10/25/2008 05:12 am ET Updated May 25, 2011

McCain's Social Security Plan Puts Americans at Risk

The current upheaval in the financial markets and the crisis on Wall Street have been used to decry the privatization of Social Security. The current ups and downs have revealed that a social security system with private accounts invested stocks, bonds, etc. would be subject to any volatility in the stock or bond markets.

Recently, the McCain Campaign and others supporting the privatization of Social Security have shifted the focus away from the stock market to the more stable bond market. This shift by the McCain campaign is not satisfactory because, if the current crisis is as serious as Secretary Paulson suggests and is not averted, then even the bond markets will suffer enormously. If corporate revenue falls or state and local government tax revenue falls, then bonds may not be paid back.

The Bush Administration and Congress are working on the details of an almost trillion dollar buy out of bad debt. The proposed buyout began with mortgage backed securities, but may included other bad debt including credit card debt. That is, unsecured debt that is unlikely to be recouped by the government for the American people.

The current situation reminds me of the proposed one to two trillion dollar costs to setup individual private accounts necessary for the privatization of Social Security. These accounts would have small amounts of money for many years, but would still require a certain fixed amount of management fees. The privatization of Social Security would be a boon for Wall Street in these costs and fees.

The flow of a large amount of money would also give an initial boost to the markets. Yet this initial boost is not due to any fundamental change other than more money available to buy the same asset base--inflation. There has been a change in the markets over many decades due to the enormous wealth held in a few hands. The markets are overpriced because market value is not based on traditional methods such as Return On Investment, etc. Rather, value is based on confidence in the market. Markets based not on any real sense of value but rather on human emotion are inevitably more volatile.

John McCain and Republicans hold that the privatization of Social Security offers choice to individuals. However, the privatization of Social Security offers no choice for the American people and their representatives in government. There would be no choice because Wall Street and the markets would have to be bailed out in order to avert an increased economic danger to the American people on Main Street. Congress would have no choice and very little leverage in negotiating terms of the proposed buyout.

There may be no choice but to bail out Wall Street for the ultimate good of Main Street. Yet, the American people should recognize that they still have a choice and a voice. A choice and a voice they and their representatives would not have if Social Security had been privatized.