The Coming Grab At Your Wealth And Retirement


livemike's picture

The article claims that they're trying to force people into buying government debt, but that doesn't seem to be happening (so far). What they're trying to do is get people to buy annuities. Annuities have two relevant characteristics, first they pay off a fixed monetary amount each year, quarter or month, second nobody wants to buy them. The latter is probably due to the near certainty of high inflation or hyperinflation that would reduce the value of these securities.

Forcing people who don't want them to buy annuities changes the risks in financial markets, but it doesn't lessen them. Firms selling annuities take on the risk that the assets they buy won't deliver sufficient returns to make payments. This could lead to losses or even bankruptcy. Annuities are generally sold by insurance companies, who may not be as secure as they've lead the regulators to believe. AIG being a rather spectacular example. Of course if lots of companies providing annuities go bankrupt the Feds might step in to insist we buy T-bills, which people like even less.

People who buy annuities, willingly or not, lose the incentive to manage their investments. They are divorced from the effect on their money of bad decisions, which is a big part of why the current crisis happened. It wasn't retail investors who drove us all into the ditch, it was professional money managers making lots of dough off of OPM.