Last week we were inundated with news stories about the verdict rendered in the case of two Enron executives, Kenneth Lay and Jeffrey Skilling, who were found guilty on multiple charges, which included various counts of fraud and insider trading. No doubt there are many, particularly the thousands of Enron employees whose pensions and retirement accounts were tied to the performance of Enron stock, whose financial welfare suffered due to the actions of these two executives and the subsequent ruination of the corporation.
But there was another story, highlighted on the front page of USA Today, which has far-reaching impact on the financial welfare of every citizen in this country and perhaps the world. The story, which received almost no attention outside of USA Today‘s report, highlighted the bankruptcy of almost every family in the United States due to the 57 trillion dollar liability of government retirement programs, including Social Security, Medicare, and government employee defined benefit pension plans. As pointed out in the article, this is a debt liability of $500,000 per family; an obligation that would cause most families to seek resolution through personal bankruptcy.
In the case of the Enron executives there was certainly harm done to individuals, specifically the Enron employees whose retirement was tied entirely to the performance of Enron stock. But what is forgotten is that most transactions in Enron stock were done in a manner that was totally voluntary. Those who invested in Enron (as with any other investment) did so at their peril.
This is not to be taken as an exoneration of Lay, Skilling, and others; for at the core of any market transaction is honesty. Because of individuals who are less than forthright and seek benefit by cheating others, we have laws in place to provide the obligatory responsibilities of the parties in a transaction. The point is that since transactions in Enron stock were made through voluntary behavior associated with the free market, the number of individuals harmed by the activities of these executives was limited.
Every individual who invests had the opportunity to commit a portion of wealth in Enron stock. A great many did not for a variety of reasons; furthermore there were a great many investors, other than corporate insiders, who actually benefited from Enron stock either through personal investment accounts or mutual fund participation. As an example, an individual who bought Enron stock at $20 a share and later sold at $50 was handsomely rewarded; as was the short-seller who sold short at $50 and covered the position at $20. It is even quite possible that an investor who didn’t trust Lay or Skilling could have realized a financial gain.
Contrast the case of Enron with the financial calamity of government retirement programs. This debt of $500,000 per family — which is growing at a rate of $25,000 a year — was thrust upon each one of us not by the free actions of the market, but as the result of compulsion and the coercion of governmental redistribution policies.
We as individuals simply do not have a choice as to whether or not we want to risk our wealth. Some may point out that we can make a choice through the political process by whom we elect, but this is wishful thinking: the political class of any form would never dare end a program of which they are beneficiaries. We as individuals do not have an option of withdrawing our risk at any given moment.
The misdeeds of government have harmed the totality of the citizens, including the future potential of those who now benefit. Since government creates no wealth, but only takes through compulsion and coercion, general economic ruin hurts even the government. A thief is unable to take from a house in which he has already stolen all possessions.
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A wonderful history of a terrible disaster: $20 |
I call these programs misdeeds by the political caste because it has been obvious since their inception that there is not enough wealth created to ever sustain them but for a short period of time. The lessons of defined-benefit pensions, which Social Security is the largest example of, have been well documented in the recently revealed financial troubles of the domestic auto companies, airlines, and others. Ignorance of economic law is no excuse.
Where is it found within the framework of the Constitution — or more importantly in the laws of nature — that individuals have an inherent right to retire? The foundation of the crimes committed by Lay and Skilling is that they manipulated others to benefit themselves.
There is no moral rationale for dishonesty and fraud; as there is no moral reasoning that allows an individual to use force against another for personal gain. If the remedy for their crimes is life in prison and the confiscation of their wealth, then what is the proper remedy for government programs whose deception has far more ominous consequences?
Mark A. Pribonic is a Managing Director and Block Trader for an investment bank. Send him mail. Comment on the blog.
