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Throwback Thursday: Social Security Trust Fund Lost $2 Billion
July 27, 2023
In 1981, Treasury Department managers of the Social Security Trust Fund lost $2 billion dollars — worth $6.7 billion in 2023 dollars — thanks to nonsensical investment policies.
Sen. William Proxmire, a Democrat from Wisconsin, awarded the Treasury his Golden Fleece Award for this enormous loss.
Proxmire credits the loss to confusing and conflicting investment policies that limited what types of investments managers could make, generally only allowing the purchase of government or government-backed securities.
Returns were so bad, that while private investors investing in similar assets were seeing returns of 13%, Treasury managers were only able to get 8.3%. That difference amounted to a loss of $2 billion, even though both private and government managers were investing in the same types of securities. While some regulations may make sense, ones that stifle returns this substantially ought to be carefully considered.
Proxmire notes one reason for the poor returns is a conflict of interest between Treasury managers that want to keep interest rates on the national debt low by investing in low yield Treasuries, and the beneficiaries who want to see maximum returns.
Other policies were also in place that kept returns artificially low, like investing mostly in low yield “special issue” Treasuries. Even worse, Treasury officials admitted they did not have the technology to quickly and agilely invest in real time to score the best deals.
There were plenty of safe alternative investments that managers could have made to increase returns without taking unreasonable risks, but bureaucratic guidelines and red tape prevented Social Security recipients from getting higher returns that may have left the fund in a better place today.
Throwback Thursday: Social Security Trust Fund Lost $2 Billion
Adam AndrzejewskiJuly 27, 2023
In 1981, Treasury Department managers of the Social Security Trust Fund lost $2 billion dollars — worth $6.7 billion in 2023 dollars — thanks to nonsensical investment policies.
Sen. William Proxmire, a Democrat from Wisconsin, awarded the Treasury his Golden Fleece Award for this enormous loss.
Proxmire credits the loss to confusing and conflicting investment policies that limited what types of investments managers could make, generally only allowing the purchase of government or government-backed securities.
Returns were so bad, that while private investors investing in similar assets were seeing returns of 13%, Treasury managers were only able to get 8.3%. That difference amounted to a loss of $2 billion, even though both private and government managers were investing in the same types of securities. While some regulations may make sense, ones that stifle returns this substantially ought to be carefully considered.
Proxmire notes one reason for the poor returns is a conflict of interest between Treasury managers that want to keep interest rates on the national debt low by investing in low yield Treasuries, and the beneficiaries who want to see maximum returns.
Other policies were also in place that kept returns artificially low, like investing mostly in low yield “special issue” Treasuries. Even worse, Treasury officials admitted they did not have the technology to quickly and agilely invest in real time to score the best deals.
There were plenty of safe alternative investments that managers could have made to increase returns without taking unreasonable risks, but bureaucratic guidelines and red tape prevented Social Security recipients from getting higher returns that may have left the fund in a better place today.
