The 401(k) Scam

Commenter StringonaStick, who has some expertise on the subject, explains it all for you:

What I really want to rant about though is what a cynical, hollow promise the whole rise of the 401(k) thing is/was. One of my careers was as an at-home stock trader, and I learned a lot by reading and interacting with professional traders (I managed to use the intertubes to weasel my way into a few places I sure couldn’t get into now). I got into a long email war with a hedge fund trader who was taking me to task for even assuming that retirement is a right; he was of the opinion that it was something the US couldn’t afford anymore. Of course he’s rich enough that it won’t be an issue for him, just the stupid proles and who gives a shit about them anyway, amirite?

401(k)s were just how corporate Murika figured out who to entirely off-load their worker’s expectation of having a pension; no more obligations for them, and all the risk assumed by the worker. When you look inside the 401(k) machine as a trader, you learn things like how most have charters that require them to be nearly fully-invested in the market at all times; I talked to plenty of 401(k) owners who told me that their mutual fund managers “would get out of the market if they saw a crash or bear market coming”. When I’d point out that the very legal documents that create each mutual fund prohibit them from doing that, I got a lot of bovine, blank looks. You know, from my current perspective, I can’t really blame them for being so disengaged and helpless; when you have a job, a life and everything else going on, who has the hours it takes to get into the weeds on Wall Street and monitor that too, or even to obtain the education and training needed to have a clue about what to do. The system is set up to keep them fully invested no matter what, to not know how it all works, and to trust that the market always goes up over the long run. I strongly suspect that too many people look at their parents with their nice, reliable, permanent pension, and just assume that will happen for them too. As for that in the long run canard, if you bought in before the 1929 crash, you only got back to even in the mid-1950′s; the 2000 and 2006-8 crash are the equivalent crashes in my POV; most people won’t be getting back to even in the lifespan they have left, much left have enough to retire on thanks too the wonder that is Wall Street and the 401(k).

Pro traders laugh (off the record of course) about 401(k) money being “slow meat” and thus easy pickings since they buy/sell inhuge blocks at specific times of the day, so they are easy to shoot at. That was before the new High Frequency Trading programs came into being (computerized algorhythms that execute tiny trades to first find the bid/ask spread on a large block like mutual funds buy or sell, and then in microseconds exploit that information and suck up all the money in between the two – trust me, it works, and when it is done billions of times a day, those fractions of a penny add up to a LOT). This kind of extreme efficiency means less profit for mutual funds, and big profits for hedge funds and GoldmanSach’s trading desk.

So, here we are. The middle class was led into the stock market with all that “be in charge of your retirement” and “over the long run” ad copy just as stock markets were undergoing structural changes that guaranteed the mutual funds would always be behind the 8 ball, and the hedge fund world and fellow hedge traders GoldmanSachs, etc would be in position for an ever bigger increase in profits because they have technologies that mutual funds not only don’t have, but are legally prohibited from having. In all cases, this is due to one thing, and rethugs love it so much: deregulation; specifically financial deregulation (Clinton, you should be spanked very, very hard for letting Glass Steagall be overturned). The whole fucking mess is really a large lottery where we all think the odds are even and that most of us will win; enough middle class people have prospered here and there via stocks to create that illusion, but the House always wins, period. And we aren’t part of the House…

The 401(k) thing is such a quintessential American product, sold to us using that Murikan myth that anyone can be rich if they work “hard enough”; the dark side of that myth is of course that if you aren’t rich, then you’re a slug who doesn’t deserve any help. That dark side is getting pushed harder and harder as the economy gets tighter, and I suspect it is part of the anti-immigrant garbage that is percolating up from the wingnut fever swamps currently. It will certainly be used as one of the weapons that will be deployed in their attempt to kill Social Security; resentment always works in the USA.

One of the many problems with 401(k)’s that I didn’t mention above is that people are now expected to have the training of a pension fund manager in order to properly tend to their nest egg. This means things like recognizing the need to diversify, and also to change the percentage of money in your “high, med, and low risk” investment categories as you get closer to retirement. I have met very, very few individuals who have even heard of this idea, much less knew they needed to be in charge of implementing it themselves. Once again, the assumption is that someone, somewhere is taking care of all that for you, all you do is keep up that monthly contribution and life will turn out grand; it is amazing what a good advertising campaign and corporate collusion can accomplish.

The reality is that the middle class was sold this pig in a poke as an easy, no worries retirement system; I even remember true believers saying how this was so much better because they’ll be so much richer than they would be with an old fashioned, paternalistic pension. Experience has shown over and over that the vast majority of average workers are much better off with a defined-benefit pension plan, and those are growing rarer by the minute. Corporations though, are growing richer by the minute; hmmm, I wonder if there is a connection here?

Even those state employee pensions aren’t safe now. I live in Colorado, and the state has decided to try to retroactively reduce the future benefits of state workers who have not yet retired. The state employees PERA is fighting this, and every state with an underfunded pension plan (meaning every state except Alaska) is watching the outcome to see if they can do this too. It isn’t like the public is going to be all that sympathetic to the plight of those lazy gubmint workers, is it? Once again, the wealthy divide us in order to maintain their power (thanks Fox News, they couldn’t have done it without you!).

I also have to wonder at what point people will start to fight back. Social Security and Medicare are clearly in the crosshairs now; will the middle class that has had their 401(k)’s slaughtered really stand by as the Right marches to kill that last bit of the New Deal? So far I have to answer “yes”; what’s it going to take?

Recent events would seem to indicate that the deficit hawks in Congress will, indeed, put Social Security and Medicare in the crosshairs, as they go after “entitlements,” rather than returning taxes on the wealthy back to pre-Bush levels, or attacking waste and fraud in military contracting, and use the “Catfood Commission” as cover:

A source familiar with the proceedings of the working group on discretionary spending tells TPM that some commissioners, including one military contractor, would prefer to save money by freezing military pay and scaling back benefits, rather than by eliminating waste in defense contracting…

According to the source, Cote and other members, including the commission’s co-chair Alan Simpson, are focusing instead on “freezing military pay, making military people pay for their health care.”

If they can actually make serious proposals about cutting pay and benefits for soldiers (Support the Troops!), can Social Security and Medicare be far behind?

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3 Responses to The 401(k) Scam

  1. StringonaStick says:

    I hadn’t heard about the preference for cutting military pay and making soldiers pay for their own health care; thanks for the head’s up. This will be sold to us the same way that reducing pensions for all levels of government workers will be: resentment, and it will work because anyone not in the military/government employee group will have total shit for their own health care at that point. Perhaps this is why defeating single payer was such an imperative.

    The only place I’ve heard anything about the Cat Food Commission has been lefty blogs; for some reason the dreaded MSM seems to be missing this story…

    • Yes, of course they are; the corporate-owned media is only interested in reporting on “concerns” about the “growing deficit,” and giving free publicity to whatever crazy right-wing bullshit is percolating up from the swamps.

      Did you notice how I sneakily got you to do a guest post without you even being aware you were doing one? 🙂

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