Hedging Our Way to Retirement

Article excerpt


The concept of setting up private accounts as a partial remedy to the impending Social Security crisis has been discussed by experts in this country in a mood of depressing sobriety. Proponents of the measure have gone to great lengths to assure naysayers that these accounts will be relatively risk-free, that they will be managed by respectable institutions with proven track records, and most important of all, that gullible or unsophisticated pensioners' money will not be put in the hands of scoundrels, as has been the case in at least one European nation that has already implemented this same bold strategy.

But the truth is, if private accounts are ever going to grab the timid public by the lapels, now or in the future, proponents are going to need to sweeten the pot. They're going to need to make the public an offer it literally cannot refuse. One obvious suggestion is to let gutsy young people put a portion of their retirement money in the hands of seasoned hedge fund managers. After all, what's the point of stuffing a piddling amount of cash in a conservative bond fund or stock market index fund when you can have your nest egg managed by hedge fund managers who can earn you some real money? What's the point of saving for a rainy day, when the whole point of the grand American experiment is to save for a sunny day-and, in fact, to save enough to make that sunny day a very sunny one.

This is why the Bush Administration, which has already acted with commendable audacity in moving this previously taboo topic to the center of the national debate, should make its proposal even more appealing by vastly increasing the amount of money workers can divert to these accounts and by setting up a Department of Hedge Fund Management.

Private hedge fund accounts, which would only be offered to intrepid Americans fully cognizant of the risks involved, offer numerous tantalizing advantages over conservatively managed accounts. For starters, they virtually guarantee an infinitely higher rate of return. Second, hedge funds have the legal authority to short stocks. Yes, yes, many Americans view short-selling as the quintessence of evil. And for obvious reasons, no one would want to put the Social Security system in a situation where it would be actively betting against American companies-even crooked, fly-by-night outfits or ones sabotaged by inept management. …