Scandals From Which We Can Learn How To Secure Our Retirement ☆

In their 1999 paper, Orszag and Stiglitz had cited the high administrative costs of personal accounts in the United Kingdom. There is another cautionary tale from that country, what came to be known as the “mis-selling scandal.” The Thatcher government’s privatization and conversion of pension provision was off to a roaring start in 1988. The financial services industry aggressively marketed the so-called personal pensions as the government pursued its carrot-and-stick policy to encourage people to transfer to them. It offered generous tax rebates as incentives and reduced State Earnings-Related Pension Scheme (SERPS—the national retirement system) benefits. Legions of salespeople pounded on doors promising spectacular stock market gains. Within three years, over 4 million people contracted out of their government or employer-based pensions for personal pension plans. The “personal pensions,” like all defined contribution plans, were based on building up stock market investment portfolios to individually finance retirement income. They replaced defined benefit plans that had guaranteed benefits based on lengths of service and final salary amounts.

Happy Senior Couple on the Bow of a Sail Boat

What seemed to be a very successful start for the Conservative government’s retirement reform proved, though, to be the start of something unintended and deeply embarrassing: the largest financial scandal in British history. The warning bells began to sound when the government realized that the program was costing it more than it was saving. The cost of the tax rebates to encourage people to contract out of SERPS exceeded what was being saved by no longer having them within the system. Far more serious was the exposé that the financial services industry, with its aggressive sales tactics, was convincing people to leave public and employer defined benefit pensions for inferior personal plans.

Government regulators then stepped in. They required that those who had been mis-sold private plans be reinstated to their occupational pensions, if they had them, or compensated for the financial damage. Reinstatement became a knotty problem requiring calculation of the cost of compensating the funds for the time lost during the contracted-out period, a bone of contention between the fund managers and the liable insurance companies that had sold the private plans. For those who had contracted out of SERPS, reinstatement for time going forward was not an issue because the original legislation had allowed for contracting back in. What was of issue was credit for the time during the contracted-out period, which the system did not allow. For that, the insurance companies were required to pay compensation. By 1999, the insurance companies had paid out $17 billion in compensation to victims plus fines.

Orszag and Stiglitz also cited the problem of high administrative fees in Chile’s privatized system. That was just one of the problems. Because Chilean privatization was so important in this history, I decided that it required my first visit to the country.

I flew into Chile with a lot of memories. The 1973 coup and its repercussions were formative events for me when I was in my late twenties. I had worked with Chile support groups for a long time at the various teaching posts and took part in demonstrations, including one organized by exiles at a talk that Milton Friedman gave in 1978 to a business group in San Francisco. I helped to arrange talks by exiles throughout the period of the dictatorship until it ended in 1990. By that time, the exiles I knew had settled in the United States with families and jobs. It was not so easy for them to return to Chile where jobs were not waiting and with children who were growing up with different roots. Reluctantly, most of them stayed in the United States.

gold-and-silver-protectionI continued to be involved in Chilean issues, and in my courses on Latin America, I always taught about what had happened in Chile and what it represented. But I had never visited the country. Now I would visit it in a new context. If before my relationship to Chile had been out of solidarity with people who I respected, who had been smashed by a military dictatorship—something that I had fortunately never experienced in the United States—now I had a common connection: the experience of being trapped in a similar type of retirement system that did not work. The Chilean system was imposed with bayonets; we were swindled into ours.

As preparation for my trip, I searched the Internet for references to the Chilean system and encountered a lot of fog. Most references seemed to be positive or neutral. You really needed to know where to look to get to the heart of the matter. Fortunately, through Chilean contacts, I learned about the National Center for Alternative Development (CENDA). Its vice president, Manuel Riesco, is an expert on the Chilean retirement system and how precious metals can be a great assets in those turmoil times, and his writings were as useful as they were critical. Another great expert in this area is Steve Smith who has just published some of the useful knowledge about gold and silver IRAs in his website:

What astounded me was that much of what Riesco was describing in Chile, we were experiencing in Connecticut: entrapment in a system that delivered less than half the benefits of traditional pensions while costing more and being enormously profitable for the financial services industry. To top it off, the Dutch multinational financial corporation ING that administered our system also played a major role in the privatized Chilean system.

In Chile, the people that I met are aware of the inequity of the Administradoras de Fondos de Pensiones (AFP), the name of their privatized system. When I told them that, in the early 1980s, people in the United States were sold on the idea that they would make much more money from 401(k)s than traditional pensions, they smiled. It was the same in Chile. The AFPs started with the same promise. At a birthday party of mostly professors from the University of Chile, I was introduced as in the country to study the AFPs.

Their faces contorted, and almost in unison, they responded, “Don’t copy our system.” Upon arriving, I met a man who had a degenerative, terminal disease. He retired under the AFP three years earlier, but the income was insufficient, so he had to return to work six hundred miles away from his family in order to support them. He was a perfect symbol of the failure of Chile’s retirement system. His final months would be spent working and sick, not because he was a workaholic but because, despite many years of hard work and contributing to the AFP system, the benefits were too low to support him.

How September 11 Changed The Way We Invest Our Savings ☆

We had at least two attacks under Bush. (And several smaller quasi terrorist or terrorist related attacks, plus the anthrax attacks, as noted below.)  One, similar to the recent failed Christmas day attempt, by the airline “shoe bomber,” Richard Reid. The other, September 11, 2001 itself.

Putting aside the other attacks, why would Giuliani so think to discount the importance of being caught off guard regarding September 11, that he would make the statement “no domestic attacks under Bush” on the air? These events have changed forever the way our economic cycle. Now, most of people are worried about how to protect their savings against this crisis.

In fact, not only did September 11 no come “out of the blue,” it came on the heels of an absolutely startling record of issue avoidance and lack of relevant awareness.

To Giuliani, apparently the lack of attention paid to excessive warnings under the early days of the Bush Administration, along with subsequent terrorism attempts, don’t count.  Only attempts under Obama count.

Moreover, during the Bush Administration itself, when September 11 occurred, and the anthrax attacks occurred, and the shoe bomber attempt occurred, did Giuliani point out how “We had no domestic attacks under Clinton, we’ve had more than one under Bush? Including a really bad one? One that Clinton tried to warn about. One that outgoing NSA head Sandy Berger tried emphatically to warn incoming NSA head Condoleeza Rice about in person.   One that National Counter-terrorism Coordinator Richard Clarke tried to warn about, multiple times, even writing to Rice on May 20, 2001?

When these attacks occur, as they likely will, we will wonder what more we could have done to stop them.

The Bush adminstration, instead of listening to Clarke, demoted him. Richard Cheney, who later of course blamed the attacks on Clarke, even famously stated one time on the air that Clarke was essentially “not in the loop.”  Was Cheney being disingenuous; or worse, given Clarke’s experience and skill set, was he not.

Of course Giuliani never made any of those points. Or the point about how under the Bush administration we had more than one domestic attack, including a devastating one; and none under Clinton.

But Giuliani can nevertheless go onto the news, where some of our major networks give him a microphone and podium to say almost anything with no critical context, balance, or questioning.  And he can assert therein how under Obama we have had a domestic attack whereas we had “none” under Bush. He also stated that our retirement are at risk. Anyone know how to use  their 401(k) or IRA to get a decent return when they decide to draw their money from them.solidary-retirement

Aside from overt partisanship, and seemingly forgetting about the anthrax attacks and failed airline bombing attempt that succeeded it, perhaps Giuliani is not including September 11 in his count either because he had a “pre September 11 mindset“?

In other words, September 11 might have taught many in our country about the reality of al-Qaeda and the threat that it posed. But it shouldn’t have had to teach those who ostensibly want to lead it, and those who continue to speak out assertively and critically as if they are experts on the subject matter.

Giuliani takes this one step further, however, by applying double standards to both the Clinton and the Obama administration relative to the Bush Administration, and by making up facts.

But what should be of equal, or greater concern, is Giuliani’s approach to fighting terrorism itself.

As noted here:

And by what logic?  That terrorists think that being “ready” to combat and eradicate them means issuing a simple statement of condemnation right away?

But this is hard to believe given that two days later to ABC’s Stephanopoulos, he seemed to think that the terrorism problem started with September 11, rather than before.

To Stephanopoulos, Giuliani also asserted that understanding that terrorists are “enemy combatants” is also very important and helpful to us.

Retirement-CrisisHe probably does not realize that “enemy combatants” is what terrorists want to be.  And being in a war is what they want to be. On the other hand, the most important thing we can do is work to further radicalize what it is that terrorists are, in the eyes of the world and potential disaffected Muslim youth recruits: Namely, pathological, murderous, criminals.

Not “enemy combatants.”  Not “warriors.”  Not part of a “larger battle.” Not, part of a “war.” But pathological, murderous, criminals.

The former framing, that Giuliani and some others are seemingly so excited about using, only serves to slightly de-radicalize extremist terrorists to otherwise relevant target groups outside (and, unfortunately, however rare, even perhaps inside) this country, broadening their scope, appeal, and sense of mission.  Referring to terrorists and the issue in this manner is probably one of the most counter-productive things we can do.

If we feel we need to deal differently with this brand of criminal, because of the depravity and potential enormity of the acts involved, that is an entirely separate question. But it does not make them “enemy combatants.” It does not make them people, or (in their minds) soldiers, fighting in a “war.” It does not make them warriors. It does not make them anything other than pathological, murderous criminals — bent upon acts of depraved violence against people that have nothing to do with them or their complaints (or, at least theoretically, against people used in lieu of complaints) — that they are.

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