Fortune 500 companies fake their accounts and fictionalize their profits, then go into bankruptcy. Top accounting firms rubber-stamp phony reports and dispose of incriminating evidence, in return for enormous consulting fees. Star investment analysts unload "garbage" equities on unsuspecting investors, while saving lucrative deals for favored clients. Insider trading and executive self-dealing are rampant, from top corporate management to the chieftains of the labor movement. The stock market remains in poor shape even while the broader economy seems to be recovering.
And yet, conservatives still say we should entrust America's retirement savings to the honor of Wall Street.
Privatizing Social Security was never a brilliant idea, because its costs and risks would so far outweigh its likely benefits for most people. But the daily headlines about investigations and prosecutions in the nation's financial markets show just how dubious and dangerous the scheme proposed by the Bush White House really is.
The president's commission to "reform" Social Security had the bad luck to unveil its proposals for partial privatization last December, just when the Enron scandal was reaching a publicity crescendo. Embarrassed conservatives argued then that Enron was a special case, and that the shocking losses suffered by its stockholders and workers shouldn't discourage privatization.
Since then, however, the front pages of the business press have told us almost every day that while Enron pursued its own baroque methods of swindling, its ethos of greed and dishonesty was hardly unique.
Consider what Eliot Spitzer, New York state's Attorney General, has learned during a 10-month probe of stock promotion at one of the financial industry's oldest and most respected firms, Merrill Lynch. According to Merrill Lynch e-mails unearthed by Spitzer's investigators, one of the firm's top analysts repeatedly referred to stocks being pushed onto unsuspecting investors as "dogs" and "garbage."
Now the Securities and Exchange Commission and the national association of state securities regulators have joined Spitzer's posse, as Merrill tries to ward off possible civil or criminal penalties for misleading the public. And nobody believes that Merrill is alone in using overly optimistic "research" to promote stocks for its own ulterior motives. Such practices became so common during the boom, according to a financial journalist who worked for CNN, that producers and editors hardly ever raised a question about them.
Today questions are being asked everywhere, including on Capitol Hill, where the Senate just legislated several new felony statutes covering corporate misconduct and the House just approved a bill directing the SEC to tighten accounting and disclosure rules. The Senate bill would make securities fraud a federal felony punishable by up to 10 years in prison, along with new penalties for shredding or otherwise concealing certain kinds of corporate documents.
Laudable as this reversal of decades of deregulation may be, it doesn't solve the fundamental problem faced by the Social Security privatization advocates. There is simply no way to adequately police a market where a hundred million unsophisticated "investors" could someday be relieved of their retirement savings by a mafia of well-educated crooks.
Those crooks can always find a fresh angle. The last great paroxysm of Wall Street criminality took place 20 years ago, when junk-bond financing reached its zenith and Rudy Giuliani became famous by prosecuting financial felons. The predators of the Street have since discovered new ways to pick investors' pockets (and new defenders such as business consultant Giuliani, who is now helping Merrill Lynch to fend off Spitzer).
With the market exposed to an unflattering spotlight, the public feels vulnerable. Recent polls also suggest that voters are worried about the future of Social Security in the hands of a Republican administration. So congressional Democrats are planning to address that sense of insecurity in the mid-term election, warning that if the GOP continues to control the House and recaptures the Senate, the Bush privatization plans may prevail.
Republican leaders scoff at Democrats' "scare tactics," but in fact the chairman of the House Republican campaign committee has privately pleaded with the White House to postpone any push to privatize until after next November. The scandals roiling the markets have probably made the Republicans even less eager to debate the issue.
Speaking of scare tactics, those same Republicans have been attempting for years to frighten voters with predictions about the looming "bankruptcy" of the Social Security system. They've repeatedly suggested that the day will soon come when the system's outlays to baby-boom retirees will overwhelm its revenues. But once again their forecasts of doom are belied by the hard facts.
Late last month, the Social Security trustees reported their new projections about the system's solvency. At this point, according to the trustees' data, the Social Security trust fund won't be exhausted until 2041, an extension of three years beyond their prior set of projections. In other words, there isn't much to worry about for another four decades, or more than a generation from now. And there are simpler, relatively painless ways to renew Social Security, the finest legacy of the New Deal, none of which entails the risks, complexity or expense of privatization.
So don't be surprised if conservatives and Republicans try to lie low on this issue at least until the storm over Wall Street subsides. The conservatives certainly haven't abandoned their dream of redirecting those payroll taxes into the pockets of the private sector. But for the moment, they face an insurmountable public relations problem: To anyone who is paying attention, the efficiency and integrity of the Social Security Administration makes the stock market look like a rigged casino.