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Idiot of the day: Allan Sloan (or the dumbest suggestion how to reform Social Security)

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February 04, 2010 – Comments (0)

This otherwise good article contained one surprisingly dumb statement: 

"It would have been a lot simpler to fix the system years ago, when we could have used Social Security's cash surpluses to buy non-Treasury securities, such as government-backed mortgage bonds or high-grade corporates that would have helped cover future cash shortfalls. Now it's too late."

This passage is remarkable for what it suggests, but it's even more remarkable for what it doesn't suggest. The original Republican vision was to "invest" Social Security funds in stocks and derivatives, and we now know how that idea would have fared. With the benefit of hindsight vision, Allan Sloan now knows that stock market can be a dangerous place, especially when it is as overvalued as it was in 2007. So he is now peddling government-backed mortgage bonds and high-grade corporates. Well, we now know that government-backed mortgage bonds have fared significantly better than stocks for the simple reason that government backed them. Sorry for the tautology. But I am hard pressed to see the benefits of moving money from treasuries to other securities that are essentially the same treasuries under a different label. The Fed is now buying 1.25 Trillion worth of MBSs; if we listened to Allan Sloan, the bailout would have to be several times larger. As an extra bonus, this kind of "investment" would lead to an even greater bubble followed by an even greater bust. As for high-grade corporates, the risks of these bonds haven't been adequately reflected in their yields vs. treasuries, and I suspect we would have to bail out some more AAA corporations just so that retirees could have the same level of benefits, and did I mention it, the AAA bubble would undoubtedly have assumed even larger proportions when the music was still playing. Allan Sloan gets the Idiot of the Day title for the dumbest suggestion how the government should take its hands off Social Security.  

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