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Retirement Planning and the Fate of Social Security July 24, 2008

Posted by retirementwithaplan in Uncategorized.
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This blog post originally appeared on another blog server on 03.28.08

What is the Fate of Social Security?

Everyone it seems wants to kill Social Security. Those that don’t, are rehashing old ideas that have not sold well in previous attempts.

I was thinking of another way to save the program from the defeatists and those lacking originality.

It is widely considered fact, that the recent actions of the Fed, stepping in before Bear Stearns could collapse is a good thing if, and this is a very big IF, they can hold the securities they guaranteed until maturity. I am not defending what the Fed did by any means and have been on the record as critical of most of their actions. But the guarantees they offered on the questionably valued securities might offer a glimpse into how Social Security could be saved.

Mortgage-backed Securities, for those who may not know are bundled home loans that make money available to those who sold the loans in the first place to lend again. The problems began when the product was offered for sale. Since few had been sold, no one knew what they were worth and unfortunately, no one was willing to hold onto them until they matured. Because of this “thin” activity and the unfolding mortgage crisis, values plummeted. When the Fed stepped in, they secured these securities and created a value for them.

My proposal to save Social Security

My proposal to save Social Security is this: Could these types of securities, which can be bought on the cheap, be a way to fund SS without buying Treasuries?

If the surplus in SS is be used to purchase mortgage backed securities and, if the program held them long enough, would be highly profitable. This type of purchase would remove the surplus from the hands of lawmakers with several certain side effects. The securities would attain a stable value relative to the underlying security, the home that backs the loan would be worth keeping (interest rates could be frozen on these loans once the new value of the security was established)and the economy would get the needed boost of stability.

Future MBS’s could be peddled to the program and would further stimulate the economy. Folks stay in their homes and the future of Social Security would be cemented in the American Dream.



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