Why Mitt Romney's Entitlement-Privatization Plan is Crazy
David Brooks, the [gratuitous insult deleted], wrote this this morning entitled "Mitt Romney, the Serious One." In it, he explained how Romney’s recent decision to unveil a plan for reforming the entitlement system "demonstrates his awareness of the issues that need to define the 2012 presidential election."
Romney grasped the toughest issue – how to reform entitlements to avoid a fiscal catastrophe – and he sketched out a sophisticated way to address it.
So we had a giant financial crash in 2008 that necessitated a bailout costing a minimum of nearly $5 trillion and perhaps ultimately costing $10 trillion more, we have foreclosure crisis with more than million people a year losing their homes, and we have a burgeoning European debt disaster that threatens to devastate the global financial system – and the chief issue facing the country, according to Brooks and the Times, is reforming the entitlement system?
The column goes on to throw bouquets on Romney’s plan to semi-privatize Medicare and Social Security. Romney’s ideas are not as draconian as Paul Ryan's, but they do pave the way for Wall Street’s ultimate goal – full privatization of Social Security and Medicare.
Think about what such reforms might mean. Your typical Medicare/Social Security recipient might already have been ripped off three different ways in this era.
He might have been sold a crappy mortgage or a refi by a Countrywide-type firm (which often targeted the elderly). He might then also have unwittingly become an investor in such mortgages and seen the value of his retirement holdings devastated (many of the banks sold their crappy mortgage-backed securities to state pension funds).
Lastly, if he paid taxes, he saw part of his tax money go to pay off the bets the banks made against these same mortgages.
So now that Wall Street has ripped off this segment of society three times, it makes all the sense in the world that Mitt Romney – a former Wall Street superstar who was a chief architect of the modern executive-compensation-driven corporation – is coming back and telling us that we need to cut their Medicare and Social Security benefits in order to defray the cost of the previous three scams.
(Actually, it makes sense. If we don’t cut health care and retirement benefits for old people, how can we pay for the carried-interest tax break that allows private equity guys like, well, Mitt Romney to keep paying 15 percent tax rates?).
There’s another aspect to all of this that boggles the mind.
We’ve just witnessed an episode of industry-wide financial mismanagement that surely has no parallel in history. From Lehman Brothers to AIG to Goldman and Morgan Stanley (which in 2008 needed the unprecedented emergency granting of a commercial bank charter to avoid bankruptcy) to Citigroup (which needed a $25 billion bailout and $300 billion in federal guarantees to survive) to Bear Stearns (dead) and Merrill Lynch (dead) and so on, virtually every single one of America’s leading financial institutions from the last decade is either already out of business or functionally insolvent and living off government life support and cheap cash from the Fed.
Even leaving aside the fact that most of them are facing mass litigation for fraud, dishonest accounting, and/or systematic perjury (for robosigning financial documentation), they’ve all proven their complete and utter incompetence to do their ostensible jobs, i.e. the care and stewardship of money.
For instance, the top five investment banks in the country sought to remove capital requirements in the middle of the last decade, and all of them instantly jacked their debt-to-equity ratios above 20-1, some of them going as high as 33-1 or 35-1. Of those five investment banks, three (Bear, Lehman, and Merrill) went out of business during the crash, and the other two (Goldman and Morgan Stanley) required massive government aid to survive.
The commercial banks have not been much better, with two of the biggest (Wachovia and Washington Mutual) imploding thanks to bad investment decisions and three of the biggest survivors (Bank of America, Wells Fargo, and Citigroup) recently facing downgrades.
The recent downgrades, incidentally, were widely seen as Wall Street’s way of making two interlocking judgments about these big banks. One is that their accounting is so fucked up and dishonest that it simply cannot be believed, leading to widespread expectation that one or more of them will ultimately collapse. The other is that when they collapse, the government may no longer be able or willing to completely bail these companies out. The downgrades were spurred by vague fears that implementation of new reforms via Dodd-Frank will make it harder to get bailouts.
So the mere hint that these banks might be denied future bailouts caused a company as massive as Bank of America to be downgraded to just above junk status. That means, in other words, that without the implicit promise of government aid, Wall Street considers these banks to be junk or below-junk businesses. Evaluated purely on their own merits, without the implicit attachment to the taxpayer, these companies actually have negative trustworthiness.
And these are the people we want managing the nation’s Social Security accounts?
If there wasn’t such a very real chance that this could happen, it would be worth laughing about, but unfortunately it’s no joke. It’s a testament to the tenacious idiocy of our national media that an idea like Social Security privatization could continue to be publicly contemplated, in the wake of a disaster on the scale we’ve just gone through.
Advocating the turning over of Social Security management to Wall Street after the 2008 crash is a little like asking Paris Hilton to pilot Air Force One, or tabbing Charlie Sheen to manage the inventory of a hospital pharmacy – completely nuts, but to David Brooks, that makes Mitt Romney the “serious” candidate.
© 2011 Rolling Stone