Wednesday, October 31, 2012
As was noted at the beginning of an article on the IRA ( Institutional Risk Analytics) website, entitled, "Dennis Santiago: Placement Considerations for Large Deposits in Banks for Major Counterparties":
"roughly forty-seven percent (47%) of the money major depositors placed into the banks since 2008 was in turn placed into the government."
So the same people, (since the major depositors referenced are US Corporations), that complain about Obamanomics as being bad for economic growth, fund the huge Federal deficit while simultaneously accepting sub-par returns on their capital just to make sure he's not re-elected.
What this suggests is that the Bernanke agenda of keeping interests rates @ 0%, thereby artificially elevating asset values above their market price, makes entry into the stock market essentially a sucker's game. Why risk your capital to fund CEO golden parachutes, only to watch it disappear at the next downturn, when it's only ending up invested in Treasuries anyway? It's much safer to simply buy Treasuries.
But beyond that, the question it brings to mind concerns an article on Bloomburg called, "Who Loses When the Fed Keeps Interest Rates Low?" Well, everyone, essentially, for the short answer. But that begs the question. Because what the two articles really disclose is the sheer impossibility of citizens to save, or even consider saving, for their retirement future. Or, for that down-payment on their first house, their children's college fund, or anything at all beyond a Christmas club.
The incapacity of the largest, richest corporations in the history of the world to do anything constructive with their capital, or to fund the pension promises they've made to employees, or for insurance companies to pay the life-insurance payments promised to their insureds, because they have no hope of obtaining the kind of returns necessary to pay the amounts they contracted with their customers to furnish, makes one wonder how people can blame seniors for reaching retirement with no savings?
This has always struck me as bizarre. Major corporations with access to all the markets in the world offering superior products, using wage suppression, via trans-border labor arbitrage and reduced benefits (when I first entered the workforce, it was quite normal for employees at even supermarkets to get 12 paid holidays/year: 12!), can think of no way to get a better return on their capital than to sink it into Treasuries, that provide a hopelessly low return inconsistent with their plans for paying their retirees, even though the Corporations employ a staff of financial analysts, accountants and tax attorneys, yet Joe Schmoe, who's now not just an employee, but an Associate, which basically gives him the opportunity to constantly be bothered by the Firm, even when not on the clock, with less compensation than a generation ago, is supposed to be able to somehow, with no access to any of the resources a major Corporation takes for granted, save and invest for an event that'll occur 20/30/40 years in the future.
Oh, and while they're attempting to do this, the Fed is blatantly manipulating the stock market, placing a high premium on entry, keeping home prices elevated beyond the reach of wage-earners, destabilizing the currency (making any foreign investments too risky to contemplate, as exchange rate fluctuation can wipe out not only all the earning but also depreciate the capital itself), and jeopardizing the value of Treasury bills by expanding its balance sheet $2Trillion with the purchase of hopelessly overvalued "private" MBS paper.
Then to make matters worse, these overworked overtaxed citizens are expected to make wise investment decision by reading the prospectuses of the companies they intend on purchasing. I saw one today. It was 56 pages long.
"Well", you may say, "That's how it works". Really? How about all the time diligent investors spent poring over the prospectuses of Bear Stearn, Lehman's, Countrywide, Enron ... I could go on, all of which were gone over and approved by Accounting Firms that then, before the FASB changed the rules and relieved accountants of the onus of being, well, accountable, affirmed the veracity of the prospectuses of said companies even though they were little more than a compilation of lies and purposely deceitful legerdemain. How else to explain the fact that on the Monday before Bear Stearn's collapse, it was worth $129/share; by Friday: $0? ... so much for EMH, or due diligence.
The value of a 401k is that you can take your retirement savings with you when the company lays you off (that was a definite downside to Defined Benefit pension plans: one of the benefits so defined was that if you stayed 19 years 11 mos, you had no retirement savings: 20 years. Anything less, tough luck). That is if you're vested 100%, otherwise you lose proportionately more the less time you've been at your job. But allocating the resources they'd managed to eke out of their paycheck is a job that the employees of the largest investment banks, working in the middle of the most intensely capitalistic economy on the globe, utterly failed to do. All those employees laid off from Lehman's, Bear, Merrill's etc, milled about on the sidewalk in despair, as they were penniless ... wiped out.
Of course, all this is assuming you're not a government employee whose compensation packages can include, as I saw last night on the news, $295,000 a year ... yes that's right, a year: more than most private company employees have in their 401k's after 25 years of saving that's supposed to last the rest of their lives. All the risk is on their backs, too, while the public employees take none of the risk. Oh, and that referenced compensation wasn't the Mayor's, or any highly placed politician, nor even a Police Commissioner, yet his yearly pension was approaching that of the President of the US's $450k annual compensation, while working. This is completely untenable.
So when you hear about the 47%, make sure you remember the other 47%, and contemplate the real meaning of Capitalism. The capital sitting in the Capitol in Treasuries, and the capital paid to lollygagging public employees, most of whose output is little more than a welfare recipient's. They used to personify the USSR with the adage, "We pretend to work, and they pretend to pay us", but now they pretend to work while unionization means the rest of us get to pay them far more than is ever possible to receive working in the private sector, far beyond what used to be retirement years, in order to fund unionized public employees' early retirement packages, the likes of which we have no hope of ever negotiating for ourselves.
Get the picture? The public employees = the Greeks,
The private employees = the Germans.
Posted by Robert Lowrey at 1:53 PM