Monday, September 15, 2008

My New Retirement Plan, and Accompanying Economic Rant

My new retirement plan is very simple. My 401k and IRA are in the toilet, and I'm too small for the Feds to worry about bailing out, so I'm going to take my last assets and start up my own investment bank, run it into the ground, and then ask for a bailout. It can't miss.

Given the marvelous economic news of the last few months, my current retirement plan involves looking for a nice, big refrigerator box to live in. I may as well just sign everything over to rich investment bankers now rather than wait for the government to do it later.

That's how it works, of course. They're too big to fail, but you and I are too small to matter.

I thought there was hope today when the government decided not to bail out Lehman Brothers, but then I realized that Lehman Brothers was in the same boat the rest of us are - they weren't too big to fail, so the feds cut them loose.

And just so you can feel better about the Fat Cats' raids on your savings, here's a quote from the CNN Money article about the Lehman Brothers collapse:

"The Federal Reserve announced a series of steps to support the financial markets. The Fed said it would expand its short-term lending to banks by starting to take all investment-grade debt as collateral - instead of just Treasurys and other high-grade securities."

The emphasis is mine.

Now let's be sure I understand this...the Fed is going to lend to banks which have already demonstrated their irresponsibility and greed by accepting "all investment-grade debt" as collateral. What's "investment-grade debt?" Isn't that what got all these greedy bastards into trouble in the first place?

I really wish I knew more about economics. No, actually, I don't. If I really understood the depth of the greed of the "financial institutions" and the level of smug arrogance that leads white-collar thieves to assume they can get the government to crush us to save themselves, I'd probably either kill myself or want to declare open season on "investment bankers."

Washington Post business columnist Steven Pearlstein wrote an article last week titled "Don't Like Bailouts? Consider the Alternatives" that spun me up in several ways:

First was his assertion that "History shows that rather than costing taxpayers, the rescues have often wound up making money." He then listed bailouts he claimed actually benefited the government, concluding that "...if (the government) is willing to wait until housing markets finally recover, there's a good chance the government will recoup most of its investment, along with a 10 percent annual dividend and a hefty guarantee fee." I find that very comforting as I look at the wreckage of my retirement accounts. Even if this long-term fairy tale is true, it will do nothing toward helping those of us who have been fleeced first by the crooks, and then by the government that helps them out.

Second was Mr Pearlstein's tossoff of "moral hazard" (the argument that those who abuse their trust must bear the consequences) by suggesting that "...using moral hazard to argue against the carefully structured rescues of Bear Stearns or Fannie and Freddie is a bit likely arguing that any sentence short of capital punishment is insufficient to deter bank robbery."

And then was this statement: "Remember that even with the rescues, top executives at Bear Stearns, Fannie Mae, and Freddie Mac lost their jobs, their reputations, and most of their net worth, while long-term investors lost all but a tiny fraction of their money." You may recall my discussion a few days ago about the severance packages of the Fannie Mae and Freddie Mac CEOs...if I lose my job, I doubt that I'll get a severance package valued in the millions to cushion the supposed loss of my reputation. And I may be wrong, but I believe the losses those long-term investors suffered ("all but a tiny fraction of their money") are the losses you and I are being expected to make up through our hard work and taxes.

Was the cost of the alternative worse than the vast cost of bailing out these greedy fools? Perhaps. But unless we make some real, fundamental structural changes to how the financial markets are operated and regulated, we'll just keep riding this same old fiscal merry-go-round to a future of continuing financial chaos.

And you and I will keep buying the tokens to pay for the big guys to ride.

Have a good day. More thoughts tomorrow.

Bilbo

P.S. - Agnes's parents arrive this afternoon for a two-week visit, and so my posts may be a little irregular as we spend time with them. Bear with me. I'm still out here.

B.

5 comments:

Jean-Luc Picard said...

All the saving should be under your bed.

Mike said...

"They're too big to fail, but you and I are too small to matter."

Now you got it! I knew you would catch on eventually.

Amanda said...

JLP might have a point. All my money is in the bank because I don't have the time to manage it any other way these days but....doesn't look as safe as my bed at the moment.

lacegem said...

You don't have to say anything. I'm in the investment business & I've seen some people panicking. Greed is what got the economy into this condition. I just don't understand people, we complain when the gov't tries to step in & put some restrictions on our business, but when the mortgage business got way over their heads, they're not complaining but requesting that the gov't step in & bail them out at the expense of the tax payers of course. I wouldn't be surprise if the mortgage lenders, & bankers are sleeping with Congress. Greed was also to blame for the Great Depression!

Anonymous said...

Here's a simple question: We invest but why?

Investing is not saving. Stuffing it under the mattress is saving. Banks offer you interest because of the agreement you enter: they can use your deposited money to generate more business and in return, they reward you with interest. Not a loan exactly, but a deal nonetheless. And this makes you want as much interest as you can get. Greed?

A bond is a loan and your money is rewarded with interest. Looking for the highest yield means taking the biggest risk. Greed?

A stock is a gamble that you can pick a company that will grow in value, making your investment worth more when you decide to sell it. You might even get a slice of the profits in the form of a dividend. Mutual funds allow you to better diversify that risk. No return is good enough - you can always do better. Greed?

But no one can say, that you put money in the bank, buy a bond or invest in equities without the foregone conclusion that you will make money. And it is never enough. Before you can enjoy it, taxes and inflation, fees and expenses, all take their piece of your action. So you reason and rightly so, that you need to make even more money. Greed?

We all have greed. If we didn't, there would be no marketplace. We would all fairly price and barter much more often.

Excesses of anything is not healthy and because of the current state of under-regulation and financial cronyism, we have greed run rampant across every news and business channel. So now, as taxpayers, we own a piece of our own capitalism. Let's hope we can make some money... (Greed?)

I don't agree with what has happened recently but it might just better than the other option.

What I don't like is Ben Bernanke having so much control over so much cash without ever having been elected.

Bottom line: be comfortable in your greed.

If anything, it is the current administration that is to blame for Wall Street's latest bout of greediness.

This too shall pass.