Hello Ray,
Instead of debating Enron history, which is being rewritten as we speak <g>, and will be rewritten with every shift of the shifting sands of political fortunes, let's briefly debate what changes appear to be coming about, allegedly because of the Enron imbroglio.
The most worrisome thing I've seen so far, is a bipartisan Congressional effort (apparently supported by the Executive branch of government) to legislate against an individual's freedom of choice to disproportionately invest in what s/he knows best, that being their own employer's stock. Now I'll be the first to concede that at first blush, this looks very much like a honest attempt to protect people from their own foolish investment strategy of keeping most all of their investment eggs in one basket. If the basket drops, there go the eggs, sort of like an Enron investment. (And if the basket falls, not only is the investment lost, but in many cases, so is the job.) This sounds very much like the sort of thing everyone can agree on; let's legislate against "stupidity". But is legislating against stupidity the real motive behind this endeavor?
I think not.
Let's examine what happens when and if such a law passes.
Will there be any "grandfather" period for people who already have disproportionate employer holdings in a 401(k) or a combination of 401(k) and ESOPs and profit sharing plans in which to slowly (read: over a long period of time) bring their employer holdings down to "safer" levels? I'd wager not.
The reason I ask, is that I am 100% certain that there are literally tens of thousands if not hundreds of thousands of current employees that have disproportionate investments in their employer's stock, whether in a tax sheltered environment or otherwise. Just think Cisco, IBM, Intel, Oracle, Microsoft, newcomer Krispy Kreme, Wal-Mart, GE, and the list of great companies becomes endless. On the other hand, there are employees of K-Mart or Enron, Lucent or AT&T, who have used a similar strategy and not come up winners (so far).
Is this grandiose scheme to legislate holdings going to include executives and their stock options and their already favored retirement plans? Let's be fair about it. If our Congress is going to restrict the little guy, they should include the same restrictions on the big boys as well. (Anyone want to bet that any proposals that come out of Congressional committees conveniently "disregard" class distinctions, and create a huge advantage for the big boys?)
So, let's say they pass a law that says you can't have more than 25% (an arbitrary figure that has been tossed about in the press lately) in your 401(k). Let's further assume they put an effective date of January 1, 2003 on the law, and let's further assume that the law doesn't include any ESOPs or profit sharing plans, or any employer granted options outside of the 401(k). One last assumption is that the market on January 1, 2003 is virtually the same market as we have today, that is not overtly bullish, and somewhat subdued, with stock prices nowhere in the vicinity of their all-time highs.
If that were the case, we would have (likely) hundreds of thousands of working folks forced to sell holdings accumulated over many years in a very short time span, in an effort to comply with this law. What happens to the price of the stocks while this is happening? The law would be forcing people to sell into a depressed market, thereby virtually locking in massive losses, and removing any hopes of eventual reversal of those losses in the likely event that the markets would eventually recover and surpass their all-time highs at some future date. I don't buy into the argument that as Cisco employees are forced to sell, that they would buy the Microsoft stock that the Microsoft employees were forced to sell, and vice versa, ad infinitum as we include the entire universe of employees (and stocks) forced to sell.
Who would profit from such a move? Very clearly, those people (read: the already wealthy) who could now buy most any stock at depressed prices, knowing that at some future point, they'd reap a windfall when stocks ultimately recover.
I see this legislation as nothing more than a very thinly veiled attempt to transfer wealth from the general population into the hands of those who already have wealth. And the attempt to do so is disguised as a "benefit" to employees everywhere so that our workers don't have to suffer any more Enron experiences. What a crock of poop...
To be sure, mutual funds would also benefit, as many if not most of these people would be forced to use mutual funds for diversification, and I'm not aware of any 401(k) plan that allows employees to invest in individual stocks, other than the employer's stock.
Isn't this a wonderful way to force people to divest themselves of their employer holdings, which in many cases have been "salted" away and protected in 401(k) accounts for years? Isn't this a wonderful way to force people into trading, albeit not a direct trade?
Disgusted by our elected government, both parties, neither of whom gives a damn about the little guy...
KJC |
