17 December 14
Nothing is permanent in this wicked world except banks getting whatever they want, whenever they want, regardless of the risk to their own customers. Two major provisions in the US budget bill spell doom for US savers and retirees
o you remember where you were six years ago? Probably not. It was a long, long time ago. December 2008 is not one of those dates that gets burned on your brain, like the moon landing, or D-Day, or the end of Seinfeld.
But I remember where I was. I was at my post as the host of a personal finance show on national radio, and I was taking calls from people all over the country who were a) furious that their tax dollars were siphoned off to pay for a massive bank bailout that crashed the world economy, and b) outraged that the stock market was responding by wiping out their already-meager retirement and college education savings funds.
In December 2008, the number of jobs shrank by 533,000, the worst monthly loss in more than 30 years. Construction permits fell by more than 12% as people stopped buying houses. And retailers got a giant lump of coal from consumers, who decided that buying a bunch of worthless junk to put under a tree was probably not the best idea when their bank accounts – not the mention the country’s – were circling the drain.
“This shall not stand!” we cried, then. “We can never allow our own savings to be put at risk like this!”
And yet. Here we are again.
Congress has passed, and President Obama has said he would sign, a budget bill that allows banks to use your savings when they make giant financial bets called derivatives. Again.
And because those savings are insured by the federal government, you, the taxpayer, would be on the hook if those bets go south. Again.
This isn’t arcane financial stuff we can ignore. These are the exact financial mechanisms that led to the global crisis just six (short!) years ago. The Dodd-Frank reform law that was passed in the wake of that crisis forbade this from ever happening.
Charlie Chaplin said that nothing is permanent in this wicked world, not even our troubles. I’d add that nothing is permanent in this wicked world except banks getting whatever they want, whenever they want, regardless of the risk to their own customers. Regardless of the risk to the rest of us.
In addition to all that, this so-called compromise also contains a provision that would wreak havoc on the pensions of more than 10 million American workers, who likely have no idea this is coming.
Pension plans were promises to employees that they could count on a certain income in retirement. Unlike the 401k that most of us are familiar with, where we have to rely on our own savings and our own strategies for investing that money, pensions were a guaranteed payout.
That’s why pensions don’t really exist anymore: because they’re expensive, and if a company doesn’t plan correctly, it’s easy to run out of money. The Pension Benefit Guarantee Corporation, or PBGC, has to take over the plans from employers who go bankrupt or bust or simply can’t make the payments.
That has happened over and over again, and workers with those pensions have found their benefits cut in half or even more.
Now there’s a real pension crisis. The PBGC itself is now in something of a hole, and warned recently that it doesn’t have the reserves to pay even the reduced amount of the income that was promised to millions of workers.
And a proposal in this same budget bill would allow some pension plans to cut current benefits to employees who are retired – if those plans can show that they’ll otherwise run out of money in the next 10-20 years. The proposal applies to multi-employer pension plans, which cover a diverse cross-section of blue-collar workers such as truck drivers and people in construction.
This isn’t supposed to be legal.
From their beginnings, if you were already retired, your benefits were supposed to be untouchable.
Change the payout on workers who are still working, sure (because it’s OK to break promises and alter people’s lives as long as you give a few years’ notice), but don’t touch the folks who’ve already started the golden years.
But now, they’re fair game, too.
Supporters say this is simply part of the necessary give-and-take of the political process. Nonsense. They can make other choices that don’t subject Americans to financial ruin.
As someone who spent six years taking calls on-air from people who will never fully recover from the devastating losses they experienced during and after the 2008 crisis, and from pensioners who watched their benefits get cut and wondered how all the financial planning they did around that number they were promised was somehow rendered useless, I wish I could go back in a time machine and warn everyone that George Santayana was right: those who do not remember the past are doomed to repeat it, or worse, allow it to be repeated by others.
People in the personal finance field love to talk about how if we could just get more Americans to save, if we could just get more Americans to learn the basics of the stock market, if we could just convince Americans to forego that latte at Starbucks, if we could just put Americans on a budget, then things would be OK.
But how is any of that supposed to work when banks can use people’s savings to play the roulette wheel that is the stock market – and then when they lose, they just order another cup of coffee and use the federal budget to make sure that the losses fall not on them but on the people who just tried to save a little money in the first place?
This one is only on workers if they say nothing and fail to educate themselves on what is being plundered from their futures. The powers that be are counting on you not to pay attention, or to feel so impotent that you just give up and say “Well, really, what can I do?”
How about instead of calling a personal finance show, you call your senator or representative and tell them your story, and ask them how they would solve your financial predicament? They should hear your stories. When I heard them, I got angry, I felt for you and I tried to help.
Maybe if you tell those stories, someone else will listen, and try to help. Or at least try not to make things worse.