Tag Archives: Wall Street / financial industry

Social Security Give-and-Take Leaves Old Folks in the Hole

Spring has come to recession-era America, which means that all across the nation, millions of old people are emerging from hibernation and hobbling out to their mailboxes in search of their long-awaited Social alan balgowlah-heights-mailbox-hoops-umSecurity stimulus checks. The first round of payments, which were provided by the American Recovery and Reinvestment Act, have just been mailed out. So while the big banks may be raking in their trillions, U.S. elders–along with recipients of SSI and veterans’ benefits–will soon have a whopping $250 to protect them from the ravages of the economic meltdown. 

 And it looks like we’d better make it last, since it’s the last addition to our monthly checks that we’re likely to see for a long, long time. Federal forecasts show that for the first time in more than three decades, there will be no increase in Social Security benefits next year. In fact, the Congressional Budget Office projects that because of low inflation caused by the recession, there will be no cost-of-living adjustment (COLA) to Social Security until 2013.

As the New York Times reports, “In theory, low inflation is good for people on fixed incomes.” In the current circumstances, however, “The absence of a cost-of-living adjustment, calculated under a formula set by law, will be a shock to older Americans already hit by plummeting home values, investment losses and rising health costs.” While Social Security levels remain frozen, the premiums and co-pays for the Medicare Part D prescription drug program will no doubt continue to rise steeply, as they have every year since the program began. For at least a quarter of Medicare beneficiaries (including working geezers like myself), Medicare Part B premiums will go up as well.

And if we don’t watch out, it might not stop there: The straw man of Social Security “reform” is yet again raising his scruffy head, this time courtesy of Congressional Democrats. As Roll Call reported last week:

In a year already jam-packed with major legislative initiatives, House Majority Leader Steny Hoyer (D-Md.) is breathing new life into the idea of tackling Social Security reform….Hoyer signaled that Democratic leaders may take steps to act on Social Security reform in the fall after Congress advances its two biggest priorities: health care reform and climate change legislation.

“Of our entitlement programs, I believe we would have the easiest challenge in reforming Social Security,” Hoyer said. “Frankly, I believe Social Security is not very difficult mathematically. It may be difficult politically, but not mathematically.”

The Washington Post confirmed that Hoyer is looking to create “a bipartisan consensus” for “overhauling the Social Security system.” Democrats, the Post reported, “have found a willing partner in the Senate,” alan como-mailbox-painting-flowers-umwhere South Carolina’s Lindsey Graham “has stated his desire to work with President Obama to make changes to keep Social Security solvent.”

Graham has long been a supporter of Social Security privatization. But after what’s happened to people’s 401(k)s in the last year, even Graham has had to admit that dog won’t hunt. Instead, he now presents Social Security reform as a “math problem”: “You can do a combination of things, give a little here and give a little there, and get it done,”  he said. 

Anyone who supports the program that lifted millions of elders out of poverty should still be concerned by the ongoing disconnect between the “reform” rhetoric and Social Security’s actual fiscal soundness. (The nation’s private financial institutions, as Dean Baker has pointed out, only dream of being as solvent as the Social Security system.) Following Hoyer’s announcement, the National Committee to Protect Social Security and Medicare commented

given the long list of critical challenges this nation faces right now…it’s hard to imagine why Social Security would share space at the top of the legislative priority list ….After all, Social Security is able to pay full benefits for at least 30 more years….

Some worry Social Security will be used as a bargaining chip in the healthcare debate, others see this as part of ongoing efforts to balance the budget through entitlement program cuts.

As I’ve written before, there are still plenty of powerful voices on the right who woulalan belfield-mailbox-long-umd like to preserve the myth of Social Security as a ticking time bomb that will one day land in the laps of the young. In doing so, they can create a phony intergenerational conflict that deflects attention from the true villains in our economic mess, while at the same time achieving their long-cherished dream of cutting entitlements. As William Greider has written, these forces are getting a new boost from the recession:

Governing elites in Washington and Wall Street have devised a fiendishly clever “grand bargain” they want President Obama to embrace in the name of “fiscal responsibility.” The government, they argue, having spent billions on bailing out the banks, can recover its costs by looting the Social Security system.

By now, we’re all used to witnessing these kinds of bait-and-switch tactics. But according to yet another Washington myth, we’re not supposed to see them coming from the Democrats.

Photos: Alan Wadell, Walk Sydney Streets

Photos: Alan Waddell, Walk Sydney Streets. (Alan was actually Australian, but these photos were too great to pass up. Find out more about Alan Waddell and his walks at http://www.walksydneystreets.net.)

The Federal Reserve Passes the Buck—and Prints a Trillion More

Financial crises have a way of exposing the real structures of economic and political power. The current “big mess”—as the White House has taken to calling the worst economic disaster since the Great Depression—has revealed, among other things, the monstrous power of the Federal Reserve.

I’ve never put much stock in conspiracy theories that posited “secret   images-fedteams” or “shadow governments” pulling the strings behind the scenes. But the Fed comes as close as it gets. While we focus all our attention on our elected government—the Democrats and Republicans who fight it out over how much to spend on the stimulus package—the Federal Reserve goes on operating behind closed doors, making financial decisions that could make the stimulus look like chump change.

The Fed’s power was abundantly clear on Wednesday: While the politicians, the press, and the public remained riveted on the battle over a few hundred million in AIG bonuses (which the Fed, it turns out, knew all about months ago, and didn’t bother telling the president), the Federal Reserve decided on its own to pump $1 trillion into the economy—nearly doubling all its previous cash injections. This is accomplished, as the New York Times points out, by “creating vast sums of money out of thin air.” And that’s not a metaphor: The banks that more or less run the Fed are helping themselves to $1 trillion plus by printing new money.

It works like this: The Fed creates the money. It then buys long term Treasury bonds to jump start credit flowing through the economy. The Treasury issues these bonds secured, in effect, by the combined assets of the American people. This injection of cash may help out banks–although past injections, since the recession began, have been largely ineffective—but it will surely end up causing inflation and ballooning the already swollen federal debt.

All this is done in the name of supporting the economy, but it’s the American public that serves as the banking industry’s cash machine. And we have virtually nothing to say about it, even through the remote apparatus of electoral politics. The basic economic policy of our supposedly democratic nation is effectively being run by and for private industry.

Members of the Fed’s board of governors may be nominated by the president and rubber stamped by the Senate. But as I’ve written before, it’s the member banks who call the shots. This so-called public-private entity was long ago given authority to control the money supply in the United States, and it does so with little transparency, oversight, or accountability. Politicians of both parties bowed to the deregulatory will of Alan Greenspan for decades. Now we have a Treasury secretary who comes from the New York Fed, and we wonder why the banks seem to be getting everything they want. Since the recession began,  the Federal Reserve system has only grown still more powerful, and no one seems to mind it a bit.

In The Nation this week, William Greider, who has written extensively on the Fed, argues that “to restore the broken financial system, Washington has to fix the Federal Reserve” and outlines why the Fed “has lost its ability to govern the credit system….In its present condition, the Fed may even make things worse.”  Yet the Federal Reserve seems to be catching remarkably little blame for the current economic crisis.

In a sharp piece on Huffington Post, economist Ann Pettifor expresses her astonishment at the fact that Fed chair Ben Bernacke has “dodged the bullet” when it comes to public rage and disgust, despite the fact that as a longtime Federal Reserve governor, he was supposed to be minding the store while companies like AIG built their hollow mountains of debt. (The Fed even has a seat on AIG’s board.) Pettifor parses Bernecke’s rare interview with CBS news on Sunday, in which he attacked AIG:

The interview was just an opportunity, I would argue, to deflect attention from the Fed’s negligence and whip up popular opinion against Liddy and the other buckin’ broncos of AIG. In the macho style of Rodeo, the Fed Chairman was angrily slamming the barn door shut—long after the bucking broncos had charged out of the barn, clutching bonuses.

But while Bernecke may be using one hand to slap the wrist of everyone’s favorite corporate villain, he’s using the other to hand out fistfuls of cash to institutions that behaved just as badly as AIG. It all gives a whole new meaning to passing the buck.

William Greider on “Looting Social Security”

Veteran progressive journalist and radical geezer Bill Greider has written an essential article in the current issue of The Nation, on the strategic attack now underway against Social Security and Medicare.

Governing elites in Washington and Wall Street have devised a fiendishly clever “grand bargain” they want President Obama to embrace in the name of “fiscal responsibility.” The government, they argue, having spent billions on bailing out the banks, can recover its costs by looting the Social Security system. They are also targeting Medicare and Medicaid. The pitch sounds preposterous to millions of ordinary working people anxious about their economic security and worried about their retirement years. But an impressive armada is lined up to push the idea–Washington’s leading think tanks, the prestige media, tax-exempt foundations, skillful propagandists posing as economic experts and a self-righteous billionaire spending his fortune to save the nation from the elderly.

These players are promoting a tricky way to whack Social Security benefits, but to do it behind closed doors so the public cannot see what’s happening or figure out which politicians to blame. The essential transaction would amount to misappropriating the trillions in Social Security taxes that workers have paid to finance their retirement benefits. This swindle is portrayed as “fiscal reform.” In fact, it’s the political equivalent of bait-and-switch fraud.

I addressed this subject last month in a series of posts on the coming “entitlement wars“–but Greider does a better job than I ever could, laying out the history, the players, and the tactics employed in this long-brewing struggle. He documents how conservatives are working to exploit the recession, along with public fears and misapprehensions, to manufacture intergenerational conflict, and thereby achieve their cherished goal of rolling back the entitlement programs responsible for rescuing millions of elders from desperate poverty. He also explains why this fight “could become a defining test for ‘new politics’ in the Obama era.”

Defending Social Security sounds like yesterday’s issue–the fight people won when they defeated George W. Bush’s attempt to privatize the system in 2005. But the financial establishment has pushed it back on the table, claiming that the current crisis requires “responsible” leaders to take action. Will Obama take the bait? Surely not. The new president has been clear and consistent about Social Security, as a candidate and since his election. The program’s financing is basically sound, he has explained, and can be assured far into the future by making only modest adjustments.

But Obama is also playing footsie with the conservative advocates of “entitlement reform” (their euphemism for cutting benefits). The president wants the corporate establishment’s support on many other important matters, and he recently promised to hold a “fiscal responsibility summit” to examine the long-term costs of entitlements. That forum could set the trap for a “bipartisan compromise” that may become difficult for Obama to resist, given the burgeoning deficit. If he resists, he will be denounced as an old-fashioned free-spending liberal. The advocates are urging both parties to hold hands and take the leap together, authorizing big benefits cuts in a circuitous way that allows them to dodge the public’s blame. In my new book, Come Home, America, I make the point: “When official America talks of ‘bipartisan compromise,’ it usually means the people are about to get screwed.”

The Social Security fight could become a defining test for “new politics” in the Obama era. Will Americans at large step up and make themselves heard, not to attack Obama but to protect his presidency from the political forces aligned with Wall Street interests? This fight can be won if people everywhere raise a mighty din–hands off our Social Security money!–and do it now, before the deal gains momentum. Popular outrage can overwhelm the insiders and put members of Congress on notice: a vote to gut Social Security will kill your career. By organizing and agitating, people blocked Bush’s attempt to privatize Social Security. Imagine if he had succeeded–their retirement money would have disappeared in the collapsing stock market.

Old folks–and anyone who plans on becoming old some day–need to gear up for this one. A good start is to read Greider’s long article in its entirety.

Here Come the Entitlement Wars, Part 2: Turning Class Conflict Into Generational Conflict

Writing for the Guardian today, Dean Baker of the Center for Economic and Policy Research comments on the emerging entitlement wars:

The classic definition of “chutzpah” is the kid who kills both of his parents and then begs for mercy because he is an orphan. The Wall Street crew are out to top this. After wrecking the economy with their convoluted finances, and tapping the US Treasury for trillions in bail-out bucks, they now want to cut Social Security and Medicare because we don’t have the money.

Besides being so galling, the attack on entitlements is based on disinformation: As Baker points out, “Social Security is solidly funded long into the future”–unlike the big banks and other private financial institutions. Medicare’s funding problems are due largely to “the explosion of private sector health care costs,” and could be vastly alleviated by a single-payer system.

But advancing the fear of old-age entitlements as a ticking time bomb, serves an important purpose: It diverts attention from the real purveyors of economic malaise: It’s not the banks, the investment industry, or the insurance companies who are bankrupting our country–it’s the greedy old geezers! It’s not the corporations and the rich people who are getting more than their share–it’s those greedly old geezers! And where are we going to get the money to pay for our stimulus package, our jobs and our infrastructure and our tax cuts? From those greedy old geezers, of course.

And suddenly, instead of a real debate over politics and policy, or corporate malfeasance, or social injustice, what we have is a showdown between the generations.

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Advice for Anxious Old Folks: Duck and Cover


This story appeared last week in Senior Journal under the title “Geriatric Psychiatrist Sees Anxiety Gripping Senior Citizens in Economic Crisis”:

For older adults who have lived through the Great Depression, news stories comparing present circumstances to the harsh realities of food lines, few jobs, and extreme poverty of the 1930’s may be panic-producing. Add that to the fact that an economic crisis disproportionately affects older adults who need access to retirement funds, and it’s not surprising that seniors are feeling anxious.

No, not surprising. But what surprised me was the advice provided by Saint Louis University psychiatrist George Grossberg, in response to the “increase in economy-related anxiety” he sees among old folks.

My own advice to geezers who’ve just lost their life savings would be to hobble down to Wall Street and beat the money managers senseless with their canes–or, for the nonviolent, to demand that their government punish the malfeasance and make provisions for the well-being of its elders.

Instead, Dr. Grossberg makes a series of apolitical, self-help suggestions like “Do a reality check,” “Count your blessings,” and “Get help” (from a doctor, not your government).

It all began to remind me of the advice handed out in the early 1950s, when Cold War fears of a nuclear attack were at their height. In reassuring posters and films, terrified schoolchildren were told that they’d be all right when the bomb exploded if they would just “Duck and Cover”:

Then as now, the reality more closely resembled parodies of the “Duck and Cover” campaign, which went something like this: “In case of a nuclear attack: 1) Stay calm. 2) Sit down and put your head between your legs. 3) Kiss your ass goodbye.” I’ve been told that the Russian equivalent was: “1) Remain calm. 2) Proceed in an orderly fashion to the nearest cemetery. 3) Dig your own grave.”

Jim Jubak on How Wall Street Screwed Geezers: Part II

As I noted in my last post, there are millions of older Americans who don’t have time to “wait” for the market–and their own retirment funds–to recover from the current recession. Some of us have resigned ourselves to the fact that we’ll just have to keep working indefinitely. But as MSN’s Jim Jubak points out, it isn’t as simple as that.

Everyone I talk to glibly says, “Well, I’ll just have to work longer.” At what jobs? In an economy in which companies regularly find ways to replace higher-paid older workers with younger employees, most people won’t be able to stay at their current jobs. And in an economy that is exporting its meat-and-potatoes manufacturing jobs and their higher wages and generating mostly lower-paying jobs to replace them, post-retirement workers are going to be competing with a horde of anxious younger workers for even ill-paying, no-benefit, part-time work.

We need Washington to wake up and realize that, yes, we need to create jobs to pull us out of the current economic slowdown but we also need to create jobs to fix the holes blown in the retirement plans of tens of millions of Americans by this financial crisis. We need not just jobs now but a coordinated national effort—public and private—to create long-term job growth for decades to come.

Jubak’s argument about the absolute necessity of job creation to any recovery is a sound one. But even he admits that it’s already too late for some of us.

We also need to find a way to help those people who reach retirement age but who are in no condition to keep working. Working longer isn’t a solution for someone who isn’t physically or mentally able to work.

Don’t hold your breath while waiting for this “help” to arrive. With a shrinking economy and a growing geezer population, longtime opponents of “entitlements” like Social Security are already gearing up to oppose any further government support for old folks facing hard times.

Jim Jubak on How Wall Street Screwed Geezers: Part I

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.