In the wake of Goldman Sachs émigré Greg Smith’s op-ed, any doubts you may have had about the deep desire of Wall Street to strip you of your money should be erased. Every one has heard about boiler rooms like the one described in CFTC v. Crown Colony Commodity Options, Ltd, 434 F.Supp. 911 (S.D.N.Y. 1977), where the boss roamed the room telling the sellers “the mooch has your money in his pocket”. At Goldman Sachs, which has a long history of screwing its clients, investors aren’t mooches, they’re “muppets”, but the goal is the same, to get their hands on your wallet.
So, why is the Fed pursuing policies that push people into the arms of these wolverines? Interest rates are near zero after inflation, and the Fed plans to keep them that way for years to come. All those people who scrimped and saved for decades to support their retirements are screwed. Sarah Bloom Raskin, a member of the board of governors of the Fed, addressed this issue in a speech earlier this month. She admits that low interest rates harm savers. Interest income is down by 25% since the recession began. She offers two justifications. Some families benefit from low interest rates, she said, because they can borrow cheaply, or refinance their mortgages at low rates. But who wants to borrow? And who says that banks are lending, or permitting refinancing?
Second, Raskin says it isn’t a big deal about those stupid savers, because only 7% of household assets are held directly in bank accounts, money market funds or bonds. I’d estimate that figure at about $13 trillion, based on recent figures from the Fed’s Flow of Funds report, page 106 (.pdf). That is a huge pile of money producing next to nothing in returns.
Won’t people be discouraged from savings? No, says Raskin. People need to save and they know it. They don’t have any choice but to take the rates that are available. She says it’s good that these rates are low:
Moreover, it is important to remember that the way that households’ savings get channeled into productive capacity is that businesses have to be willing to use those funds to invest in expanding their plants and starting new businesses. Raising interest rates now would dampen those incentives.
This is cruel. The people who scrimped and saved for retirement get screwed, intentionally. This argument is the basis of our economic policy. Free trade is good, even though one group of people, factory workers, get screwed while investors and people who managed to keep their jobs reap the benefits. Low taxes are good for rich people, even though another group of people, teachers, police, firefighters, road construction and maintenance workers and others, lose their jobs or take pay cuts. Notice how the group that gets protected is the rich. Screw everyone else.
The process of screwing the middle class includes assaulting their pensions. For decades, workers in both the private sector and the public sector have traded current income for pension to make retirements bearable. In the private sector, money was sucked out under the bizarre theory that the plans were over-funded. In other cases, the companies underfunded, and then bankrupted on them, leaving the workers with reduced pensions from the Pension Benefit Guaranty Corporation. Then the entire idea of pensions was replaced with the even more bizarre notion that people would save for their own retirements, and would do a great job of investing. In the public sector, years of low taxes and patched-up budgets reduced contributions below proper funding levels.
In both cases, pension fund managers tried to make up the losses by chasing returns. They threw more money at alternative investments, like private equity funds, hedge funds, and real-estate mortgage backed securities. Screwed again, for the benefit of Wall Street. Now, all over the country, pension plans are unable to meet their obligations to the innocent workers who counted on them for a comfortable retirement. But the rich got lower taxes, and more money.
Apparently Bloom and the Fed think we should all invest in the stock market. Your best hope is the face-ripping jerks on Wall Street. As part of this solution, House Republicans passed a bill making it easier and safer to cheat investors in new companies.
Everyone on Wall Street has been found not guilty of financial crimes by the Obama Administration, which operates under White House due process: no annoying the judicial branch with icky trials. Just the causal tossing of the middle class into their clutches. This will work out great for the rich, who own all the stock, and were running out of greater fools. Why don’t you just cut out the middle man and send the money directly to the Forbes 400?