Letter to Editor, New York Times

The following letter was sent to the Editor of the New York Times regarding an interview with Arthur Levitt, former head of the Security and Exchange Commission.


Editor, Magazine
The New York Times
620 Eighth Avenue
New York, NY 10018

Deborah Solomon’s interview with Arthur Levitt neatly delineated the rationale for the rage and sense of betrayal felt by the millions of Americans who watched helplessly as their 401k’s and homes lost 40% of their value. This double whammy of fortune reversal was unapologetically delivered by the likes of Mr. Levitt and cronies cozily ensconced in their ill-gotten, nepotistic lairs courteously provided by Wall Street’s pin striped foxes supposedly guarding Main Street’s hen houses. Mr. Levitt’s rampant arrogance (“don’t feel right about spending large sums of money in this environment” regarding his Far East vacation) and ignorance (“capture theory” whereby regulators become co-opted by the industries they regulate”) provide damning evidence for the indisputable verdict of “GUILTY.” Main Street judges as completely unacceptable Mr. Levitt’s pathetic excuse that Bernie Madoff’s “reputation was as a trader, not a money manager.” Main Street will never understand nor forgive the obscene compensation insanely provided to and unethically accepted by financial leaders whose folly and incompetence plunged their firms into billion dollar losses. The failure, better stated as refusal, of Mr. Levitt, his S.E.C. and other regulatory agencies to discharge their responsibilities at even the most basic level destroyed the country’s confidence in its financial institutions causing systemic damage irreparable for years to come.

James Wharton

E-mail to President Obama

Social Security:
Suggestion 1: Put some working people on the Social Security reform committee for “real world input.” On C-Span several days ago, a professor from Harvard and some Congressman were discussing the best Stock Market based 401k retirement option. Their opinions were way off base from a true understanding of the “real world” of working people.
Suggestion 2: Ideas for Reform:
The realization that the entire retirement system in the United States was broken came into the clear focus of national attention with the financial meltdown. Social Security must be transformed into the “main retirement vehicle” that provides adequate income for people in their retirement years. This demands at least three strategies be implemented during working years to accommodate a longer life span during non-working years:
1. Postpone pay-outs to subscribers until they reach age 70.
2. Raise the collection rate during the working years.
3. Remove the income cap for Social Security pay-in.
Social Security should be structured to provide a minimum base retirement income. Also, optional additional retirement income could be set up by indexing an individual’s additional amounts paid in to the amount that person receives. (An optional conservative, indexed stock fund could also be set up.) This provides flexibility for each person to increase their retirement income by paying more in or utilizing an investment option.
An individual 401k should only enhance the standard of living, not be structured as the “main retirement vehicle.” Most clearly, Stock Market based 401k’s are broken too! They are unreliable, unstable, unsafe, ill conceived and illogical. Why? In retirement years, a dependable fixed income is needed. The Stock Market is highly volatile thus highly variable and cannot provide a dependable fixed income. The Stock Market is not a safe haven due to the increasingly volatile and uncertain world in which we live.
Additionally, most people don’t have the time, knowledge, or self-discipline to manage and consistently contribute to a 401k.
Under the present system, an “investment advisor” manages a 401k for the individual. Problems are: 1. The advisor may not actually know anymore than the 401k owner. 2. The advisor is getting paid a commission on his recommendations or what he sells to the 401k owner and objectivity is lost. 3. How much risk does a person want?
Quoting Bernard Baruch:
“If you are ready and able to give up everything else, to study the whole history and background of the market and all the principal companies whose stocks are on the board as carefully as a medical student studies anatomy, to glue your nose at the tape at the opening of every day of the year and never take it off till night, if you can do all that and in addition you have the cool nerves of a great gambler, the sixth sense of a kind of clairvoyant, and the courage of a lion, then you’ve got a chance.”

(From my Blog- www.deadfriendsandme.blogspot.com

God

There was suddenly water, blue, silver, and white, flowing swiftly and lavishly in what a moment before had been a rocky dry gulch I had been walking beside for hours. It did not begin with a slow trickle and build to a strong, flowing river. It did not rise from an underground spring and quickly fill the wide arroyo through which it now poured. And it did not charge through from upstream with the crash and roar of a flash flood. Rather, it was suddenly just there, a river forty feet wide, with rapids, and a voice speaking in tones of stout gurgles and muffled roars. Sunlight glistened off the curved waves dispatched by a thousand collisions of rock and water churning the rapids to a frothy white.

There were now deep and brilliant greens I had not seen before, the kind of abundant greens seen in the desert only when there is generous water. Trees, grasses, weeds, and plants, were growing profusely on either side of the new river. Trees gave shade and welcome respite from the midday sun. I looked back from where I had come, following a rocky desert trail which clung to the side of a large, eternally dry stream bed, the remains of an ancient river. Greenery and shining water now subverted my clear memory of miles of rocks, dust and the dry arroyo. With no warning, a river had taken my senses hostage, defying me to consider my physical state. Was it too much sun, too little water, a wrong turn on the trail? I sat down under one of the large, green trees, its branches holding the sun at bay. While the temperature had steadily risen to the one hundred degree plateau, I argued against myself that it could not be the sun. I had rested often in the shade of large rocks. I had drunk plenty of water, downed one or two energy bars, and even mixed a couple of batches of my old friend “gookenaid” (electrolyte replacement). The desert was also my friend. I knew all tricks, all the warning signs, and was always cautious. Mistakes in the desert carried a hard price. I had hiked this same trail many times before, each time following the familiar dry gulch the entire thirteen mile route to the campground near the highway. There were no turn-offs or side trails. I couldn’t be lost. No, this water had just appeared where there was none before, bringing trees, plants and even birds.

Yes, the problem was definitely too much sun, I thought, countering my own strong argument to the contrary. I needed to cool my body, get my temperature down, and stay out of the sun until I recovered. I poured water from one of the two canteens I carried onto a bandana and leaned back to place it across my forehead. I made a point of not using river water because I was still not sure there really was a river and, if there was, it might be polluted for one reason or another. Besides, I had plenty of water, because I always carried two canteens, each holding one gallon. One canteen was empty and the other was just below half full. With only a mile or so left, my water intake was on track.

The thirteen mile hike normally took four hours or so at a reasonable pace. The trail was difficult in many spots and the sun forced frequent stops in the shade. This day was particularly hot requiring more water than usual. But, I had been especially careful along the way to allow for the heat. No, it couldn’t be the sun, I thought, contradicting myself once again.

I had been sitting, leaning against the rock for several minutes. I had refreshed the wet bandana on my forehead with canteen water several times by then. The water wasn’t much cooler because the canteen, even with a cloth cover surrounding it, had become heated by the sun. But it seemed to help a little. I had started to once again moisten the bandana when I first noticed him. There was a man, sitting under a tree by the side of the water. He was staring directly at me. I don’t know why I didn’t see him before. He was in very plain sight. However, on this particular day, with not noticing the river with all its accompanying foliage until it literally erupted into my awareness, I was not surprised that I also missed seeing the man.

The man’s constant gaze was now making me somewhat uncomfortable. I was in the middle of what I thought was a case of a mild heat stroke, and a man was watching me intently, no expression on his face. Unnerving, that’s what it was. I began to stare back at this man, more in an effort to study him than to make actual eye contact and engage him in conversation. He seemed to be nearly a mirror image of myself, dressed in walking shorts, a loose long sleeved shirt, and hiking shoes (while boots with their ankle support would have been more appropriate for this type of trail, I chose the lighter, more comfortable hiking shoes to avoid the blisters that sometimes came with wearing the boots.). Why is this man watching me and who is he?

Those questions, and others I had not thought of, were soon to be addressed with the most unsettling of answers. A warm, sincere greeting of “Hello, Jim,” now came from this man. “Hello,” I hesitatingly volunteered back in his direction. “You’re wondering how I know your name,” he followed up, reading in my mind the next question which was to come, but was never necessary. “I know all about you Jim. You’re meeting your two friends Harry and John, and someone whom you’ve never met named Gerald, at the campground just up the river.” Things were beginning to get spooky now. He must be a serial killer and had just done away with the three of them but forced one of them to tell him where I was. Now he was going to dispatch me in some even more horrible way as he had more time to think about an even more creative way to do me in.

He laughed, again, reading my mind it seemed. “No harm will come to you, Jim. I am your friend, your very good friend.” He knew my thoughts and fears precisely. I didn’t even need to speak as he would answer my thoughts before I could put them into words. Finally, I was speaking to him. “Well, you know me but, I don’t know your name. Who are you?” “I am God,” came the reply. “Great,” I thought, Harry and John must have planned this little trick. “Well, God, you wouldn’t also go by the name of Gerald would you?” I asked, figuring this was actually the fourth member of our camping party. “No, Jim, I am not Gerald. I am God.”

I decided to play along knowing Gerald the God impersonator would relay the entire conversation to everyone over the campfire tonight, exaggerating my surprise and my reactions. Besides, it had been a very strange day so far and didn’t appear to hold the promise of getting any less so as time passed. “Well, God,” I then asked, “how did that river get here? I never noticed it before today and I have been here many times.”
“I just put it here today,” God responded, “so you and I would have a beautiful place where we could talk.” My “sun stroke” condition was obviously not improving much as I was not only still seeing the river and the trees, but was now also having a conversation with “God.” Mindful of my weakened state, I was becoming a bit irritated with Gerald the God impersonator. It was not so funny anymore, not that it had started with any particular hilarity. On the other hand, Gerald the God impersonator had anticipated all my questions, and, obviously, he too was very aware of the river, trees and birds. This could be much worse than I thought. This person is not Gerald, our new camping friend. This person is part of my sun stroked, heat induced, hallucinatory predicament. He is part of the mirage that I am living because I must have missed some cue along the trail telling me to slow down and spend more time in the shade. Severe sun stroke, that’s what it is. I’m going to be here for quite a while recovering from this sorry state.

“No,” Gerald, or God, or whatever his name was, assertively addressed me. “No, I am not Gerald. I am God, and that is a river, and those are trees. What you are seeing is very real! You have no sun stroke and you are wide awake and completely alert.” God was now the one getting irritated, at me! If he really was God, that would not be a good thing. “You’re right about that,” God replied to that statement I had not spoken. “You believe in me, don’t you, Jim?” In fact, I did believe in God and, if this was really him, he knew that. “I know that, Jim, God replied, in response, once again, to a statement I had not spoken.

Pushing my luck (not a good thing to do with God), I challenged, “Well, you don’t look like God.” “Oh, I don’t? he sternly retorted. “Well, how does God look, then?” I then proceeded to tell God that he was supposed to look like a strong, but older man, with flowing white robes, long white hair and a long white beard. He was not supposed to look like a fellow hiker. “So, you’ve seen God before I take it?” “Well, not exactly, but I’ve seen pictures of him,” I authoritatively stated. That validation of knowing how God looked did not go over any better than anything else I had said to that point. I decided my best course of action was to not say anything else, but instead, try to understand what God wanted with me. I still didn’t think I was really talking to God. I thought I was still suffering from too much sun or else Gerald, our camping buddy I had never met, was carrying a bad joke to an unreasonable extreme.

God was now losing patience with my inability to understand what was happening. “You don’t have any idea what is going on, do you Jim?” “No, God, I don’t.” “Jim, I am talking with you today because you truly believe that I exist. It is important that others also know that.” Now, I was slowly beginning to suspect that “something” just might be happening here. Could I really be talking to God? I decided to “test him” and ask if he wanted me to go and spread the word, but again, he answered my question before I could speak. “No Jim, you don’t need to spread the word. Everyone knows the possibility of my existence. It is up to each person to make a choice.” I decided that this really must be God, mustn’t it? “But, what religion is the right religion, God?” I further “tested” him. His reply shocked me completely. “In the big picture, all religions are right in believing in me, but some are wrong in the details. I will leave that to you to figure out. Besides, I don’t want to talk about religion because it depresses me.” With that answer, I now realized this had to be God. “You finally get it, Jim,” he said.

“Religion depresses you, God?” I almost asked him. Again, he answered before I could find the words, “Yes, religion depresses me because of all the differences of opinion people have about which religion is the “right” religion. What makes me happy are the river, the trees, a place for reflection and communication with God, that being me. That is what is important, not religion itself. Jim, one of your canteens is empty and the other is nearly empty. Go to the river and fill your canteens to the top. It is time for you to go.”

I walked over to the river which I now realized was real and filled both canteens to the top as God had commanded. I put my face down by the water and drank until I had no thirst. It was the best tasting water I had ever experienced. I looked over at God. He looked right into my eyes and said, “When you leave this place you will begin to have doubts you were here talking with me. Do not doubt our conversation. Do you understand?” I assured God I clearly understood and promised I would never doubt our conversation had happened. “Honesty and truth, Jim,” its all about honesty and truth. Those are the words that must be spread. Do you understand?” “I understand, God, and thank you.” “Good bye, Jim.” “Good bye, God.”

He was gone in a moment. Where he had been sitting, only the rock remained. I heaved my backpack up and slung the canteen straps around my neck. I didn’t want to leave that beautiful spot but, with my resting and speaking to God, time had seemed to move much faster than usual. I started the final phase of my hike. As I walked, the rushing river and lush greenery continued, staying with me that entire last mile to the campground.

When I walked into the campground, I easily spotted Harry’s family van. It was one ugly car, I thought, all gray and plain, just awful to look at. Then I saw Harry, John and the Gerald guy, who definitely did not look like God after all. Harry asked, “What took you so long?” “I got a little too much sun and had to rest awhile,” I told him. Harry came over and shook my hand. “Didn’t drink enough water, I bet” Harry offered. “Two canteens should be plenty but, there’s no where to fill up along the way. When you run out, then you’re out” said Harry, confiding the very obvious.

Harry was now helping me unload my gear and started lifting the canteens, throwing the straps off of my neck. “No wonder you got too much sun, Harry shrieked. You never drank any water at all. You must be crazy! By God, these canteens are completely full.” “No,” I replied, I drank plenty of water and filled the canteens in the river.” “There is no river,” Harry shot back at me in utter disbelief.” “Yes there is,” I objected. “Where,” Harry demanded. “Right over there,” I said, pointing to the flowing water. “You’re nuts,” Harry replied. I turned and looked toward the river and there was nothing, just the parched, rocky arroyo, the ancient dry stream bed that had always been there.

Harry never understood how I walked the torturous thirteen mile trail in one hundred degree heat and arrived with two full canteens. He was right about one thing however. There was no place along the way to fill a canteen. He almost figured out another thing. In fact, he even said the answer not realizing he hit the nail right on the head. “By God, these canteens are completely full.”

Even these many years later I still have never doubted that God talked to me on the side of the wide, rushing river. Do you?



Copyright,
James Wharton, Jan 20, 2009

I Knew An Honest Man

I Knew An Honest Man

Someplace, somewhere, there are still men and women of honor. There are people who don’t steal, don’t lie, don’t cheat, don’t hate, and put politics aside in favor of doing the right and honorable thing. There are people who don’t betray the confidence others have placed in them. There are people whose word and handshake are stronger than a one hundred page contract written by a thousand lawyers. Their actions and thoughts are governed by “the right thing to do,” and not by what is most profitable and best for them. There are people who really do concern themselves with the welfare of others and live by the golden rule “Do unto others as you would have them do unto you.” There are people who are “trustworthy, loyal, helpful, friendly, courteous, kind, obedient cheerful, thrifty brave, clean and reverent.” There are people who did not abandon the values with which they were raised. There are, then, people who understand the meaning of civility, and the need for people to live according to shared and well understood values. They are people who believe and live with the moral precept “What is left when honor is lost?” (Publilius Syrus, circa 42 B.C.)

Someplace, somewhere, there are men and women who set the standard and live the standard of honesty and accept the responsibility of doing the right thing because it is the right thing. Honesty, truth, morality and ethics are not given a second thought by these people because these values are inherent in their very nature and the code by which they live. They are honest to the point of accepting they are not perfect, that they also make mistakes because they are human. But they are also honest in accepting responsibility for their missteps and holding themselves accountable for their failures. They punish themselves in agonizing over their failures but work hard to not fail again.

Someplace, somewhere, there are men and women who realize that the cure for the catastrophic financial meltdown and Depression the country is experiencing is a strict prescription of honesty, integrity and truth. On an even greater stage, these same men and women know this same prescription of simple honesty is also the cure for most of the ills of the world. While this may appear to be simplistic and preachy, in fact, the necessity of pure honesty in the conduct of all men and women is quite profound. This is because an equally simple requirement of our own human nature is confidence. People must be confident in their country and its leaders, the country’s social and economic systems, and their neighbor. Confidence means that people can believe in a person or institution that consistently lives and operates according to specific rules of conduct and standards of truth. In short, people need to know what to expect. They need to know they can rely on being dealt with fairly and treated with sincere respect by their leaders who are constantly mindful of the trust placed in them. To betray that trust would be to dishonor and debase themselves. “”A good reputation is more valuable than money.” (Publilius Syrus, circa 42 B.C.)

There is a legend that Abraham Lincoln once walked twenty miles to return a penny to a woman who had overpaid him when he was serving as postmaster. Maybe honesty is so important to me because I always remember and greatly value that story of Lincoln, first told to me by my mother. Maybe honesty is so important to me because I always admired, even loved, Lincoln because of his character. As a twelve year old Boy Scout, I walked the twenty-one mile “Lincoln Trail,” from Lincoln’s home in New Salem to Springfield, the same trail Lincoln had walked. My great grandfather worked in the construction of the court house in Carlinville, Illinois where Lincoln sometimes practiced law. Many times I have walked toward the Carlinville town square where, just past the court house, the old hotel where Lincoln stayed is still standing, yet another reminder of Lincoln. And, not coincidentally, my mother was born on February 12, Abraham Lincoln’s birthday. I wish I could have known Abraham Lincoln in person. I wish I could have known him in person not because he was a great man but, because he was an honest man. His honesty was the foundation of his greatness.

But I did know an honest man once, a man much like Abraham Lincoln. This man, too, was from Illinois. This man, too, was a great man. This man, too, was a politician and went to Washington. And, this man too, represented Abraham Lincoln’s old district. Peter F. Mack, Jr. was a seven term congressman from Carlinville, Illinois. He was born on November 1, 1916, one of eight children of Peter F. Mack Sr. and Catherine Kelly Mack. As is unfortunately true with many honest and great men, they don’t tell you that they are honest and great. Hopefully, most of us are smart enough to figure it out for ourselves. But, unfortunately, some of us are not. Of course, the fact that they don’t tell us is part of their greatness and their honesty. While they are here with us, we tend to take them for granted. It is only when they are gone do we realize what a bright beacon of honor and hope they were. And as we miss them, we try to remember all they taught us and pray, just maybe, we can be like them, if only just a little.

Peter Mack was also a commander in the U. S. Navy, a veteran aviator who solo-piloted a single engine airplane, the “Friendship Flame,” on a round the world flight called the “Abraham Lincoln Good Will World Tour.” I saw his plane take off from Springfield, Illinois on a cold, grey day October 7, 1951 in weather he described as “abominable with only a 700 foot ceiling.” I saw him land at Springfield when he returned 111 days later. He flew along the same route Amelia Earhart had flown in 1937, a short fourteen years earlier. His goal was to convince people around the world that the United States was interested in peace and friendship with everyone.

Peter Mack, like Lincoln, inspired people around him with his confidence, honesty and goodness. He lived a life which others would reference, as people have long with Lincoln, as the example of what we all should be. People might know they may not be able to themselves reach that high level of honor, integrity and honesty, but Peter Mack inspired all who knew him to try. You did not want to disappoint him by doing the wrong thing. It was not that he would get mad, rather he would just look you in the eye and you knew he was disappointed. You wished that he would get mad and yell but, he never did. He never had to say anything. Just his look of disappointment and knowing he expected more from you was all that was needed. And, it was punishment enough because you knew you had let him down and he deserved much better.

On one occasion, when I was fifteen years old, I got into a small disagreement with another boy my age. While it didn’t amount to much, relevant adults in the vicinity didn’t appreciate our, shall we say, “athleticism?” It was a day later and I was walking through the tunnel from the U. S. Capitol to the House Office Building where the congressmen’s offices are located. I saw him (Peter Mack) walking in my direction. I hoped he didn’t see me but, of course, he did. Then I hoped he hadn’t heard about the fight. But, of course, he did. He stopped me and said he heard I had a little incident and asked what happened. (I felt really badly about it. I was sure he never had a fight in his life. I let him down.) I then told him what took place. The other boy and I had a difference of opinion, on what, I do not now even recall. The other boy then took two swings at me with his fists. I grabbed him by the back of his neck, threw him down and jumped on top of him and it was over.” “Did he get you?” he asked. “No, I ducked and he missed,” I replied. “Good,” he said. He smiled, and turned and walked away. He knew I felt bad about letting him down but, he didn’t press it. He knew he didn’t have too. He had a quiet assurance about him that clearly conveyed the sense that a person knows what is right. Therefore, everyone can and should do what is right.

Another time, I stood with him on the front porch of the funeral home in Carlinville. His father had died a few days before on Halloween. He was running for Congress that year and the campaign was nearing an end. His opponent for Congress and a long parade of cars with his opponent’s supporters were driving by the funeral home. Some of these supporters apparently had been tearing “Peter Mack for Congress” signs down and replacing them with their candidate’s signs. They had also been pasting their bumper stickers over “Peter Mack” bumper stickers already on cars. Being young, I was very upset about this. I asked him if I could go do the same to his opponent’s signs and bumper stickers. He quietly looked at me and said, “No, Jimmie, we don’t operate like that.” He smiled, and I knew once again he had taught me another lesson in honor.

Peter Mack enlisted in the Navy in 1942 and spent four years in the naval air force. He spent most of his time as a pilot instructor. He wanted to serve in combat overseas but the Navy’s need for trained pilots was too great, and, because he was an instructor, they wouldn’t let him go. He cried when he was told he couldn’t serve in combat overseas. He was also a true patriot. While a congressman, each year, and at his own expense, he brought 100 high school students to Washington to see how government operated.

Peter Mack was a man so honest and so good that anyone who knew him had to wonder if the world really needs such words as steal, lie, cheat, hate, and “politics” in the negative context in which it is too often used today. Unfortunately, as our country is painfully aware and suffering greatly, those very words are used more frequently now than ever before in the history of the United States. Men of honor such as Peter Mack know the root basis of all evil is the absence of honesty and truth. Can we not learn from such men? Socrates (470-399 B.C.) emphasized the absolute human need for truth and the consequences of deceit. “False words are not only evil in themselves, but they infect the soul with evil.”

One of Peter Mack’s thoughts about his 223 hours flying alone on his “Abraham Lincoln Good Will World Tour” concerned peace in the world. He said, “I looked down upon mile after mile of serene mountain, forest and plain. From where I sat, I could see no international boundaries and no squabbles among nations. During those lonely hours, I thought more and more of peace and of the folly of man fighting man, and wherever I went I found people echoing my sentiments.” The very price of world peace is that people must be able to have confidence in the honesty and truthfulness of their countries and leaders. That confidence can only come when people have complete assurance of honesty among their leaders, government and business. Countries, businesses, leaders, and all of us must live in honor and with honesty if nations are to live in harmony and our own country is to recover from crises and even survive over time.

Aeschylus (525-456 B.C.) described Peter Mack 2500 years before he was born: “It is not the oath that makes us believe the man, but the man the oath.” Sadly, as the song goes, “and the good, they die young.” So it was with Peter Mack. I visited with him shortly before his death. As sick as he was, he maintained his bravery and honor. He insisted on kidding me as was his custom. He kept his sense of humor even in the darkest of days.

When he was in Luxembourg on his globe circling flight, he met the Jubilee singers, formerly of Fisk University. They composed a new verse to an old spiritual in his honor and sang it to him as he taxied for take-off. He said “It was one of the most inspiring experiences I have ever had.” The verse went:

“The man who loves to serve the Lord,
‘Way in the middle of the air,
Will surely get his just reward
“Way in the middle of the air,
As he carries far God’s great command,
Peace and good will to all mankind,
‘Way in the middle of the air.”

Uncle Pete died July 4, 1986. Peter Mack was an honest man!


In Peter Mack’s Honor,

Jim Mack Wharton

Your 401k, Social Security, and the Martini

Your 40lk, Social Security, and the Martini

Are there any positives from the financial meltdown and resulting Depression the country is now experiencing? With the average 401k value down by 40% or so and home values reduced by nearly the same amount, everyone wishes it all never happened and we’ll all very soon awake from this double whammy nightmare. Job losses and home foreclosures may also add another whammy or two to your particular situation and this never ending bad dream. The answer to the question, however, is “Yes, there are some very strong personal financial positives which are also a by-product of the financial disaster.” In Economics, this is called an “externality,” which simply means an “unintended consequence of another event.”

This article is about your 40lk, Social Security, and the Martini. These three key elements of your personal happiness are critical to your financial well being for both the long and short term. To understand any one of them in its singular entirety is impossible without also understanding the other two. This is because they are all linked, meaning that you probably have a 401k, you will get Social Security at some point (or may already be getting it) and you drink martinis. You must understand that all three are in operation simultaneously! If any one of these items doesn’t fit your profile, particularly the martini element (if you don’t drink martinis), then read no further. In order for you to understand the complex economic prerogatives in the following paragraphs, you need to completely understand the connection between these three aspects of your life. This article points out what to do about your 401k, the even greater role Social Security will have in your financial future, and what actually constitutes a good martini.

On all three of these subjects, there is a great deal of confusion, controversy, and misinformation as well as the severe personal financial pain recently experienced by most of us (except for me). The martini conundrum graphically illustrates this deplorable situation. Consider your last visit to a restaurant. There is a whole menu of martinis such as gin, vodka, fruit martinis, chocolate martinis, ad nauseam. Does this remind you of your 401k? It should. Before you lost a lot of your money in the last year, you probably had a similar list of imponderable options of the financial type from which to choose your poison so to speak. “How do I want to construct my 401k?” To help you choose your preferred demise, there was probably an investment advisor to provide “guidance and counsel.” So, can you see the connection a bit more clearly? Choosing a 401k strategy was (is) like choosing a martini. There were so many options and picking the right one, as it turned out, was an impossible task. You’re saying, “Okay, so that’s ancient history. But, now I’m broke so, what do I do? And, I can’t even have a martini to drown my sorrows because, at this point, I don’t trust my decision making capabilities any more and there are just too may choices on the martini menu.”




It wasn’t your fault, if that’s what you wanted to hear. Everyone was a victim of the greed, fraud, and theft of the “financial terrorism” which occurred. Terrorism is the only fitting description for what the actions of those supposedly trustful individuals have done to our country. Unfortunately, these kinds of things are not new and their prevention requires assertive regulation in the future.

“Whereas gold is the kindest of all hosts
When it shines in the sky,
It comes an evil guest unto those that
Receive it in their hand.” (Simonides of Ceos 556-469 B.C.)

The blatant robbery by these individuals of money and assets from the financial system and the millions of individuals invested in it did more financial damage to the country than the 9-11 attack. But, not only money and property was robbed. People’s lives were destroyed as their life savings evaporated with the Madoff’s Of Wall Street. Confidence in financial institutions, the financial system, and the government itself, also was stolen by these despicable thieves. I do not envy President Obama for the onerous job he now faces.

What are the positives most important to you that have emerged from this national disaster?

FIRST, your retirement strategy is going to be clarified and your retirement will be adequate and secure.

This will be the case if Mr. Obama is able to reform Social Security into a logical, comprehensive system that provides adequate income for people in their retirement years. In other words, the Social Security system needs to be strengthened to the point of becoming the “main retirement” vehicle for all citizens. This will entail higher contributions during your working years to accommodate you and your longer life span during your non-working years. Other strategies the government could take to establish Social Security as the stable, adequate, and primary retirement resource it must be if people are to be able to depend on a secure retirement are:
Postponing pay-outs to subscribers until they reach age 70.
Raise the collection rate during the working years.
Remove the income cap for Social Security pay-ins.
All three of these will probably happen to some degree if Mr. Obama successfully addresses the “Social Security problem.”

SECOND, your 401k, if you have one, will become your secondary retirement tool and serve only as a back-up for Social Security.

Social Security, if it is transformed as it should be, will now provide an adequate income to rely upon in retirement. Your 401k will only enhance your standard of living. That is, it will enhance your standard of living if you do well in saving and investing. But, if you don’t save or invest well (with much good luck), you will still have, at a minimum, a secure base retirement income provided by a re-engineered Social Security.

THIRD, the realization that the entire retirement system in the United States is broken was finally brought into the clear focus of national attention.

Everyone knew Social Security was broken, but everyone also thought Stock Market based 401k’s were the answer. Most clearly, Stock Market based 401k’s are broken too.

Let’s consider each of these. In the first point, Social Security must become a guaranteed pension with a minimum base income to provide for each person’s retirement. This can be structured to also provide additional retirement income by indexing the amount paid out to the amount each person paid in. This would be an incremental income amount once the minimum base income contribution was reached. It could also be structured with an available conservative, indexed stock fund for those who wished to make the Stock Market an additional part of their retirement income, again, once the minimum base contribution was reached. This provides the flexibility for each person to have a minimum livable income for his/her retirement years and the ability to increase their retirement income through increased contributions from higher wages or additional optional contributions during the working years. Also, the amount of contribution during the working years would have to include an “inflation factor” to maintain the standard of living for retirees throughout their retirement years.

Considering the second point, the Stock Market based 401k has clearly proven to be an unreliable, unstable, unsafe, and ill conceived retirement vehicle. Philosophically, it is completely illogical. Here’s why. In your retirement years, you want a dependable fixed income. It should increase slightly each year to allow for inflation. However, very obviously, the Stock Market is a highly volatile and subsequently highly variable investment strategy. As such, the Stock Market cannot provide a dependable fixed future income. As events of the last year have also unquestionably proven, the Stock Market is not a safe haven to guarantee retirement security with a guaranteed, minimum fixed income. Safety becomes a dramatically increased concern for the future due to the increasingly volatile and uncertain world in which we live. Can you afford to have your retirement income fluctuate at the whims of random terrorist strikes, rogue countries with nuclear weapons, oil shortages and other alarming world events? The Stock Market is not the place to build your retirement security.

The third point, closely related to the second, is that the Stock Market based 401k system is broken. When you set your 401k up, you could choose from various investment, options, select the degree of risk you could tolerate, and, of course, state your investment goals. Your advisor, of course, would help you with all these things. Well, at least your advisor would help you except for one minor point. He doesn’t have any more of a clue than you do about the investment options. All he knows is what the investment firm he is representing states in his little script about the various investment alternatives. He may also be advising you to choose a particular option because he gets a bigger commission if you “buy” that investment option. Wait a minute. Is something wrong with this picture?
First, your advisor probably doesn’t know anymore, or maybe even less, than you do. Second, if your advisor is getting paid a commission on the various investment choices he “recommends,” sells is the correct word, how objective can he or she be? Your advisor is making investment recommendations to you based on what is good for him/her, not what is best for you. Third is the amount of risk you want to have. Of course, theoretically, the more risk you take, the more money you can make. Everyone is aware that with the risk comes the possibility of loss but, no one ever expects that loss will actually happen. After the past year’s events, we now know that risk is real and loss really does happen. Fourth, and my favorite, is “what are your investment goals?” That is absolutely the most ridiculous question to ask any investor. What do you think my goals are Mr. financial advisor? I want to make a big return on my investment, now and in the future, and not lose any money in the process.

Continuing on this third point, there is also the option to manage your 401k yourself. The big questions are how much you know, how much time you have, and how quickly you will learn of and can act on various investment opportunities. Here’s what Bernard Baruch said about that particular subject:

“If you are ready and able to give up everything else, to study the whole history and background of the market and all the principal companies whose stocks are on the board as carefully as a medical student studies anatomy, to glue your nose at the tape at the opening of every day of the year and never take it off till night, if you can do all that and in addition you have the cool nerves of a great gambler, the sixth sense of a kind of clairvoyant, and the courage of a lion, then you’ve got a chance.”
(Bernard Baruch 1870-1965)

If you give credence to this particular quote, the conclusion must be that even if a person had the time, interest and dedication, and didn’t have to focus on earning a living and raising a family, then if he did all the other things listed in the quotation, maybe he or she could possibly be successful in the market. Or, then again, maybe they wouldn’t be successful. Knowing the odds are definitely not in our favor, does it make sense to roll the dice on the remote probability of success with your retirement at stake?

The financial community has sold the country a bill of goods on building a retirement based on Stock Market investments. Their huge salaries are at the expense of investors. Investors are sold financial products which provide the most lucrative return in commissions to the financial advisor and his institutions, not the most lucrative return to the investor. You have to conclude that luck plays far too great a role in success or failure in the Stock Market. Those advisors and institutions which are “successful” didn’t do a better job of researching the stocks they picked. They didn’t do a better job of market timing or recognizing trends that no one else foresaw. They were, in many cases, just luckier. If most financial advisors and the companies they work for really knew that much about the Stock Market, then why has the average 401k lost 40% of its value? The conclusion has to be not only has the time for Stock Market based 401k’s passed, but it was never an intelligent strategy in the first place.

Another example from painful personal experience is for years, I allowed my 401k to be managed by “professionals.” This money was invariably invested in the Stock Market. When there was a downturn or some threatening event such as the “dot com debacle,” I would call my “advisor” and express my concern about the safety of my investments. In the “dot com” debacle, I told my advisor I was sure the market was going to crash. Stupidly, I let him convince me to leave my money where it was as “we’re in it for the long run.” Well, “we’re “not in it. It’s my money. I’m the only one that’s “in it.” My failure to insist that my portfolio be cashed out of the market cost me $50,000 or so when the dot.com crash happened shortly thereafter.

As an experiment proved one time, investments hypothetically made with the only criteria being a dart landing on the company name when a monkey threw darts at a list of companies on a dart board did just as well as the overall stock market in rate of return.

The conclusion is the roles played by your former 401k and Social Security must switch. The government must aggressively reengineer Social Security to become the primary retirement vehicle. For most people, the bulk of their savings for retirement would now go to Social Security. The 401k, on the other hand, would be a totally separate optional retirement tool either self-managed by individuals or the institutions they selected. Regardless of their success with their 401k, they would have Social Security as a strong foundation providing an adequate and reliable basic income to see people through their non-working years.

I would hesitate to advise you on what to do with your 401k at this point. The problem is that nobody can really advise you because no one really knows what to do in the current situation. No matter what anyone tells you, it is only a guess because they really don’t know what will happen in the market. If you bail out of the market today, you lock in your losses. If you leave your money in the market, it might go up a thousand points tomorrow, or it may go down a thousand points tomorrow. You might get some of your losses back or you might lose even more. Bernard Baruch also made the point that an investor can never recognize the high point at which to sell the stock or the low point at which to buy the stock. He emphasized that money is not made after either point, but rather money is made before either point is reached.

Earlier I mentioned that I did not lose any money in my 401k during this financial meltdown, and that is true. I actually made money. The reason I did not lose any money but actually had a positive return during this time is in mid-October of 2007, I converted my entire 401k to cash. I was featured in a May 5, 2008 article in the Wall Street journal because I had converted to cash some six months earlier. The article ended with the question of whether that would turn out to have been the correct strategy. And, with the wreckage of the entire financial system at this point, it is more than obvious how things turned out.

But here’s the major point. The reason I converted my 401k into cash in mid-October of 2007 was not due to my concern with the performance of the Stock Market at that time or what I might expect as to the future performance of the Stock Market. Rather, my decision to get out of equities and funds was based solely on “systemic issues.” I believe I was one of the first to use that term in relation to the financial situation at that specific time. What I was beginning to see were major structural concerns, weaknesses, and uncertainty issues with major financial institutions. It was apparent to me that the entire financial system was encountering major stresses which, if not brought under immediate control, threatened to cause catastrophic failure of the very system itself. It was at that point that I converted my entire 401k to cash. While I didn’t know when the market would crash, I was certain that it would be in the near future and losses would be severe. My move to cash was not just an investment strategy but a flight to safety. I also concluded at that point that placing my future retirement income into an investment vehicle (Stock Market) this volatile was not really a sane strategy to follow. Rather, I might invest in the Stock Market with “spare funds” I could afford to lose, knowing that it would be a gamble something along the lines of a Las Vegas style bet. But, my main 401k monies are going to stay safe in government backed (FDIC insured) investments such as CD’s. While the low rate of return is almost comical, the risk is insignificant and my money is safe. That’s where I want to be.

But now, let’s get back to that one last important subject before summarizing our final conclusions, the martini. As you recall from above, we talked about the myriad of “choices” when allocating funds for your 401k. That process needs to be much simpler, and, with the current economic situation, we can make it so. Let’s illustrate, once again, using the martini as an example. Just as it was with your 401k, we discussed the conundrum of the many choices with the martini when you go into a good restaurant. Once we solve the martini riddle, the 401k riddle will basically evaporate as we will now have a template for the decision process.

Here is what needs to be done. First of all, let’s look at the facts. As is my practice, we resort to history to straighten things out. The martini was invented in 1874 in Martinez, California when a miner stopped by a saloon owned by Julio Richelieu. (While there are other versions, this one seems to be the earliest dated one.) The miner asked for “something special.” Richelieu served him a “Martinez Special.” As the story goes, pronouncing the “Z” became somewhat difficult after three or four drinks and the name evolved into “Martini.” The original martini consisted of 2/3 gin, 1/3 vermouth, and a dash of orange bitters poured over crushed ice and served with an olive. While it is okay to slightly increase or decrease the amount of the basic ingredients according to taste, it is not okay to change the change the basic ingredients themselves with the exception of eliminating the orange bitters, which nobody ever has anyway. The historical definition of a martini, then, is gin and vermouth, poured over ice with an olive added. So there you have it. This is what a martini really is. No more decisions. We’ll handle your 401k the same way but let’s finish the martini discussion.

The Perfect Martini:

“Where” you have the martini and what kind of glass it is served in are critically important for the “perfect martini.”

The following historical narrative featuring my brother and me illustrates these points. In order to satisfy the atmospheric issue, the “where” was Nepenthe Restaurant in Big Sur where we requested and received the corner table by the window overlooking the Pacific Ocean. Yes, this was just fine. The waitress asked for the drink order. At this time there were two martinis ordered. My brother ordered Tanqueray gin while I challenged him with the Bombay Sapphire gin. We both ordered the martini constructed as follows: “Up, very, very dry, shaken quite vigorously at the table to chill the gin to the point that it was a grey color, nearly an icy syrup, and then poured into the waiting chilled stem glass, with an olive on the table next to the glass (putting the olive into the glass distorts the gin taste with its olive juice flavor as you reach the last half inch of your drink). Immediately after pouring, the waitress pointed toward the bartender, who, with the corked bottle of vermouth in his left hand (no vermouth had been added to the gin), looked at both of us and smiled, and immediately raised his eyes upward toward heaven and said, “Lord, thank you for all of your blessings.” He then looked backed at us and gave us a “thumbs up.” The martini was now properly mixed. That is the perfect extra dry martini. (It should be noted that we actually requested the waitress allow us to do the shaking ourselves so we could guarantee ice crystals floating on the top of the gin once it was poured into the chilled stem glass. Also, because the martini was extra dry, vermouth was never physically added to the gin itself. However, the completion of the mixing of the martini with the bartender merely holding the corked bottle of vermouth took on a spiritual aspect as described. The result was that while we both knew no vermouth had ever been added, we both swore we detected a very faint taste of vermouth in the martinis before us, which even more greatly enhanced the spiritual mystique we were now experiencing.)

Conclusions:

Social Security must emerge as the mainstay of your retirement. It will, if properly reconstructed by the Obama administration, require increased contributions during your working life.
Your 401k, with you or your designee managing it, should serve only as an optional backup to enhance your life style in retirement.
The financial meltdown clearly underscored the fact that Stock Market based 401k’s are unreliable, unstable, and an irrational option to fund your retirement.
The great percentage of people does not have the time, desire, or expertise to effectively manage their 401k. As they age, they are even less able to make the complex decisions a 401k requires.
As stated, no one knows what to do in the current situation. My 401k is going to stay in 100% cash in FDIC insured CD’s.
Order your martini “perfect” as detailed above.



“The best of healers is good cheer.” (Pindar 518-438 BC)


QUOTE OF THE DAY:

John W. Snow, former Treasury Secretary in the Bush Administration (quoted in New York Times).

“The Bush Administration took a lot of pride that homeownership had reached historic highs. But what we forgot in the process was that it has to be done in the context of people being able to afford their house. We now realize there was a high cost.”




Translation: “Jeepers, we didn’t check their credit rating, didn’t ask for proof of income, nor any money down. Hey, we didn’t even know if some of them were illegal aliens (which they were). We never thought about whether or not we’d ever get paid those billions upon billions of mortgage dollars owed. We never even thought about it. I thought sub prime meant a kind of steak you order in a restaurant