Phase out the 401K

There is a post in the NY Times today about the way companies that layoff their workers and replace them with H1B visa holders also require those workers to keep their mouths shut about what is going on.

The non-disparagement clauses might be partially responsible for the conventional wisdom that we need more STEM graduates when clearly we don’t. Long time readers of this blog know that I and my colleagues were laid off in NJ when our site closed. In fact, New Jersey, Connecticut, New York, Maryland, Delaware and Pennsylvania, the Northeast Corridor, laid off hundreds of thousands of invaluable researchers and replaced them with… nothing. In some cases, brand new research facilities, some built for very specific studies that cost millions of dollars to build, were mothballed or even destroyed.

That’s right, it made more sense to the bottom line to destroy valuable lab space than keep the facilities with the upkeep, maintenance and taxes on the books. The people? What about them? It’s interesting to me that the braintrusts who decided to lay off all those scientists and planned to rent out the buildings to new start ups had a hard time finding renters. Who did they think they were going to rent to? The same scientists who were laid off didn’t have the funds for the start ups that were meant to replace the large corporate labs. They were too stressed trying to find any work in any state while keeping their families in the expensive northeast and mortgaged houses out of foreclosure. So, the “rent the labspace to the old labrats” scheme turned out to be a bust and now the buildings have to come down.

There are a couple of states that benefitted from the destruction of the research industry. Those would be Massachusetts and California. The business models were changed from small molecule research to biologicals. But number of jobs created is small. Only a tiny fraction of those laid off were invited to go to Cambridge. Medicinal chemistry in this country is decimated. Compounds can be made very cheaply in India. There’s still research in graduate school labs but it does not begin to make up for what has been lost.

It’s not like there’s not enough biology to research and anyone in the research industry knows that training is not the problem. These are some of the most highly trained people in the world who have to continue reading the latest papers to keep up. Soooo, that’s not it.

What could be driving the frenzy to dismantle the country’s research industry? Hmmm, what could it be, what could it be.

Well, in some companies, the decision to close the site was followed a few days later by an email to all employees from the finance department that congratulated itself on reducing costs and creating a nice quarterly profit. Sort of a “You who are about to die, we salute you!” email.

When they say it’s not about money, it’s about money.

Working Americans have been forced to participate in their own destruction through the 401K. We invest in funds that are rewarded when companies merge, consolidate and layoff. Companies are sold like baseball cards, drained of their assets and left as hollow shells of what they used to be. Research is expensive. Paying for experience is expensive. Better to ship that out if you can, hire only short term contractors, buy up companies with a promising drug lead and lay off their early research staff.

In the meantime, the portfolios will grow and now the masters of the financial universe have brought us into the game, some of us unwillingly. We are now complicit, watching the quarterly earnings reports and demanding more shareholder value. Because there are no pensions in our old age. This is how we make our money- on the backs of our fellow Americans.

And let us now turn our attention to the H1B visa holders who unfortunately have no rights here. If they lose their jobs, they can be sent back to their home countries. It doesn’t matter if they have lives, relationships or property here. Those are risky luxuries. And it doesn’t help that these people may eventually get green cards. Some green cards are so narrowly tailored so as to make getting a new job after a layoff very difficult for the bearer.

It’s all because of the vast amounts of money that used to be tied up in safe, boring but reliable pensions that are now splashing around the world like colored scrip in a global game of Life. The greed of the financiers and titans of industry is gargantuan. The analysts who work for them on Wall Street are incentivized to accumulate as much wealth as possible, with as much risk as possible in as short a time as possible. If they lose money, the government will cover it or some stupid firefighter will take the hit. It’s their fault if they didn’t go to Harvard and make the right connections.

The 401K is at the heart of everything that is wrong with the current economic system. It encourages risk taking, it incentivizes avarice, it propels the short term investment cycle, it causes the outsourcing, it destroys industries and it is now starting to affect productivity. Because when you sacrifice your talent for youth and low wages, and then force everyone to account for every billable minute, you force the workforce to reinvent the wheel and cause anxiety and distraction in the offices with endless paperwork and minute swapping.

Phase it out. Get rid of the pyramid scheme. Disincentivize short term investment and greed. If we don’t tackle the 401K, all the unions in the world won’t make a dent. There will be no need for them when we are all independent contractors in the gig economy looking over our shoulders for the next layoff and becoming more angry by the minute.

This is the legacy of the last eight years when no bankers were held responsible and no hearings were conducted to ferret out the root causes of so much risk and destruction while the companies held revolvers to the heads of their laid off staff and told them to not say a word about what was happening to them. Funny, the CEOs don’t have any problem telling the researchers what they think of them and how expendable and exploitable they are.

It’s about the money. The 401K fuels the Gig Economy. It’s the Gig Economy, Stupid that’s undermining the middle class, causing income instability, family instability and a drag on spending. Get rid of it.

The Conflucian policy advice to Hillary Clinton on economics

It’s a bit much for one dragon.

She didn’t ask for my opinion but she’s getting 200 advisors to tell her theirs. The problem she is facing is how to rebalance the country in terms of income inequality without, you know, pissing off the ultra wealthy. I’m not sure it can be done. A little bit of a snit is to be expected in all likelihood. Although, maybe she could have someone from Vox put together one of those cool and groovy graphics that demonstrate that no matter how hard the vanishing middle class works, we will never be able to afford our own yachts. That might bring a tear to the eyes of the 1%. The graphics should show how big a boat you can buy on a lifetime of $32000/year (if you’re lucky enough to get that these days) compared to what Steve Ballmer can buy.

Ok, so what would I recommend? Well, the rich are not going to like this but I’m not really interested in how the rich feel about these things. I’m only interested in bringing back prosperity, income security and innovation to the American middle class. It’s not all about them, except they are behaving like greedy dragons sitting on a giant pile of gold. If they’d just get off the stash we wouldn’t have any problems with the rich. I don’t envy their wealth and don’t want to be like them. I just want to be fairly compensated without feeling like I just got a handout that i didn’t deserve.

What I see as the biggest obstacle to income equality is what I call “exploitative profit mining”. That is the idea that Americans  can be harvested for various wealth through rents, fees and deregulation. I don’t want to feel like a crop anymore. The number one biggest policy initiative that I would propose is to eliminate the incentives to take advantage of everyday Americans simply because there is no one making sure it doesn’t happen. Than means reregulation. I can already hear the screams and howls from the flaming swamp monsters of the ridiculously rich. We can start at Wall Street. Let’s stop rewarding excessive financialization and risk taking. Maybe this would mean that Wall Street bonuses have to be capped at no more than 15% of income. That’s right, give those guys a straight salary. Maybe this would mean you can’t work an analyst to death at 100 hours a week. Go through every industry and increase the compensation to all stakeholders, not just the shareholders. Hire good managers and stop making CEOs co-owners who have an incentive to increase the values of their options at everyone else’s expense. That’s not socialism. That’s fairness.

Speaking of shareholders, I would like to see an alternative to the 401K. Americans should not be forced to gamble their retirement savings at a global casino. It’s immoral to require non-wealthy Americans to do this. Sorry, I’m not into it. I don’t like risk, especially when I’m going to have to live on that money. Plus, the 401K system undermines industries and innovations that create jobs. We have all seen investments gain in value when jobs are eliminated. The work still has to be done but it’s sent overseas or heaped onto the backs of people who are left after the lay off bloodbath. It’s inefficient and it destroys wealth of the middle class. Again, shareholders are not the only people who count. Bring back defined benefit pensions.

Medicare for all. There I said it. It’s ridiculous that anyone in this country has to be at risk of losing everything they’ve worked for all of their lives because cruelty is the flavor of the day on TV and radio. Let’s stop beating people when they’re down. If there are going to be sacrifices, everyone should have to make them, including the people getting rich on hip joint replacements and hospital beds. If you can’t get Medicare for all, at least impost cost controls and uniform fee schedules. Insurance companies shouldn’t have to negotiate different payments for each course of treatment based on how much profit providers think they can reap. Obamacare is not the wonderful panacea it’s been made out to be and it was never supposed to control costs. Let’s stop lying about it.

For god’s sakes, do something about long term unemployment. We’ve been hanging out here for too long. The jobs numbers are not telling the whole story. There are too many part time positions, too many temp positions and salaries are too low. Plus, ageism is rampant. Those of us who have decades to go before we can retire need to live on something. In the meantime, our lives are on hold. We can’t spend money because we don’t have it. That’s a drag on the economy and it depresses the wages of everyone else. People in the sciences especially need help. There’s a blighted generation that needs to be working. Set up some  private-public research labs, pay us a living wage and let’s get on with it already. We’re being wasted out here.

Those are some of my suggestions. I can think of a zillion more. We need to work on infrastructure, especially broadband. We need to gradually free ourselves from fossil fuel. The lefties will make climate change the reason but I’m just as interested in loosening the control of the super rich oil barons on the rest of our lives. Their price manipulations affect everything from mass transit initiatives to food prices. We should be allowed to choose whether we want to be owned by oil. I choose not to.

By the way, I don’t want profit sharing. I want a nice, steady income with a living wage. I’ve seen profit sharing schemes and they’re not serious. They are no substitute for stability. Our corporate overlords have a different value system than average Americans. Some of us do not want to be our own bosses, aren’t particularly turned on by playing capitalist games and just want the sweet relief of a regular paycheck. Recognize this. It’s important. Let’s stop measuring success in terms of how many yachts we can buy. Success can mean many things from discovering a new drug to being the best baker around. It’s not all about money.

I invite other Confucians to chime in here. What would your advice be to Hillary?

Finally, here is a video from one of my favorite straight talking Australians, Jane Caro. Caro has a background in advertising but she has been a popular speaker on education and feminism as well. In this video, Caro speaks about Dangerous Ideas. Her bit on quotas for women on boards and other institutions is brilliant. Not to be missed. So, I would add as a final suggestion to Hillary to institute a Gender Glasses program like they have in Finland. That is a government office that actually gathers cold, hard statistics from workplaces that demonstrate whether there is discrimination that prevents women from succeeding. No more “he said/she said”. If statistics are good enough in sports, they’re good enough to prove sexism in the workplace. Let’s measure everything. This country is way too deferential to men’s needs and ignores the economic impact on women’s lives.

Fast forward to about the 3 minute mark to Jane’s introduction.

Karen Ho: It’s not about full employment

Anthropologist Karen Ho, author of Liquidated, was on Virtually Speaking a couple of weeks ago.  Check out the whole interview here.

I wrote a series of posts about Liquidated, applying Ho’s observations of Wall Street culture to the pharmaceutical industry because I’m going to make you care about unemployed scientists no matter how much you think you hate them, dammit.  It’s that important.  Here are my posts:

The Strategy of no Strategy Part 1

The Strategy of no Strategy Part 2- Flexibility

The Strategy of no Strategy Part 3- Shareholder Value

The Strategy of no Strategy Part 4- Putting it Together

I have to add that the outrageous price of drugs has just as much to do with the left’s behavior as the right’s but that is for another post. The pharmaceutical industry is probably the only place where that statement is accurate.  I’m not just playing a “professional journalist” who has a fiduciary obligation to my employer to say that “both sides do it”.

Oh, and I also told you that the cost of generics is going to continue to rise.  You heard it here first.

Anyway, back to Karen Ho.  In her interview, she said something very interesting that I had been wondering about.  She said that the “culture of smartness” thinks that no one works harder than they do.  And that’s probably true.  The analysts on Wall Street work crazy hours, like about 100 hours a week.  That doesn’t mean they do anything of value or that is productive.  I’m not sure lining up bullet points within a pixel of their lives is a particularly good use of one’s time, even if the presentations are beautiful.  Content is more important, but that’s just me.  So, essentially, Wall Street takes 22 yr old ivy league graduates, throws them in a financial crash course for a couple of months and turns them loose on the world to work like maniacs.  It love bombs them and tells them they’re wonderful because they pull the levers of the world’s economy without sleep and then those same analysts grow up to leave nasty comments in pharmaceutical industry blogs.

What I’m referring to are the comments that Derek Lowe sometimes gets on his posts when he announces another round of mass layoffs at Merck or Glaxo or whatever.  Some asshole will say something to the effect that it’s ok because it clears out the “deadwood”.

The weird thing is, these layoffs frequently *don’t* clear out the deadwood.  Oh sure, there is some brush clearing but the thing is, if you are in a group run by a blessed manager, you could be the deadest of the wood and still survive.  And a lot of the deadwood is in the managerial class and they tend to have the salesperson’s gift for explaining why they should be retained while everyone under them is cut.  So, by the end of the day, after pharmageddon leaves smoking ruins in its wake, the people who are left are those that haven’t been inside the lab for years.

Anyway, I have to thank Ho for alerting me to who was leaving those comments.  Funny how they would even bother to check up on our horror and dismay at another medicinal chemistry group biting the dust.  But they really have no idea what they’re doing, hence The Strategy of No Strategy.

Chrystia Freeland also has an opinion piece in the NY Times about the role of plutocrats vs populists and social distancing.  Something about Freeland’s piece didn’t seem quite right though.  Freeland is taking it as a given that technology is hollowing out the middle class.  This may be true but I see things from a different perspective and mourn the blight that plutocracy has had on technological progress.

The truth is that we are now experiencing the golden age of biology.  We are learning so much about biological processes on a daily basis that it is hard to keep up.  There is so much we now know and so much yet to be discovered.  There is enough work to keep every chemist and biologist busy for the rest of their lives.

The problem is that no one wants to pay for discovering those mysteries.  There will be diseases that won’t be cured, processes that won’t be applied to other fields and whole new industries that won’t be founded because plutocracy is choking the life out of the discovery field in the name of shareholder value.  And now we have the Republicans and their sequester choking out the only hope we have that government will step in and pick up the slack where shareholder value has failed.

In a way, the demonization of science has helped this process along.  We’re just a bunch of Simon Barsinisters in white lab coats planning to take over the world and heedless of our impact on it.  That suits the lawyers and the politicians that feed on the “knit your own sandals” demographic just fine, doesn’t it Jay Ackroyd?  But it leaves science without any advocates.

The point that Freeland is missing and that Ho might understand better is that there doesn’t need to be a hollowing out of the middle class.  This country could become an unmatchable technology powerhouse once again if some of that money was put back into research at both an industrial and academic level.  But someone has to be willing to commit the money to the process and in the age of shareholder value, that’s not going to happen.  Research takes long term investment and continuity and stability, all three of which are severely lacking these days.  The countries that make the commitment to provide these three elements are going to come out ahead.

One other point I’d like to make has to do with what do we do to get it back on track.  One of the things I hated when I was on the school board was when a bunch of parents complained about the same thing over and over again but never offered any solutions.  Ezra Klein twittered yesterday: what is the country’s most challenging economic problem and what is the solution?  Here’s my answer: the problem is an out of control finance industry.  The solution is to phase out the 401K.  Regulation would also help but the 401K makes more and more of us reliant on risky Wall Street instruments and encourages a kind of recklessness.  A steady stream of 401K payroll deductions is like heroin to addicts.

It’s got to stop.

 

 

Oh My God! The problem is the 401K!!

Suddenly, there are bloggers and writers popping out of the woodwork claiming that there is something very wrong with a retirement system built around a 401K.  It’s like a collective light bulb going on.  How did they miss it when it was staring them in the face all along??

Yes, many of our problems, from insufficient retirement funds to lack of labor protection to massive layoffs to wildly irrational corporate greed and testosterone fueled gambling at the global casino by the finance industry leading to global market catastrophes can be traced back to the 401K.  I am not being hyperbolic here.  I’ve been writing about the 401K monstrosity for several years and have been highly suspicious about it for many years before that.  Here are just a few of the many, many posts I’ve done on the recklessness of the 401K.

Is the 401K system a Ponzi Scheme? Discuss.

And now for something Radical and Extreme: Get rid of the 401K 

Convergence: Reckless Endangerment, Can you afford to Retire?

By the way, although Atrios is right about increasing social security benefits, he is wrong about having people invest more of their money in 401Ks.  The 401K should not be an opt out default retirement account.  It should be stepped down and offered as a supplement to a regular boring pension.  It’s not that the politics of abolishing the 401K as a primary retirement fund is very difficult.  It’s that we don’t really have a choice if we want to reign in the runaway finance industry’s ability to carelessly destroy economies and people’s lives.  I mean, what does a banker care if he loses a billion here or there?  For one thing, the money will get replenished in the next payroll cycle and for another, the US government will frantically cover all loses in order to prevent nationwide insurrection.  Go ask Neil Barofsky about the trillions of dollars in government funds that banks have access to in order to cover their losses and make themselves look healthy.

But wait! There’s more!

You can’t touch your 401K before you’re almost 60 without a heavy excise tax.  Oh sure, there are some hardship exceptions but just paying your bills because you’ve been out of work or using the funds to start your own business (to buy hardware and software licenses for example), not possible.  Now, I suppose this is the benevolent governmental entities preventing you from spending your retirement before you retire and in normal economic circumstances, this would be perfectly understandable.

But these are not normal economic circumstances and with the House controlled by a bunch of hardass Republicans bent on a new Civil War against Americans using stinginess and closing the tap on the money supply to people who desperately need it, the fact that the finance industry is able to sit on our nest eggs and play with them to their heart’s content while there are people out here who are losing everything so they don’t have to pay a crazy excise tax, well, I’m sorry but that’s just immoral.  Sure, you can’t spend your pension in this manner but you know what you’re going to get at the end of 40 years of work with a pension.  With a 401K, the only people who are going to make out for sure are the financiers.  Why should the rest of us be paying for that?

401K’s are bad investments with insidious consequences.  They have to go.

See Jon Stewart’s interview with Helaine Olen on her book Pound Foolish for more about what havoc has been wrecked by the 401K.

Uncomfortable conclusions

Matt Taibbi has a follow up to his Secrets and Lies of the Bailout article in the Rolling Stone.  This one, called “One Broker’s Story” is about the consequences of the bailout to ordinary brokers as a result of asymmetric information.  Neil Barofsky hinted at this in his book Bailout when he described all of the money that the government let the banks have access to.  It amounts to trillions and trillions of dollars.  It’s a little like opening the bank vault doors to people who have a habit of setting money on fire and telling them, “We know you didn’t mean to burn up everyone’s nest eggs.  Now, don’t do it again.”

Trillions and Trillions.  Imagine all of the money that the Republicans are constantly going on about in the deficit crisis hysteria and multiply it my several times over.  The social security shortfall requires a minor adjustment, a teensy tweak.  But the amount of money we have thrown at bankers and allowed them to access whenever they want is vastly, vastly larger.  When it comes right down to it, the bankers pretty much own the money supply.  They can tap into it whenever they want, charge interest on money they lend to others on money they got virtually interest free, and they don’t have to tell you about it.

The hapless broker in Taibbi’s story didn’t know that the bank he worked for, Wells Fargo, had access to all this cash.  He was looking at the fallout of the 2008 disaster, estimated the financial solvency of all of the major banks and decided to short them because he figured it was only a matter of time before they started falling like dominos due to the weight of all their bad assets.  But the broker didn’t know that all these banks had nothing to worry about because not only did the US government bail them out, it covered up their problems and then opened the money sluice to them in perpetuity.  So, stocks continued to climb in spite of all evidence to the contrary and the broker lost his shirt and everyone else’s shirts he did business with.

He only found out when Bloomberg filed a FOIA to obtain information on where all the bailout programs money was going.  The banks and the Treasury (and the White House, I’m sure) were hoping to keep it a secret as long as possible.

What the stock market is showing everyday is an illusion.  The banks are doing well because they’re being propped up by our money.  That is the observation.  The question is, why?  Why are we allowing the banks to have so much money?  Why aren’t we letting the market suffer?

I think it comes back to the 401K and IRAs again.  So many of us have so much of our money locked into the market instead of pensions that if the government let the market sink to its natural level, there would be a social and political crisis.  It is a vicious circle.  And we can’t take our money out to start new businesses or pay debts or just live without paying punitive taxes.  Those taxes virtually guarantee that the money stays in the market.  So, the government has to prop up the market until it can’t be propped up anymore.  That should happen when the next bubble bursts on Wall Street.

Taibbi finishes the post like this:

This is the real problem with the bailouts, and the issue we tried to underscore with the “Secrets and Lies” piece. With their hide-and-seek policies, bogus stress testing and stubborn insistence on calling failing banks healthy and publicly endorsing other such fibs, the architects of the federal rescue (from both the Bush and Obama administrations, as well as from the Federal Reserve) created a two-tiered market. The new economy has two classes of investors: those who know the real numbers, and those who don’t.

So while the proponents of the bailout will argue they were a success, and the covert and overt federal support helped bring the Dow all the way back from below 7,000 to above 13,000 – seemingly a good thing no matter how you look at it – there’s another bitter reality, which is that the bailouts officially created a sucker class.

When banks started making fortunes again in 2009 and beyond, it wasn’t a victimless situation. There were losers in this trade, too. Hartzman and his clients are examples of the kind of people who lost when the government made decisions about who’s entitled to the truth and who wasn’t. As one former hedge fund manager put it to me recently, “Joe Sixpack has no chance in this market.”

We are the sucker class.  Well, some of us are suckers.  Some of us weren’t suckered into voting for Obama either time.  Ultimately, the responsibility for this fiasco falls on his shoulders and those of the people he hired.  And the people who unquestioningly supported him.

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And about that $1Trillion platinum coin, mint the damn thing already.  As Krugman pointed out yesterday:

There seem to be two kinds of objections. One is that it would be undignified. Here’s how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he’s holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac — a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, “My god, we can’t dress the secretary up as a clown!” Even when it will make him a hero who saves the day?

The other objection is the apparently primordial fear that mocking the monetary gods will bring terrible retribution.

It sounds like another civility bluff to me.  The bullies announce they are going to steal your lunch money, push you down in the dirt and stomp on your face but if you protest or come up with some clever workaround, they start heading to the fainting couch with the vapors.

Normally, I’d say that this kind of silliness with the coin is just going to make the matter worse because who in the world will take us seriously.  But there shouldn’t be any real economic fallout, so mint the damn coin.

On the other hand, maybe we should just call their bluff.  Let them wreck the economy, pull down our credit rating, sow chaos and confusion and ruin people’s lives.  I’m sick of Republicans pulling this shit.  They need to be terrified of the consequences of their actions for a change.  If you mint the coin, they’ll just come back with something else to hold hostage.  So, let the babies have their way and get the end of the financial world over with.  It’s out of control and an unmitigated disaster and it’s going down eventually anyway.  Why prolong the suffering.  Let’s just lance the boil now and start over.   I want a capitalism without exploitation.

Reboot.  Do it now.

Ok, here’s my theory about why the Masters of the Universe want to kill the social insurance programs

Remember what I said about Wall Street workers?  Let me refresh your memory:

The finance class actually consists of a bunch of overqualified strip miners.  They’re overworked, which might explain the number of bad decisions they make, and their compensation system decouples the consequences of their actions from the actions themselves.  They are being paid to make “deals” and the purpose of those deals is to extract “wealth”.  In a way, it’s not that much different from getting into the cab of some giant piece of earth moving equipment and mowing down the side of the mountain and then loading that potential ore onto a conveyor belt to be separated from dirt.  They live in a “company” town and are paid “company scrip”.  It’s a truck system for them as well.  The compensation is not proportional to the amount of work they do, they can be fired at will and they’re never going to leave that mountain because they owe their souls to the company store.  The more they work, the more compensation in bonuses they are promised but it’s never enough.

Once you think about this metaphor of Wall Street doing the work of strip miners, the present set of circumstances will start to make a lot of sense.

We know that Social Security does not add to the deficit.  In fact, we have a trust fund worth almost $3 trillion dollars.  Sure, that trust fund has taken a hit in the past four years because so many people are out of work and can’t pay their taxes but once people are working again, the kitty will start to grow again.  And if all that is needed is a couple of tweaks to solve the minor shortfall, it’s really not as damaging to the economy or rich people’s ability to spend ungodly amounts of money on themselves as they pretend.

So, it’s not a deficit problem- at least not from the government’s side of things.  Sure, Medicare does need to be fixed but that requires some spine stiffening on the part of the Democrats to crack down on providers.  Did I tell you about my lab partner’s husband’s 4 hour hernia operation and recovery in the hospital?  $70,000.  No, that is not a mistake.  There’s something truly out of whack when if comes to costs and payments to hospitals, doctors, insurance companies.  It’s a real problem.  And since the rest of the developed world has found reasonable solutions at much lower costs, it’s moronic for our elected officials to tell us that the costly ACA, with downstream repercussions they failed to study, is the best we can do.  Please, do we look stupid to you?

Anyway, back to Wall Street.  The Social Security trust fund is solid and fixable and millions of us late boomers paid into the surplus funds to cover our own retirements.  What isn’t solid and fixable is the 401K system, which really is a Ponzi scheme.  Pretty soon, a lot of aging baby boomers will be taking money out.  That’s going to hurt someone’s bottom line.  The bonuses and skimming going forward isn’t going to be nearly so lucrative as it was over the past two decades.  After the Baby Boom came the Baby Bust in the late 60’s.  Looks like The Pill really caught on in a big way.

In the past couple of decades, many companies ditched their pensions for the 401K.  Let the kids pay for their own retirements.  None of this deferred compensation crap.  And life was good for the shareholders and the bankers.  But once that money starts to get withdrawn, the salad days will be over.  So, Wall Street must get more people into 401Ks or they won’t be able to continue strip mining.  The problem is that most people are already in one if their employer offers it.  The market is finite and pretty soon will plateau.  At some point, the investment portfolios are also going to reach a steady state.

BUT, if you raise the retirement age and keep a lot of older people working, they will be forced to put their money back into the market.  Well, they won’t be able to retire until they’re much older than their parents were at retirement.  If they have any hope of ever taking time out to go travel or garden, they’re going to have to risk their money in the market, hope that it will pay off so they can get out of the job market before they’re dead and forget about social security.

My theory is that raising the retirement age forces more savings to stay in the market longer and that with a pool of people who can’t retire yet still working, the amount of money going into 401Ks and IRAs is going to go up. Stripville!

It makes sense from a timing perspective.  There’s really no need to cut a deal with Republicans right now.  The Democrats have enough seats to keep things pretty much unchanged.  If the tax cuts expire, it’s going to look bad for Republicans to hold middle class tax cuts hostage in order to satisfy their rich friends.  In fact, just about anything the Republicans stamp their feet and insist on is going to look bad for them.

But Obama still wants to cut a deal and make us all a lot poorer as a nation and as individuals.  And he really doesn’t have to do this.  So, why do it?  I think it’s because the strip miners have told him that if he doesn’t, the market is going to start to drop and it will pick up speed and saving the banks is the most important thing ever!!!  All serious people agree about this.  If he doesn’t cut the social insurance programs in order to prop up the 401K system, it will be all his and the Democrats’ fault when the market finally starts to fall.

Yep, that would suck for seniors who are about to retire so if I were them, I’d start looking around for other places to put that money.  But history has shown that Obama and his droogs at Treasury will bend over backwards to please bankers even if it means opening a revolving line of credit for the bankers to the taxpayer cash stream in perpetuity.  (Read Neil Barofsky’s book for more horrific details).

It’s been my feeling that the 401K is behind a lot of what’s really messed up in our economy and for some reason, we never hear anyone of sufficient gravitas talking about it.  But just imagine what would happen to the economy if we tried to phase it out even if most of us hate it with a white hot passion.

All hell would break loose.

Go get Karen Ho’s book and read it NOW

Last night, I read more of Karen Ho’s book, Liquidated- An Ethnography of Wall Street and it should be required reading for every literate person in America.  I am not exaggerating.  But if you read it late at night, it might just scare the bejeesus out of you so keep your light on when you go to bed.

What scares me the most is how true it rings to my own experiences at work over the past two decades.  Ho writes like an academic.  This is not a beach read.  You will have to reread passages if you’re not familiar with how finance works.  Her descriptions of capitalism and securities over the country’s history are not easy to get through.  But it’s worth the effort because “vampire squid” does not begin to describe the horror that is Wall Street and what it has done to this country. Somewhere in this book Wall Street is referred to as “parasitical and predatory” and I’d say that’s just about right. But it is precisely Ho’s detached, dry academic style that makes the details so disturbing and makes this book more effective than Occupy Wall Street at focussing our attention on the real culprit of our middle class demise.

Several times while reading this I’ve had to stop and ask myself if all this is true or if I’m just being duped by confirmation bias.  But having seen the evidence of what the pressures of Wall Street have done to Big Pharma since the 80’s, Ho’s hypothesis makes too much sense to deny.  All the pieces fit neatly into place.  And now I realize that I missed my true calling in life.  I should have been an anthropologist because I haven’t missed a thing except some of the backstory that only a person of Karen Ho’s socioeconomic privileged background would be able to ferret out.

I’m only half way through the book so I don’t know if Ho has any recommendations but I know what would get Wall Street’s attention, and I think I’ve mentioned this before: sell your 401K.  Yep, get out of the market altogether.  As long as you have investments in that thing, you and the country will never be free.  And to tell you how much Wall Street has a grip on you, that very suggestion probably made you choke on your Starbucks, right?  You’ve been told for decades that it’s the height of irresponsibility to spend your retirement account (who says you have to spend it?).  You’ve been made to feel like a stupid person eating your seed corn if you take that money out.  Or the fact that the taxes you have to pay for early withdrawal are outrageous makes you think twice about it.  Believe me, I know how you feel.  I have all of my retirement savings tied up in two 401K accounts and the thought of taking it out and paying that criminal excise tax makes my blood boil.  You can bet our buddies at the big investment banks were behind that.  They want access to your money and they want to make it as painful as possible for you to take it away from them.  And it’s not even that they want to play with your hard earned dollars at the casino, although that’s true.  It’s that trapping you and your money in the stockmarket means they can fashion this country’s political system any damn way they please.  Your agency will be harnessed to *their* political goals.  The more you give them, the less you will get back.  The whole goal is to atomize the welfare state so that each person is left completely vulnerable and on her own, a single individual plugged into the Wall Street system without any other means of support.  If the market goes down, YOU go down with it.  So, cash in the 401K if you are unemployed and stop making contributions.  Or if you can’t do that, try to get out of stock funds.  One or two people won’t make any difference to them but millions?  Yeah, that ought to make them blink.

If I and my colleagues hadn’t experienced the effects of Wall Street first hand in the most painful way possible, I would think that Ho’s book was an over the top diatribe against Wall Street.  But Ho does something that the left does not expect.  She rescues the word “corporation”.  Half way through the book, you will start to realize what I have been trying to say for a couple of years now.  Corporations that produce things and employ thousands of people are not the enemy here, or at least the people who work for them and the products are not the enemies.  Even corporate management didn’t start off as bastards, even if some of them have not been overly friendly to labor.  You might say that corporate money has too much influence in politics but as you read the book, the reasons behind that become clear.  And if lefties continue to throw themselves against the word “corporation”, they are only going to be wasting their time.  It is too imprecise.  There are industries that work through corporations and then there are the big investment banks on Wall Street and they haven’t always been the same.  Teasing the agents apart at this point in time is going to be tricky but necessary.

Anyway, just read it.  Make sure you have your Teddy Bear to clutch in the middle of the night.

One very interesting fact from Ho’s book: Wall Street investment banks recruit heavily from a handful of prestigious Ivies.  There are two in particular that the bulk of Wall Street analysts and associates come from: Harvard and Princeton.  I’m not surprised about Princeton.  A few years ago, when I was trying to get Brooke into a private school that wouldn’t drive us all crazy, I toured several in the Princeton area and was surprised to see all the cable business channels running on multiple tv screens in the student lounges.  The kid was waitlisted, probably because we asked for financial aid.  But I digress.  The investment banks seem to think that Harvard and Princeton nurture their students in a way that make them perfect for Wall Street.  They’re smart, driven, ambitious, used to the finer things in life and they are looking for the next Harvard after graduation.  A few others get their attention, like MIT and Wharton.

But investment bankers do not like to recruit from Yale.  They don’t trust Yale graduates because they think they are too liberal.

So, maybe it shouldn’t be a surprise that when Wall Street knew it was going down in 2007, it recruited a presidential candidate from Harvard and passed on the one from Yale.

Oh, and Ho uses the word “schmooze” to describe the front office guys (almost all of them are guys) who use their relationships and connections to get to the top.  Some of them didn’t learn a thing during their investment bank’s finance training classes.  Apparently, you don’t have to know anything about finance to climb the corporate ladder to success.  You just have to know the right people and be really good at golf.

Sunday: Make this the week you free yourself

Commuting to work in Copenhagen

Thursday, November 17: Shut Down Wall Street

If you haven’t had a chance to read it yet, Matt Taibbi has a piece in the Rolling Stone where he confesses that he didn’t “get” Occupy Wall Street at first, but now he does:

What both sides missed is that OWS is tired of all of this. They don’t care what we think they’re about, or should be about. They just want something different.

We’re all born wanting the freedom to imagine a better and more beautiful future. But modern America has become a place so drearily confining and predictable that it chokes the life out of that built-in desire. Everything from our pop culture to our economy to our politics feels oppressive and unresponsive. We see 10 million commercials a day, and every day is the same life-killing chase for money, money and more money; the only thing that changes from minute to minute is that every tick of the clock brings with it another space-age vendor dreaming up some new way to try to sell you something or reach into your pocket. The relentless sameness of the two-party political system is beginning to feel like a Jacob’s Ladder nightmare with no end; we’re entering another turn on the four-year merry-go-round, and the thought of having to try to get excited about yet another minor quadrennial shift in the direction of one or the other pole of alienating corporate full-of-shitness is enough to make anyone want to smash his own hand flat with a hammer.

If you think of it this way, Occupy Wall Street takes on another meaning. There’s no better symbol of the gloom and psychological repression of modern America than the banking system, a huge heartless machine that attaches itself to you at an early age, and from which there is no escape. You fail to receive a few past-due notices about a $19 payment you missed on that TV you bought at Circuit City, and next thing you know a collector has filed a judgment against you for $3,000 in fees and interest. Or maybe you wake up one morning and your car is gone, legally repossessed by Vulture Inc., the debt-buying firm that bought your loan on the Internet from Chase for two cents on the dollar. This is why people hate Wall Street. They hate it because the banks have made life for ordinary people a vicious tightrope act; you slip anywhere along the way, it’s 10,000 feet down into a vat of razor blades that you can never climb out of.

That, to me, is what Occupy Wall Street is addressing. People don’t know exactly what they want, but as one friend of mine put it, they know one thing: FUCK THIS SHIT! We want something different: a different life, with different values, or at least a chance at different values.

Personally?  I want to live in a place like Denmark.  Your mileage may vary.  And I think that’s part of the point of Occupy Wall Street.  If you want to make millions producing something useful like green technology or a new drug or some personal gadget that we can’t live without, by all means, do it!  I would *love* to make a new drug that helps people but I know that the current corporate model for doing that is dead.  But starting a new biotech in this particular kind of capitalism is extremely risky because there are predators out there who see you as nothing but a money machine ready  yoke you to their plough.  They give you the money to get the work done, you hand over whatever they want.

But what if money is not your personal endpoint?  What if doing what you love is your goal but you want to earn a wage that doesn’t leave you destitute?  What if you’re ok riding a bike to work in an urban setting?  What if your starter house doesn’t have to be 3000 sq ft?  What if you are happy living somewhere between Ikea and Pottery Barn?  Does that mean you’re a loser if you don’t want to make millions but only want to discover the next drug?  This society is telling the real producers that they are losers and that the only true winners are the ones who eat what they kill in the free market savannah.

Six months ago on my last day of work, I wrote about what was happening to us.  We are locked into the Wall Street extraction mechanism almost from the first day on the job.  Our pensions are so small and the possibility of getting one is so remote because our careers are  unstable that we are forced to turn to the marketplace to build up our nest eggs.  We invest in 401K’s that are so heavily penalized by taxes that the money becomes hostage to the Wall Street movers and shakers.  And investing in the market makes us the very same shareholders who demand our terminations.  We are forced to put our savings into the global casino so that some assholes on Wall Street can play with making a killing by porting our jobs overseas.  And we’re supposed to be grateful to them for “producing” this great wealth that only they can accumulate and spend and pay for *their* kid’s college education.  Yes, they get a bonus, you get an excise tax bill, to be paid up-front, if you need to take that money out to pay for the hardships produced by putting that money in the market in the first place.  How crazy is that??  How did we let ourselves get talked into this bizarre arrangement? And it’s not real money to Wall Street.  It’s play money.  It’s not *their* money.  And if they lose some after they skim off their bonuses and cry and complain about how unappreciated they are, it’s no big deal.  With the next working guy’s paycheck, the coffers will be renewed from all of those contributions to the retirement account.  This game is set up so that the fund managers never have to feel accountable to anyone but themselves.

I’d rather be free to live modestly than live miserably and precariously with the vague and insincere promises of riches decades down the road.  I want out.

Is the 401K a Ponzi Scheme? Discuss

As of this writing, the Dow has slipped -111 points.  As Atrios would say: “Weeeeeeeeee!”  Update:  It’s back up again, “whhooooAAA!”  Update: Annnd back down again.  “Weeeeee!”  Isn’t this fun?

I was amused and irritated to see the question “Is Social Security a Ponzi Scheme?” at Room for Debate in the NYTimes recently.  (Fortunately, no one debating said it was, not even the rabid Republicans)  We are only discussing this because Rick Perry, Mr. Goodhair himself, brought it up.  The answer is “No”, it is not a Ponzi scheme.  The system has been working for something like 80 years now.  It’s an insurance system.  Participants pre-pay into it through deferred wages and withdraw it when they need it.  The money collected is used to buy Treasury Bonds.  Social Security is not an investment scheme that promises to return a huge bang for the buck.  It’s a modest retirement program, a fallback in case everything else fades.  It’s supposed to be solvent for decades to come.  The only issue is whether there will be anyone still employed to pre-pay.  The more people out of work, the fewer of us paying our share and, ironically, the more we’ll come to depend on it down the road.

The 401K, however, IS a Ponzi scheme.  No doubt about it.  Investors are told that if they save in a 401K, their money will grow.  How much it will grow depends on how much your 401K managers are willing to bamboozle you.  The investor is told that whatever it is you think you can afford to put into the system is not going to be enough to retire on.  The more you put in, the greater your payoff 30 years from now when you retire.  You’ll be rich, rich, rich!  And it certainly looks like that, doesn’t it?  That little pile of cash just keeps growing and growing, until there is a market “correction” and it doesn’t anymore.

One of the characteristics of a Ponzi scheme is that it requires a lot of new investors to support the returns of the older investors.  In this game, it helps to get in early.  There are a lot of older babyboomers who didn’t get in while they were young but when they did start contributing to their 401Ks, they were in their prime earning years and were able to set aside a nice chunk of change.  Pretty soon, they’re going to want to take that money out to live on and as we all know, there are a lot of babyboomers.  And they can do that once they’re old enough.  They won’t be socked with a punitive tax when they withdraw that money.  The rest of us who are unemployed and may need those funds to live on will pay dearly.

Please do not tell me about how prudent it is to put aside your money for retirement and not spend it no matter what.  We’re not stupid.  But that money could be used to stimulate the economy at a time when the Republicans stand in the way of doing anything helpful, and could theoretically provide more jobs, and with jobs we can start socking money away again.  When money is tied up in some illiquid 401K that you can’t get to without undergoing a hemorrhage, the only people it benefits are some testosterone poisoned fund managers and their bonus loving banks.  Funny how the Obama administration and Congress are so willing to cut a break on the payroll tax but not the excise tax for withdrawing 401K benefits.  It almost sounds like they were trying to undermine social security while forcing people to stay in a 401K where there is no guarantee of a return and much, much more risk, tying up those funds for decades to come.  Now, why would they do that…?  I only ask.

A market “correction” could wipe you out.  That’s harder on a soon to be retired senior than a younger worker.  But if you don’t have a job, you can’t contribute.  So, the money that was supposed to guarantee your retirement at Millionaire Manor doesn’t really grow.  Over time, the mutual funds will require more investments coming in to offset the money taken out.  There’s bound to be a plateau, unless the fund managers find bigger and better scams, but won’t that entail more risks?

So, to recap: the 401K promises gigantic returns to people who get in on the ground floor.  More and younger investors are required to also contribute to prop up the stock prices of the companies your funds are dumped into.  Older investors can withdraw all of their funds penalty free; younger investors cannot.  The savings are not guaranteed and can be wiped out by market conditions, or diminished by the withdrawal of the generation above you.

Sounds fairly Ponziesque to me.

That’s my theory and I’m sticking with it.

 

Curb Alert

If anyone is wondering where I’ve gone to, I am putting in a new kitchen in my townhouse.  The old cabinets were the originals.  I had replaced the doors and painted them a few years ago and updated my laminate.  It was a quick cosmetic facelift.  Cheap and I could live with it.  But these are different days indeed and who knows when the house will need to go on the market?  So, I’m putting in a new kitchen.

I ripped out the old cabinets today, as well as the laminate countertop, with the help of someone, also laid off, underemployed and overeducated in a STEM field, who is very good at this kind of stuff.  (Thanks, sincerely, that was very productive and saved me a lot of money)  Dry wall and spackel followed.  The kitchen was a disaster area.  After tomorrow, hopefully less so.  It will take me a couple more days to get a new countertop and plumbing reconnected so I am on paper plates and take out Thai food in the meantime.

Anyway, my house is a mess.  I’ve got so many projects going at one time, it’s hard to keep up with it all.  There are blue plastic bins all over the place, schlepping from one room to the next in a fruitless search to find a final resting place.  After I cleaned out all of my kitchen cabinets, the plates suddenly looked really old, chipped and shabby.  I’m contemplating replacing them with a new fresh set of white dinnerware from someplace like Target (pronounced Tar-jhay among the cognoscenti).  New plates are cheap.  Should I or shouldn’t I?

There is a nice pile of old cabinets at the foot of my driveway.  I need to get rid of them toot sweet or the association will start to complain.  The cabinets are not in great shape.  It’s a good thing they are being replaced.  The sink base disintegrated as we were removing it.  Shocking!  But the doors are pretty nice.  They are Shaker style doors that I ordered a few years ago to take the place of the laminate doors with oak strips at the bottom that came with the house when I bought it.  I could never figure out what to do with those doors so I bought some door replacements and updated the red oak cabinets with refreshing white paint.  Anyway, the cabinets are crap but the doors are in nice shape.  The bin handle hardware and brushed chrome pulls are worth more than the cabinets.  Some of them have glass inserts to show off pretty dinnerware.  There’s also a nice L shaped length of black granite-esque laminate and a sink with faucet with pull out spout.  I’m hoping that someone on craigslist will want them.

So, that’s what I’ve been up to while the market crashes and takes my hard earned deferred income 401K contributions with it.  What can you do?  Well, in retrospect, I might have been better off putting less into the 401K account and more into paying off the principle on my home…

Oh, and if I have a fairy godperson, I would really, really, REALLY like a Public Bike with a sweet basket up front.  In the mixte model.  In orange.  Three speed.  Yes, I know I am dreaming.

{{sigh}}

It sucks to be unemployed…