On Mon, 10 Jan 2005 12:34:29 -0500, Erik Reuter <[EMAIL PROTECTED]> wrote: > * Gary Denton ([EMAIL PROTECTED]) wrote: > > > About $100 billion a year would be freed up for stocks, bonds and > > other investments under a tentative plan President Bush has floated > > to fix the Social Security retirement system by creating private > > investment accounts. > > > > The fees paid to brokers and money managers could run into the > > billions. > > They could, if the privatisation is implemented poorly, i.e., as an > actively managed mutual-fund type account. But that would be stupid. You > are arguing against a good idea based on a stupid implementation of it. > If you want to accomplish something, it is more effective to argue FOR > an intelligent implementation of a good idea: > > The annual fee for an index fund is about 0.1%. So, 0.1% of $100B is > $100M. In actuality, it will be lower, since such a large account will > be able to get economies of scale. Very large pension funds currently > can get 0.05%.
Erik is confusing the portion of the management fee for large mutual funds where they make decisions where money is invested with the total management fees and expenses of mutual funds that must pay for the bookkeeping of individual accounts and other matters. As a mutual fund investor the lowest management, sales and administration fees I am aware of seem to be around 0,2% excluding individual transaction costs. Perhaps Erik can point me to these mutual funds with management fees less than 0.18% that an individual investor can participate in? The Motley Fool believes the King of all Funds is the Vanguard S&P 500 index which has that 0.18% fee ratio for a $10,000 investment. Right now the Fool recommends funds with an expense ratio of less than 0,5%. With all the administration that would go into a supermegafund with iniatially very small accounts I would imagine we would be lucky to get that 0,5% before exchange fees and transaction costs. The experience with the countries that have implemented federalized individual retirement accounts shows the administration fees have been several percent and always much higher than their previous SS administration costs. The administration and management fees are allowed to be up to 20% in the UK. The other argument that Erik is making are that the the $2 trillion transition cost is simply making explicit the unfunded obligations of the SS fund. Not quite. A good argument if true but the $2 trillion is simply additional federal borrowing to replace the money diverted from going to SS to meet current obligations from individuals. You can recognize that Erik realizes this when he states the unfunded obligations of SS is over $10 trillion. Bush&Co. realize all of this - the real desire is to get rid of SS anyway possible and also help their financial backers on Wall Street. The leaked memo did not talk about the historic opportunity to save Social Security, but the opportunity to finally get rid of it. "Advocates of privatization almost always pretend that all we have to do is borrow a bit of money up front, and then the system will become self-sustaining. The Wehner memo talks of borrowing $1 trillion to $2 trillion "to cover transition costs." Similar numbers have been widely reported in the news media. "But that's just the borrowing over the next decade. Privatization would cost an additional $3 trillion in its second decade, $5 trillion in the decade after that and another $5 trillion in the decade after that. By the time privatization started to save money, if it ever did, the federal government would have run up around $15 trillion in extra debt. "These numbers are based on a Congressional Budget Office analysis of Plan 2, which was devised by a special presidential commission in 2001 and is widely expected to be the basis for President Bush's plan." http://www.nytimes.com/2005/01/11/opinion/11krugman.html Gary Denton _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
