WALL STREET REFORM

August 2002
		How can the Bush administration and Congress clean up Wall Street and restore investor confidence in the wake of corporate scandals?

Forum Introduction Do stock options act as invitations for corporate fraud and misleading financial statements? Did Enron's trading of energy futures on the Commodity Futures Exchange enable it to mislead investors? How much should people with mutual funds worry about corporate corruption and accounting scandals? What is the role of a corporate board of directors? Will the conviction of corporate executives have any real influence on the markets? What would have happened if legislation to privatize a portion of Social Security had been approved? What happened to all the money that people lost -- was it ever 'real'? Why not limit the amount of time an accounting firm can serve as a company's independent auditors?

L. DeFacio of Alameda, Calif. asks: ________________________________ What would have happened if the legislation to privatize a portion of Social Security had been approved? How would current retirees be affected? Would they have lost a substantial part of their savings and security in the current economic downturn? Ronald Berenbeim responds: ________________________________ Current retirees would be affected to the extent that the value of their holdings declined. However, even if the market had gone up, social security benefits could have been affected because social security is a pay as you go system. If a significant percentage of social security payments had been diverted to private investment there would have been less money to pay benefits. In an economic slump, tax receipts also decline, so under current circumstances it would have been much harder to find the money elsewhere to pay benefits. The result: benefit cuts or tax increases. Frank Torres responds: ________________________________ The recent corporate scandals, crisis of confidence in the stock, and decline in market value have exposed the risks of proposed plans to privatize Social Security. If money that would have gone to Social Security were invested instead, substantial losses to retirement income would have resulted from the recent drop in the market. It is estimated that mutual funds have lost 21 percent of their value. While some of these losses may even out over time, retirees, or those about to retire, would have seen their retirement income greatly diminished if a portion of Social Security was privatized. Workers who are retired have been forced to go back to work because of a drop in the value of their investments in the wake of the corporate scandals. Other workers have put off retiring after the value of their 401(k), pension or other retirement plans fell in recent months. Social Security checks are more important than ever to retirees and older workers. Some in Congress appear to be backing off of the privatizing Social Security in light of the corporate scandals and market instability. Olivia Kirtley responds: ________________________________ There have been numerous proposals regarding the privatization of Social Security. Most of them contained provisions that would have protected some or all of the benefits in the event of a downturn. However, we do not know what the affect would have been without knowing the specific provisions of whichever privatization bill might have been adopted. I feel certain that the events of the past year will be carefully considered in any proposed legislation in this area.