Blog #8: The Financial Sector.

“We’re late, we’re late, for a very important date. No time to say, Hello, Goodbye, we’re late, we’re late, we’re late.” The Mad Hatter.

Hi, Buster here after some technical deeflickulties. Actually, it seems kind of appropriate to be posting our discussion of the “Financial” sector here on April Fools Day!

Please Note: February 25 to March 2 was America Saves Week — Who Knew???

Yes, your favorite hound doggie (I hope) is back with some long-awaited thoughts on the “Financial Sector.” I’d recommend drinking some very strong coffee, perhaps with a bourbon chaser, before diving into this “fine kettle of fish.”

My old pappy feels he has a rather unique perspective (doesn’t he always) on this volatile and terribly relevant sector, which of course he asked me to share with y’all. As it happens, way back when pappy was studying accounting, it was normal for at least half of the freshman class to flunk out of the program. Many of these study-challenged folk wound up in the Finance classes, a somewhat less rigorous curriculum. Anyway, old pap has sort of felt that this situation may have been a contributing factor in causing finance people to be inclined towards lacking in social graces and a touch of meanness as well.

Well, of course, pappy’s conspiracy theories are neither here nor there, but the fact remains that our financial institutions are now fraught with controversial practices. As we mentioned back in Econ I, the government passed some stringent legislation in the aftermath of the Great Depression. Regarding the financial area, the Glass-Steagall Act put very conservative limits on the kinds of risky activities in which our banks were allowed to operate. Unfortunately, persistent lobbying combined with very pliant modern legislators has by now completely eliminated those very sound restrictions, and the banks are now dabbling in every manner of games of chance! Worse, they are growing to enormous, multinational size until they have become “too big to fail.” Note here that post-Depression anti-trust legislation has been decimated as well! You may recall that in the financial crash of 2008 there were no reports of bankers jumping from skyscraper windows – instead they took their corporate jets down to Washington, D.C. where your cheerful representatives “bailed” them out ( with your tax dollars.) If this scenario makes you anxious, as the carnival barker said, “you ain’t seen nothing yet!”

After the crash of aught eight, the old govamint used what little fiscal power it had left to try to get the economy going again. Actually, Fiscal Policy is a tool we no longer possess since we have already borrowed against the nebulous earnings of the next three or four generations of bright-eyed lads and lasses to come along. More or less concurrently, the Federal Reserve jumped into the fray with their “Monetary Policy,” holding interest rates at the historically impossible zero percent level. This madness, bordering on criminal action, is especially onerous in that it punishes the segment of the population who have been able and willing to save a part of their earnings. The Fed, while attempting to aid the economy with these ridiculous interest rates, has incidentally been building its own little three trillion dollar highly burst-prone bubble! In old pap’s opinion, none of these knee-jerk reactions by our leaders will have much effect on our moribund economy because of the structural changes wrought by big corporations over the last couple of decades.

So, now everyone wants to be a bank, your insurance agent, your stockbroker, a whole bunch of retailers – soon your plumber will be offering you free checking! It’s not hard to see why – with our old govamint’s full blessing, the morally-challenged rascals are lovin’ it, and now gleefully take your deposits for free, paying you maybe a half percent (if you’re lucky) interest on your money, and then loaning it back out as often as possible to credit card borrowers at about 30% ( most say their maximum rate is 29.99%, and it doesn’t take much of a slip-up to escalate your card rate to the maximum). These dubious practices should be considered criminal activity and be illegal, and as a matter of fact they once were – they were covered by Usury Laws limiting interest at some rate, as 6% or 8%. Most states still have usury laws, but there are so many exceptions, etc., that they are apparently of little or no effect now. Of course, your eagle-eyed legislators are right on top of the situation and now require the banks to inform you of how long it will take to pay off your balance if you make only the minimum payment (say, 10, 20, or 30 years) and how much you will eventually wind up paying (say, 2, 3, or 4 times your original loan amount). You also must be warned about the many slip-ups you might make which will result in your paying the maximum interest rate. How incredibly helpful.

Well, all this very interesting banking chicanery is certainly enough to somewhat darken your outlook, but the lack of any earnings from your bank account also tends to encourage one to consider “investing” their savings in the “Stock” markets. This term is now a misnomer and while it generally refers to stocks and bonds of real companies, it is now also used to cover the many gambling activities of the Wall Street casinos , such as hedge funds, derivatives, credit default swaps, and heaven knows what other very questionable vehicles. You can even bet on whether “Obamacare” will soar or crater. Current betting happens to be on the former!

Of course, the stock markets have never been a particularly safe haven for your money, going all the way back to the “Dutch East India Company” days, but the culture on Wall Street has definitely changed from amassing capital for businesses to build and operate to speculating, with other peoples money of course, in imprudent risks for the purpose of ballooning traders’ outsized compensation. The “markets” have become a really scary place for people to invest their life savings. Makes you kind of yearn for the good old crooks of yesteryear who robbed banks with masks and firearms.

Yes, the Financial Sector is quite a mess, but if your are still not even a tad worried about the future, consider a real “Elephant in the Room” – the Baby Boomer bubble floating into retirement age. This prodigious group has affected everything from fast food to fashion since they were born, and they are now threatening to wreak havoc on the government “safety nets.” They certainly have the potential to bankrupt both Social Security and Medicare. What’s worse is that unlike many of their parents, most of them do not have the good old defined benefit pensions that businesses used to provide for employees. The big corporate chieftains saw an opportunity for enhancing profits back when your old govamint introduced 401K tax shelters for employees to encourage saving for retirement. The 401K’s were originally conceived as a supplement to the pensions provided by employers, but, in full accordance with the “law of unintended consequences,” they were seen by the “Captains of Industry” as a great excuse to abolish their pension plans, at first even making rather generous matches to employees’ contributions to their plans. Over time though, even those company matches have been reduced and tweaked to cost less and supply less help to the employees’ plans.

As a result of these changes in employer/employee relationships, many of the “Boomer” generation are cruising into their retirement years with very minimal financial capacity for supporting themselves, much less maintaining a semblance of their former lifestyles. This sorry situation presents us with the potential for experiencing the “Granddaddy” of Financial Crashes!

It seems very likely that most “Boomers” at some point will be completely dependent on Social Security and other government assistance. Yet many of those fearless “Free Market” pols and their “conservative” friends remain convinced that Social Security collections should be placed in the “Markets.” Well, that extra $800 Billion thrown into the pot each year should do wonders for the market indices, don’t ya think?

IS THERE A DOCTOR IN THE HOUSE?