that a 30-yr old man is now earns 12% less spendable income than in 1970. A Census Bureau report covering 1969 to 1996 shows it is very likely true. Both reports are inflation adjusted, but neither takes into account the huge increases in taxes over that time. I made 10% less in 1999 than in 1989, yet paid 4.5% more in taxes (including Self Employment (Social Security) Tax).
Every thinking person knows this stimulus package is nonsense. ( read: http://www.economist.com/opinion/displaystory.cfm?story_id=10566731 to get a European view.) The problem is too many people are more concerned about “reality TV” than REALITY and will vote based on the slogan which touches them.
Pandering seems to be the order of the day. I had hoped Obama would be different, but his cheerleading style is just another Madison Ave. ad slogan
Posted by whattheheck on Jan 29, 2008 at 7:58 AM
wth - While it may be true that incomes have declined in the last ~3 decades, it sure seems that the amount of material stuff that we (US citizens) have has skyrocketed. We all seem to “need” cable tv, dvd players, home computers, internet access, cell phones, etc etc. Surely we are already far beyond the point where this type of lifestyle can be maintained (or worse, promulgated to other less developed countries).
One thought - instead of giving free money to everyone (ok, so it is “our” taxes, but still), perhaps we could use that money to build up a new infrastructure that is both self sustaining and exportable to the world - especially the developing world. I am, of course, referring to making a significant commitment to energy generation via solar energy. Rather than wasting lives and money :attempting to “stabilize” the middle east, why not render their resources much less important? This would also greatly reduce the emission of greenhouse gases (particularly in developing nations such as China). It would also have the benefit of stemming their importation of modern technology - technology they clearly are not ready for at this time (picture giving machine guns to Ceaser, or nukes!).
But, alas, we have two oil men in the white house who have no interest in such things. They would rather divide up the world with force, rather than find ways to make the world intrinsically more stable.
Posted by wolf on Jan 29, 2008 at 8:57 AM
Wolf,
Stuff! How right you are. Have you heard the George Carlin monolog about all his stuff? Funny one.
Last week a friend posed the question, “Do you think we (U.S. in general) are better off, or worse now than thirty years ago?” His view was that all those things you listed and several more have made things better, while I think, for the most part, they just make things different. The worst part of it is the way you put it
Posted by whattheheck on Jan 29, 2008 at 12:35 PM
wth - Great idea! A truly integrated mass transit system would be a real boon to the US. I love flying into WDC national, i get off the pLane and onto a subway. But travel by train (or bus!) and its hard to even get a rental car, much less a subway. . . we can do better - and should.
Posted by wolf on Jan 29, 2008 at 1:58 PM
wolf? Where do you get this historical figure? (which historically return about 11-12% year)
The problem with historical periods of stock market investments is where one limits their timespan. 5% is the historical figure I’ve always heard. But how far back in market history does one go to accumulate data? Have you ever seen a long time line of the Dow? From 1930 until the late 1940s the Dow was virtually flat, that is a long time period of little growth. It was an era of distrust of Wall Street and banks. People would put their money under the mattress and in their walls rather than risk their money to those who broke their trust in 1929.
Sure, times are different today, but there are enough economically intelligent people talking about todays situation as just such a perfect storm to send us (and the world) into another long recession. There really isn’t any factor or reason that absolutely prevents another long downturn.
Posted by Jon B on Jan 30, 2008 at 7:04 AM
One reference is Jeremy Siegel’s A Random Walk Down Wall Street (he also wrote Stocks for the Long-Run), both excellent books. In the first, he goes back over the stock market since its inception (and markets in general back over several hundred years). The historical average for stocks (before inflation) is about 11.7% (inflation is about 3-4% as best i recall, yielding inflation adjusted returns at a bit over 7%).
He gives the data in sliding 10, 20 and 30 years periods. When using 30 year periods, the stock returns are always quite good, but as you know, over shorter terms the returns can vary quite a bit. The books make the point that stocks are *always* safer investments than bonds when held at for at least 20 years (and *usually* better even over shorter time frames) Of course, the key is to have a nice mixture of stocks and bonds (one rule of thumb is to take 110 minus your age and use that as the percentage of stocks in ones portfolio, with the remainder of your holdings in bonds. This would say that a 50 year old should have 60% stocks and 40% bonds, which is a bit over conservative from my pov).
The upshot of his advice is to buy broad based index funds, since they have minimal fees and thus tend to outperform the actively managed funds, Having read his and many other books on investing, i have come to the conclusions that when the market tanks (stocks on sale!), it is time to *buy*. When the market is exuberant, it is time for caution. Both statements are probably obvious (buy low, sell high), but are counter to how people actually tend to behave.
Here is a URL that has a simple graphic that i think is very useful and entertaining:
http://www.mississauga4sale.com/images/Market-Emotions-Cycle2.jpg
Posted by wolf on Jan 30, 2008 at 8:37 AM
Wolf and Jon B,
I went to listen to an economist last night. He presented a graph showing two hypothetical portfolios investing $10K for 20 years (1984-2004) to make his point that buying and holding dividend yielding stocks are where to be. They were compared against the Lehman Brothers U.S. Aggregate Bond Index. He started off with the oft quoted, “Historically the stock market has returned 10% per year.”
(I suppose he also was saying that in the late 1960s as we were heading into a decade of practically no gains in the stock index.)
Anyone writing a finance book or advocating an investment has the opportunity to pick their own examples. He made no disclaimer like the usual
Posted by whattheheck on Jan 30, 2008 at 1:44 PM
RE: 401k plans are a scam.
To some degree, I agree wholeheartedly. Why must Americans be forced to utilize a plan such as a 401k in order to save money?
The reason that 401k plans are popular today is because it offers a reasonable shelter from the confiscation of savings through taxation. I think people should be able to keep far more of their own hard-earned income to save, spend, invest as they please.
Unfortunately, however, as with any government-regulated program, there are lots of restrictions on 401k money. There are very few cases where the govt will let you take it out tax free before age 59 1/2. Want to use the money for a down payment on a home or for college? Medical emergency? Gotta pay the hefty tax (about 40-50%) to get your own money out.
The government is essentially discouraging citizens from following wise financial practices (saving, investing, etc.).
Posted by JT_Lancer on Feb 2, 2008 at 11:35 PM
Yeah JT..
I’m not saying it’s a total scam, but the whole thing was conceived, designed and implemented by government and corporations, that alone makes me suspicious. There was no demand from the people for 401K plan, it was corporations that essentially wrote the legislation.
Corporations understood that creating demand for stocks would help them fund themselves. And don’t get me started on CEOs and top execs and how they take huge advantage of stocks through stock options. Why is it they are allowed to skirt 401K plans? Well because that wasn’t part of the legislation. Those who set the rules will always try to make sure they aren’t part of the rules.
Posted by Jon B on Feb 3, 2008 at 3:11 PM
Lancer & Jon B,
While I agree that the 401(k) was instituted to relieve the corporations of the pension load, it was not a totally bad idea
Posted by whattheheck on Feb 4, 2008 at 9:05 AM
WTH…“I can
Posted by Jon B on Feb 5, 2008 at 3:55 AM
Jon B,
I agree unions pushed for company paid pensions and it cost the CEOs nothing to give in to them, but people would be better off managing their own. Some people I know have been retired for years and are now getting benefits cut.
With the 401(k) deal they got the responsibility without the freedom.
CEO pay has been a sore point with me for years. I worked on several companies’ annual reports over 2 to 4 decades and saw the gradual evolution of boards packed with buddies. One year three of the companies had four or five individuals who all severed on each others boards and compensation committees. Real cozy
Posted by whattheheck on Feb 8, 2008 at 2:03 PM
The currrent stimulus package passed by the Congress is a paltry amount of money. There are some reform aspects of the entire program like raising the caps on mortgages that fannie mae and freddie mac could finance despite large financial losses by both. Much of the $3.2 billion in losses were accounted for by derivative investments used as a hedge against falling interest rates on mortgages held by borrowers. The federal reserve is loaning distressed banks with non-performing mortgage loans funds against the troubled mortgages (or mortgage backed securities) as collateral. The fed may end up with $200 billion worth of bad debt or just under 2% of the total value of the US housing market. Anyhow efforts to help distressed borrowers are laudable.
What is really needed is a massive program of public investment in mass transit, infrastructure rebuilding, universal health care, renewable energy technologies and education. This would amount to several trillion and stimulate the economy by reorienting it and making it more productive through energy savings and improved health and skills of the workforce. It would also be a downpayment on rebuilding America’s middle class through creating new sectors in the productive real economy. Money would be redirected away from the financial markets and toward productive investment by redistributing wealth, raising wages, creating a steeply progressive tax on the very rich, and finally by restoring regulation to the financial markets. It was the unbridled casino economy that got us into this mess in the first place.
Posted by cabdriverinchicago on Mar 11, 2008 at 8:35 PM
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Reader Comments
When I was a kid playing Monopoly on a rainy day, it was common for the winner to keep the game going by giving a few bucks to the other players.
The big boys today have an added incentive
Insulting is the idea that we are to consume with the stimulus rather than do the right thing and pay off debt. That buying things is better for the economy than fiscal conservatism. I guess I must be dumb as I would assume that the companies that so many Americans owe money to, somehow wouldn’t benefit by having the bills paid down. Wouldn’t the big credit card companies of New York (CitiGroup for instance) welcome some cash after all the billions in write-downs?
The Bush economic plans (remember after 9/11 we were told to go shopping?) is nothing but imitate the government. The government spends money on credit, so should we. You absolutely never hear anyone in the government explain to Americans that debt costs them more money and that the fiscal and prudent thing to do is to stay out of debt. Yes, sometimes debt is justified when dealing with large purchases long term (homes, cars) but raising debt for simple things such as food, gas, minor consumer items is a sign of lack of spending control. This is truly an imitation of the policies of our national government. Do as we say AND as we do.
“As usual, We the People are told to wait patiently as moneyed interests claim their latest gift from Washington.”
Since when is a tax cut a ‘gift’? If you believe that tax cuts are a ‘gift’, then you are making the assumption that the government is the rightful owner of every dime you earn and that we should be grateful when they let us keep the meager scraps that are left over after Uncle Sam takes his stake.
Keep in mind the idea that ‘big business’ pays taxes is a fraudulent one promoted by the greedy politicians. Businesses collect taxes, they do not pay them.
Where do businesses collect the money they use to pay their taxes? One of three places:
1. By increasing prices on goods and services (consumers pay the tax).
2. By reducing capital investment in the business (fewer new jobs, elimination of jobs, reduce or eliminate raises, fewer purchases of capital equipment, etc.) Who suffers? Employees and suppliers.
3. By reducing dividends paid to shareholders. Keep in mind that half of American households own stock. So, its not just the ‘rich’ CEO’s whose dividends are cut - it could also be the widow down the street that relies upon stock dividends for her income.
If anyone is to blame for the economic problems of today, it is the Federal Reserve and its artificial manipulation of the interest rates; the federal government (Bush admin, etc.) and their profligate spending; and the federal government’s ability to monetize debt (create money out of thin air), which in turn reduces the purchasing power of every dollar that is legitimately earned by working Americans.
The total debt of the federal government (when including future debt obligations from entitlement programs) is estimated at $50 - 75 TRILLION! This is debt that will be passed on to your children and grandchildren.
Everyone looks to the government for a free handout. Well, guess what? There is no such thing as a free lunch.
The politicians created this mess, and they have no intention of getting us out of it.
JT, I can agree with much of what you say, but…
3. By reducing dividends paid to shareholders. Keep in mind that half of American households own stock. So, its not just the
To add something about stock ownership by regular Americans. Are 401K plans really a benefit if at the same time people are paying interest on debt? Particularly credit card debt which is at an all-time high for both the amount of credit card debt per household and the amount of households carrying credit card debt.
Trying to make 5% margin in the market is better than paying say 10% every month on the credit cards? We’ve become a society gambling on the future because we can’t control our present spending. But this is what we are told to do. We are advised to invest in a 401K plan (despite big penalties if we should ever need that money prior to retirement) and relentlessly advertised to consume via credit.
“After all, most people have been hurting for quite a while. “
Most? Really? Maybe some, but not most or even close!
“And with word that there are now 195,000 homeless veterans nationwide”
One might wonder why the vets are homeless. I doubt it is very strongly correlated with economic opportunity. Much more likely it is due to: 1) the same reasons other people are homeless (drug abuse, alcoholism, etc); 2) mental problems directly associated with their service to the country (which would include some of 1 above, but only a fraction). We certainly should attempt to help, but there is only so much we can do, unless we decide to “help” them against their will, perhaps by incarcerating them in mental facilities.
From Jon B “I’ve always felt 401Ks were a scam to really allow the rich stock owners and institutional traders to make more money.”
Probably not, seeing as one can “only” put ~20K a year into 401Ks (the limit a decade ago was $10K) . While this may seem like a lot of money to some, it certainly won’t put anyone into the “very rich” category, even over a lifetime.
But if one saves just $5K year, invests it into stocks (which historically return about 11-12% year), after about 30 years they can expect to have ~500K. Not bad for a retirement next egg, particularly if you add in Social Security.
I agree with the posts about 401(k) and economic benefit. I have argued for years that we should allow small venture capital or direct business loans with the billions of dollars going into mutual funds each year as long-term retirement savings. Bundle contributions and invest or loan $100,000 a year for 5 years, as an example, to a start-up business. That would let an entrepreneur pay herself or himself a living wage, hire a contractor or two, maybe an employee, do some marketing, and otherwise have time and resources to really make a go at a business. As it is, many of those people are getting loans that are too small to do more than cover living expenses or are using credit cards and having to live very inexpensively to keep the debt load manageable. An added benefit of direct loans/investments is that the part-owners will have a vested interest in helping to promote the business, a major problem with many new enterprises.
JT & Jon B,
I agree on the idea that 401(k) is a scam, or at least a dodge. It was instituted to allow corporations to escape from the corner they had painted themselves into with pensions. In addition by shifting the responsibility to the employee it gave Wall St. a big new category of control and politicians the ability to claim we nearly all now benefit from the “free market.”
n reality, as you point out, the employee has very few options for investing. The non-401(k) shareholders have far less ability to control the companies they “own” since the big fund managers have much more clout. Just partnership of lobbyists (corp. agents) and Congress controls government, the fund managers control our money.
Wolf,
How many are hurting is open to discussion, but the general long term direction is not encouraging. I recently read that a 30-yr old man is now earns 12% less spendable income than in 1970. A Census Bureau report covering 1969 to 1996 shows it is very likely true. Both reports are inflation adjusted, but neither takes into account the huge increases in taxes over that time. I made 10% less in 1999 than in 1989, yet paid 4.5% more in taxes (including Self Employment (Social Security) Tax).
Every thinking person knows this stimulus package is nonsense. ( read: http://www.economist.com/opinion/displaystory.cfm?story_id=10566731 to get a European view.) The problem is too many people are more concerned about “reality TV” than REALITY and will vote based on the slogan which touches them.
Pandering seems to be the order of the day. I had hoped Obama would be different, but his cheerleading style is just another Madison Ave. ad slogan
wth - While it may be true that incomes have declined in the last ~3 decades, it sure seems that the amount of material stuff that we (US citizens) have has skyrocketed. We all seem to “need” cable tv, dvd players, home computers, internet access, cell phones, etc etc. Surely we are already far beyond the point where this type of lifestyle can be maintained (or worse, promulgated to other less developed countries).
One thought - instead of giving free money to everyone (ok, so it is “our” taxes, but still), perhaps we could use that money to build up a new infrastructure that is both self sustaining and exportable to the world - especially the developing world. I am, of course, referring to making a significant commitment to energy generation via solar energy. Rather than wasting lives and money :attempting to “stabilize” the middle east, why not render their resources much less important? This would also greatly reduce the emission of greenhouse gases (particularly in developing nations such as China). It would also have the benefit of stemming their importation of modern technology - technology they clearly are not ready for at this time (picture giving machine guns to Ceaser, or nukes!).
But, alas, we have two oil men in the white house who have no interest in such things. They would rather divide up the world with force, rather than find ways to make the world intrinsically more stable.
Wolf,
Stuff! How right you are. Have you heard the George Carlin monolog about all his stuff? Funny one.
Last week a friend posed the question, “Do you think we (U.S. in general) are better off, or worse now than thirty years ago?” His view was that all those things you listed and several more have made things better, while I think, for the most part, they just make things different. The worst part of it is the way you put it
wth - Great idea! A truly integrated mass transit system would be a real boon to the US. I love flying into WDC national, i get off the pLane and onto a subway. But travel by train (or bus!) and its hard to even get a rental car, much less a subway. . . we can do better - and should.
wolf? Where do you get this historical figure? (which historically return about 11-12% year)
The problem with historical periods of stock market investments is where one limits their timespan. 5% is the historical figure I’ve always heard. But how far back in market history does one go to accumulate data? Have you ever seen a long time line of the Dow? From 1930 until the late 1940s the Dow was virtually flat, that is a long time period of little growth. It was an era of distrust of Wall Street and banks. People would put their money under the mattress and in their walls rather than risk their money to those who broke their trust in 1929.
Sure, times are different today, but there are enough economically intelligent people talking about todays situation as just such a perfect storm to send us (and the world) into another long recession. There really isn’t any factor or reason that absolutely prevents another long downturn.
One reference is Jeremy Siegel’s A Random Walk Down Wall Street (he also wrote Stocks for the Long-Run), both excellent books. In the first, he goes back over the stock market since its inception (and markets in general back over several hundred years). The historical average for stocks (before inflation) is about 11.7% (inflation is about 3-4% as best i recall, yielding inflation adjusted returns at a bit over 7%).
He gives the data in sliding 10, 20 and 30 years periods. When using 30 year periods, the stock returns are always quite good, but as you know, over shorter terms the returns can vary quite a bit. The books make the point that stocks are *always* safer investments than bonds when held at for at least 20 years (and *usually* better even over shorter time frames) Of course, the key is to have a nice mixture of stocks and bonds (one rule of thumb is to take 110 minus your age and use that as the percentage of stocks in ones portfolio, with the remainder of your holdings in bonds. This would say that a 50 year old should have 60% stocks and 40% bonds, which is a bit over conservative from my pov).
The upshot of his advice is to buy broad based index funds, since they have minimal fees and thus tend to outperform the actively managed funds, Having read his and many other books on investing, i have come to the conclusions that when the market tanks (stocks on sale!), it is time to *buy*. When the market is exuberant, it is time for caution. Both statements are probably obvious (buy low, sell high), but are counter to how people actually tend to behave.
Here is a URL that has a simple graphic that i think is very useful and entertaining:
http://www.mississauga4sale.com/images/Market-Emotions-Cycle2.jpg
Wolf and Jon B,
I went to listen to an economist last night. He presented a graph showing two hypothetical portfolios investing $10K for 20 years (1984-2004) to make his point that buying and holding dividend yielding stocks are where to be. They were compared against the Lehman Brothers U.S. Aggregate Bond Index. He started off with the oft quoted, “Historically the stock market has returned 10% per year.”
(I suppose he also was saying that in the late 1960s as we were heading into a decade of practically no gains in the stock index.)
Anyone writing a finance book or advocating an investment has the opportunity to pick their own examples. He made no disclaimer like the usual
RE: 401k plans are a scam.
To some degree, I agree wholeheartedly. Why must Americans be forced to utilize a plan such as a 401k in order to save money?
The reason that 401k plans are popular today is because it offers a reasonable shelter from the confiscation of savings through taxation. I think people should be able to keep far more of their own hard-earned income to save, spend, invest as they please.
Unfortunately, however, as with any government-regulated program, there are lots of restrictions on 401k money. There are very few cases where the govt will let you take it out tax free before age 59 1/2. Want to use the money for a down payment on a home or for college? Medical emergency? Gotta pay the hefty tax (about 40-50%) to get your own money out.
The government is essentially discouraging citizens from following wise financial practices (saving, investing, etc.).
Yeah JT..
I’m not saying it’s a total scam, but the whole thing was conceived, designed and implemented by government and corporations, that alone makes me suspicious. There was no demand from the people for 401K plan, it was corporations that essentially wrote the legislation.
Corporations understood that creating demand for stocks would help them fund themselves. And don’t get me started on CEOs and top execs and how they take huge advantage of stocks through stock options. Why is it they are allowed to skirt 401K plans? Well because that wasn’t part of the legislation. Those who set the rules will always try to make sure they aren’t part of the rules.
Lancer & Jon B,
While I agree that the 401(k) was instituted to relieve the corporations of the pension load, it was not a totally bad idea
WTH…“I can
Jon B,
I agree unions pushed for company paid pensions and it cost the CEOs nothing to give in to them, but people would be better off managing their own. Some people I know have been retired for years and are now getting benefits cut.
With the 401(k) deal they got the responsibility without the freedom.
CEO pay has been a sore point with me for years. I worked on several companies’ annual reports over 2 to 4 decades and saw the gradual evolution of boards packed with buddies. One year three of the companies had four or five individuals who all severed on each others boards and compensation committees. Real cozy
The currrent stimulus package passed by the Congress is a paltry amount of money. There are some reform aspects of the entire program like raising the caps on mortgages that fannie mae and freddie mac could finance despite large financial losses by both. Much of the $3.2 billion in losses were accounted for by derivative investments used as a hedge against falling interest rates on mortgages held by borrowers. The federal reserve is loaning distressed banks with non-performing mortgage loans funds against the troubled mortgages (or mortgage backed securities) as collateral. The fed may end up with $200 billion worth of bad debt or just under 2% of the total value of the US housing market. Anyhow efforts to help distressed borrowers are laudable.
What is really needed is a massive program of public investment in mass transit, infrastructure rebuilding, universal health care, renewable energy technologies and education. This would amount to several trillion and stimulate the economy by reorienting it and making it more productive through energy savings and improved health and skills of the workforce. It would also be a downpayment on rebuilding America’s middle class through creating new sectors in the productive real economy. Money would be redirected away from the financial markets and toward productive investment by redistributing wealth, raising wages, creating a steeply progressive tax on the very rich, and finally by restoring regulation to the financial markets. It was the unbridled casino economy that got us into this mess in the first place.
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