Your Questions About Is The Stock Market A Ponzi Scheme

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Daniel asks…

Dems: You rejected the Repubs’ idea of privatizing SS……so what do you propose we do about the ss crisis?

Lemme guess………raise fica taxes?

How could you say we should be perserving a system that is just like a ponzi scheme. It relies on new investors to join in to take care of the current investors.

Your reasoning is “Without SS, people would be irresponsible with their money”…………………, look at what the government’s done with their money in the SS system, you don’t call that irresponsible?

The government shouldn’t tell its citizens how to invest their own money.
Lev: Your 401k would take a hit because you gamble your money away in stocks.
Try being safer with your money……try jumbo bank cd’s.

Justin answers:

First of all, SS is not a Ponzi scheme. It is a government insurance program called “Old Age, Disability and Survivors Insurance”. It was never meant to be your personal savings account. Raising FICA taxes is often a hardship on the lowest-paid workers, and doesn’t do enough to raise the minimum standard of living for those eligible to collect the benefits. I have often asked myself: Why is everyone not required to participate, and why are those millions exempt from participation? The concept itself is sound, but only for what it was designed for. How it is run is an entirely different matter.

Because of this recent stock-market crash, it is now certain that investing SS funds in the stock market is a bad idea. There are many ways now for individual workers to save for their retirement, so no new programs are necessary. Since that kind of saving is voluntary, investments should be left up to each worker and their investment consultant. Without some form of socialized economic security, life in modern society would suddenly become “nasty, brutish, and short” for those who can no longer work. Sometimes it’s their fault, most times it’s not.

All of these foibles we are now finding in government is a symptom, not of ill-conceived and ineffectual programs, but more of that of individual greed and irresponsible collective inaction.

James asks…

Fund manager feeling guilty, he was handling clients portfolio.?

A friend of mine, who is Fund Manager in stock market is handling clients Portfolio. he did not made any fact made profit and gave it to client. but now shares prices have fallan down too much..all the stock are still in the portfolio because the items were good when bought. He is feeling Guilty…what do u say…He was in Pakistan, and for last 2 months there is freeze on the index to slide down. now if we sell all the items when the buyers will come into the market, he will get may be 20% from the total portfolio.please advice, should he feel guilty.(client was informed that this is market and there are loss and profit) but no one had any idea that this much lost. now what should he do next…if any can advice on this…thanks

Justin answers:

“And that’s where we are today: A record portion of the earnings that would go in their entirety to owners — if they all just stayed in their rocking chairs — is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all the losses — and large fixed fees to boot — when the Helpers are dumb or unlucky (or occasionally crooked).

A sufficient number of arrangements like this — heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so — may make it more accurate to call the family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20 percent of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80 percent or so of what they would earn if they just sat still and listened to no one.” Warren Buffett

“..the BCT study found that the raw returns of equally weighted mutual funds (net of all expenses) for 1996 to 2002 were 6.626% for the investors working on their own and were 2.924% for funds provided by advisors. In other words, the public working on its own did more than 100% better than financial advisors when it came to selecting equity mutual funds. After factoring in inflation and taxes, clients of financial advisors lost money and lost purchasing power.”
Daniel Moine, Research Scientist

“A vast industry of stockbrokers, financial planners, and investment advisers skims a fortune for themselves off the top in exchange for passing their clients’ money on to people who, as a whole, cannot possibly outperform the market.” – Michael Lewis, Conde Nast Portfolio, The Evolution of an Investor

“Investment managers sell for the price of a Picasso [what] routinely turns out to be paint-by-number sofa art.” – Dunn, Patricia C., CEO, Barclays Global Advisors

“It is not easy to get rich in Las Vegas, at Churchill Downs or at the local Merrill Lynch office.” – Samuelson, Paul A. , Massachusetts Institute of Technology, Economist, Nobel Laureate in Economics

“Santa Claus and the Easter Bunny should take a few pointers from the mutual-fund industry [and it’s fund managers]. All three are trying to pull off elaborate hoaxes.” – Jonathan Clements, Wall Street Journal

“Having been an idealistic young sales-oriented fellow I became a licensed stockbroker for one of Wall Street’s most prestigious firms in the late 60s. I learned very quickly that to succeed I had to “sell my soul”, and to be more than moderately successful I had to follow the boss’ program and to sell exactly what the boss wants sold – – it was “the hell with the client”. … Kudos for having the intestinal fortitude at PORTFOLIO [magazine] to speak out about the ‘sacred cows’ that graze along Wall Street!” – Peter Magurean III

“I am a Registered Investment Advisor (RIA) with the Securities and Exchange Commission. Are you impressed? Don’t be. Just about anyone can become an investment advisor. Simply send in a form to the state or federal government with a modest filing fee, and you can join the club. You don’t need an MBA or a college diploma to apply. Heck, you could have flunked out of the third grade, gone bankrupt seven times, lost everything you ever owned to a Ponzi scheme, and still make a great living managing other people’s money.

In this surreal world of investment advice anyone can claim to be an expert and get paid for it. This is why most stockbrokers, financial planners, and insurance agents are in the business, and why accountants, attorneys, and bankers want in as well. The problem is, most investment advisors are borderline incompetent. Thousands of them lack the basic investment skills and knowledge of a first-year business student.” – Rick Ferri

“The investment advice and management industry is built on fraud: the idea that professional advisors can predictably and consistently help you get a better return on your investments. The industry sells us on this lie using manipulative tactics that are studies, refined, Wall-Street minted and Madison Avenue packaged.” – The Big Investment Lie: What Your Financial Advisor Doesn’t Want You to Know

Chris asks…

What do you think about the Bailout passing?

$700 Billion,there goes National health care !
This is a day all of America will regret !

Justin answers:

Ah, but they “fixed” the bill. Now it’s $850 billion with the extra pork. As usual, congress will be cowed into doing the opposite of what they should be doing, the money whores will get rewarded and the average citizen will get the bill. (This may even be Bush’s covert attempt to drain the American economy while he still can.) Paulson should be arrested for sitting on his hands all this time and Bernanke isn’t even a government employee. So why are we even listening to them? Did we learn nothing from the S&L bailout of the 80s?

Congress does need to prop up the financial system, but Paulson can’t be trusted. Wall Street must buy its own way out of this. No money should be provided without an investment return. The stock market and the banking industry need to to be heavily re-regulated, stock transactions should be taxed, and speculation, like other forms of gambling, simply needs to be outlawed. The usury laws should be restored, and the insurance industry needs to be revamped to prevent ponzi schemes like we have now. But I’m not holding my breath.

George asks…

How many Americans realize what is going on in Greece is a microcosm?

of the problems we are facing here federally and at many state levels? Are we prepared for the unrest that will occur when people find out the government can’t pay them anymore or give them the perks they have been promised? And how is it our government persists in spending more money than we can possibly ever pay back without realizing the PONZI scheme will come crashing down?
Aerial thank you for the clarification…all the same our nation is in deep debt and government programs are a ponzi scheme, which pay out more than they can ever bring in…and our nation will be in turmoil WHEN (not if) the government has to tell people they will no longer be able to fund everything they need want and desire.

Justin answers:

Greece is not a example of a that. It is an example when you default on your debt and stock markets bet against your liquidity. Because they are part of a EU currency they affect other currencies, which is why more solid currencies are considering bailing them out and their austerity program is a bitter pill the Greek people. Not all nations can be compared with each other. You can compare if you are looking for “ponzi schemes” stock markets that will undermine everyone and everything in order to make profit… I agree w/ you G !

William asks…

Social Security Benefit calculation problem,need help~?

-Assume Tom’s base salary is $90000 per year.

-He is 28 now and plan on working until the end of his 65th year.

The current withholding rate for Social Security is 6.2% for the employee, and the current withholding rate for the employer match for Social Security is 6.2%.

-Assume that the Social Security Administration can make an annual return of 2 percent of Tom’s account.

-Assume that the stock market rate of return is 11 percent.

-Assume that the 65 the maximum payment Tom can receive from Social Security is $1800 per month.

Please answer the following:

1.What is the future value of all of Tom’s contributions using the 2% rate of return? What does it look like with the 11% return?

2.Assume that Tom live until he is 80,what is the total value (constant dollars) that he will get paid out of Social Security?Compared to his contributions,is it a good investment?

3.Assume that Tom could take his lump sum investment is Social Security at age 65 (both the employee and employer contributions) and invest in Treasury bonds that yield 4.5 percent (paid quarterly).Using just the coupon rate,how much income would this generate for Tom at retirement?

4.Does it make sense to keep the current system or allow people to invest part of there own Social Security?

Justin answers:

Social Security doesn’t “make” anything. But private investors who don’t “buy high, sell low” WILL average 10% over any 20 year period, historically – ESPECIALLY if they put their money in indexed mutual funds.

Social Security will give Tom a statement, if he requests it, with regards to his future earnings, at several retirement dates, based on his current and past contributions.

You won’t get any of the seniors to vote for a politician that allows people to invest part of their own social security, as every dollar that goes in today, gets paid out today in current benefits. Cutting what gets paid in, will result in either lower benefits paid out today to current recipients, or higher taxes for the working people. Can’t pay out, what doesn’t come in.

Effectively, Social Security is a Ponzi Scheme. If it was a private person selling it, they’d be in jail.

But, regarding the calculations, you can use this calculator, to run your own numbers. If you’re asking, I’d strongly suggest Tom invests/saves every dime he can, as by the time he retires, Social Security will have collapsed under it’s own weight.


Steven asks…

On social security reform; doesn’t privatization equal to MORE budget problems, not less?

As it has worked from the beginning those that pay in cover those drawing at the same time. A ‘budget problem’ is said to exist when more money is being drawn from SS than paid into it. Herein lies the question; conservative proposals argue for allowing younger contributor to begin diverting a portion of their contribution into the stock market. Since this reform will NOT affect those already drawing SS and those soon to be eligible; wouldn’t this create a LARGER shortfall?
If a shortfall means SS is bankrupt; then what happens to those drawing from it when the shortfall happens?
And if nothing but privatization can be done to continue SS, how can SS continue with less money coming in from those working to cover those drawing or soon to be eligible to draw?

Justin answers:

SS is a ponzi scheme pure and simple.

In order to keep the system operating properly, we have to constantly increase the size of our population to cover the previous generations. And there in lies a contradiction amongst many liberals; the ones complaining about population growth, especially the ones that are staunch environmentalists.

Will privatization cause budget problems? I’m sure there are challenges to overcoming such budget shortfalls, but they could divert tax revenues from other areas to make up the difference. This of course would require the government to cut spending somewhere else, and.or raise taxes. Or as the Laffer Curve shows, at a certain tipping point higher taxes will cause an actual decrease in revenue to the government, thus it makes the case that reduced taxation can increase revenues that could be used to fund SS obligations. Just like businesses do to increase profits. At a high price demand is low and profits slump; at a lower price demand increases and smaller incremental profits bring in more profit than at a higher price.

Another thing the government needs to stop doing is dipping into the SS fund for other expenditures.

There are safe ways to invest. It’s not like every kind of investment is volatile. Whatever happens, we need to fix, overhaul, or scrap SS, because it is on its way to insolvency!

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