Tuesday, May 26, 2009
Take The Investment Battle To Them
It is once again time to go back to work, and my work is to continue to try and spread the word, ask the questions that no one else is asking, and try to get more people thinking about money and what happens to their money.
Money or should we say purchasing power comes in many forms. As someone who enjoys art and reading stories about people and their art, I have a favorite story. A few years back an elderly couple was making plans to sell their home and move into something smaller like an assisted living facility. The couple had been married back in the 1930s in the United States. The bride’s father did business overseas and a man he had done business with sent a small painting as a wedding gift. The young couple hung the painting in their home as they liked the painting and it was a wedding gift. Then when it came time to sell their home, they were encouraged to find out something about the small painting that hung in their home all those many years. So, they sent a photograph of the painting to an auction house in New York city. The auction house could not be certain about the painting without actually inspecting the painting, but thought the painting was done by Vincent Van Gogh. The elderly couple sold the painting at auction for over a million dollars and I would guess at their age they probably put the money in the bank and lived comfortably for the rest of their lives. Unfortunately, not everyone gets a small painting in their life so they can convert its value to cash and live the rest of their life without the worry of how they will take care of themselves after they retire and in their old age.
What does this have to do with money? My answer is everything. Money that is saved for a lifetime in a bank that pays a few dollars a year in interest, and whose purchasing power declines with each passing year, will hardly give anyone the kind of financial security that we all want or need in our later years. But, as I have written before, our system of banking and government has made inflation a by product of that very system. Inflation in the United States is a fact of life. The money you save for 40 years in a bank savings account will not maintain its purchasing power over those 40 years. The need to invest ones money for their retirement is not an option, as simply saving money will hardly get the job done.
Public and private pension funds hire actuaries and financial consultants and finally investment advisers/ portfolio managers to meet or beat the actuarial assumptions that make it mandatory for large pools of money to be invested rather than simply placed in a savings account.
So, where is the problem if everyone knows how the game is played? The object of the game is to beat the rate of inflation over the long haul so that the pension funds have the money (cash money) on hand to meet their obligations to their pensioners. Now multiply this by 50 states and you can see you have several very large pools of invested funds.
Enter Wall Street and the politicians who sell their vote for those sacred campaign contributions. The rules that were written to protect the investors and the large pools of money are suspend and all hell breaks out, we have a financial crisis, a bond market meltdown, a collapse of the stock market, an economic recession that spreads around the world and everyone points the finger at the other guy.
I know what happened and you do too. I have written about what happened and I have even written what needs to be done to fix the problems Congress created. The problem, as I see it, is that we do not have enough people knowledgeable enough to bring the kind of pressure to bear on the politicians to make the kind of changes that will repair the investment game.
Since not everyone is going to find a small Van Gogh painting on their living room wall when it is time to retire, I suggest that we bring the kind of pressure on our politicians that let them know that the investment game they helped rig is not appreciated by the majority of the people. If we must invest our money, if we are going to have any chance of a secure retirement, should not the investment game protect the investors and the large pools of pension money invested around the country? Wall Street and the politicians that helped to create the financial crisis will not give up their position of power easily, people, you will have to take the battle to them if you are going to have any chance of fixing the investment game.