64 Brook. L. Rev. 1043 (1998)
The Challenge to Financial Regulators Posed by Social Security Privatization

handle is hein.journals/brklr64 and id is 1055 raw text is: THE CHALLENGE TO FINANCIAL REGULATORS
POSED BY SOCIAL SECURITY PRIVATIZATION*
Roberta S. Karmelt
INTRODUCTION
The idea of private investment accounts, as an alternative
or supplement to Social Security is rapidly taking hold of the
political imagination.' There is a significant variation, howev-
er, in the ideas for Social Security privatization. Some propos-
als would raise the payroll tax and then let the Social Security
trust fund invest in pools of common stocks instead of govern-
 1998 Roberta S. Karmel. All Rights Reserved.
t Roberta S. Karmel is a Professor and Co-Director of the Center for the
Study of International Business Law at Brooklyn Law School and of Counsel to
the law firm of Kelley Drye & Warren LLP. She is a former Commissioner of the
Securities and Exchange Commission. A research stipend from Brooklyn Law
School was of assistance in the preparation of this Article. The assistance of
Brooklyn Law School student Sheldon Mui is gratefully acknowledged.
' A Federal Advisory Panel on Social Security, appointed in 1994 and headed
by Edward M. Gramlich, issued a report in January 1997 that reflected the
Panel's inability to agree on one single plan for dealing with Social Security's
financial difficulties. However, 7 of 13 members recommended compulsory private
saving through individual investment accounts. See Robert Pear, Panel on Social
Security Urges Investing in Stocks, But Is Split Over Methods, N.Y. TIMES, Jan. 7,
1997, at Al; see also Jackie Calmes, Social Security Report Opens Debate, WALL
ST. J., Jan. 7, 1997, at A2. The initial White House response was that any plan
to put Social Security funds in the stock market raises concerns about risk, no
matter whether the government or individuals decide where funds should be in-
vested. Jackie Calmes, Clinton Panel Cites 'Risk in Putting Social Security Funds
in Stock Market, WALL ST. J., Feb. 11, 1997 at A2. A subsequent Federal Advisory
Committee, headed by Donald Marron, unanimously recommended that Social Se-
curity be supplemented by individual investment accounts. See Richard W.
Stevenson, Bipartisan Plan for Rescue of Social Security Involves Markets and
Retirement at 70, N.Y. TIMES, May 19, 1998, at A17; see also Judd Gregg et al., A
Look at ... The Future of Social Security, WASH. POST, June 7, 1998, at C3. This
idea began to have liberal as well as conservative backing. See, e.g., Gerald F.
Seib, Moving Beyond Simply Saving Social Security, WALL ST. J., Mar. 25, 1998,
at A24. Then, President Clinton voiced interest in investing some of the Social
Security trust fund in the stock market. See Christina Duff, Clinton Willing to
Consider Investing Some Social Security Funds in Stocks, WALL ST. J., July 28,
1998, at A4.

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