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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Joe NYC who wrote (481000)	5/15/2009 12:02:21 PM
From: Alighieri	Read Replies (2) \| Respond to of 1573433

The Obama administration's agenda of maximizing dependency involves political favoritism cloaked in the raiment of "economic planning" and "social justice" that somehow produce results superior to what markets produce when freedom allows merit to manifest itself, and incompetence to fail. The administration's central activity -- the political allocation of wealth and opportunity -- is not merely susceptible to corruption, it is corruption. There are lots of issues that obama would rather deal with than the mess left behind by george will's politicians of choice. Al

To: Joe NYC who wrote (481000)	5/16/2009 4:37:14 PM
From: TimF	Respond to of 1573433

BECAUSE THE STOCK MARKET IS DOWN, people are saying the 401(k) has “failed.” But the question is, “compared to what?” Public pensions are woefully underfunded — they’re promising defined benefits, but may not be able to deliver. Defined-benefit private pensions are dragging companies like GM, Ford and Chrysler toward bankruptcy. And Social Security is on an unsustainable trajectory, which the political system knows but which politicians can’t bear to confront. At least when 401(k) balances go down, the whole system isn’t rendered insolvent. pajamasmedia.com In the link the blog post refers to there is a rather silly argument "Equities offer a higher return, but they also bring greater risk. The natural response is to think about trying to protect people by offering guarantees. The problem is that low rates of guarantee –- 2 percent or 3 percent inflation-adjusted –- would have done nothing to protect workers over the last 84 years. The reason is that no retiring cohort would have earned less than 3.8 percent on a portfolio of equities, so low guarantees would never have kicked in. Only high guarantees – like 6 percent – would have had any impact..." Such gauarantee's are essentially insurance against long term underperformance. The fact that if they had existed they wouldn't have kicked in is a good thing not a bad thing. Its hardly a problem when you buy insurance against fire and your house doesn't burn down. Thomas Saving wrote the best of the short articles at that link -- Don’t Judge 401(k)s in a Crisis Thomas Saving Thomas R. Saving is the director of the Private Enterprise Research Center and professor of economics at Texas A&M University. So your 401(k) has tanked, what do you do now? There is little doubt that the majority of us had a significant portion of our 401(k) invested in equity markets and most of us have experienced a loss of nearly 50 percent in the value of that investment over the past year. While this inverse financial tsunami is a rare event, rare events happen. The essential question is, would you have been better off if your 401(k) was invested entirely in U.S. Treasuries? Your future is still more secure if you own it rather than someone else. For example, consider the last bad drop in the stock market in 2000 to 2002. The inflation-adjusted yield on a 35-year portfolio invested in the S&P 500 if sold at the market peak in January 2000 was 9.74 percent, but at the market trough in July 2002 it was still a robust 7.35 percent. Both these yields are far greater than the inflation-adjusted yield on Treasuries. There is no doubt that the world is risky and rare events happen. But what is the alternative? Assuming that the current value of equities represents the future earnings of the underlying corporations, then unless you believe that something fundamental has changed so that the long-term future of the economic system is one of stagnation, you should continue to invest in your 401(k) and maintain an age-adjusted equity share. The one fundamental that has changed, at least in the short run, is the market’s perception of the “rare event” risk. It is common for our perception of the likelihood of a rare event to rise immediately following that event. In the investment world, the consequence of this perception is an increase in the compensation investors require for assuming market risk, the “equity premium.” Thus, even if the market expects firms to return to their former profitability, the current value of these equities will be below pre-rare-event level. As time passes, the “equity premium” required to account for market risk falls, allowing the market value of equities to return to pre-rare-event levels. The real question is whether there exists a superior instrument, in this case meaning an instrument with less risk and an acceptable rate of return? Essentially, what is the alternative to the individually-owned 401(k) system? The solution is not a return to the defined benefit plans of the past that depended on the viability of the firms responsible for paying the benefits. Your future is more secure if you own it, rather than someone else. Would you be safer if we nationalized the 401(k)s and gave national guarantees? Taxpayers already provide substantial insurance to retirees in the form of inflation-adjusted Social Security benefits. The security of these “promised” benefits depend on taxpayer willingness during times of economic distress to pony up the money for your well-being while they suffer. Life has no real guarantees. It is better to have a genuine property right to an uncertain retirement benefit than no enforceable right to a promised benefit. roomfordebate.blogs.nytimes.com