Uncle Sam is Enron

Guess what folks. Remember all that extra money Social Security was collecting, well they aren't anymore. This year they have to pay out $29 billion more in benefits than they collected in taxes. That means breaking into the office in West Virginia that holds 2.5 trillion in government bonds (really IOUs).

Think about that for a minute. If your private company decided that it was going to spend all of the money it made, plus it's reserve fund, then repay the reserve fund with IOU's, from itself, it would be called Enron. When the IOU's came due and the accounts were all broke, Congress would be holding investigations and the CEO and CFO would go on trial. When Congress does it this is called "safe investing".

Did you know that your company can't legally require you to put any of your retirement into company stock? Yet the government gives you no choice but invest your social security payroll tax in their bonds.

If you wonder why the deficit is going up so fast, keep in mind that for the last 30 years we've been counting the Social Security surplus twice. We count it the first time and claim it's a surplus, then spend it (replacing the money with T-Bills). Then we count that money again as part of the general budget to show lower deficits than we truly have.

Bill Clinton never had a balanced budget, the closest he ever came was really about $330 billion in deficit spending, then raided the Social Security surplus to tell us it was balanced. Every President since Social Security started has done the same thing.

So how do we fix the Social Security problem? First, we'll have to raise the payroll tax, either on everyone paying it, or extend the limit on the amount that's taxable; or cut benefits (good luck with that).

Then the surplus needs to actually be put somewhere that the government isn't paying itself for the use of the money. Either corporate bonds, or another government's debt would be the safest place to do it. Then when the IOU's are do, Uncle Sam isn't trying to pay you with money he has to borrow. Instead he's paying you with money coming from a different source.

Congressfolks have demonized the idea of investing Social Security's money anywhere but in the same government that's supposed to pay the benefits; but at the same time have made it illegal for private business to do the same thing. If business isn't allowed to do it, there is probably a reason, one that government should probably think about in terms of itself.

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Please Don't Help, You've Done Enough!

John McCain and Barack Obama are promising to end the current culture on Wall Street, and bring stability back to the markets through regulation. I have a better idea, get government the hell out of the markets. As Reagan said a quarter century ago "Government is not the solution to our problem. Government is the problem."

Zachary Karabell, writing in the Wall St. Journal notes that much of what's ailing the financial sector today has to do with the knee jerk 'solutions' the government came up with after the Enron fiasco a few years back. He doesn't advocate no regulations on the market, but points out that bad regulations are killing it.


His example is AIG. Because of new accounting rules, companies like AIG that either hold or insure mortgage based derivatives have begun marking down their values. The problem is that because of a number of regulations, some of these mortgage based derivatives are being valued at $0, even though they are obviously worth more than that.


If you have a portfolio with $1 billion worth of mortgage paper, and housing prices decline 20%, how does that suddenly add up a portfolio worth $0? It doesn't in a sane world, but in the one created to prevent an Enron it's creating a disaster of much larger proportions.


AIG and other companies have warned shareholders that the losses they are reporting aren't "real". Why would they say that? Because they know that regulations require one type of accounting, but real value uses a different one.


AIG is now a government held entity not because there was a run on their mortgage based security insurance products, but because their "might be" a run on them, and they couldn't cover it.


How weird is this environment? Goldman Sachs reported higher than expected earnings yesterday, and their stock DROPPED about 20%. If you listened to the news today, you probably figure that they are done, the next big investment bank that will fail.

Did you know that the 20% drop brought their share price down to $114.00? Or that they earned $1.81 per share, yes, they turned a profit, of 810 million dollars! Yet markets are freaking out over their liquidity.

Only in a government "helped" world would a company that earned 800 million dollars be considered primed for failure. Only in a government "helped" world would a company holding $1 billion in good mortgages be in trouble because of $200 million in bad ones.

I've seen what the government does to help, thanks but no thanks. If you are really interested in helping, consider fixing your screw up on financial reporting so that good investments don't look bad.

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