John Ray, at Dissecting Leftism blog, a daily read for me, writes about Senator John Corzine's attack on the POTUS' visit to the filing cabinet in West VA that IS the Social Security Trust Fund.
As an aside, note that many government functions are in West Virginia, not the Nation's Capital, because (D) Senator Byrd has operated pork-barrel schemes for decades to move them there.
Back to Corzine. Mr. Ray excoriated Corzine for attacking Bush, saying that Corzine, of all people, should know better since he was the CEO of Goldman Sachs, a large Wall Street holding company, for a while.
I know Goldman Sachs. I spent the glorious Spring of my senior year in High School in the library, researching Goldman Sachs for my main term paper.
Goldman Sachs, you see, was largely responsible for the Crash of '29, which precipitated the Great Depression.
My term paper in high school (in the '50's) was written about the role Goldman Sachs played in triggering the Crash of '29. Goldman Sachs INVENTED inflatable currency, and also was the best extant example of a shadow holding company. In the days when stock equities could legally be purchased on a 10% margin (10% cash would leverage the other 90% of the shares, which you then controlled, and payment wasn't due until you sold the shares), Goldman Sachs allowed favored customers (Wall Street darlings, all) to cover their margins (the 10%) with marginally owned stock from another layer of their corporate wedding cake (Ponzi scheme, anyone?). Since that cake had three or four layers (I don't recall the exact depth of the structure now), some investors actually had less than one percent cash in their equities.
The problem for Wall Street and the entire country came about when Goldman Sachs convinced the Street that everything they purchased was paid for. So when the giant holding company bought up a firm's public offering, the impression was that there was real money or security behind the deal.
Nothing could have been farther from the truth, and came Black Friday, with it's margin calls (a margin call was the investment bank requiring you to put up the other 90% in cash or a surety bond), the entire nation suffered from the mistakes of Goldman Sachs. There were other holding companies, but none to match Goldman Sachs' pervasiveness in the equities market. Goldman Sachs' attitude about market equities infected the banking industry as well (or perhaps it is better said that a greedy banking industry fostered the attitude that G/S perfected as a holding company).
My paternal grandfather was a real estate baron in Portland, Oregon before the Crash. A poor emigrant from Russia (a tailor actually), he did well locally in the secondhand store business. He invested his profits in real estate, buying houses and apartment blocks as well as several nice homes for himself. He even owned the leasehold on an expensive downtown city mercantile block which included a popular hotel. He was able to purchase real estate and enter into leases only because the banks of the time loaned out money to finance real property on a promise of tenancy (just like they do now).
When the Crash came, most of his tenants, who were wiped out by their investments in a crooked Wall Street or by the fact that they suddenly lost their jobs, came to him and just handed him their keys or told him they would wait for the Sheriff to evict them, but in either case, they could no longer pay rent. Within a few months, my grandfather was living in a tenement, down to one failing secondhand store (people couldn't even afford to buy goods secondhand after the Crash) and was supported by my dad, a pharmacist then.
Such is the tyranny of inflated wealth.
Corzine should know it well, since he ran the one company most responsible for the Great Depression. In the interim 80 years or so, Goldman Sachs was cut back to a shadow of it's former self (by SEC regulation, not by any self-regulation), but in the '60's and '70's it began to grow again, and today is almost to the position as a holding company that it was back in the '20's. The rules of investing no longer tolerate direct equity purchase on margin, but the S&L collapse of the '70's and '80's and the junk bond schemes of the same time show that nothing much has changed. Just ask George Soros where his billions came from.
I have two close friends who had admirable portfolios a decade ago, and planned luxurious retirements. Today, on a modest pension, I do better than either of them, and one of them has had to delay his retirement. Their multimillion-dollar portfolios lost half to two-thirds of their values, and miniscule interest rates give them no advantage in the cash market either. Their homes are their only paying investments currently.
I am conservative, but have a fairly deep family distrust of the equities market, and have never played it except for putting my daughter's college funds there (and I bailed out just in time to avoid disaster when the dot com bubble burst). Is there any wonder that other seniors (I am just on the senior side of the Baby Boom) don't trust the Street for their Social Security money? When the government prints money by fiat (aka unbalanced budget), and the banks and Street issue plastic to anyone with two legs and a signature, there is no, repeat, NO sound base for investment except land, and that's a five percenter if you buy and manage it well.
On the other point that John Ray raised, I hope no readers get the impression that I support AARP on their (D)onk-inspired campaign against Bush's Social Security reform. AARP exists to sell insurance to gullible older folks, and their corporate structure has been completely co-opted by the (D)emocratic Party. They are just a tool, and they always have been just a tool.
No, the POTUS is correct: Social Security is in bad need of reform. Having it's base invested in the economy of this nation is fine with me, but I would give a more critical eye to the investment companies and stock-purchase schemes involved. It would be very easy for a crooked company to take a major position in the Social Security Trust Fund by simply acquiring companies that passed muster for the investment trust.
The obvious answer here is to require investment trust companies to stand alone, and make them unavailable for corporate purchase on the Street, but doing so would scare off most of those companies' investors. I don't know what the answer is going to be, but my instincts and my reading of history tell me that putting money with a Wall Street holding company has no better security than taking it to Las Vegas and putting it on the craps table.
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