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Home Publications Blogs Beat the Press Washington Post Discards All Journalistic Standards In Attack on Social Security

Washington Post Discards All Journalistic Standards In Attack on Social Security

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Saturday, 29 October 2011 22:53

News outlets generally like to claim a separation between their editorial pages and their news pages. The Washington Post has long ignored this distinction in pursuing its agenda for cutting Social Security; however it took a big step further in tearing down this barrier with a lead front page story that would have been excluded from most opinion pages because of all the inaccuracies it contained.

The basic premise of the story, as expressed in the headline ("the debt fallout: how Social Security went 'cash negative' earlier than expected") and the first paragraph ("Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went 'cash negative.'") is that Social Security faces some sort of crisis because it is paying out more in benefits than it collects in taxes. [The "runaway national debt" is also a Washington Post invention. The deficits have soared in recent years because of the economic downturn following the collapse of the housing bubble. No responsible newspaper would discuss this as problem of the budget as opposed to a problem with a horribly underemployed economy.]

This "treacherous milestone" is entirely the Post's invention, it has absolutely nothing to do with the law that governs Social Security benefit payments. Under the law, as long as there is money in the trust fund, then Social Security is able to pay full benefits. There is literally no other possible interpretation of the law.

As the article notes, the trust fund currently holds $2.6 trillion in government bonds, so it is nowhere close to being unable to pay benefits. The whole point of building up the trust fund was to help cover costs at a future date when taxes would not be sufficient to cover full benefits. Rather than posing any sort of crisis, this is exactly what had been planned when Congress last made major changes to the program in 1983 based on the recommendations of the Greenspan commission.

The article makes great efforts to confuse readers about the status of the trust fund. It tells readers:

"The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing."

This is the same situation the government faces when Wall Street investment banker Peter Peterson or any other holder of government bonds decides to cash in their bonds when they become due. In such cases it "must raise taxes, cut spending or borrow more heavily from outside investors." The Post's reporters and editors should understand this fact.

The article then goes on to incorrectly accuse Senate Majority Leader Harry Reid of misrepresenting the finances of Social Security:

"In an MSNBC interview, he [Senator Reid] added: 'Social Security does not add a single penny, not a dime, a nickel, a dollar to the budget problems we have. Never has and, for the next 30 years, it won’t do that.'

"Such statements have not been true since at least 2009, when the cost of monthly checks regularly began to exceed payroll tax collections. A spokesman said Reid stands by his comments and his view that Social Security is entirely self-financed."
 
Of course Senator Reid is exactly right. The system is self-financed under the law. In 2009 it began drawing on the interest on the government bonds it held. That is exactly what the law dictates, when Social Security needs more money than it collects in taxes, it is supposed to draw on the bonds that were purchased with Social Security taxes in the past. This means it is self-financing.
 
Again, this is like Peter Peterson selling his government bonds to finance one of his political ventures. Just like Social Security, he is drawing on his own money. The Post may have missed it, but there was a big debate last summer over raising the government's $14.3 trillion debt ceiling. This $14.3 trillion figure included the $2.6 trillion borrowed from Social Security. If Social Security sells some of these bonds and this money is used to pay benefits, it does not raise the debt subject to the ceiling by a penny. This is very simple and very clear.
 
The article then turns to Morgan Stanley director Erskine Bowles who describes a plan he put forward along with former Senator Alan Simpson, his co-chair on a deficit commission appointed by President Obama [the article wrongly describes this plan as being the commission's plan. That is not true, the commission did not approve any plan.]

“It would have hit upper-income workers while raising benefits for the most needy, those with average lifetime earnings of less than $11,000 a year. 'By making these relatively small changes, you make it solvent and you make it be there for people who depend on it,'” Bowles said. 'I thought that’s what we as Democrats were supposed to be for.'"

Actually the plan put forward by Bowles and Simpson would have implied large cuts for most low-income workers who would not have met the work requirements needed for the higher benefit. The cut would have taken the form of a 0.3 percentage point reduction in the annual cost of living adjustment. This cut would be cumulative, after 15 years of retirement a beneficiary would be seeing a benefit that is roughly 4.5 percent lower as a result of the Bowles-Simpson plan. The plan also phased in an increase in the age for receiving full benefits to 69, which is also a benefit cut for lower income retirees.

For lower income retirees Social Security is the overwhelming majority of their income. This means that the benefit cut advocated by Bowles and Simpson would imply the loss of a much larger share of their income than the end of the Bush tax cuts would for the wealthy. However, the Post has never described the ending of these tax cuts as a "modest" or "small" tax increase.

It is also worth noting that "upper-income workers," who would face benefit cuts under the Bowles-Simpson plan, are people with average earnings of more than $40,000 a year. This is not ordinarily viewed as the cutoff for upper income. In reference to the ending of the Bush tax cuts, the Post once ran a front page story questioning whether people earning $500,000 a year were wealthy. Clearly they apply a different standard to Social Security beneficiaries.

To push its line of fat and happy seniors the Post misrepresented research by Gene Steuerle on returns from Social Security taxes. At one point it told readers:

 "That return is diminishing, in part because people today have paid more into the system than previous generations. But a two-earner, middle-income couple retiring this year can expect to get $913,000 in Social Security and Medicare benefits over their lifetimes, in return for $717,000 in payroll taxes."

The trick in this picture is that the return refers to Social Security and Medicare, not just Social Security which is the topic of the article. The Steuerle paper actually has the Social Security returns shown separately in the exact same chart. Steuerle calculated that the two-earner couple referred to in the article would pay a bit less than $600,000 in taxes into the system and collect around $560,000 in benefits.

[This couple will get more back in Medicare benefits than they paid in taxes, but this is primarily because our health care costs twice as much per person as in any other wealthy country. This is a good argument for reforming the U.S. health care system but has nothing to do with the topic of the article.]

This article also repeatedly refers to the debate over cutting benefits as being an "ideological battle." There is no evidence presented in this piece that there is any ideological issue at stake. On the one hand are hundreds of millions of workers who want to see the benefits that they paid for. On the other hand are many wealthy people, exemplified by people like Peter Peterson and Erskine Bowles, who would rather use Social Security money to keep their own taxes low or to serve other purposes.

This is a battle over who gets the money. The references to ideology just confuse the situation.

[Addendum: In a comment below, Art Dover calls my attention to another inaccuracy in the article. It asserts: "The payroll tax holiday is depriving the system of revenue." This is not true. Under the law, Social Security is 100 percent reimbursed from general revenue for the taxes that were lost as a result of the payroll tax holiday. This is yet another fabrication by the Post in its crusade to cut Social Security.]

Comments (36)Add Comment
...
written by Calgacus, October 30, 2011 4:10
The best way to understand recent SS finances is to think of a Hollywood heist movie. The problem faced back in the 80s was that the gangsters saw billions, trillions flowing through SS - but it never built up. You always plan to rob a bank or a store when there's a lot of cash built up - before the payroll, not after.

But because SS had a sensible pay-as-you-go system, the trillions just passed through it, never accumulating. So there had to be the utterly destructive Greenspan reform - smashing the US working & middle class. A government trust fund, which attempts to do the impossible, a government saving up its own money, is always some kind of scam. The SS tax, which FDR knew was entirely a political protection of the fund, and had nothing to do with "financing" it, (everyone understood "MMT" back then) was turned into a tool to destroy SS & pauperize the 1%'s hated enemy, the 99%.

The whole point of building up the trust fund was to help cover costs at a future date when taxes would not be sufficient to cover full benefits. No, the whole point was as above, to make a big pile of "cash" to be robbed, and to do it by extracting it from the uppity working class, who since FDR had had this horrible idea that they were better than slaves.
The "treacherous milestone" is when some of the people who think they are OWED this ENTITLEMENT - because they worked all their lives and paid punitive taxes - start taking out of this pile. Of course the government could double the pile at the stroke of a pen, or even by just making the microscopic change of having the SS Trust Fund bonds pay higher interest. Or not have a pile at all, as before 1982, or create the pile or payments out of newly printed money or bonds. But the SS Trust Fund, like all money, like all wealth, like all holiness, belongs to Wall Street Banksters like Peterson, who cannot bear the thought of anyone else getting anything but a life that is nasty, brutish and short.
Thank You
written by Tom, October 30, 2011 8:17
Thank you for the work you do in debunking the media mythology. This is one of your best.
More Americans Die From Epidemic of Food Negative Intake Starvation, Low-rated comment [Show]
...
written by bmz, October 30, 2011 8:53
The Post, like all the Republicans, are simply trying to steal workers retirement funds. The CBO projected that the surpluses Clinton left for Bush were enough to pay off the entire US debt by the time that the Social Security/Medicare trust funds would have to be amortized for beneficiary payments, all without having to raise taxes to pay for the amortization of those trust funds. These “surpluses” were made up entirely of excess payroll taxes building up the trust funds. Bush took those excess payroll tax receipts and gave them “back” as income tax reductions, heavily weighted to the wealthy–who didn’t create those surpluses in the first place. By doing this, Bush guaranteed that taxes would have to be raised in order to amortize the trust funds. The failure to do so simply permits the Republicons to steal the money contributed by workers for their retirement. Everything about not raising taxes or limiting expenses, is about stealing our money.
...
written by dick c, October 30, 2011 9:00
I too just want to say thanks!
...
written by Paul Rosenberg, October 30, 2011 9:12
A slight niggle here: Who gets the money IS the ideology of the one percent. It's the only ideology they really care about. All else flows from that.
Just A Bad Reporter
written by PJR, October 30, 2011 9:53
Montgomery is fairly consistent about learning some simple fact but twisting it analytically to produce and write misleading and wrong interpretations. In this way she produces headlines out of almost nothing that "coincidentally" almost always please the Post editorial staff for ideological reasons. Everybody wins except the public.
...
written by skeptonomist, October 30, 2011 10:00
Dean has been calling the WaPo out on this stuff for a long time, but I have to agree that this piece sets a record for blatant lying and journalistic malfeasance for a "major" newspaper. The Post seems to have made a conscious decision that the solution to declining newspaper sales is to make itself into the Fox News of print (as Dean has been saying).
Incorrect notion in the Post article
written by AndrewDover, October 30, 2011 10:09
In the middle of the 4th section, Ms Montgomery wrote: "The payroll tax holiday is depriving the system of revenue."

This is a misconception, as matching funds to were appropriat­ed in the same bill which lowered the payroll tax to 4.2%.

See pages 33-34 of
http://fin­ance.senat­e.gov/...­7ddb560

a)
"(2) with respect to remunerati­on received during the payroll tax holiday period, the rate of tax under 3101(a) of such Code shall be 4.2 percent ..."

"There are hereby appropriat­ed to the Social Security Equivalent Benefit Account establishe­d under section 15A(a) of the Railroad Retirement Act of 1974 (45 U.S.C. 231n–1(a)) amounts equal to the reduction in revenues to the Treasury by reason of the applicatio­n of subsection (a)(2)."

So all that bill did was move a flow from
"Net payroll tax contributions" to
"Reimbursements from General Fund of the Treasury"

http://www.ssa.gov/OACT/TR/201...tml#94983


The source of the Treasury bonds in Security Trust funds makes no difference to the solvency of the trust fund. Once they are there, they are obligations of the Unitied States Government.
...
written by Blissex, October 30, 2011 10:49
«Everything about not raising taxes or limiting expenses, is about stealing our money. »

Liberals really don't get it. From the point of view of Republicans, it is simply restitution, a small amount of long delayed social justice.

Because they feel that the money paid by the low income parasites into the trust funds is stolen money.

Because the low income "takers" have been stealing the property of high income "makers" with punitive taxation, and using the trust fund to reduce taxes on the latter is simply redressing the exploitation of deserving workers from parasitical rentiers.

Ayn Rand's has a character after which the Republican Party is modeled (or viceversa?):

http://en.wikipedia.org/wiki/List_of_Atlas_Shrugged_characters#Ragnar_Danneskj.C3.B6ld
«One of the original strikers, he is now world famous as a pirate. Ragnar attended Patrick Henry University and became friends with John Galt and Francisco d'Anconia while studying under Hugh Akston and Robert Stadler. Danneskjöld seizes relief ships that are being sent from the United States to The People's States of Europe. As the novel progresses, Danneskjöld begins to become active in American waters.

Danneskjöld's action is to restore to other creative people the money, in gold, which was unjustly taken away from them—specifically, their income tax payments.»

I guess that there are liberals who cannot understand some Republican discussions, like the presidential primaries, because they don't realize that all participants and watchers have read Ayn Rand and implicitly rate policies on how close they are to her ideals.
SS actually reduces debt
written by Mark Adams, October 30, 2011 11:28
Some Social Security benefits are taxable as regular income. Thus, payroll taxes, or interest earned on them, go into the general fund, reducing the debt.
Comment on social security returns and fairness
written by Professor David, October 30, 2011 11:40
(I have sent this informally some time ago, but this useful post allows me to expand)

1. If one has paid $600,000 into the trust fund, one should expect a payoff of more than
that, so the $560,000 reported by Dean seems surprising. Especially when money is being
deposited for a matter of decades, the matter of compounding (even if at a low rate) show
have an effect. I have seen in may sources the statement that the average payment into the
system is X and the payout is X+Y, with Y positive, and this was to show that the system is
1unsustainable.' Ask anyone who sells bonds or works in a bank how they manage to
keep going.

2. On the issue of higher-income people having their benefits reduced: I am semi-retired
and drawing social security. And about 85% of my social security is subject to regular
income tax, so I am already having an effective cut of over 20%. I am not objecting to this,
but it is irritating to hear the experts trumpet how social security should be means tested!
Response to Professor David
written by AndrewDover, October 30, 2011 12:29
In response to "If one has paid $600,000 into the trust fund, one should expect a payoff of more than that":

There is no reason to assume so, because social security benefits are not based upon compound interest of the amount contributed. In fact the PIA formula
http://www.ssa.gov/OACT/COLA/piaformula.html discards 10%, 68% or 85% of portions of your indexed monthly earnings.

The actual return on your social security taxes varies widely according to your marital status, sex, income level, and when your retire. See http://www.socialsecurity.gov/OACT/NOTES/ran5/index.html

Also to keep the statistics straight, you should check the original reference, and discover that $598,000 is not really the sum of all tax payments.

Instead it is the “lifetime value of taxes” as based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return.

Similarly the “lifetime value of benefits” represents the amount needed in an account (also earning a 2 percent real interest rate) to pay for those benefits. All estimates are shown in 2011 dollars.

With that understanding here are the numbers reported:

Two-earner couple both earning an average wage.
($43,500 each in 2011)

If you turn 65 in 2011
$598,000 ... Lifetime Social Security (OASDI) taxes
$556,000 ... Lifetime Social Security benefits $35,000 ... Annual Social Security benefits

$119,000 ... Lifetime Medicare taxes
$357,000 ... Lifetime Medicare benefits

$717,000 ... Total Social Security & Medicare taxes paid
$913,000 ... Total benefits received over a lifetime



If you turned 65 in 1980
$192,000 ... Lifetime Social Security (OASDI) taxes
$452,000 ... Lifetime Social Security benefits
$30,000 ... Annual Social Security benefits

$17,000 ... Lifetime Medicare taxes
$143,000 ... Lifetime Medicare benefits

$209,000 ... Total Social Security & Medicare taxes paid
$595,000 ... Total benefits received over a lifetime

Note that those 1980 retiree social security benefits were 2.35 times taxes, whereas the 2011 retiree will be 0.93 times taxes.
Response to Mark Adams
written by AndrewDover, October 30, 2011 12:39
No, the $22 billion worth of taxes on Social Security benefits in 2010 actually are credited back to the Social Security Trust funds.

See:
http://www.ssa.gov/OACT/TR/201...tml#94983

Social Security is a mutual insurance fund, not an investment fund
written by Blissex, October 30, 2011 1:08
«There is no reason to assume so, because social security benefits are not based upon compound interest of the amount contributed.»

That's because it is not a way to invest savings, it is an insurance product (more precisely assurance+insurance).

The so called payroll tax is actually a premium, and the eventual payout is a bit like a life assurance policy, which insures against the risk of living too long, and the risk of becoming poor, and the risk of becoming disabled, or a widow(er), or the risk that the insurer goes bust, or the risk that the stockmarket goes into a secular bear market, etc.

The main aspect of OASDI is that the payouts stop when the customer (or their widow[er]) dies, which means that there is no standard "rate of return".

There is no private "Social Security" account that can run out of money for one customer if she lives longer than average or be left with a surplus if he dies earlier than average; it is all based on actuarial principles.

So «The actual return on your social security taxes» and comparisons with «Similarly the “lifetime value of benefits”» are completely meaningless because they apply only to people who live exactly to the average age of death and have exactly average rates of risk of poverty, disability, widow(hood) etc.; in general people who suffer adverse risks (like living too long) will draw more (perhaps a lot more) from OASDI than people who don't.

It makes no sense similarly asking what is the rate of return from investing in a car accident policy for 20 years compares to investing in a stock market fund.
...
written by Union Member, October 30, 2011 1:13

Thank You Dean.

I wish this post could be read during half-time at all of todays football games. That is, to a vast audience of people who pay their entire working lives into Social Security. They should know what the Washington Consensus and the Washington Post are up to on their behalf.

(It would be nice also, if someone were to put this post in front of Obama eyes; he seems all too gullible to arguments advocating austerity fraud.)
I'm confused...
written by Amanda M, October 30, 2011 1:46
Where did anyone get the idea that the Washington Post has standards? At least and that would fall under the heading of morally and ethically correct?
This would be less egregious
written by Bruce Webb, October 30, 2011 1:47
If Ms. Montgomery had not published the same "first time ever" "vanishing surplus" story on Mar 31' 2009 in this same paper. And had it thoroughly debunked then by CBPP, and if anyone was reading blog Angry Bear, by me.

There is a line between lazy reporting and pure propaganda, and on this topic Lori erase that line long ago. Google 'vanishing surplus Lori Montgomery 2009' and post and pushbacks pull right up. It didn't get any better on being recycled.
...
written by skeptonomist, October 30, 2011 2:43
There is no good reason to force an equivalence of SS with some other financial instrument or program, for example with insurance, assurance or 401k accounts. This kind of thing is one reason there is so much confusion about it (bashers take advantage of this). To a first approximation, it collects money from workers and redistributes it to the elderly and disabled. To a second approximation, because of the baby boom it has collected excess taxes from boomers which went into the Trust Fund, and which are to be paid back to them on retirement. Let's just call it Social Security and talk about what it actually does, not how it "is" or "is like" something which is actually different.
Need to proof read this article., Low-rated comment [Show]
Phony indignation, Low-rated comment [Show]
of course
written by joe, October 30, 2011 3:39
"The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing."

Isn't completely correct. We have a non-convertible currency and the US govt can create dollars at will. (well currently we tie our shoe laces together and then get mad when we trip and fall). With the ability to create dollars at will, cashing a bond is functionally equivalent to transferring an amount from a treasuries account to a reserve account. Why would you borrow something you can create at will? Public debt is private sector savings. Maybe if we just stopped issuing bonds, we could clear up the confusion.

Dean's going to be on Bernie Sander's panel about the fed with Kelton, Black, and Galbraith. Might try asking them about it.

Productivity, real resources, and political will (but not affordability) are the only things that really matter when it comes to supporting our retirees.
Is the Social Security Trust Fund Cash Negative?
written by Stuart Levine, October 30, 2011 6:02
Dean--Correct me if I'm wrong, but my understanding is that the Social Security Trust Fund is not "cash negative." Yes, it is true that the benefits paid out exceed the taxes paid in, but the fund will continue for some years to grow due due to interest on the government obligations that it owns.

Interestingly, in a business setting one usually refers to "cash flow," which means all cash that comes in, including interest income, less all cash outflows. Using that commonly understood definition, the Trust Fund is not cash negative.
When someone says "The SS Trust Fund is full of worthless IOUs" ...
written by Rick Massimo, October 30, 2011 7:24
... I always tell them that what they're really saying is, "The SS Trust Fund is full of IOUs FROM ME that I have no intention of paying back."

They hate it, but it's true.
CBO Study
written by dean liman, October 30, 2011 8:54
The CBO ran through 30 popular proposals to tweak Social Security and found that a combination of a few of them effectively wipes up out the MODEST deficit (0.7% of GDP over the next 75 years):

http://www.verisi.com/resources/decision2012.htm#s6
disability?
written by Jason Dean, October 30, 2011 9:58
Ugh - I couldn't force myself to do more than skim the Post's propaganda piece, but I didn't see any mention of the disability portion of SS. It's pure incompetence to talk about the program as if its only a retirement program.
Thanks AndrewDover
written by Mark Adams, October 30, 2011 11:08
Thanks for the information and correction. That's very good to know! And thank you for all the links in your other comments as well.
..., Low-rated comment [Show]
Is there no end?
written by Bugboy, October 31, 2011 8:11
It never ceases to amaze me the lengths the ruling class will go to in order to get what they deem theirs. They will stop at nothing to get the gold, even if it means convincing us it has all vanished!
...
written by gnat, October 31, 2011 8:39
Two observations:
Dean mentions that the tempory payroll tax deduction is being refunded to the SS trust fund from the general fund. The payroll tax reduction was adopted as a stimulus measure because it was the easiest to do. It should not be subtracted from SS revenues.

Second, I think of the budget as SS, Medicare and Medicade each with dedicated sources of revenue which roughly cover expenditures normally; and the general budget. The problem is SS has contributed a major part of the general budget funding. The problem is discretionary expenditures are much greater than income and corporate taxes.
...
written by Don Levit, October 31, 2011 11:12
Stuart Levine wrote:
One usually refers to cash flow. Using that commonly understood definition, the trust fund is not cash negative.
The interest which was used to make up for the cash shortfall, which was apparently anticipated, was realized by using general revenues AS IF THE TRUST FUND DID NOT EXIST. As pointed out previously, this is the way all government bonds are "cashed in," whether part of a trust fund or not.
You seem to consider government bonds as cash equivalents.
If so, do you think Medicare Part D is fully funded, even though 75% of the premiums are paid by general revenues, representing a current budget expense, the same process used in cashing in interest of the Social Security trust fund?
Don Levit
what about collecting and not paying
written by wretchedForeigner, October 31, 2011 4:48
Should we also discuss the issue of large number of workers who pay into the SS and do not receive anything such as foreign workers because of restrictive immigration policies (never granted citizenship)?
Good post, but...
written by Ufotofu9, October 31, 2011 8:45
Great Post, but, as the Daily Howler points out:

"From this opening excerpt, a reader might get the impression that this awful news report is somehow unique to the Washington Post. We don’t think Baker meant to say or imply that. But let’s make sure we’re perfectly clear about the actual truth.

It’s a bit misleading to say that the “treacherous milestone” is “entirely the Post’s invention.” In fact, this milestone has been part of right-wing disinformation for more than twenty years. So too with that “runaway national debt”—and we’re not sure why Baker feels that this report “would have been excluded from most opinion pages because of all the inaccuracies it contained.” It seems to us that presentations like this have been a common part of op-ed culture for the past many years."
...
written by Greg, November 01, 2011 11:54
The criminal elite, represented by the Post, want to kill SS and force everyone into the stock market as their only investment tool, plain and simple.
...
written by Fiona Mackenzie, November 01, 2011 5:03
This totally sociopathic position was being pushed big-time by Mitch McConnell in 2009. What he said was, your money's gone, you won't get it back, so just get over it. The Enron theory of Social Security management.

If we have a Republican administration in 2012, this will become government policy, and he will be right; we'll have no choice but to get over not being paid the social security or medicare we paid for over 40 years of our lives.
WAPO promises to fix it
written by BobFromLI, November 02, 2011 3:34
Wrote to Ombudsman and he says: Thanks Bob, I am looking at this story and will probably write about it this sunday.

_________________________
Patrick B. Pexton
Washington Post Ombudsman
ombudsman@washpost.com
202-334-7582

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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