Category Archives: financial crisis / recession

The Myth of the Greedy Geezer

The following appeared today as an opinion piece on Al Jazeera English.

Old people are becoming everyone’s favourite scapegoat for America’s economic woes. Among the growing ranks of self-styled deficit hawks, Social Security and
Medicare are depicted as an intolerable burden to the nation’s already crippled
economy, which can only be saved through massive cuts to these so-called old-age entitlement programs. To advance this agenda, proponents of entitlement cuts have attacked not only the programs themselves, but the people who benefit from them – the selfish old folks like myself, who insist upon bankrupting the
country for the sake of their own costly health care and retirement income.

We in the over-65 set have become the present-day equivalent of Reagan’s notorious “welfare queens,” supposedly living high on the hog at the expense of the taxpayer. According to what I call the Myth of the Greedy Geezer, we lucky
oldsters spend our time lolling about in lush retirement villas, racing our golf
carts to under-priced early-bird dinner specials and toasting our good fortune
with cans of Ensure – all at the expense of struggling young people, who will
never enjoy such pleasures since the entitlement “Ponzi scheme” will collapse
long before they are old.

The fervour for entitlement-cutting remains strongest among conservatives, but these days, even President Obama is taking part, promoting the recommendations of his National Commission on Fiscal Responsibility and Reform, commonly known as the Deficit Commission (and to its opponents as the Cat food Commission, since that’s what old people will be eating when the Commission finishes its work).

The appointed chair of the Deficit Commission, Alan Simpson, is one of the primary promulgators of the Myth of the Greedy Geezer. A former Republican senator from Wyoming who is known for his colourful turns of phrase, Simpson insists that “This country is gonna go to the bow-wows unless we deal with entitlements, Social Security and Medicare.” The majority of the people opposed to such cuts, he claims, are “These old cats 70 and 80 years old who are not
affected in one whiff. People who live in gated communities and drive their
Lexus to the Perkins restaurant to get the AARP discount. This is madness.”…

Read the rest at Al Jazeera.

Obama, Can You Spare a Job?

One of the latest attacks on Obama’s failed policies claims that his economic stimulus created few jobs at exorbitant cost to taxpayers: $278,000 per job, to be exact. Fuzzy math aside, what these attacks omit to mention is that the stimulus, like all else these days, operated under the conservative creed that everything has to be done through the private sector. This ethos, firmly embraced by Obama
himself, prevents the government from taking the far more efficient route of simply employing people, which might have created many more good jobs for the same price tag.

Had Obama had heeded FDR’s experience during the Great Depression, we could have put unemployed people to work rebuilding American infrastructure—bridges, tunnels, railroads, roads–not to mention restoring and shoring up wetlands and carrying out other environmental projects. That’s what Roosevelt
famously did
with his Works Progress Administration and Civilian Conservation
Corps.

Such an initiative might conceivably have been possible, on some scale, prior to the midterm elections. But with the gridlock in Congress and diminishing confidence in the President and government, any such course now is hard to imagine. Instead, the austerity imposed by the debts deal will likely further impede any chance at real job growth–as Roosevelt himself found in 1937 when he briefly adopted austerity measures, only to see falling unemployment rates spike once again.

But even at this dismal stage, there are nonetheless a handful of realistic projects that ought to appeal to some fiscally minded conservatives as well as to Democrats.

Jonathan Alter, who is a historian of FDR’s New Deal as well as a journalist, has promoted an idea that involves allowing states to “convert their unemployment insurance payments from checks sent to the jobless into vouchers that can be used by companies to hire workers.” The amount of the unemployment checks would in effect become subsidies to the employers, so that “for instance, a position paying $40,000 might cost employers only $20,000, thereby encouraging them to hire…If a mere 10 percent of unemployed Americans persuaded employers to accept such vouchers, more than a million people would find work with no new spending beyond some administrative costs.”

Alter believes the plan, first suggested by Alan Khazei, a Democratic candidate for the Senate in Massachusetts, might appeal to “a Republican House  that loves the concept of voucher.” But so far there’s been no interest from either Congress or the Obama Administration.

Another option is the already much-discussed German experience with the short work week. As Kevin A. Hassett of the American Enterprise Institute explained this scheme back in 2009.

Firms that face a temporary decrease in demand avoid shedding employees by cutting hours instead. If hours and wages are reduced by 10 percent or more, the government pays workers 60 percent of their lost salary. This encourages firms to use across-the-board reductions of hours instead of layoffs. Here’s how the program works.

A firm facing the challenges of the recession cuts Angela’s hours from 35 to 25 per week, thus reducing her weekly salary to 714 euros from 1,000 euros. Angela does not work for the firm during those hours. As part of its short-work program, the government now pays Angela 171 euros–60 percent of her lost salary. Most important, she still has a job. Effectively, the government is giving her unemployment insurance for the 10 hours a week that she is not employed.

Senator Jack Reed and  Congresswoman Rosa DeLauro have put this program into legislation which so far has  gone nowhere, with only a handful of co-sponsors. This despite the fact that as Dean  Baker of the Center for Economic and Policy Research points out: “Twenty  one  states (including California and New  York) already have short-time compensation as an option under their
unemployment insurance system. In these states a governmental structure already  exists to support work sharing, although there would have to be changes to make  the system more user friendly so as to increase take-up rates.”

Steven Pearlstein in the Washington Post last week pointed to another way of immediately putting people to work, which harkens back to the idea of rebuilding the nation’s crumbling infrastructure:

Over the next decade, the federal government is slated to spend hundreds of billions of dollars building roads, schools, airports, trolley  lines and airport terminals, modernizing the air traffic control system, replacing computer systems and buying planes, ships, tanks, trucks and cars.  Moving up some of that spending from years 8, 9 and 10 to years 1, 2 and 3 won’t cost any more in the long run, or increase the long-term deficit any more, but could sure help put a floor under the economy in the short run. For those worried about pork, the actual spending decisions could be left to an independent Infrastructure Bank.

To spur private investment in equipment and research, the government could immediately allow companies of all sizes to deduct 100 percent of such expenses made in the next three years, rather than “depreciating” them over many years. That incentive to invest now will increase the deficit in the short run but have little or no impact on the long-term deficit.

As Suzy Khimm reports in the Washington Post, “The question of infrastructure funding will come up as soon as Congress returns from its August recess,” since “a bill reauthorizing  spending on surface transportation — which would help build roads, highways,  and the like — is set to expire in September. There’s a big gap between the House GOP proposal, which would slash federal spending to 35 percent less than Fiscal 2009 levels, and Democratic Sen. Barbara Boxer’s two-year plan to spend $55 billion a year. Boxer’s proposal would require revenue beyond what’s in the Highway Trust Fund, which receives money from the gas tax, promising yet another fight over which will be better for the economy — reducing the deficit or Keynesian spending on infrastructure.”

We all know how that fight is likely to turn out. And as Jonathan Alter points out, even these modest approaches to job creation call for an attitude of what Roosevelt called “bold, persistent experimentation” on the part of the government–and the leadership to back it up. And as we’ve seen all too clearly, Obama is no FDR.

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Soylent Greenbacks: David Brooks Wants Some People to Die for Debt Reduction

To help solve the debt crisis, the best thing I can do is die. Maybe not right now, but certainly before I put too much strain on the public purse—and since I’m 74, that means pretty soon. If I should be lucky enough to contract a fatal disease, I can do the right thing by eschewing expensive medical care that might extend my life. If that doesn’t happen, and I enter a slow and costly decline, then in the interests of the greater good I should take the Hemingway solution.

That’s pretty much the message of David Brooks’s column in today’s New York Times. “This fiscal crisis is about many things,” he writes, “but one of them is our
inability to face death — our willingness to spend our nation into bankruptcy
to extend life for a few more sickly months.”

Here’s how Brooks comes by his position: To begin with, he says: “The fiscal crisis is driven largely by health care costs.” Never mind two futile wars and ten years of tax relief for millionaires—it’s primarily health care that’s driving us into national penury.

Furthermore, Brooks argues, the reason for these soaring health care costs is that very old and very sick people insist on clinging on to their miserable lives, when they ought to be civic-minded enough to kick off. It’s not the insurance companies, which reap huge profits by serving as useless, greed-driven middlemen. It’s not the drug companies, which are making out like bandits with virtually no government regulation. It’s not the whole corrupt, overpriced system of medicine-for-profit, which delivers the 37th best health care in the world, according to the WHO, at more than twice the cost of the best system (France). No. It’s all about us greedy geezers. We’re the ones who are placing an untenable burden on the younger, heartier citizenry, with our selfish desire to live a little longer.

Brooks cites the usual figures: “A large share of our health care spending is devoted to ill patients in the last phases of life,” he writes, and Alzheimer’s patients will soon cost us hundreds of billions. He continues: “Obviously, we are never going to cut off Alzheimer’s patients and leave them out on a hillside.” (Thanks, Dave.) “We are never coercively going to give up on the old and ailing.” Nonetheless, Brooks hopes than many “old and ailing” people will make the choice made by Dudley Clendinen, a man suffering from A.L.S., who wrote a moving essay in the Times about his decision to end his life before the disease takes its full course and renders him “a conscious but motionless, mute, withered, incontinent mummy of my former self.”

I have great respect for Clendinen’s decision. As I’ve written before in Mother Jones, I am a big supporter of what these days is called “choice in dying” or “death with dignity”—each person’s right to decide when and where and in what
circumstances they will die. But I don’t want anyone else making those decisions for me, or telling me when the time is right—not an insurance company or a Medicare bureaucrat, not Barack Obama or John Boehner, and certainly not
David Brooks. I have every intention of being my own one-man death panel. But I won’t be persuaded to die a moment sooner than I want to just because it might
save some money–money that could easily be saved by far more equitable and less draconian means.

Brooks writes that “it is hard to see us reducing health care inflation seriously unless people and their families are willing to do what Clendinen is doing —confront death and their obligations to the living.” But why is it “hard to see us reducing health care inflation” any other way? Because conservatives like Brooks don’t believe in challenging the profit-driven health care system, and the people who pass these days for liberals lack the moxie to stand up to them.

Based on models from countries like France and Canada, we could bring about whopping savings in health care expenditures through a single payer system without rationing or compromising the quality of care. Short of this, we could opt for much more regulation and still save more money than we could by pulling the plug on every geezer in the land.

If I have any “obligation to the living,” it’s to leave them with a better health care system than we have now—a health care system that values all human life above profits. But I know that’s not likely to happen before my death—which, if I listen to Brooks, could be right around the corner.

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How to Put Wall Street CEOs in Jail

“Forgive me,’’ director Charles Ferguson said in receiving an Academy Award for his documentary Inside Job, “I must start by pointing out that three years after a horrific financial crisis caused by fraud, not a single financial executive has gone to jail — and that’s wrong.”

In New York, Tuesday marked the beginning of the long awaited trial of hedge fund manager Raj Rajaratnam–who ran the $7 billion Galleon Group  and whose personal wealth is estimated at $1.3 billion. He is being prosecuted by the SEC for insider trade deals. Rajaratnam is said to have made $45 million in illegal profits. He has denied the charges and is free on $100 million bond. If he is convicted he could go to prison for as long as 20 years. The SEC historically has been such a handmaiden of the finance business that it’s hard to imagine anything serious coming out of its prosecutions, but one never knows.

Whatever happens to Rajaratnam, it  would be simple enough to prosecute many of the high rollers on first civil, then criminal charges, fining them millions of dollars and taking them out of circulation for up to 20 years.

“Contrary to prevailing propaganda, there is a fairly straightforward case that could be launched against the CEOs and CFOs of pretty much every US bank with major trading operation,” writes Yves Smith in her popular Naked Capitalism blog.  “I’ll call them ‘dealer banks’ or ‘Wall Street firms’ to distinguish them from very big but largely traditional commercial banks.’’ She proceeds to lay out the case, the key points of which I have excerpted below:

Since Sarbanes Oxley became law in 2002, Sections 302, 404, and 906 of that act have required these executives to establish and maintain adequate systems of internal control within their companies. In addition, they must regularly test such controls to see that they are adequate and report their findings to shareholders (through SEC reports on Form 10-Q and 10-K) and their independent accountants. “Knowingly” making false section 906 certifications is subject to fines of up to $1 million and imprisonment of up to ten years; “willful” violators face fines of up to $5 million and jail time of up to 20 years.

The responsible officers must certify that, among other things, they “are responsible for establishing and maintaining internal controls’” and making sure everyone concerned knows about them–and beyond that, for taking steps to have these controls evaluated and reported. Smith continues:

It’s almost certain that you can’t have an adequate system of internal controls if you all of a sudden drop multi-billion dollar loss bombs on investors out of nowhere. Banks are not supposed to gamble with depositors’ and investors’ money like an out-of-luck punter at a racetrack.

Readers may have better suggestions of where to start, but I’d target Lehman. First, it already has a smoking gun: a May 2008 letter written by former senior vice president Michael Lee to senior management, including the CFO Erin Callan. It describes numerous accounting shortcomings, none of which look to be new and many of which look to be Sarbanes Oxley violations. Second, its derivatives books were by all accounts an utter disaster at the time of its collapse: multiple non-intergrated systems, to the point where the bank did not even have a good tally of how many positions it had….

 Naked Capitalism concludes:

Will any of this happen? Of course not. The decision was made at the time of the TARP, and reaffirmed early in the Obama administration when there was serious talk of resolving Citigroup and Bank of America, that no one at the helm of the senior banks would be subject to serious scrutiny, much the less actually expected to be held accountable for actions that wrecked the economy and have imposed serious costs on ordinary Americans. The case we described above is relatively simple to explain to a jury and has the advantage of being the sort where the plaintiffs could build on their experience in one action in subsequent cases.

But that sort of truth, that most, probably all, of the major Wall Street banks were engaged in the same sort of misconduct and the violations extended to the very top of the firms, would expose numerous other parties as complicit. So we’ll permit the cancer in our society to metastasize rather than threaten the power structure. But at least we citizens can make it clear, even if we cannot change the outcome, that we are not buying the canard that nothing can be done to fight this disease.

In other words, the power structure forges ahead, while the poor and middle classes will pay for their own screwing with reduced social security, medical care, and social welfare services of all sorts. All this is being arranged by both Democrats and Republicans, in response to a recession that will only serve to deepen the already enormous divide between rich and poor in American society.

Obama’s Fiscal Commission Prepares to Carve Its Turkey

The dread report of the White House’s National Commission on Fiscal Responsibility and Reform is due out this week.  One of the Commission’s co-chairs, the putative Democrat and consummate wheeler-dealer Erskine Bowles, has been up on the Hill flogging their plan to reduce the debt by cutting the country’s already skimpy programs for the old, the sick, and the poor. His partner, motor-mouth Republican Alan Simpson, continues his ranting and ravings against the greedy geezers who want to sink the entitlement-cutting ship before it’s launched. Both of them have taken to boo-hooing because no one appreciates all the work they are doing to save the nation from certain fiscal doom, and nobody is willing to pitch in to meet this noble goal.

Fiscal Commission's Plan: Starve the Old to Stuff the Rich

Personally, I’m still waiting to hear how Wall Street is going to pitch in and do its part–or the people with high six-figure incomes who claim they still aren’t rich enough to give up their tax cuts. Or, for that matter, Bowles and Simpson themselves, who retired on fat  pensions and don’t have a financial care in the world.  Since none of this is likely to happen any time soon, we’d better take a good hard look at what these sanctimonious old coots have come up with.

We already know a lot about what to expect from the Fiscal Commission Plan, since the co-chairs released their own preliminary proposals (as yet unapproved by the 18-member Commission) earlier this month. According to people with access to the Commission’s thinking, they seem to think their best bet is to achieve consensus on a proposal to change the way Social Security’s annual cost of living increases (COLAs) are calculated. What seems like a mere accounting adjustment would, in reality, severely affect benefits over time. The National Committee to Preserve Social Security and Medicare explains the impact of this scheme:

This proposal will affect current and future beneficiaries uniformly.  The impact would occur after benefits are initiated, with each COLA, as the yearly increase in benefits would be slightly lower than would have been the case without the change.  The impact would be greater with each successive COLA.  For example, the Social Security benefits paid to someone collecting benefits for 10 years would be about 3 percent lower, on average, if the chained-CPI was used for the COLA instead of the current CPI-W.  After 20 years this reduction would reach 6 percent and 9 percent after 30 years.

This is is bad enough–especially since old people’s cost of living increases faster than the national average because of exploding health care costs. But of course, there’s more, in the form of a plan that would raise the retirement age to 67 and eventually 69. Working until you drop dead or  literally are forced out of the labor market is utilitarian nineteenth-century thinking. But at that time, at least there was an expanding need for workers in a burgeoning industrial capitalist economy. The one big profitable industry surviving in America today is so-called financial services, which consists of a small number of overpaid people passing money back and forth amongst themselves. They certainly don’t need any more workers, and if they do, they’ll get them in India. Vermont Senator Bernie Sanders said of the idea that it was not only “reprehensible,” but “also totally impractical. As they compete for jobs with 25-year-olds, many older workers will go unemployed and have virtually no income.”

There was no such ringing takedown of the plan, of course, from Senate Majority Leader Harry Reid, whose mealy-mouthed statement tells us what we can expect from our Democratic Senate. “I thank the leaders of the bipartisan debt commission for their work,” Reid said. “While I don’t agree with every one of their recommendations, what they have provided is a starting point for this important discussion. I look forward to the full commission’s recommendations and to working with my colleagues on both sides of the aisle to address this important issue.”

Nancy Pelosi had somewhat stronger words, calling the preliminary proposals “simply unacceptable”–but then, she’s nothing but the soon-to-be-ex-Speaker of the House. In fact, co-chair Simpson has been predicting, with something close to glee, the “bloodbath” that’s likely to ensue next spring, when the new Republican House refuses to extend the debt limit and threatens to send the nation into default “unless we give ‘em a piece of meat, real meat, off of this package.”

When all is said and done, there’s pretty much no way this so-called debate will end up without most of us, old and young alike, getting screwed. An already stingy program that ought to be expanded to cover elders as their numbers grow instead  is going  to be reduced, and the only question is how and by how much. It makes no sense, but it may well have political traction because the pols can sell it as an attack on rich grannies–”the greediest generation” as Simpson calls the old–while the young are hoodwinked into thinking it’s good for them. And since its full effect will take  years to be felt, the current crop of opportunistic politicians will be long gone into splendid retirement by the time these young people realize how wrong they are. Alan Simpson was frank about this fact in the Washington Post on Friday, using another one of his nauseatingly folksy metaphors:

 It takes six to eight years to pass a major piece of legislation. . . . On a piece of legislation that you know is going to go somewhere someday, you want to get a horse on the track. That might be not much. Then the next session you want to put a blanket on the horse. Nobody’s paying attention then. Then you put some silks on the horse. Then you clean the outfield and the infield. And then you put a jockey on the horse in the sixth year, and you can win it. Because the toughest part is to do the initial thing, and so it’s usually so watered down, it’s just gum, you could gum it. Then you begin to build it the next year, the next year and then you get it done. That’s what I see.

And just in case you thought it couldn’t get any worse, consider this warning from Allan Sloan, Fortune’s senior editor, who wrote an op-ed in the the Washington Post on Thanksgiving day:

[P]rivatizing Social Security, slaughtered when George W. Bush proposed it five years ago, seems about to rear its foul head again. You’d think that the stock market’s stomach-churning gyrations – two 50 percent-plus drops in just over a decade – would have shown conclusively the folly of retirees’ having to bet their eating money on the market. But you’d be wrong. Stocks have been rising the past 18 months, and you can bet that we’ll see a privatization push from newly elected congressmen and senators who made it a campaign issue.

Why is privatizing Social Security such a turkey? Because retirees shouldn’t have to depend on the market’s vagaries for survival money. More than half of married couples older than 65 and 72 percent of singles get more than half of their income from Social Security, according to the Social Security Administration. For 20 percent of 65-and-older couples and 41 percent of singles, Social Security is 90 percent or more of their income. That isn’t projected to change.

Arrayed against these grim prospects are a small group in Congress, led in the Senate by Bernie Sanders and Sheldon Whitehouse of Rhode Island, and in the House by Jan Schakowsky of Illinois. Says Shakowsky

Social Security has nothing to do with the deficit. Addressing the Social Security issue as part of the deficit question is like attacking Iraq to retaliate for the 9/11 attacks – there is simply no relationship between the two and attempting to conflate them does a grave disservice to America’s seniors. Taking money from Social Security retirees whose average total income is $18,000 per year and average benefit is $14,000 ($12,000 for women) is simply wrong. It places them at fiscal risk and hurts the economy because they will be unable to purchase the goods they need.  Americans in poll after poll have indicated their opposition to benefit cuts – particularly at a time when Wall Street bankers are making record bonuses.’

Schakwosky has her own plan, which will be an antidote to whatever the Fiscal Commission comes up with. But her ideas are unlikely to make any headway in the lame duck Congress or with the Democratic leadership, as they wait, already on bended knee, for the coming of the Republicans.

Live Poor or Die: The New American Retirement

The very idea of retiring in America had become a mirage–tantalizing, but always sliding into the distance. Those visions of golden years spent playing golf in Tucson or bridge in Boca Raton, promoted by AARP magazine and purveyors of retirement investments, are now nothing more than a chimera for most Americans. The exception, of course, is a wealthy minority, who for the past decade has been squirreling away money they should have been paying in taxes. For everyone else, old age been reduced to three alternatives: Those of us lucky enough to have jobs can keep working indefinitely; the rest can live poor or die.

Anyone who doubts this blunt truth should take a look at a few few recent trends. Start with something called the Retirement Income Deficit. Retirement USA, a consortium of non-profits and unions, which came up with the term,  describes the deficit as follows:

Retirement USA asked the respected non-partisan Center for Retirement Research at Boston College to calculate the figure that represents our current retirement income deficit – that is, the gap between the pensions and retirement savings that American households have today and what they should have today to maintain their standard of living.   Using the data from the Federal Reserve Board’s Survey of Consumer Finances, the Retirement Research Center has calculated that figure at $6.6 trillion.The deficit figure covers households in their peak earning and saving years—those in the 32-64 age range—excluding younger workers who are just beginning to save for retirement as well as most retirees.  It takes into account all major sources of retirement income and assets:  Social Security, traditional pension plans, 401(k)-style plans, and other forms of saving, and housing. 

The measure assumes people will continue to work, save, and accumulate additional pension and Social Security benefits until they retire at age 65, later than most people currently retire.  It also assumes that retirees will spend down all their wealth in retirement, including home equity.  The deficit is thus in many respects a conservative number.

This gap is due, in large part, to the demise of the old-fashoned, fixed-income pension system. According to the Pension Rights Center, total employment in the nation today stands at 130 million, of which 108 million people are employed by private business and 22 million public. The traditional fixed-benefit  plans now cover only about 20 percent of the private workforce, and 79 percent of public workers. Half the entire private workforce today has no retirement system at all. And those with 401ks are at the mercy of the mutual fund companies, with their futures staked on the stock market. In the recession, those plans took a dive, losing one quarter to one third their assets.

Even public employees lack the retirement security they once had. There are recent reports that states, because of their own budget deficits, can’t pay retirement monies to their pubic services workers. The news is hyped by politicians and way overstated, said Keith Brainard of the Public Fund Survey, an outfit sponsored by the National Association of State Retirement Administrators and the National Council on Teacher Retirement. Still, pension plans that cover public service workers and teachers in New Jersey, Illinois, and the city of Philadelphia may be at risk, according to Brainard. About 70 percent of state employees are covered by Social Security, but a good 30 percent would be left out in the cold if the plans went down.

But that’s not the end of it. The big financial institutions that run the 401k plans have been busy applauding the comeback of the stock market, suggesting that it redeems the whole 401k concept. Unfortunately, as the recession wears on, a whole lot of people are withdrawing money from their 401ks, instead of (or in addition to) contributing to them. Fidelity Investments included the following in a recent report on developments in the second quarter of 2010:

While the majority of 401(k) participants continued to save during the quarter, the percentage of participants either initiating a loan or a hardship withdrawal increased.  Loans initiated over the past 12 months grew to 11% of total active participants from about 9% one year prior.  The portion of participants with loans outstanding also increased two full percentage points in the second quarter to 22%.  The average initial loan amount as of the end of the second quarter was $8,650 with an average loan duration of three and half years….

During the second quarter of this year, 62,000 participants initiated a hardship withdrawal, as compared to 45,000 participants who initiated one during the prior quarter.  As of the second quarter, 2.2% of Fidelity’s active participants took a hardship withdrawal, up from 2.0% one year prior.  Additionally, 45% of participants who took hardship withdrawals one year prior also took a hardship withdrawal in the 12 month period ending in the second quarter of this year.  Plan sponsors report that the top reasons why participants are taking hardship withdrawals are to prevent foreclosure or eviction, pay for college, and the purchase of a primary residence.

Fidelity has found that the average age of those taking a loan or hardship withdrawal is between 35 and 55 years old – a worker’s peak earning years – when individuals often have to deal with multiple, competing, financial challenges.  Distributions from a 401(k) or 403(b) are taxed as ordinary income, plus if you are under age 59½ you may be subject to a 10% early withdrawal penalty.

I don’t know much about the pitfalls of 401k loans, so I called up Rebecca Davis, Legislative Counsel at the Pension Rights Center. She explained that if you have a 401K worth $100,000, you can borrow up to half that amount. Before getting the money you need to work out a repayment plan that includes an interest payment to yourself. And that’s where the hitches begin.

To start with, the 401k plan may well charge you a fee for all this; that fee varies from plan to plan. Moreover, when you take the loan from your own plan you must immediately pay the government a flat 10 percent tax—because the money you have withdrawn becomes taxable income. Finally, if you quit your job or get laid off, the loan to yourself from your own plan becomes due immediately–just at the moment when you probably won’t be able to pay it back. And if you don’t pay it back, you’re subject to early withdrawal penalties.

Then comes this important bit of information: The money in your 401k is normally protected from creditors. If you go bankrupt, for example, the creditors can’t get at the money. But once the money is removed from the protective cover of a 401k, pension, or IRA, then it can be seized. So now you’re broke and jobless, and you have to use your retirement funds to pay your debts.  In other words, you are screwed from every possible direction. And if you think things are bad now, just wait until you get old.

Did I mention that Republicans and Democrats alike now want to cut Social Security? Probably not for today’s geezers, but for the old folks of the future–in other words, for precisely the same people who stand to have disappearing pensions and depleted 401ks.  

“Geezer in the Hole”: The Reality of Aging Behind Bars

Over the past few years there has been a growing interest in the increasing numbers of older prisoners. At times this interest has been accompanied by some piddling gestures to alleviate their miserable situation–for example, theoretically granting them leave to die “in the free world,” or perhaps showing sympathy for granny having to climb up three tiers of bunks to get a night’s sleep, or gramps asking for a cane (denied because it is a possible weapon) so he can get to the toilet without crawling.

Nonetheless, the dominant view from the corrections industry and most of the public is that these people did the crimes and now they have to do the time–even if the time reflects absurdly the long sentences instituted in the 1980s and 90s, and creates a new cohort of septuagenarian prisoners. In fact, most of the new interest in aging inmates actually has to do with money. According to a recent AP article:

The ACLU estimates that it costs about $72,000 to house an elderly inmate for a year, compared to $24,000 for a younger prisoner.The federal Bureau of Justice Statistics reported that the number of men and women in state and federal prisons age 55 and older grew 76 percent between 1999 and 2008, the latest year available, from 43,300 to 76,400. The growth of the entire prison population grew only 18 percent in that period.

“We’re reaping the fruits of bad public policy like Three Strikes laws and other mandatory minimum sentencing laws,” said David C. Fathi, director of the ACLU National Prison Project in Washington, D.C. “One in 11 prisoners is serving a life sentence.”

With prison costs escalating and states overwhelmed with deficits, letting granny and gramps out of the clink suddenly doesn’t sound so bad to some state officials. Old prisoners are expensive, and if we must take care of them, then why should local and state government’s foot the bill. Better to let the federal government pay instead, through Medicare and Medicaid. The leading predictor of criminal behavior is age (young), so there’s little risk involved in letting the geezers go; all that’s keeping most of them behind bars in the nation’s insatiable taste for punishment.

With all this in mind, I am reprinting an article that just appeared on Solitary Watch, another blog where I am editor along with Jean Casella. It is the story of Robert Platshorn, leader of  the “Black Tuna Gang” of marijuana smugglers in the late 1970s, an experience described in his book The Black Tuna Diaries. In 1980, he received what was then an unprecedented sentence of 64 years in federal prison. 

When Platshorn was released on parole in 2008 at the age of 65, he was the longest-serving non-violent marijuana offender in America. But as he wrote in a blog post for High Times earlier this year, that distinction ”won’t be mine for long. Many sentenced after me will soon be able to claim my title. They are serving LIFE WITHOUT PAROLE and will never get to spend another minute as a free man.” When Platshorn was convicted, he writes, “no one received a life sentence for marijuana. That changed in the early 80′s as Reagan stepped up this insane failure of a drug war.” According to Platshorn, several other non-violent marijuana offenders, including  Billy Deckle, are now in their sixties and seventies, and will likely never be released.

Here is what they have to look forward to: Surviving day to day in an environment so dangerous that a slip of the tongue often ends in death. Since the elimination of parole, federal prisons are populated mainly by young, uneducated, aggressive inmates serving absurdly long sentences. They have little hope and nothing to lose. Violence has become endemic in a system that has little or no reward for good behavior. Prison gangs find older non-violent inmates easy prey.

Inadequate medical care. It costs the taxpayers billions to provide even minimal health care for older inmates. Yet these are the people least likely to commit a crime after release. An older marijuana offender serving a long sentence is likely to die in prison for lack of medical care…

An extremely unhealthy diet. It becomes an obsession, trying find enough decent food to maintain good health. Even under the best of circumstances, it’s no longer possible. When I entered prison in 1979, the budget to feed an inmate for three meals a day was $2.62. When I left prison in 2008 it had shrunk to $2.25…This has to pay, not only for food, it has to cover repairs and replacements for kitchen equipment, civilian salaries, and eating utensils…You don’t have to be an economist to figure out, that since Bush decimated the prison food budget, the cost of inmate medical care has skyrocketed. Especially for older inmates, many of whom require a special or restricted diet…Now, the Bureau [of Prisons] will say that they provide special diets for those who require them. And it’s true. Sort of! Those diet trays usually contain so little edible food that the starving sick geezer ends up eating a piece of deep fried breaded sewer trout or a hunk of fried breaded mystery meat, just to stave off the terrible never ending hunger pangs. The results, a sick geezer who now needs expensive medications and has little or no chance of surviving a long sentence. Most of those geezers would pose no threat to society if released. It’s even worse when the geezer is serving forever for marijuana, a harmless substance, and an effective medication that is now legal in many states. How would you feel if that old pot smuggler was your Uncle Billy?

Geezer in the hole! “The Hole”! Segregation!…The Federal Bureau of Prisons thinks it sounds better if they call it the SHU (Special Housing Unit). Take my word for it, it ain’t special in any way you’d like to experience. During my almost 30 years in 11 different federal prisons, about 3 ½ years were spent in segregation. They got it right in the old movies, “the hole”. Now you might ask, why would a nice non-violent old dude wind up in the hole? Lots of reason! Someone “drops a note” saying the old dude’s life is in danger. Result many months in the hole. He gets in a fight. Doesn’t matter if it’s self-defense. Into the hole! Uncle Billy gets caught coming out of the chow hall with an apple or a cookie in his pocket. The hole! The old pot smuggler has been forced to work in the prison factory because he owes a fine. A tool disappears from his work area. Everyone who works in that area is tossed in the hole. And so on and so on. Now what happens is: he has to eat whatever shows up on the meager tray that comes through the slot, or starve. Mostly he eats all the starchy crap because he’s been flat on his back all day and night, and he’s bored to death. Meals are the only break he looks forward to. Each time he leaves his cell his hands are cuffed behind his back. This is especially painful for an older inmate. He has to be cuffed while he crouches backwards with his hands pushed out through the lower food slot. This usually means Uncle Billy will forgo his three weekly showers and exercise periods. It’s no big deal when your young and supple, but for a geezer it’s a different story. The only way I can express it is, if you are over fifty, spend 90 days in the hole and you come out two years older. Fatter, slower, more depressed, and less likely to recover physically or mentally.

Its time for all the Uncle Billys to go home…

As Numbers of Uninsured Soar, Health Insurance Companies Plan Rate Hikes

The latest report from the Census Bureau, which shows a significant rise in the number of Americans living in poverty in 2009, is making news today. Less widely reported are the figures for those living without health insurance, which indicate that in 2009 there were 50.7 million uninsured or 16 .7% of population, up from 46.3 million and 15.4% in 2008. Kaiser Health News has a roundup of stories on the sharp rise in the uninsured. The details from the Census Bureau report are as follows.

  • The number of people with health insurance decreased from 255.1 million in 2008 to 253.6 million in 2009. Since 1987, the first year that comparable health insurance data were collected, this is the first year that the number of people with health insurance has decreased.
  • Between 2008 and 2009, the number of people covered by private health insurance decreased from 201.0 million to 194.5 million, while the number covered by government health insurance climbed from 87.4 million to 93.2 million. The number covered by employment-based health insurance declined from 176.3 million to 169.7 million. The number with Medicaid coverage increased from 42.6 million to 47.8 million.
  • Comparable health insurance data were first collected in 1987. The percentage of people covered by private insurance (63.9 percent) is the lowest since that year, as is the percentage of people covered by employment-based insurance (55.8 percent). In contrast, the percentage of people covered by government health insurance programs (30.6 percent) is the highest since 1987, as is the percentage covered by Medicaid (15.7 percent).
  • In 2009, 10.0 percent (7.5 million) of children under 18 were without health insurance. Neither estimate is significantly different from the corresponding 2008 estimate.
  • The uninsured rate for children in poverty (15.1 percent) was greater than the rate for all children.
  • In 2009, the uninsured rates decreased as household income increased: from 26.6 percent for those in households with annual incomes less than $25,000 to 9.1 percent in households with incomes of $75,000 or more.
  • These figures are sure to reignite the health care squabbling in Congress, and add to the Tea Party shrieks that Obamacare won’t cure the health care mess, which is now more of a disaster than ever. While their analysis is flawed, the Tea Partisans’ conclusion is, sadly, pretty much on the mark. 

    In the wake of health care reform, insurance companies are raising their rates–apparently, in preparation for the tepid new rules that won’t go into effect for years, and thus give the industry plenty of time to jack up their prices and protect their profits.  The Wall Street Journal reports that premiums for individuals and small businesses will go up in 2011, in some cases by as much as 20 percent. 

    Once the reform measures do go into full effect, the government is supposed to turn the 50 million uninsured into new customers for the price-gouging private insurance companies, which will enjoy no competition from a public option. As I have been arguing since this so-called debate over the future of health care began, it all looks like a sham exercise by Congress that will only end up extending the grip of the insurance and pharmaceutical industries in the health care market. 

    Any serious economic recovery will be stopped in its tracks by these numbers. And with more price hikes in store, God only knows what the 2011 figures will look like.

    The End of Retirement

    American workers have little to celebrate on this Labor Day. That’s especially true for older workers, who face the end of any possibility of a secure retirement, so hard-won during the 20th century. In my recent Mother Jones piece on the subject, I wrote:

    I contemplate my future at a time of deep recession with no pension and a depleted 401(k). And it occurs to me that the very notion of a comfortable, paid retirement may turn out to have been a temporary phenomenon, with a life span almost precisely the same as my own…And I have to wonder if someday the tale of a foolish generation of Americans, who imagined that a lifetime of work would be rewarded with a comfortable and secure old age, will become just another footnote in the annals of the market.

    One commentary on the subject came earlier this year from AFL-CIO President Richard Trumka, speaking at the National Institute on Retirement Security. His conclusions regarding the possibility of change may be overly optimistic, but his analysis is sound. Here’s an excerpt:

    Today’s retirement security crisis is just one of the many painful consequences of the failed economic policies of the past 30 years—policies of radical deregulation and corporate empowerment.  

    They’ve culminated in the worst economic decade in living memory—job loss, wage loss, collapse of the housing and financial markets, enormous growth in inequality and the massive destruction of wealth.  

    These policies allowed — and even encouraged — employers to walk away from what had been a system of shared responsibility.  The result?  Today, fewer than 20 percent of private-sector workers have real, defined-benefit pensions. 

    As a country, our challenge now is to build a new economy on a solid foundation of good jobs, opportunity, a return to shared responsibility and a level playing field that allows both workers and business to thrive.

    Keeping the promise of retirement security must be part of this great transformation in American life…part of the legacy we seek to build and the future we envision. 

    Today only 13 percent of workers say they are very confident about having enough money for a comfortable retirement—that’s the lowest level in 16 years.  And this lack of confidence is justified.  The majority of America’s workers will face retirement with far less security than their parents.

    That’s especially painful to me—because it was our union movement that created retirement in the United States.  Before the rise of the labor movement in the 1930s and 40s, elderly Americans were the most impoverished age group in our society, and only a privileged few received government or employer pensions.

    With the enactment of Social Security and the growth of union-negotiated pensions, elderly Americans became the least impoverished age group.

    After the New Deal, it was collective bargaining that set the pattern for labor markets—and not just for workers covered by union contracts.

    These were the years that produced the three-tiered American retirement system:  Government provided a foundation with Social Security, employers provided defined-benefit pensions and individuals saved for their retirement. 

    With this system, our parents could retire after a career of hard work, confident of a stable income they would not outlive.  They could sleep at night knowing that, should they die, their spouse would continue to have a dependable income. 

    For millions of Americans—teachers and bus drivers, factory workers and flight attendants, construction workers and nurses—reliable, employer-funded pensions made their lives immeasurably better.

    That was a legacy.  That was the world I grew up in back in Nemacolin, Pennsylvania.  A world where working people had real pensions they had won at the bargaining table and on the picket line…

    …A world where retirement, which had been a dream realized only by bosses, had become a reality for tens of millions thanks to Social Security and collective bargaining. 

    Today, all three tiers of that retirement system we built are in danger.  Employers are increasingly abandoning their pension plans.  Workers with lost jobs and stagnant incomes are unable to save.

    In this bleak landscape, Social Security stands out as the one feature of what passes for our retirement system that works for all Americans.  But too many in Washington seem bent on perpetuating the Bush administration’s attacks on Social Security. 

    The labor movement took on those people and beat them in the Bush era — and we will do the same in the Obama era.

    When people lump together Social Security attacks with deficit reduction efforts, we have to remind the public of this basic fact: Social Security is NOT contributing to our budget deficit—in fact, the buildup of the Social Security Trust Fund is financing our budget deficit. 

    And while the program faces a funding shortfall over the next 75 years, in pension plan terms, Social Security is 88 percent funded over that 75 year period of time and by any measure would be considered a healthy pension plan.  Relatively modest adjustments—WITHOUT benefit cuts—can address even this long-term issue. 

    Social Security is the most important family income protection program and the most effective anti-poverty program ever enacted in the United States.  One-third of Social Security beneficiaries receive more than 90 percent of their income from Social Security.  Two out of three depend on it for more than half of their income. 

    Social Security is the sole source of income for nearly one in five seniors.  The average Social Security benefit is just little more than a minimum wage income—meaning a typical retiree needs almost twice the average monthly Social Security benefit for a reasonable standard of living.

    And if that’s not bad enough, growing Medicare cost-sharing means our seniors will need higher benefits just to maintain the replacement rate of the past 25 years.

    Social Security benefits must remain at least as robust as they are today…quite frankly, INCREASING Social Security benefits would be a massive boost for our economy right now and for our long-term ability to provide all Americans financial security in retirement.

    Social Security is the ONLY reliable and guaranteed benefit for the growing number of people without pensions.  But Social Security by itself cannot provide retirement security for most Americans.

    And despite all the flashy new investment products the financial services industry markets, traditional defined-benefit pension plans remain the soundest vehicles for building and safeguarding retirement income security. 

    If you are lucky enough to have a union, there is still a good chance that you have a pension plan.  Sixty-six percent of union workers have pensions, compared with only 15 percent of nonunion workers.  But unions are under increasing pressure at the bargaining table to allow employers to cut or eliminate real pensions. 

    In the private sector, the funding rules for single employer pension plans in the Pension Protection Act of 2006, coupled with new accounting standards, have contributed to an environment in which even healthy companies are freezing their pension plans entirely or closing them to new hires.

    Our current economic downturn has made this much worse.  In many parts of this country, public-sector workers have the right to form unions.  Not surprisingly, state and local government workers are four times more likely than private-sector workers to have defined-benefit plan coverage.  But public-sector plans are under attack through legislation and ballot initiatives.

    In the private sector, over the past decade, many employers have abandoned their real pensions for 401(k) plans—plans with little or no employer money … plans with no protection for workers against market risk or outliving your money … and plans with high investment management fees.

    We hear different reasons for this, but here’s the bottom-line problem:  Our current system lets employers off the hook.  They can refuse to provide any benefits at all.   If there ever was an implicit social contract, it has eroded.  My friends, that is NOT the vision I have for America. 

    Unfortunately, the vision put forth by policy makers in both political parties and the White House is for tepid reforms that address only the shortcomings of the 401(k) system.  I think we were all glad that the president included retirement security as a national issue in his State of the Union address last week. But his remedies fall short.

    Tinkering with 401(k)s by adding automatic enrollments as a plan feature will not bring about the change we need.  And what good is individual annuitization if you don’t have any money in your account and you are at the mercy of the insurance industry on pricing?

    At best, I’m afraid, these proposals will marginally increase retirement savings for those who already can afford to contribute, and will do nothing to make employers take some responsibility in this crisis.

    In this crisis economy workers can barely meet day-to-day expenses.  How much then can they save on their own for retirement?  Plainly put: There is no way that 401(k) plans can adequately substitute for the loss of a guaranteed lifetime benefit.

    Look at the data: The median account balance in 401(k) type plans for 62-year-old workers is worth an annuity payout of about $400 a month.  $400 a month.  That just doesn’t cut it.  And most workers will outlive their savings.

    A Time magazine cover story last fall on the failure of 401(k) plans about summed it up:  “This isn’t how retirement was supposed to be.”   After a lifetime of hard work, workers deserve to retire with dignity—with the economic security they have earned. 

    It is imperative to strengthen and preserve what remains of the current private-sector pension system by working on two tracks—through collective bargaining and through legislation…

    How We Pay Wall Street to Screw Us

    Our taxes, paid into the public treasury, have gone to bail out Wall Street. And what do bankers  do with the taxpayers’s money? They turn around and lobby for more. It’s called the “never give a sucker an even break” strategy. These statistics, prepared by Public Citizen, speak for themselves:

    • Amount financial industry has spent on lobbying this year: $251 million
    • Amount Citigroup spent on lobbying during the first half of 2010: $3 million
    • Amount Goldman Sachs spent on lobbying in the first half of 2010: $2.7 million
    • Amount Bank of America spent on lobbying in the first half of 2010: $2.1 million

     

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