Wednesday, May 06, 2009

Will Your 401k Be Left Out In The Cold?

Take a look at the following article:

401(k)s Hit by Withdrawal Freezes
Investors Cry Foul as Some Funds Close Exits; Perils of Distressed Markets

The meat of the issue...
Some investors in 401(k) retirement funds who are moving to grab their money are finding they can't.

Even with recent gains in stocks such as Monday's, the months of market turmoil have delivered a blow to some 401(k) participants: freezing their investments in certain plans. In some cases, individual investors can't withdraw money from certain retirement-plan options. In other cases, employers are having trouble getting rid of risky investments in 401(k) plans.


...

The rationale...
"To sell property at inappropriately low prices in order to generate cash for a few would hurt the majority of investors and violate our fiduciary obligations," said Terri Hale, spokeswoman for Principal Financial Group Inc., the parent of the fund's manager. The fund, which had $4.3 billion in net assets at the end of April, still is making distributions for death, disability, hardship and retirement at normal retirement age.

As you've heard me argue before, we can't all retire at once. The market will crash, we'll be wiped out. And it looks like this becoming obvious, even to the High Priests of Mammon. They suddenly see that they can't let everyone have access to their money, and still honor payments to existing retirees.

What they are experiencing is a run on the 401ks. If they let people have their money, they'll go bankrupt and the funds will be wiped out. This is because there is less money in the funds than invested.

This situation was driven out of two basic inputs.

1. Money put into the funds over the bubble years, bought stocks from the gambling houses at prices that were far above the fundamentals. Now the prices are dropping and the funds are hemorrhaging red ink. This is in essence, buying high and selling low. The fund managers assumed that this stock market Ponzi scheme would go to infinity, and it didn't.

2. The people managing these funds, needed expensive cars, big houses and lobster breakfasts. They are expensive to maintain and cost much more than they produce. While they were able to skim a lot of the retirees money off the top during the bubble years, it's now harder to skim million dollar bonuses off the top, without making big dents in the funds.

So to protect these cash cows, the brokers must freeze the payouts. They can't eat lobster everyday and buy a new Mercedes every six months, if people are allowed access to their own money. If Joe and Jane Six Pack are allowed to cash out their 401k to block foreclosure on their home, why a broker's kids might not have the tuition to get into a fancy private school. It's better if Joe and Jane cry over their own children and worry about where they will live, than to have a broker's kids live with the shame of going to a lesser private school.

Even had the brokers and bankers not been stealing so much, the 401k system is still a Ponzi Scheme. It like the gambling stock market it is based on, only retains value so long as more money goes in, than comes out. With industrial growth in decline in the USA, and energy production declining or at best at times, flat, there is no productivity gains to back the rising debt. The market must lose value. Now the market might be able to see gains, along with the GDP, if the government increases the speed of the printing presses, and takes over most the GDP. The the GDP could become a measure of government spending. As printing money is free in the electronic age, the government could see it's measured GDP return to happy growth days, even as the private sector withers away and dies. Then we may see 3% growth in 401ks, as the price of bread and electricity grows at 12%.

There is a big downside to the 401k freezes. As word spreads, more and more people will opt out of these plans. As the money flowing in slows, the market and these funds will continue to lose value. Those that can't get their money now, are unlikely to see it when they retire.

One of the greatest frauds committed in the 20th century, was the widespread lie that stock market gambling, is an investment vehicle. People who tend look at a thing to see what it is, weren't fooled, but most Americans in this case, certainly were. The market has been portrayed as mysterious, complicated, and difficult to understand. But it really isn't.

When you buy stock, you're placing a bet that you can sell it at a higher price than what you paid. When you invest in a fund, you're financing professional gamblers. These professional gamblers went to professional gambling schools, gambling seminars, in house gambling training, and other gambling classes. They gamble with other people's money, and that makes them professionals.

It doesn't matter now if you have money in a 401k or not. This fraud and many others will cause severe damage to the US economy. We'll all suffer from it. Well most of us. The fraudsters may well just keep profiting from fraud.

For the banksters, lying, cheating and stealing is just a part of doing business. They laugh at honest people that play by the rules. When it comes to shifty business dealings, I've heard more than one executive say, "That's something for the lawyers to work out."

So don't expect any of this to turn around. The gamblers and flat earthers are in charge. They'll stay in charge. They'll destroy our country. And we'll let them because they offer us eternal hope. And as long as we are offered hope, we'll allow still another transgression against us, without taking action.

As the 401k crisis unfolds and retirees die hungry in the cold and dark, their broker will be digesting another lobster dinner over a bottle of expensive wine, while watching their 84" TV, on their yacht... So long as we trust gamblers to manage our retirement, well, they'll be gambling our retirements away.

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