Wednesday, February 28, 2007
Yesterday as I was riding with a fellow worker, who is retiring this year, the recent decline in the markets came up within the context of a discussion of our pension, social security and standards of living. The teacher I was driving with is retiring relatively early, 58, with the average retirement age for people in the US being 62 (2002). Said teacher mentioned, quite nonchalantly, that he had "lost" hundreds of thousands of dollars from 2000 to 2003 in the markets and that in the late nineties he had been able to pay off both his property taxes and a club membership with dividends gained as a result of the booming stock market. This teacher had followed the common wisdom of the day and invested in his 403(b) every check and felt, at least for around 5 years that this was the prudent option. These days however, as the market has stagnated, and as of yesterday and today declined, he has lost almost all of the gains that he had acrued during his over 30 years as an investor to say nothing of his opportunity cost.
The obvious point, which most people in the US seem to understand, was if this is the case for someone who played by the rules and was very active (I am sure a libertarian would claim not active enough) in the "ownership society" then what will happen to billions in savings for millions of retirees if we privatize Social Security?
Beyond the ease with which the plebes can so easily lose their entire savings under such a scheme the undemocratic nature and irrationality of financial markets also rises to the surface at such times? Who is making the major decisions about what happens to billions in savings in the current regime? Answer: a very small group of institutional investors, unaccountable government officials, large individual investors and traders. The line on the "new economy" in the new Gilded Age is that we are now all democratic decision makers because we "all" own a piece now that more are involved in the markets with 401(k)'s, 403(b)'s, IRA's and individual investing as a result of new technologies like online trading. In moments like this the falseness of such a line becomes clear and we all to spread the word for times when the markets are on the upswing and the Motley Fool and other propagandists start to blather on about the the liberation of the market and "empowerment" through capitalism.
Check out NPR's reporting on the dip. Just another day when the iron laws of capitalism rule our lives in a rational way. Really quite an astonishing report.
"Tuesday, the idyll came to a crashing end. All day prices fell, and fell more. Then, at about 3 p.m., there was a sudden dizzying drop in the Dow that called to mind the 1987 crash. And market strategist Kevin Caron of Ryan Beck wasn't sure what to make of it.
"It was a very fluky thing to watch, we were looking at the market down roughly 290, 295, 300 points," Caron said. "And suddenly within a very short period of time, literally half a second, we saw the markets were down over 400 points. At first glance, it looked like it might have been a misprint."
At Standard and Poor's, chief investment strategist Sam Stovall was equally bewildered.
"I was quite taken aback by the magnitude of the numbers reeling off — it was almost as if somebody was spinning an odometer illegally," Stovall said."
Nothing illegal about it! It's actually the way the laws are written!