The Motley Fool Discussion Boards
Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Re: Proposal to end public pensions||Date: 7/11/2013 1:32 PM|
|Author: Dwdonhoff||Number: 428502 of 464893|
Agreed--to a point. When the markets collapse, then the insurance industry loses a fair number of participants
The markets *HAVE* collapsed.. and the insurance industry remained stable, while banks dropped like flies and municipal governments stumbled (and are falling.)
There's a reason for this...
As stated, the key point is ONGOING funding for future liabilities if the money is NOT paid to the employee(s) when earned. That is the reason for companies and government to go broke. They are unable or unwilling to fund the cost of deferred liabilities.
This sounds like you are describing Ponzi Schemata... where yesterday's returns are not actually earned from yesterday's deposits*, but applied from today's new money contributions.
(*Usually because yesterday's deposits were pissed away, and therefore have no returns.)
Insurance operations do not run Ponzi schemes... that's why they don't collapse when banks (running fractional reserve schemes) and governments (Ponzi) do. Insurance companies are required not only to fully invest their depositors' principal, they are also required to keep sufficient bullet-proof reserves in place to fulfill their benefit commitments.
Consider what it would look like if we demanded that of banks & governments...
|Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|