No. of Recommendations: 3
No one said we're going to "bail him out," in the sense of replacing all of his losses dollar per dollar. I'm simply pointing out that when if a person loses their retirement funds, some of that cost inevitably shifts to the broader society as long as social safety nets exist.
Sure. And this notion of "Socialized losses" is the general slippery slope from which lots of bad ideas are spawned, the general trending of which is to try and eliminate all manner of risk in a society. The bottom line is not only can you not do that, you shouldn't.
I can reduce traffic deaths to zero by reducing speed limits to 5MPH, installing governors on cars so they never exceed that speed and issuing Governmental Bubble Wrap to every bicyclist and pedestrian out on some road. But...should I drastically limit mobility like that? No, I shouldn't.
Society requires some amount of risk to move forward since there's never any such thing as Utopia.
We're arguing for a "keep limits on what 401(k)'s can invest in so that it's less likely people will lose all their retirement savings." The same reason we require people to wear seatbelts when driving. We don't let them take the risk of being horribly injured in a crash, even if they're willing to take that risk, because we know that it will affect people other than just that one person if they get horribly injured.
And, thankfully, we already have exactly what you're asking for in terms of a wonderful incentive placed on the financial houses to NOT allow for betting on Red 11 in 401(k) portfolios.
Bill brought up the financial crisis. I wrote extensively about that on the Fool: the major cause boiled down to all the incentives in the system were for all the players in that story to do exactly what they ended up doing.
