It dates back at least as far as the Johnson Administration, perhaps even longer. It's federal law. Social Security collections have been exceeding payouts essentially since the program was started This is projected to no longer be the case within 10 years or so, depending on whose projections you're reading. There's no way that Congress and the Executive branch could sit by and let all that money go unused, so they "borrow" it to add to the general fund. The money that was borrowed is in Treasury bonds. That's what people mean when they say that the so-called "Social Security Trust Fund" is nothing more than a bunch of IOUs.

As long as Social Security is running a surplus and remains a government program, I don't see any alternative to putting the surplus into Treasury bonds. What alternative is there? If the federal government started buying bonds or stocks in private companies, they'd become part owners in those businesses. With so many billion dollars a year to invest, it wouldn't take long before they'd be major owners of businesses. This leads to a bunch of problems, such as choosing which companies to invest in (and what criteria to use), exercising control of the companies, etc.

Of course, if private individuals were allowed to invest part of their Social Security taxes in private companies, with the investments being in private accounts, that would be a different matter.