< meta name="DC.Date.Valid.End" content="20050825"> Amendment Nine: Take Them at Their Word

Friday, February 11, 2005

Take Them at Their Word

What does that phrase mean? In my business, it means take what they say will happen and apply their past performance to that target. "We project 8-10% returns in this portfolio" means, look at their past returns and adjust accordingly. Sucks for people who are starting a fund. But for people with a track record, its like a credit card. If we've delivered 7-8%, and we're adjusting our risk profile for this new portfolio, 8-10% is something people can invest in.

Shouldn't be much of a surprise that someone dealing in bonds would be just a little curious about the projected transition costs for the social security private accounts (or personal, or whatever the hell they call them now). I asked a buddy of mine (who sings a good GOP chorus) what he heard was the cost. He said: "they say $754B over 10 years to fund those accounts." That sounded low to me, "do you believe that figure?" I asked. "You can take them at their word on this" he assured me.

Alright, I will do just that.
  • The Bush Administration said the cost of the Iraq War would be between $50-$60B. So far, its $200B and counting (FoxNews). Bush was off by 250-300%.
  • The cost of the Bush tax cut was alleged to be $1.3T in his campaign. The actual cost is between $1.9T and $2.3T(SalesTax.Org). Got that one wrong by only 46-77%.
  • The cost of the medicaid prescription, Bush said, was gonna be $400B. The cost now turns out to be $700B (Heritage Foundation). Blew that one by 70-72%.
The tax cut, the Iraq war, and the medicaid prescription are big deals, so you expect some error. But again, they are BIG deals, so you also hope you're estimates are credible. The average low differential for these deals is 105%, the average high is 150%.

Hey buddy, you know who you are, I'm taking them at their word and by my math that means that the transition costs for the first 10 years of the private accounts will be $1.547T - $1.885T. For the record, if I was wrong by this much, this often, I wouldn't have a job.