Why did Bernie Madoff go to prison? To make it simple, he talked people into investing with him. Trouble was, he didn't invest their money. As time rolled on he simply took the money from the new investors to pay off the old investors. Finally there were too many old investors and not enough money from new investors coming in to keep the payments going. Next thing you know Madoff is one of the most hated men in America and he is off to jail.
Some of you know this .. but not enough of you . Madoff did to his investors what the government has been doing to us for over 60 years with Social Security. There is no meaningful difference between the two schemes ... except that one was operated by a private individual who is now in jail, and the other is operated by politicians who enjoy perks, privileges and status in spite of their actions.
Do you need a side-by-side comparison here? Well here's a nifty little chart.
| BERNIE MADOFF | SOCIAL SECURITY |
| Takes money from investors with the promise that the money will be invested and made available to them later | Takes money from wage earners with the promise that the money will be invested in a "Trust Fund" and made available later. |
| Instead of investing the money Madoff spends it on nice homes in the Hamptons and yachts. | Instead of depositing money in a Trust Fund the politicians use it for general spending and vote buying. |
| When the time comes to pay the investors back Madoff simply uses some of the new funds from newer investors to pay back the older investors. | When benefits for older investors become due the politicians pay them with money taken from younger and newer wage earners to pay the geezers. |
| When Madoff's scheme is discovered all hell breaks loose. New investors won't give him any more cash. | When Social Security runs out of money they simply force the taxpayers to send them some more. |
| Bernie Madoff is in jail. | Politicians remain in Washington. |
Now that was just spectacular. I'm guessing nobody has managed to present this situation to you with such crystal clarity before. Must be the SAM-e.
OK ... I've understood this scheme for some time now, so just what was it that almost slipped by me? For some time now we've been told that it would be 2016 or 2017 before Social Security started paying out more money than it was taking in. Well ... we're here. In 2009 the economy forced many more people than expected into retirement. These people filed for their Social Security benefits. Last year Social Security durned near ran out of money. The benefits paid almost exceeded the taxes collected. There is, of course, no "trust fund" to go to. That money has been spent. For Madoff that was a crime. For our politicians, it wasn't. Now the chief actuary of the Social Security system says that we're going to "go negative" for the next year or two.
Now the politicians will naturally be looking for a solution. They cause the problem because they just couldn't stand seeing all of that money sitting in the trust fund. They just had to get their hands on it ... and leave behind some IOUs. Now the IOUs are due, and there's no money to pay them off. The solution? Well, they'll probably have to raise the retirement age. Then they may well introduce means testing. They'll tell retiring seniors who have done well with their own retirement plans that they may well lose their Social Security benefits. Can they do that? Oh hell yes they can. There is no federal law which guarantees Social Security benefits to anyone who has been forced to pay the taxes.
Then, of course, they'll try to raise the Social Security taxes. The earnings cap for this year is $106,800. My best guess is that the Democrats will propose a change in the law that allows the current earnings cap to stay, or to possibly adjust it to $100,000. Then they will give all income between $100,000 and $250,000 a year a pass .. then all incomes above $250,000 a year will be taxed with no further caps.
Wunnerful wunnerful.
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