Sunday, June 25, 2006
Bear This In Mind When You Consider That Bush Wants To Take Our Social Security Money And Give It To The Brokerage Firms
The Federal Reserve Bank of Boston has put out a rather interesting working paper (warning: PDF file) on dishonesty in American life and its policy implications. Here's an excerpt therefrom:
In addition to corporate scandals, almost all companies present their employees with the conflict between selfishly pursuing their own financial goals and being honest. Perhaps the clearest of these examples is brokerage companies. The fact that brokers are rewarded based on the volume or profitability of the business they place provides ample opportunities for conflicts of interest. Even though brokers are supposed to act in their clients’ best interest, the commissions system can tempt brokers to choose personal gains over their clients’ interests: they may pressure clients to buy and sell when the brokers stand to gain larger commissions, recommend stocks or funds that are suitable for the broker but not in the client’s interest, delay the trades ordered by their clients to first invest their own money, or misuse knowledge of a large impending order (Davis 2004; McDonald 2002).Bear in mind that the current Social Security system has overhead costs of less than one percent, even as similar US private sector endeavors such as the life insurance industry have obscenely high overhead rates averaging 12 to 14 percent of the benefits. (Remember, Social Security is an insurance program that's run by the public sector.) And that's not the worst of it: In countries where the pension plans were privatized, such as Chile, overhead costs are typically twenty times that of Social Security.
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I'm sure all those brokerage profits would stimulate the economy and eventually trickle down to the rest of us.
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