Social Security and Bankruptcy

Victor, over at the Dead Parrot Society looks at the issue of whether or not the private accounts in a Social Security reform measure would be subject to claims by creditors. Victor’s take on it is, “No.” Victor has done much of the leg work and I don’t have anything to add so go read his post.

FILED UNDER: Economics and Business, Social Security, US Politics
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Clint Lovell says:

    I’m a bankruptcy consultant so I think I have a thing or two to add to this.

    As the law currently stands the accounts would be subject to bankruptcy proceedings because these accounts are assets of the Petitioner.

    Some compromise legislation would have to be worked out to keep flim-flammers from temporarily parking assets in these accounts to avoid forfeiture, while providing some level of relief for the Petitioner from claims against these accounts.

    The short version is that Congress will find a way to screw this up and turn it into an issue instead of turning it into a solution.

    In closing, it almost goes without saying that the entire debate on private accounts (as they are currently configured in the public debate) is moot.

    One way to make this program component of the President’s overall Social Security plan work would be to create a new capital market exchange platform similar to the existing NASDAQ.


    Because this new platform (let’s call it “INSTICERT” for the moment) would be created not to trade stocks or bonds, but a special class of limited partnership securities that are derived from companies that have been intentionally organized to be bankruptcy proof (yes Virginia, this type of company organization DOES in fact exist) and therefore virtually immune to investment loss. This is important because the taxpayers would be investing in these securities for the long-term and we don’t want anyone accusing us of “gambling” with Social Security (i.e.: Katrina vanden Heuvel whining on Hardball about capitalists enslaving us all). Now these bankruptcy proof companies would create the highest amount of theoretical and practical financial investmetn leverage due to their capitalization structures (all cash contributions – never any debt) so the earnings would grow at rate of 12% to 18% per annum (IRR) and that would mean a worker entering the workforce today could retire very, very well in 20 years and have no need for the paltry SSI benefit check that is neither a guarantee nor a standard of living. Visit our website if you would like more information on this topic.