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Old 10-21-2008, 10:41 AM
5,332 posts, read 8,842,263 times
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Social security and 401K are similar in that they are both ponzi schemes. There are several differences. Before I get into that. Let's look the stock market for what it really is.

A long time ago, the stock market was a game for company CEOs, the rich and investment bankers. But there were few of them and they couldn't make money off of each other because there were few buyers for their stocks. They looked around and saw enormous opportunity in the rest of the population. Let's bring in more buyers, they said. Brokers such as Merrill Lynch set up "investment" offices across the country to "educate" the masses about investing in stocks. Mutual funds were born, and the stock market grew leaps and bounds.

Company CEOs and investmnet bankers became wealthy. But that wealth did not grow on tree. In order for stocks to go up, there must be new buyers. The investing public were the new buyers who made this possible. If the investing masses made the CEOs and investment bankers wealthy, who will make them wealthy in return? The sad answer is they won't be wealthy because they don't get free stocks like company insiders do. If they are lucky and new buyers keep coming into the market, a few of them might make a few bucks. The rest will lose money.

It turns out that company CEOs, in addition to acquiring wealth through stocks, have to run their companies as well. Cutting cost is one of the things they do. The traditional pension has always in been a huge expense for their companies. Wouldn't it be nice if they could eliminate it and save some money? Let's get rid of it and make ourselves rich in the process too, one brilliant CEO said. Let's kill two birds with one stone. The 401k was born and the traditional pension went away. Now a new wave of stock buyers hit the market. The market grew by leaps and bounds again. CEOs and investment bankers became more wealthy. Will the masses holding 401Ks achieve some of the wealth? If they are lucky and new buyers keep entering the market, some will make a few bucks. The rest will lose.

Because 401K is voluntary, people can choose to stay out of the market. If they decide to stay out, there will no new buyers and existing holders of stocks will lose money.

With social security, your money pays someone who paid into the system and you will in turn get paid because the system is mandatory. With 401K, you can only hope someone will pay because the system is not mandatory.

But there is another huge difference. No one get rich out of nothing from social security. In 401K, your money makes CEOs and investment bankers wealthy first, who by the way don't pay into the system.
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