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07/05/2005: "First Con’s New Private Accounts"

GOP legislators have come up with a highly creative way to offer private social security requirement accounts while managing to avoid at least the appearance of touching the “third rail” issues of Social Security, i.e., 1) cutting benefits or 2) “carving out” money being paid to current retirees. The proposed accounts are funded not from new taxes or new borrowing (as would have been required under previous proposals) but by re-raiding the temporary surplus in payments to the Social Security Trust Fund. Re-raiding is the correct term because these payments are already being raided to fund current government operations, thereby making the deficit look hundreds of millions less than it really is. The new plan calls for payment into these accounts to stop once this surplus ceases, creating a weird and historically unique retirement funding mechanism. Presumably the GOP hopes to create enough momentum to ensure that owners of the stalled private accounts demand some kind of permanent funding mechanism. Remembering that financial institutions (and not just governments) provide for retirement benefits, what would it look like if a bank offered an account like this? Scene: A private banking account manager is speaking with one of his high net worth couples. “Thanks for coming by, Dick and Lynne. I’m pleased that you’re the first to hear about First Consolidated Bank’s new retirement account for our preferred private banking customers. First Con is always looking for ways to reward people like you; we think of our private banking clients as the foundation, indeed the very Base of our enterprise. Anyway, the geniuses in Product Development have come up with something that you’re going to love. The new accounts are funded from payroll contributions that would normally be paid to customers who will be retiring before you. I know it doesn’t sound kosher but Legal came up with a creative way to make it work. It involves borrowing against money that is already being borrowed against to run the bank. You don’t want to know the details! The bottom line is that when all that borrowing comes due - after the current bank management, including moi, is outtahere - our preferred customers with the private accounts will be locked in for their money, while the rest of the schmucks will be standing in line. So whadya think?” “Sounds like a no-brainer. Sign us up!” “I knew you guys would get the picture! Think of it as just one more way that First Con looks out for its special people!”