SOTU/SS, FASB on Disclosure & SEC on who's "Sophisticated"

SOTU/SS

The President’s words last night on Social Security (emphasis mine):

To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations. We must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market.

Well that all sounds nice. But how do we accomplish all those great things?

There is zero willingness in congress today to consider any privatization scheme for SS. So the Prez has that right. However, in order to a) not impact current retirees, b) protect those who are vulnerable/have disabilities and c) not cut future benefits; the only possible option is to raise SS taxes across the board. Raising the retirement age and raising the cap on earnings subject to SS withholding are steps that will come. But they do very little to change the outcome. A bigger broader effort is necessary.

So I am left wondering about this. Additional details on how the Administration expects to realize on this promise will be forthcoming (I assume/hope). One thing I am certain about at this point. The “solution” will not be a permanent increase in SS taxes.

What would it take to really “fix” Social Security? According to the Trust Fund annual report it would require an immediate 1.9% increase in SS taxes. That comes to about $100 billion a year. And rising every year thereafter. That is as likely to happen as privatizing SS. So where is the beef on the plan?

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FASB Folds Like a Cheap Suit in the Rain

US accounting board softens fair value proposal

NEW YORK, Jan 25 (Reuters) - In a big victory for banks, U.S. accounting rule-makers moved on Tuesday to reverse a controversial plan that would have forced banks to value many of their loans based on market movements.

A big victory for the banks. Isn’t that lovely. We should all be so happy for them. Now we will never have any clue what their books are really worth. I am disgusted by this.

 

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SEC To Exclude Homes from Net Worth

As of this morning our pals at the SEC have redefined what is an "accredited investor" (“AI”). Once you are an AI you can invest in a different series of investments that are not available to the public. The SEC on this:

An accredited investor is eligible to participate in certain private and limited offerings that are exempt from Securities Act registration requirements.

I am an accredited investor. Every year I have put some money to work using this status. They are aptly referred to as “Club Deals”. Not all of these have worked out, but they vast majority of them have. There is no question that I have made money over time because I am a member of the club.

Generally speaking you get in on the action if you have a net worth greater than $1mm. A significant hurdle. But the SEC has today made that hurdle even bigger:

The proposed amendments would exclude the value of an individual's primary residence in calculating net worth when determining accredited investor status.

The largest asset most people have is their home. By excluding it from the calculation a whole bunch of folks will never make it to the club.

If you wonder why 1% of the population has 80% of the wealth; it is rules like this that make it so. It really is not a level playing field. Never was.