6 ms·

Wouldn't 401k's and pensions also get wiped out?

by itg 7y ago

toomuchtodo 7y ago
You can hack around that with policy. Think of SIPC insurance: in the event something crazy goes on with your brokerage, they step in and provide cash value of the equities at the time the insurable event took place. I've provided the below link as an example; ignore the limits, they would not be adhered to for my example due to extraordinary circumstances. Disclaimer: Huge fan of Chamath coming out and telling it how it is on CNBC. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
- strictnein 7y ago
  So the government will step in and protect the upper 20%? That's the plan?
  - toomuchtodo 7y ago
    I think it’s reasonable to protect retirement assets if means tested, yes. It’d be an entirely different story if pensions hadn’t been gutted and everyone tossed to the wolves with 401ks over the last 40 years. If you want to wipe out retirement assets and top it up with social security instead, again means tested, that’d be a reasonable approach. But you can’t tell folks their only option is 401ks and to be diligent savers, and then burn them to the ground out of moral hazard. The goal is to wipe out investors to whom hundreds of millions of dollars means nothing to their quality of life.
    - deleted 7y ago
      [deleted]
    - strictnein 7y ago
      So if I've been working 40 years, have a strong 401k, and am doing fine now I should get my savings wiped out? You're arguing all sides now. I didn't propose a policy that would greatly harm retirement savings, you did. You proposed protecting 401ks with government backing. I stated that doing so would be a boon to the top 20% at the expense of everyone else.
      - toomuchtodo 7y ago
        It seems I might not be communicating my thoughts on the topic coherently. My apologies! I felt that I have, but I think I’ll have to come back with a blog post instead of ad hoc thread comments. I appreciate the rebuttals for helping me refine my arguments! EDIT: /u/HarryHirsch's comment here [1] explains succinctly what I intended to explain but did so poorly. [1] https://news.ycombinator.com/item?id=22835580 https://news.ycombinator.com/item?id=22835580 ("You could nationalize the pension system. Considering the fact that on average the 401(k) balance is a few tens of thousands and that there is a retirement catastrophe coming, that wouldn't be the bad idea. The downside is that the stock market would be affected negatively since demand for stock would drop.")
- Schweigi 7y ago
  Actually SIPC doesn’t provide the cash value for equities. They provide you with the original shares which will be worthless if the company goes bankrupt. Its in the third paragraph of your link. Maybe it would be better to require retirement accounts to be invested in broad indexes to be eligible for a insure for a certain amount of money value. I don’t see how it could be done fairly on single stock base without having big discussions about what kind of events will be covered.
deleted 7y ago
[deleted]
drtillberg 7y ago
Pensions are Federally insured (PBGC). As for 401ks -- the custodians aren't at risk. So are you asking, "What if I make a bad investment in my 401k?". You lose money. Investing in a bankrupt company would be a bad investment.
- wmf 7y ago
  More like "What if people told me to put my 401k in index funds then half the companies on the index get wiped out due to a sudden policy 180?" At this point the bailouts have already been priced in for a decade and it isn't even politically possible to say "this will be the last bailout but next time there will be bankruptcy".
  - drtillberg 7y ago
    I think it would be interesting to see a tabulation of all the implied government guaranties compared to the practical limits of the government to generate money by "printing" dollars. The first category is practically unbounded and dynamic, I think. I wonder under what circumstances it could swamp the second category.
  - throwaway_USD 7y ago
    >"What if people told me to put my 401k in index funds then half the companies on the index get wiped out due to a sudden policy 180?" Maybe it is time people paying into pensions and 401k's begin to understand they are scams enshrined in law to prop up the financial industry. Maybe if mainstreet stopped giving their money to wallstreet to mismanage in the first place there would be no need for future bailouts to begin with as wallstreet runs a muck with pension and 401k funds. These are the very same bankers who continued to buy toxic mortgages in 2008 with Client funds as the banks were selling off any positions they had in the very same assets.
  - asdff 7y ago
    Then you'd take a deep breath, pull up a chart from any other recession in history, and see that you and the market index will be back to where you were in 2-5 years. This would be a good time to buy, and average down your positions.
HarryHirsch 7y ago
You could nationalize the pension system. Considering the fact that on average the 401(k) balance is a few tens of thousands and that there is a retirement catastrophe coming, that wouldn't be the bad idea. The downside is that the stock market would be affected negatively since demand for stock would drop.
uskiwi 7y ago
There's a slippery slope between "I saved hard and I don't want to lose the money I was recommended to invest in the stockmarket" and "I have a billion dollars in stock and I want to remain completely whole". It is possible to achieve the first without the second. You can have federal insurance (like FDIC/SIPC) that fades out rather than has a strict cutoff (you get 100% of the first 100k, 80% of the next 400k etc etc). There's some boundary where you "should" have been sophisticated and deserve to lose some money (probably near the point where you have a high end accountant look for deductions or are an accredited investor). Yes, this is "unfair" to people who had very high paying jobs. But it's easy to argue that the current tax code is also "unfair". It's a question of "how unfair, and unfair to whom" not "we need this to be completely fair / preserve the status quo".

Wouldn't 401k's and pensions also get wiped out?

by itg 7y ago

Wouldn't 401k's and pensions also get wiped out?

You can hack around that with policy. Think of SIPC insurance: in the event something crazy goes on with your brokerage, they step in and provide cash value of the equities at the time the insurable event took place. I've provided the below link as an example; ignore the limits, they would not be adhered to for my example due to extraordinary circumstances. Disclaimer: Huge fan of Chamath coming out and telling it how it is on CNBC. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects

strictnein 7y ago
So the government will step in and protect the upper 20%? That's the plan?
- toomuchtodo 7y ago
  I think it’s reasonable to protect retirement assets if means tested, yes. It’d be an entirely different story if pensions hadn’t been gutted and everyone tossed to the wolves with 401ks over the last 40 years. If you want to wipe out retirement assets and top it up with social security instead, again means tested, that’d be a reasonable approach. But you can’t tell folks their only option is 401ks and to be diligent savers, and then burn them to the ground out of moral hazard. The goal is to wipe out investors to whom hundreds of millions of dollars means nothing to their quality of life.
  - deleted 7y ago
    [deleted]
  - strictnein 7y ago
    So if I've been working 40 years, have a strong 401k, and am doing fine now I should get my savings wiped out? You're arguing all sides now. I didn't propose a policy that would greatly harm retirement savings, you did. You proposed protecting 401ks with government backing. I stated that doing so would be a boon to the top 20% at the expense of everyone else.
    - toomuchtodo 7y ago
      It seems I might not be communicating my thoughts on the topic coherently. My apologies! I felt that I have, but I think I’ll have to come back with a blog post instead of ad hoc thread comments. I appreciate the rebuttals for helping me refine my arguments! EDIT: /u/HarryHirsch's comment here [1] explains succinctly what I intended to explain but did so poorly. [1] https://news.ycombinator.com/item?id=22835580 https://news.ycombinator.com/item?id=22835580 ("You could nationalize the pension system. Considering the fact that on average the 401(k) balance is a few tens of thousands and that there is a retirement catastrophe coming, that wouldn't be the bad idea. The downside is that the stock market would be affected negatively since demand for stock would drop.")
Schweigi 7y ago
Actually SIPC doesn’t provide the cash value for equities. They provide you with the original shares which will be worthless if the company goes bankrupt. Its in the third paragraph of your link. Maybe it would be better to require retirement accounts to be invested in broad indexes to be eligible for a insure for a certain amount of money value. I don’t see how it could be done fairly on single stock base without having big discussions about what kind of events will be covered.

deleted 7y ago

[deleted]

drtillberg 7y ago

Pensions are Federally insured (PBGC). As for 401ks -- the custodians aren't at risk. So are you asking, "What if I make a bad investment in my 401k?". You lose money. Investing in a bankrupt company would be a bad investment.

wmf 7y ago
More like "What if people told me to put my 401k in index funds then half the companies on the index get wiped out due to a sudden policy 180?" At this point the bailouts have already been priced in for a decade and it isn't even politically possible to say "this will be the last bailout but next time there will be bankruptcy".
- drtillberg 7y ago
  I think it would be interesting to see a tabulation of all the implied government guaranties compared to the practical limits of the government to generate money by "printing" dollars. The first category is practically unbounded and dynamic, I think. I wonder under what circumstances it could swamp the second category.
- throwaway_USD 7y ago
  >"What if people told me to put my 401k in index funds then half the companies on the index get wiped out due to a sudden policy 180?" Maybe it is time people paying into pensions and 401k's begin to understand they are scams enshrined in law to prop up the financial industry. Maybe if mainstreet stopped giving their money to wallstreet to mismanage in the first place there would be no need for future bailouts to begin with as wallstreet runs a muck with pension and 401k funds. These are the very same bankers who continued to buy toxic mortgages in 2008 with Client funds as the banks were selling off any positions they had in the very same assets.
- asdff 7y ago
  Then you'd take a deep breath, pull up a chart from any other recession in history, and see that you and the market index will be back to where you were in 2-5 years. This would be a good time to buy, and average down your positions.

HarryHirsch 7y ago

You could nationalize the pension system. Considering the fact that on average the 401(k) balance is a few tens of thousands and that there is a retirement catastrophe coming, that wouldn't be the bad idea. The downside is that the stock market would be affected negatively since demand for stock would drop.

uskiwi 7y ago

There's a slippery slope between "I saved hard and I don't want to lose the money I was recommended to invest in the stockmarket" and "I have a billion dollars in stock and I want to remain completely whole". It is possible to achieve the first without the second. You can have federal insurance (like FDIC/SIPC) that fades out rather than has a strict cutoff (you get 100% of the first 100k, 80% of the next 400k etc etc). There's some boundary where you "should" have been sophisticated and deserve to lose some money (probably near the point where you have a high end accountant look for deductions or are an accredited investor). Yes, this is "unfair" to people who had very high paying jobs. But it's easy to argue that the current tax code is also "unfair". It's a question of "how unfair, and unfair to whom" not "we need this to be completely fair / preserve the status quo".