And now for something radical and extreme: Get rid of the 401K

Last weekend, I got polled.  Er, by Harris, the polling company.  I’ve been getting a lot of that lately.  Maybe being a middle class suburbanite independent Democrat-in-exile in NJ means I have finally arrived but it’s unlikely I fit their notions of the typical polling subject.  Well, not after this poll anyway.

The first question was about my attitudes towards the military.  Would I suggest the military to a young person?  As it happens, I’m a military brat, my family has a long tradition of joining up and I have current family members who are career military.  So, while a military career is not for everyone and it’s certainly more dangerous than it was 10 years ago, I wouldn’t rule it out for someone who doesn’t know what they want to do as a career.

That first answer seemed to have put me, a lifelong liberal, on the Tea Party branch of the decision tree.  Many of the other questions after that point were kind of insulting to the intelligence.  For instance, is someone arrested for a crime entitled to speak to an attorney?  Jeez, all those years of Dragnet should have sunk in by now.  Of course they are.  What about if the crime is serious or particularly heinous?  Um, yeah, that’s when you are most in need of one to defend you.  What about if it’s a TERRORIST???  Do they get to speak to an attorney on the government’s dime if they are accused of TERRORISM?  Well, Timothy McVeigh went through the process, was represented, had a fair trial and got what was coming to him.  I think the system can work.  Let’s not start making exceptions for alleged terrorists.

Anyway, that wasn’t the section that tripped my trigger.  No, the one that got to me was about 401Ks.  I don’t know what our brilliant braintrusts in the Democratic party are up to but if they are the ones who are suggesting that it would be a nifty keen idea to expand the 401K system, we might as well all just get used to an America whose salad days are over.  The poll question was something like, “Would you approve or disapprove of expanding the 401k system to workers whose employers would not be required to make a matching contribution?”

That’s a weird question for so many reasons.  The first one is, if you allow *some* employers to opt out of making contributions, wouldn’t you just give the rest of them justification for also opting out?  And what about the Enron-esque employers who match with stock?  But I digress.  Because the real employment trend is to make everyone contractors, freeing the corporation from actually employing and being responsible for the lives of the people who work for them.  So, maybe that’s where this question is coming from.  Say you are now a contractor, forced to go through some rent collecting middle man who acts as an intermediary between the corporate entity and your paycheck.  Now YOU are responsible for your retirement accounts, not the corporate entity.  So, does the old corporation have to match your 401k contributions?  Something to think about as the traditional bonds between employer and employee are redefined.

But that’s not why the 401K needs to go.  Now, I am not a financial wizard.  Far from it.  If you want that kind of expertise, check out Dakinikat’s posts, or Baseline Scenario or Naked Capitalism.  No, I am just Jane Bagodonuts from the burbs.  Nevertheless, blogging allows me to expound on any subject I like or don’t like.  And I have particular dislike for my 401k, may it grow and prosper.  Here are my reasons from a liberal perspective:

1.) It’s a Ponzi scheme.  Yep.  Unlike Social Security, which we are all required to participate in and which has actuarial expertise built into it and is a fall back retirement insurance policy, the 401k is for suckers.  It relies on lots of people dumping their investment dollars into pumping up the price of stocks.  When the baby boom generation starts to retire in earnest, it’s going to want to cash in, leaving us with funds with diminishing value.  UNLESS we get some other poor schmos who don’t have employer contributions to send their money to our 401Ks in return.

2.) Wall Street thinks the money in your 401K is there for them to use as gambling chips in some global game of roulette.   We saw this happen in 2008 when the subprime mortgage market collapsed but it’s not limited to the bond market.  Oh, sure, the stock market is more highly regulated but when the bottom fell out of the mezzanine subprime tranche CDO’s it took everything else with it.  Besides, who has time to monitor their 401K’s at every minute of the day?  Most of us follow the Ron Popeill method of financial investment: set it and forget it. Turning a bunch of naive amateurs into financial planners of their old age lifestyles has turned into a windfall for the predators on Wall Street.  What we don’t know can hurt us and we don’t know what they’re up to.

3.) Wall Street and the financial sector in general is like the Wild West right now.  Until there is more oversight and regulation, you just can’t trust them.  The constant infusion of cash to these testosterone poisoned, self centered, highly overrated gamblers who manage our money only encourages more risk taking and future financial collapses.

4.) 401Ks lead to employees betting against themselves.  The shareholder is the emperor.  The money we put into these funds increase when employers see staff as unattractive drags on the bottom line.  I’ve always preferred the word Personnel to Human Resources because it acknowledges that there are persons actually doing the work and that we are not just variable costs to be minimized for the benefit of the bonus class.  Nevertheless, when corporations cut staff, the stock goes up and everyone starts dreaming of their new retirement condo in Mexico.  That is, iff they have the privilege of actually retiring.

5.) 401ks lead to less innovation.  Well, if you have to cut staff to assuage the quarterly panic attacks of the shareholders, you don’t have people innovating for you.  It’s true.  People who no longer work for you are not required to do your thinking for you.  The people who are left are too busy preparing for their own “displacement” to do any real work.

6.) 401ks invite the bonus class to invest in emerging markets, not the American market.  They’re always chasing profits.  For themselves.  For you?  Ehhhhh, not so much.  Shareholders, that is the BIG shareholders, not you and me, have to be satisfied so the money must go somewhere.  Why not India?  Oh, sure, it means that the capital will be invested in a place that means more Americans will lose their jobs and potential American entrepreneurs will go begging for startup money. But that’s the nature of capitalism.  Suck it up.

5.) In order to get a break on taxes, which in my case are pretty ugly, you can’t take the money out until you retire.  You can borrow from your 401K but then, you have to make sure you stay employed so you can pay yourself back.  It’s not very liquid and most of us can’t afford to fund multiple retirement/savings/college funds.  In emergencies, it’s useless.

Now, I am glad that I have a 401K, for the short term forseeable future, and that my employer is rather generous in funding it.  But it’s all on paper as far as I’m concerned.  By the time I am ready to retire, it might be worthless.  Getting rid of them wouldn’t exclude investing in the stock market.  It would just not institutionalize it and make it an all-but-mandatory retirement strategy.  Maybe the financial sector would be a little bit more attentive to our needs if they didn’t have a steady stream of easy money flowing into their gargantuan gullets.  Maybe customer service would improve.  There might be incentives offered to attract your business.  Maybe the risky gambling addiction behavior would cease.

I dunno.  I can only speculate with my money averse mind. But the more I hear about the financial meltdown, the more I keep coming back to the 401K “instrument” as the root of all evil.

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