[W]hat makes “money” money is its ability to finally settle a transaction. A monetary payment can terminate a relationship. Conversely, once you receive payment you can leave confident that you will “hold on” to your funds. In other words, “payment finality” is important to money.
Simply assuming that the second Trump administration and DOGE will do the most damaging and destructive thing possible with operational control of any system and investigating accordingly has been a surreally good guide to investigating its actions. Which brings me to the core of today’s piece
I’ve had the time to commission another legal memo and get the final results back. Entitled simply “Notes on the Crises Legal Research Memorandum No. 2”, this memo is on “Automated Clearing House (ACH) System Reclamation of Social Security Benefits”. The anonymous lawyer who wrote this memo did a wonderful job.
The memo unfortunately confirmed my supposition from the first time I read the Seattle Times reporting: social security benefits have a glaring weakness in their “payment finality”. That is, when someone is declared dead by social security, their social security benefits can be “reclaimed” without any due process. If the Social Security Administration first “learns” (or “decides”) that a beneficiary is dead they send a “death notice entry” through the Automated Clearing House’s various COBOL systems. Specifically a “death notice entry” is sent to Federal Reserve Banks who are supposed to send them onto banks in their district. This “death notice entry” is “technically” (or more precisely, “operationally”) a “zero dollar” payment with a series of “memo entries” with important information for the various payment intermediaries involved.
Social Security will follow up a “death notice” with a “Notice of Reclamation” (NOR) which “initiates the process” where the “dead” social security beneficiaries’ bank will ultimately “send back” any social security benefits that were paid after the reported “death date” and to not process future social security benefits.
The problem of a lack of payment finality for social security benefits, specifically related to death notices, has been long running. It, however, was manageable because people could contact Social Security and have it fixed.
This all brings us back to a theme we’ve come back to over and over in this newsletter: improper payments. The putative reason for impoundment and for all of DOGE’s actions, especially at the Bureau of Fiscal Service, is improper payments.
This is why I say that Elon Musk and DOGE’s plan is to explode the number and severity of improper payments.
In a fundamental sense, the lack of a functioning Social Security bureaucracy makes “social security dollars” less valuable and more insecure property. Even those still receiving social security benefits have a less valuable benefit that they have to be worried could get snatched away from them for any number of reasons and they would have extremely limited recourse.
Thinking about this alongside the extremely ominous threat covered in Wired that they have plans to “attempt” to move social security off “COBOL” in just a few months is extremely disconcerting. Especially given their reported intention to “use AI” to do it. To say the least, such a change would catastrophically explode the number and severity of improper underpayments from social security. But that is a catastrophe for another time.
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