It’s amazing how completely old people are being ignored in the conventional “expert” advice on how to survive the current recession. As Americans watch their retirement investments and property values plummet by a quarter, a third, or more, everyone advises us to just “wait it out.” The stock market will come back up eventually, we’re told, and recover ground lost in the “correction.”
But what about those of us who can’t “wait it out”–who are already depending, in whole or in part, on our shrinking retirement savings? We may well run out of money–or time–before we recover from what has in effect been a long con by Wall Street.
What the subprime meltdown and the broader economic crisis reveals is how much of the income for the middle classes’ Golden Years has been resting on a foundation of bad debt—and in some cases, on the exploitation of low-income homeowners and the unwarranted profits of a greed-driven financial industry .
Back in August of 2007, MSN’s always smart columnist Jim Jubak wrote about “How Wall Street Got Into This Mess,” highlighting the role played by the pension funds and 401Ks of current and future geezers:
As any good con man will tell you, the success of a con depends on the mark wanting to believe. The victim, in essence, talks himself into getting fleeced.
In this case, the global investment community wanted to believe that Wall Street and other centers of financial engineering could manufacture investment-grade, long-term debt to meet the huge demand of insurance companies, pension funds and central governments for predictable, long-lived and safe interest-paying investments.
While common sense would tell you that this wasn’t likely to work—that there simply couldn’t be that large a pool of genuinely secure, high-quality investments with the kinds of yields people had gotten used to in the 1990s—the global economy bought it, nonetheless. Jubak continues:
Because, you see, it’s the only way out for an aging world that’s running a huge shortage of the real stuff. So investors were all too willing to buy fake investment-grade paper—at prices commanded by the real investment-grade stuff—until finally the con was revealed as assets were marked to market at 50% or less of their assumed value.
That’s exactly where the crackup initially took place, in the credit market for assets based on corporate junk bonds and especially on subprime mortgages—speculative-grade credits that were bundled together (which would purportedly limit the risk) and passed off as safe places for Americans to grow their future livelihoods.
Of course, Jubak’s analysis suggests that some of the money we oldsters have lost from our retirement portfolios is “bubble” money that we probably shouldn’t have made in the first place. But if we hadn’t been conned by Wall Street’s inflated yields, we might have had different expectations, and made different plans. At the very least, we would have given up our illusions of a comfortable retirement and prepared ourselves to spend our old age eating Ramen noodles and working at Walmart.