I would be the first to recognize that there are real problems that have to be dealt with before we could seriously consider a policy of allowing private investment by the Social Security Trust Fund. But let me also say, in looking at the huge unfunded liability of Social Security, an unfunded liability that is between two and three times the level of the entire national debt, there is no doubt in my mind that in the next quarter of a century we are looking at a dramatic reform of the Social Security program. We are looking, in that reform, at moving toward a trust fund concept that would guarantee that young workers have real benefits when they retire. In that context, there's no doubt that we're looking at some form of a quasi-private trust fund approach. A public trust fund invested even partially in private assets represents problems that we need to know more about, that we should be thinking about, and for which we should be finding solutions.

We reformed the Social Security system in 1983 with a series of changes that brought Social Security out of the red and created the current trust fund we have. If, when we had made those changes, we had decided to make the investments for the Social Security Trust Fund in the Standard and Poors 500, instead of in non-circulating government bonds, the value of that Trust Fund today would be $790 billion. The value of the Trust Fund today is actually $550 billion, a difference of $240 billion. That represents a 44 percent difference. Now, granted, this has been almost a unique period of economic growth, growth in the equity value of America, but I think the point is that we are looking at huge differentials.

I think our current system of having the Social Security Trust Fund invested in nothing more than a computer entry in the Treasury Department, where the Trust Fund does not represent an external holding of debt, where interest payments to the Trust Fund do not even represent an outlay of the Treasury, I think that this is an outrageous and unacceptable form of Trust Fund. It is unacceptable to try to sell to the American people the idea that they are making investments in Social Security, that they have a genuine Trust Fund, that they really do own something that guarantees their retirement.

I believe that there are real market risks involved in making private investments. Clearly before any movement in that direction, we have to understand what these risks are, how they might be managed, what kind of fiduciary responsibility can you put government officials under, and how such a system would work.

In addition, there is the very real concern, and one that would have to be dealt with before I can ever support a proposal for allowing private investment of Social Security funds, and that is the whole issue of corporate governance. Any hint that, through ownership of corporate securities by Social Security funds, we could give government the ability to manipulate management, to make investment decisions, to dictate certain projects as being "in the public interest," represents a very frightening prospect.

Finally, we need to look at the magnitude of the investment decisions that we would be considering. We would create a serious market impact for private investors. The Federal Government, through Social Security, would be a big operator in the marketplace, with a tremendous consequence for private investors. Unless you have very strict rules, unless you have very strict procedures, it would be like being in a row boat with an elephant. When the government moved in the boat , you'd know it.

The purpose of this hearing and this is the very beginning of this debate is to listen to people who have very different, unique views on this subject, to give members of the Securities Subcommittee an opportunity to begin to think about this whole area.

Home | Menu | Links | Info | Chairman's Page