WALL ST. LOBBY QUIETLY TACKLES SOCIAL SECURITY
BY LANDON THOMAS JR.
December 21, 2004 - The New York Times
As President Bush prepares to disclose the details of his
plan to funnel hundreds of billions of dollars of future Social
Security funds into privately held investment accounts, Wall
Street has begun a muted lobbying campaign, chastened by bolder
forays that failed in years past.
So far, the chief executives of most financial firms have
refused to take a public stand in support of private accounts,
wary of being seen as too eager to embrace a potential new
At last week's White House economic meeting in Washington,
they were conspicuous in their absence from the Social Security
panel. Even in direct meetings with President Bush, who actively
campaigned on the issue of Social Security, executives have
There are signs, however, that the industry is becoming a
little more aggressive in pushing for private accounts, through
a loose assemblage of trade associations, business coalitions
and conservative research centers. These groups have lately
begun trying to raise money from business interests and to
marshal support on Capitol Hill, while also seeking to deflect
criticism that Wall Street is behind the move simply to reap
rich rewards for administering the accounts.
The first salvo was fired by the Securities Industry Association,
which recently issued a research report arguing that the private
accounts would not be a financial bonanza for Wall Street.
In the paper, the association calculated that firms would
collect at least $39 billion in fees, and perhaps considerably
more, from managing such accounts over the next 75 years.
But the group noted that the fees charged would be significantly
below the fees that investment firms receive these days from
low-cost mutual funds.
And even if the fees rose significantly as more people chose
actively managed accounts, the association's report argued,
they would still pale in comparison with the $3.3 trillion
in revenues Wall Street firms are projected to earn from their
core securities business over that period.
The Investment Company Institute, the lobbying arm for the
mutual fund industry, has not endorsed private accounts nor
has it lobbied Congress on the matter. But while its members
are reluctant to speak out publicly on the topic, the institute
recently hired as its communications director F. Gregory Ahern,
a former executive at State Street Corporation in Boston who
was involved in that firm's aggressive lobbying effort for
private accounts during the late 1990's.
Behind the scenes, the Alliance for Worker Retirement Security,
a business coalition advocating private accounts, has begun
meeting with Congressional and White House staff members,
pushing the idea that private accounts are not only good for
the country but also good for business.
In November, Derrick A. Max, the alliance's executive director,
met with Charles P. Blahous, a special assistant to the president
who has been at the forefront in the White House on Social
Security. They have a strong connection, because Mr. Blahous
preceded Mr. Max at the alliance.
At the meeting were representatives from the Securities Industry
Association, Charles Schwab & Company, and the United
States Chamber of Commerce, all members of the alliance.
The Club for Growth, a group financed largely by conservative
business leaders that supports like-minded Congressional candidates,
has also been active in the drive for privately held Social
Security accounts. Members include Richard Gilder of Gilder
Gagnon Howe & Company, a private investment firm, and
Charles H. Brunie, the founder of Oppenheimer Capital.
The club, which is run by Stephen Moore, who once served
as economic adviser to the former House Republican Leader
Dick Armey, recently sent out a memorandum to its backers
proposing a $15 million public relations and grassroots campaign
in favor of private accounts.
This increase in activity is occurring against the backdrop
of a long-running campaign by the Cato Institute, a Washington
policy research and lobbying organization with libertarian
leanings that has received financial support from, among others,
American Express and the American International Group, the
large insurance company. State Street also provided funds
in the past to support the institute's efforts to persuade
Congress of the merits of personal accounts.
Opponents of personal accounts, led by labor unions and some
state pension funds, accuse these groups of acting as a stalking
horse for the financial industry.
''Our sense is there is a lot of activity behind the curtain,''
said Bill Patterson, the director of the office of investment
at the A.F.L.-C.I.O. ''There is a dangerous confluence between
the industry and the ideologues of the right. These groups
can't do it by themselves -- they need the covert and overt
support of the financial services industry.''
Faced with such criticism, the financial industry has become
particularly sensitive about how it approaches the issue of
allowing individuals to invest some of their Social Security
contributions in private accounts.
Unlike dividend and capital-gains tax cuts -- White House
policies that were loudly applauded by Wall Street -- personal
accounts are expected to come with strings attached, requiring
an industry that has always been skeptical of intervention
in the markets to work under the supervision of government-
Many top Wall Street executives are strong supporters of
President Bush and are philosophically in agreement with the
idea of applying the independence of the capital markets to
the Social Security program. They have raised millions of
dollars in campaign contributions: Morgan Stanley and Merrill
Lynch were among the top corporate supporters of the president's
re-election campaign, raising over $1 million combined, according
to the Center for Responsive Politics, a nonpartisan group
that tracks political contributions and campaign spending.
Yet as executives of large and visible institutions, they
are leery of attracting political criticism from opponents
of the private accounts, and also are concerned that administering
millions of small accounts may well be a money-losing proposition.
Indeed, when asked whether they support private accounts,
officials from Morgan Stanley, Merrill Lynch, Vanguard and
Fidelity all declined to discuss the issue.
Under the most widely discussed plans under consideration,
personal accounts would be created by allowing workers to
divert a portion of their payroll taxes into investment accounts
set aside in their name. At first, individuals would be offered
a limited range of investment vehicles, mostly low-cost indexed
funds. After a time, account holders would be given the option
to upgrade to actively managed funds, which would invest in
a more diverse range of assets with higher risk and potentially
Because Social Security taxes are used to pay benefits to
current retirees, nearly all the plans envision the government
borrowing as much as $2 trillion to fill the gap created by
diversion of some payroll taxes. Proponents argue that the
borrowing would pay for itself over the long run because the
accounts, if they generated a higher return, would help reduce
or eliminate the future obligations of the Social Security
Some specialists on Wall Street, however, are worried that
adding to the budget deficit by such a large amount over the
next couple of decades might put upward pressure on interest
rates, a move that would not be helpful to the stock market.
And with tens of millions of small accounts to handle, industry
executives say they see little room for profit after administrative
costs are subtracted.
Whatever the ultimate benefit, Wall Street's top executives
worry that any visible lobbying campaign on their part could
well do more harm than good for President Bush's cause.
''There has been no lobbying because the industry knows it
will be accused of making windfall profits,'' said Robert
C. Pozen, the chairman of MFS Investment Management and a
member of the White House-sponsored commission in 2001, led
by the New York Senator Daniel P. Moynihan and Richard Parsons,
chief executive of Time Warner, that developed several alternative
plans for establishing private Social Security accounts.
Despite that accusation, Mr. Pozen argued, the program will
not be the windfall its critics claim.
''The accounts are so small,'' he said, ''that the vast majority
of firms would not want to touch them. It's just not a bonanza
for the industry.'' There are already signs that political
opponents are lining up to tar the White House proposal by
linking it to Wall Street greed. Last week, John J. Sweeney,
the A.F.L.-C.I.O. president, sent a letter to 46 financial
companies, including Morgan Stanley, Merrill Lynch and Fidelity,
asking them to publicly disavow the creation of personal accounts.
In the letter, Mr. Sweeney cited the example of State Street,
which in 2002, under pressure from the A.F.L.-C.I.O., reversed
a position it long held that private accounts were the best
means to address the long-run financing squeeze on Social
Security. The firm changed its position after its former chief
executive, Marshall Carter, retired. Mr. Carter had set himself
apart from his peers by advocating the accounts through speeches
and by co-writing a book supporting them with William G. Shipman,
another former State Street executive.
State Street's experience and the unsuccessful effort in
2002 by an industry group, the Coalition for American Financial
Security, are among the main reasons Wall Street has been
so reluctant to assume a bolder approach in pushing for the
''I think the backlash occurred at two levels,'' said Sylvester
Scheiber of Watson Wyatt, a corporate benefits and financial
consulting firm that was a member of the coalition. ''There
was pressure from clients and the press has been negative
toward them. These folks are very image conscious and they
don't want to be branded as 'make a buck at any price.'''
Still, while refraining from pushing the issue directly,
firms like Merrill Lynch have taken a more oblique tack. For
years now, Merrill Lynch has run ads about the virtues of
retirement saving (with no mention of private accounts) in
the back pages of Roll Call, a small newspaper that closely
follows Congressional activities and is read avidly by members
In keeping with their low profile, Wall Street executives
have been wary about discussing the issue even in private.
Last month, at a meeting with President Bush at the White
House, Philip J. Purcell, Morgan Stanley's chief executive,
and his counterparts, E. Stanley O'Neal of Merrill Lynch and
Henry M. Paulson Jr. of Goldman Sachs, were among a group
that discussed the state of the economy and the markets.
But none of the participants, according to a person who was
briefed on the session, opened the topic of private Social
Copyright 2004 The New York Times Company