It’s Morning, Again, In America…Or Is It?

LarryChecco_Photo_Largeby Larry Checco

sTo hear many politicians, pundits and financial analysts tell it, it’s morning again in America.

The stock market is at record highs. Corporations are sitting on trillions of dollars in cash (Apple, alone, has US $178 billion in cash). Employers are adding workers to their payrolls at an average of well over 200,000 jobs a month.

For the period ending December 2014, even workers’ salaries increased by 2.2 percent, according to the U.S. Bureau of Labor Statistics. And inflation remains low.

In short, the catfish are jumping, and the cotton is rising high in the morning sun.

But for millions of working-class American families the damage caused by the Great Recession has been done, and will take decades, if not generations to undo. These folks don’t know from morning in America. They’re still living a nightmare.

Some inconvenient facts

According to the Russell Sage Foundation, the typical American household saw its wealth cut nearly in half as a result of the Great Recession. From 2007 to 2013, median household wealth, adjusted for inflation, decreased 43 percent, from $98,872 to $56,335.

Desperate to stay afloat, countless working-class Americans have gone through, or are still spending down, their life savings, including their retirement funds. Some are just another job loss or major illness away from total financial ruin.

Many boomers approaching retirement age are staying in the workforce longer. When they do retire, many, because of their depleted savings, will be forced to rely on Social Security as their only means of support.

Millennials are finding it hard to find good paying jobs and the unemployment rate for young African-American males remains at nearly 25 percent.

Perhaps the worst tragedy of the Great Recession is that the greatest vehicle for transferring wealth to future generations—namely, the family home—is no longer available to the estimated eight million families who have lost, or may still lose, theirs due to foreclosure, according to Moody’s Analytics’ chief economist, Mark Zandi.

Although foreclosure rates have abated, one out of 10 homeowners — or 5.1 million homes — remain underwater, meaning they are worth less than the mortgages owed on them, down from a high of 12.1 million homes that were underwater as recently as the fourth quarter of 2011, according to MarketWatch.

How did we get here?

Irresponsible lending—and borrowing—as well as trash subprime mortgage products foisted on unsuspecting folks can be blamed for a lot of the wrack and ruin in both the housing industry and the general economy.

Even though some financial analysts are predicting that 2015 will be a good year for U.S. equities—some even rosily predict good news for the next five years—the low- and middle-income families hurt most by the Great Recession will receive the least benefit from a recovering economy.

According to the latest Federal Reserve survey data, the vast majority of Americans—94.5 percent—hold one sort of financial asset or another, from savings and checking accounts to stocks and cash-value life insurance policies.

The sad fact is that America’s richest 10 percent hold nearly 85% of these assets, according to Inequality.org, a project of the Institute for Policy Studies.

So, yes, millions of Americans are back working—but at a fraction of what they were making in the past, and with fewer benefits. Some have even had their pensions reduced.

How long will it take for these folks to return to pre-recession levels of savings and wealth formation? For most, decades, if not longer. Some, perhaps, never.

More importantly, what will it take for us as a nation to ensure this never happens again?

That’s the $16 trillion question — the amount of wealth this last financial debacle cost us.

However, here’s a thought: We might want to start by creating policies that offer more opportunities for all throughout our system—including access to good, affordable education, healthcare, housing and living-wage jobs—more transparency in our markets, more oversight of and accountability from our financial institutions, greater consequences for those who prey on others unethically or illegally…and, oh yeah, tax reform that creates far less trickling up of wealth and far more trickling down.

It would be a start.

Contents © 2015 by Larry Checco

Larry Checco is president of Checco Communications. His latest book is entitled Aha! Moments in Brand Management: Commonsense Insights to a Stronger, Healthier Brand. Checco Communications is a consulting firm that specializes in branding. Larry’s take is different. His message is that good branding is far less about marketing, advertising and public relations and far more about quality leadership and staff, appropriate and ethical behavior, and an organization’s willingness, ability and commitment to live up to the promises, or covenant, its brand represents. His first book, Branding for Success: A Roadmap for Raising the Visibility and Value of Your Nonprofit Organization, has sold thousands of copies worldwide.
larry.checco@verizon.net

Welcome, Janet Yellen to the Fed Chair – We Have Questions

Questions for Chairs Greenspan, Bernanke, Yellen:
–What has the Federal Reserve Learned?

by Larry Checco – Principal, Checco Communications

At his last public appearance before leaving office, Federal Reserve Chairman Ben Bernanke said: “We hope that as the economy improves, and as we tell our story…people will appreciate and understand what we did was necessary and in the interest of the broader public.”

Given that Wall Street is once again back on its feet and enormously profitable while millions of Americans remain unemployed, many having experienced near or total financial ruin from which they may never recover, Chairman Bernanke’s statement is arguable, at best.

Chairman Bernanke made his remarks as the keynote speaker, along with a bevy of high-ranking Federal Reservists and Fed watchers, all of whom were on hand to help launch the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy.

The event covered in highbrow fashion the yins and yangs of Chairman Bernanke’s unprecedented monetary daring-dos, including overseeing the big bank bailouts, taking short-term interest rates down to zero, purchasing more than a trillion dollars worth of government bonds and mortgage-backed securities, lending money to foreign central banks, and more.

Some speakers even looked to the future and brushed on the options that the Fed has for tapering, or reducing quantitative easing.

The one topic, however, that was not broached….

What could the Fed have done to prevent the Great Recession in the first place, and has it learned any lessons?

Prior to the collapse of the housing bubble, home prices in some regions were rising 10, 15, 20 percent and more annually. This, at a time when average annual wages had remained flat for a decade — or more.

People—both the greedy and unsuspecting—were encouraged to buy homes, or use the equity in their current homes as ATM machines, through usually-deceptive subprime mortgage products. Many of these loans required little or no money down — nor the need for borrowers to disclose their incomes or other information that would fall under the rubric of responsible underwriting practices.

Then there was the incidental detail that most of these loans would reset to rates many borrowers could not afford, resulting in millions of home foreclosures.

Red flags abounded.

Yet the Fed, with its hundreds of highly-educated economists, many with Ph.D.s after their names, and under the direction of former Fed Chairman Alan Greenspan, a true believer in minimal regulation and the invisible hand of the marketplace, did not, evidently could not or would not see this train wreck coming.

Instead, at a Congressional hearing in October 2008, Chairman Greenspan explained that the Federal Reserve was “…as good an economic organization as exists. If all those extraordinarily capable people were unable to foresee the development of this critical problem…we have to ask ourselves: Why is that?”

Chairman Greenspan answered his own question by saying “…that we’re not smart enough as people. We just can’t see events that far in advance.”

Pah-leese!

A more plausible response would have been the Fed had abandoned all common sense for the ideological position that free markets take care of themselves, or as Chairman Greenspan inimitably stated before Congress “…that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in their firms.”

Well, we all know now how that presumption ended! For most of us.

But perhaps the most logical explanation is that way too many people were making way too much money that was sloshing around —fees and bonuses for home appraisers, mortgage brokers, bundlers of collateralized mortgage obligations (CMOs) right on up to Wall Street investors who couldn’t get enough of what turned out to be terribly flawed investment vehicles.

And no one, including Chairman Greenspan or anyone else in the Federal Reserve system, had the cajones to break the expanding chain of greed.

During his tenure, Chairman Bernanke performed a yeoman’s task in keeping us from an economic depression. But now his time is over.

It’s encouraging that the newly-installed Fed Chairwoman Janet Yellen turns out to have been an early critic of what was then — in the early 2000s — a fledgling bubble in subprime lending. Unfortunately, few paid heed. We can’t afford to let that happen again.

If there is one common sense lesson many of us hope the Federal Reserve has learned from this latest economic fiasco is that when billions of dollars in potential profits are cast upon the financial waters our better angels do not descend from on high to help divvy it up. Rather, the sharks do ascend from the shadowy depths to engage in a feeding frenzy, oblivious to how many smaller, innocent fish are devoured in the process.

In short, should you read this commentary, Ms. Yellen, I hope you will agree that greed is NOT good, and common sense trumps whatever ideologies or economic models the Federal Reserve System may harbor.

BTW, a bit more regulation and oversight over the sharks wouldn’t hurt. They have proven time and again that they cannot control their bloodlust instincts.

 

Guest commentary by Larry Checco / Checco Communications

Larry Checco
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