Public Pension Fund Managers Have Lost Americans $600 Billion Over the Last Decade

Even as the stock market has boomed over the last decade, a new report finds that these foolish pension fund managers have managed to lose Americans at least $600 billion. This is an amount that’s about equal to $4200 per family.

The costs associated mean that there’s less money to be spent on public goods such as healthcare, libraries, and infrastructure. It would obviously have been much better if these public funds were simply put into low cost index funds (instead of hedge funds and private equity firms) that tried to match the market instead of beating it. (That’s usually a better course of action for most people anyway.) Reducing the pay going to those high-income fund managers would have been a clear economic gain for everyone else.

The financial industry though is mainly an intermediate resource, similar to the trucking industry. This means that unlike housing, education, and healthcare, it isn’t really valuable for its own sake. Similar to the trucking industry, which derives its value from its ability to transport goods efficiently, the financial industry derives its value to the general public by being as benevolently efficient at allocating capital as possible.

There is undeniable evidence that overall, the financial industry has become far less efficient and far more predatory for most people over the last four decades. There’s good reason to think that the financial sector is currently at least three to four times larger than it should be. Back in the 1970s, the industry accounted for about 0.5 percent of GDP, and it now accounts for about 2.3 percent of GDP. The draining difference — diverting money out of the pockets of average workers in wasteful or harmful ways — amounts to at least a few hundred billion dollars of space in the modern economy.

The parallel to this would be if the trucking industry was (all else equal) three to four times too large — there would be way more trucks than necessary to transport goods, there would be costs of heavier pollution and maintaining more salaries than necessary, and people employed as a part of the inefficient trucking industry could instead be working on something with more productive value. To prevent those two industries from becoming corrupted due to excess power, as few resources (labor, oversight, and capital) should be allocated towards them as possible.

The S&L crisis of the 1980s, the stock bubble of the 1990s, and the housing bubble of the 2000s are clear examples of the financial industry allocating capital in ways that are not only inefficient but destructive as well. All of those three events lead to severe economic recessions, with the worst being the housing bubble that caused the Great Recession and global economic turmoil. Comparing this to the two decades before the 1970s, when stronger New Deal financial regulation was in place and there were no serious crashes, there’s clearly a major difference in efficiency.

In sum, it’s clear that the financial system needs to be seriously reorganized around priorities different than making the wealthiest better off at the expense of everyone else. Even moderate measures such as implementing a relatively minor financial transaction tax, limiting the size of the now oligopolistic private banks, and expanding cooperative or public banking would be helpful. Until measures like those happen though, the damage will continue, and the world risks that damage eventually compiling yet again into another major disaster.

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Sudden Loss of Net Worth Among Older People Associated With Significantly Worse Death Rates

This study makes it all the more important to handle economic crashes effectively. The crash of 2008 — which a lot of people still haven’t recovered from financially — is especially gruesome because the after effects of it didn’t have to be anywhere near as terrible. In Europe, the response was ineffective, unsettling austerity for many and in the United States the stimulus was inadequate to help the vast majority of people recover. The stimulus needed to be much larger to compensate for the few hundred billion dollars lost in annual economic demand, and instead of bailing out the banks, the public generally could have been assisted in recouping their financial losses.

A sudden loss of net worth in middle or older age is associated with a significantly higher risk of death, reports a new Northwestern Medicine and University of Michigan study.

When people lose 75 percent or more of their total wealth during a two-year period, they are 50 percent more likely to die in the next 20 years, the study found.

“We found losing your life-savings has a profound effect on person’s long-term health,” said lead author Lindsay Pool, a research assistant professor of preventive medicine at Northwestern University Feinberg School of Medicine. “It’s a very pervasive issue. It wasn’t just a few individuals but more than 25 percent of Americans had a wealth shock over the 20 years of the study.”

Though the rate of savings loss spiked during the Great Recession, middle- and older-age Americans consistently lost savings across the 20-year period, regardless of the larger economic climate.

The study, which will be published April 3 in JAMA, is the first to look at the long-term effects of a large financial loss.

“Our findings offer new evidence for a potentially important social determinant of health that so far has not been recognized: sudden loss of wealth in late middle or older age,” said senior author Carlos Mendes de Leon, professor of epidemiology and global public health at University of Michigan’s School of Public Health.

The study also examined a group of low-income people who didn’t have any wealth accumulated and who are considered socially vulnerable in terms of their health. Their increased risk of mortality over 20 years was 67 percent.

“The most surprising finding was that having wealth and losing it is almost as bad for your life expectancy as never having wealth,” Pool said.

The likely cause of the increased death risk may be twofold. “These people suffer a mental health toll because of the financial loss as well as pulling back from medical care because they can’t afford it,” Pool said.

The new study builds on prior research in the wake of the Great Recession from 2007 to the early 2010s. Those studies examined short-term health effects such as depression, blood pressure and other markers of stress that changed as peoples’ financial circumstances took a nosedive.

Some Swedes Beginning to Realize the Danger of Being in a Cashless Society

Allowing largely unaccountable corporations to track the overall financial activities and flow of resources among an entire population presents a power imbalance that will inevitably lead to problems. The anonymous ability to pay with cash — and soon hopefully a legitimately privacy-focused cryptocurrency — is an imperative function in maintaining stability in today’s world.

In February, the head of Sweden’s central bank warned that Sweden could soon face a situation where all payments were controlled by private sector banks.

The Riksbank governor, Stefan Ingves, called for new legislation to secure public control over the payments system, arguing that being able to make and receive payments is a “collective good” like defence, the courts, or public statistics.

“Most citizens would feel uncomfortable to surrender these social functions to private companies,” he said.

“It should be obvious that Sweden’s preparedness would be weakened if, in a serious crisis or war, we had not decided in advance how households and companies would pay for fuel, supplies and other necessities.”

[…]

The central bank governor’s remarks are helping to bring other concerns about a cash-free society into the mainstream, says Björn Eriksson, 72, a former national police commissioner and the leader of a group called the Cash Rebellion, or Kontantupproret.

[…]

In this sense, Sweden is far from its famous concept oflagom – “just the right amount” – but instead is “100% extreme”, Eriksson says, by investing so much faith in the banks. “This is a political question. We are leaving these decisions to four major banks who form a monopoly in Sweden.”

[…]

No system based on technology is invulnerable to glitches and fraud, says Mattias Skarec, 29, a digital security consultant. Yet Sweden is divided into two camps: the first says “we love the new technology”, while the other just can’t be bothered, Skarec says. “We are naive to think we can abandon cash completely and rely on technology instead.”

Skarec points to problems with card payments experienced by two Swedish banks just during the past year, and by Bank ID, the digital authorisation system that allows people to identify themselves for payment purposes using their phones.

Fraudsters have already learned to exploit the system’s idiosyncrasies to trick people out of large sums of money, even their pensions.

[…]

But an opinion poll this month revealed unease among Swedes, with almost seven out of 10 saying they wanted to keep the option to use cash, while just 25% wanted a completely cashless society. MPs from left and right expressed concerns at a recent parliamentary hearing. Parliament is conducting a cross-party review of central bank legislation that will also investigate the issues surrounding cash.

The Pirate Party – which made its name in Sweden for its opposition to state and private sector surveillance – welcomes a higher political profile for these issues.
Look at Ireland, Christian Engström says, where abortion is illegal. It is much easier for authorities to identify Irish women who have had an abortion if the state can track all digital financial transactions, he says. And while Sweden’s government might be relatively benign, a quick look at Europe suggests there is no guarantee how things might develop in the future.

“If you have control of the servers belonging to Visa or MasterCard, you have control of Sweden,” Engström says.

Also a relevant entry: Pitfalls of a Cashless Society.

Deregulating the Banks and Risking Another Economic Disaster

The economic crash that happened around 2008 was truly horrible, as many who lived through it are aware. The negative effects of the crash were felt overall worldwide and included trillions of dollars lost in worker pensions and savings, chronically high unemployment, trillions of dollars worth of lost output, and lots of other residual suffering. There were also woefully inadequate positive changes — there have been insufficient measures to help the vast majority of the population and the criminogenic structure of the too big to fail banking industry is mostly the same as it was in 2007.

All of these considerations about the economic crisis warrant thinking about why it happened in the first place, so that the same foolish mistakes that caused immense human suffering don’t have to be repeated again. Beyond possibly referring to the inevitable instability of the state capitalist economic system, it’s rational enough to look back to 1999, when a large part of the consequential deregulation happened.

In 1999, the U.S. Congress passed the Graham-Leach Act that (among other things) repealed important sections of the 1930s Glass-Steagall Act. Glass-Steagall’s important provision was that it by law set a firewall between depository banking and investment banking. There were unpunished violations of this law by the banks over the decades, but it’s a rational law and it did quite well at its specific purpose, which is to try to prevent the reckless gambling with consumer savings that’s actually still allowed today.

The big story of why the crash happened though is the housing bubble that the big banks and certain other financial corporations (with immoral behavior and using predatory lending practices to consumers) largely created. This housing bubble was evident enough to reasonable economists that don’t serve plutocratic interests, but there are few of those, so only a select few economists spotted the bubble early on.

“We had a 8 to 10 trillion dollar housing bubble over the decade from ’96 to 2006,” said economist Dean Baker, who in 2002 predicted the bubble and the recession it caused. “House prices rose by more than 80 percent by one measure, 100 percent in excess of inflation. Over the prior hundred years — 1895 to 1995 — house prices had just kept even with inflation. This should have been real simple.”

The housing bubble did drive the economy forward through what’s known as the wealth effect, where people (primarily lower- and middle-income people) spend more money — typically 5 to 7 cents on a dollar — if they have a higher net worth. The higher spending (estimated at between 400 to 500 billion dollars a year, about a twentieth of $8 trillion, and about $3000 per 2018 U.S. household) drove more demand and contributed to some economic gains. These gains came with a heavy cost though, and that cost was the bubble popping and causing the worst economic collapse since the Great Depression.

Why the Great Recession was as bad as it was in the U.S. is actually fairly simple. About $8 trillion worth of housing bubble wealth disappeared with the bubble’s pop, and with that went a lot of consumer purchasing power or what’s known as demand. The main problem for the Great Recession being as horrendous as it was is due to there not having been enough demand in the economy, or to use different terms, the vast majority of people were screwed over too hard and weren’t given adequate resources to recover with. Instead, the U.S. government (and some other governments with different measures) acted with urgency to bail out the financial corporations that primarily caused the crash problem.

The story of the big bank bailouts is particularly noteworthy because it was unnecessary. Actually, a strong majority of the U.S. population was opposed to the bailouts, and if the U.S. had a real, functional democracy, that strong majority opposition would have translated into policy. The bank bailouts were unnecessary though because it was known how to keep the financial system operating when the banks failed — this was seen in the S&L crisis of the late 1980s, for example. There were also simply other ways to help most people — the central bank of the U.S. that loaned trillions of dollars at extremely low interest rates to failed banks could have been used for numerous superior purposes, such as providing an investment stimulus that would actually fully compensate for the shortfall of demand. The stimulus enacted by the Obama administration simply wasn’t large enough, and many people suffered for that.

Now today on March 15, 2018, it’s being reported that the U.S. Congress is about to deregulate the banks again. The process of another significant economic recession and expensive public bailout are a real possibility. This is noted as banks such as Morgan Stanley and Citigroup wouldn’t even exist today if they hadn’t been bailed out, and it’s disturbing that the deregulation will allow them increased opportunity to boost profits through extracting money from consumers via fraud.

It’s also noted as the implicit regulation — that there will be a bailout if a big bank fails — also remains in place, and this implicit subsidy (which prompts riskier financial activities) has been estimated by the IMF to cost about $70 billion ($550 per U.S. household) annually. This is yet another drain on the economy through the corrupted financial system, which could be eliminated or reduced through enacting a financial transactions tax, breaking up the big banks, and/or bringing democratizing measures to economic institutions.

In sum, the history of this deregulation and misregulation of the financial sector presents a clear picture of the problems it causes. More people must be aware of this and organize effectively to prevent these same unnecessary mistakes from being made yet again.

U.S. Consumer Debt at Record Levels

In around the last decade in the U.S., there has been a particular theft of wages into a conversion of corporate profits. From about 1977 to 2007, the main story of income inequality there was upwards redistribution (theft) of income directly to higher-income professions. (See chapter 2 of the book Rigged for further data.) If wages hadn’t been largely stagnant over the last four decades (among other policy failures) for many workers, there wouldn’t be consumer debt of this magnitude. This is because stagnant wages and rising costs (such as U.S. university) force many to borrow more than they’d otherwise have to with higher incomes.

Also, $193 billion is a lot of money, and the reporting would be better if it and other figures were expressed in terms that most people could understand more easily. An increase of household debt by $193 billion is an increase of about $1529 per U.S. household.

Total household debt rose by $193 billion to an all-time high of $13.15 trillion at year-end 2017 from the previous quarter, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data report released Tuesday.

Mortgage debt balances rose the most in the December quarter rising by $139 billion to $8.88 trillion from the previous quarter. Credit card debt had the second largest increase of $26 billion to a total of $834 billion.

The report said it was fifth consecutive year of annual household debt growth with increases in the mortgage, student, auto and credit card categories.

U.S. Passes Cayman Islands to Become the 2nd Biggest Tax Haven

Doing more for the tax avoidance of the super rich isn’t something to be proud of. There’s also legislation already drafted that would end anonymous U.S. shell companies.

Proving its role in the global race to the bottom on tax avoidance and  contributing to a multitude of abuses around the world, the United States is now second-largest tax haven on the planet, according to an updated international index.

The Tax Justice Network found that the U.S. has surpassed the Cayman Islands as the number-two place where corporations can easily stash their money to avoid tax liabilities. Switzerland retained its top place on the list.

“Financial secrecy provided by the U.S. has caused untold harm to the ordinary citizens of foreign countries, whose elites have used the United States as a bolt-hole for looted wealth,” wrote the group in its Financial Secrecy Index.

“This is not a ranking in which the U.S. wants to be number one or even number two,” said Gary Kalman, executive director of the FACT Coalition, which advocates for policies to combat criminal activity in the financial system. “We have one of the strongest economies and one of the most secret. It’s a perfect recipe for attracting the proceeds of crime, corruption, and tax evasion. Internationally, this secrecy facilitates corruption that drains wealth from developing countries.”

The Index reports that shadowy shell companies in the U.S. were used to divert millions of dollars in international aid intended to improve the safety of former Soviet nuclear plants. Delaware, Wyoming, and Nevada were named as states with a multitude of “shell” companies, which allow hidden owners to store and launder money gathered via criminal activity.

“The opioid crisis and human trafficking are both on the rise with the help of anonymous shell companies to launder the proceeds,” said Kalman.

“Almost two million corporations and limited liability companies (LLCs) are formed in U.S. states each year, many by foreigners, without the states ever asking for the identity of the ultimate beneficial owners,” according to the report.

The U.S. now holds about 22 percent of the global market in offshore financial services, up from 14 percent in 2015, the last time the Index was updated.

The report notes that the U.S. government has been vigilant in protecting itself against citizens who might evade taxes by disguising as foreigners, while “preserving the U.S. as a secrecy jurisdiction for foreigners.”

“This report is the latest evidence that policymakers should move forward with sensible measures to end the abuse of anonymous shell companies, increase transparency around where multinational companies pay taxes, and engage constructively in international financial transparency initiatives,” Kalman said.

Pitfalls of a Cashless Society

The “death of cash” is a worrying phenomenon. It’s obvious why financial corporations are pushing it though — people have been found to spend more money using credit cards compared to paying with physical cash.

“Sorry we’re not taking cash or checks,” said the clerk at the Fed Ex counter over a decade ago to an intern. “Only credit cards.”

Since then, the relentless intensification of coercive commercialism has been moving toward a cashless economy, when all consumers are incarcerated within a prison of corporate payment systems from your credit/debit cards to your mobile phone and very soon facial recognition.

“Terrific!” say those consumers for whom convenience and velocity of transactions are irresistible.

“This is nuts!” say a shrinking number of free-thinking consumers who are unwilling to be dragooned down the road to corporate captivity and coercion.  These people treasure their privacy. They understand that it’s none of any conglomerate’s business – whether VISA, Facebook, Amazon or Google – what, where, when and how consumers purchase goods and services. Or where and when they travel, receive healthcare, or the most intimate relationships they maintain. Not to mention consumers’ personal information can be sent to or hacked around the globe.

Cash-consumers are not alone in their opposition to a cashless economy.  When they are in a cab and ask the driver how they prefer to be paid, the answer is near-unanimous. “Cash, cash, cash,” reply the cab drivers in cities around the country. They get paid immediately and without having to have a company deduct a commission.

Back some 25 years ago, Consumers Union considered backing consumer groups to sign up Main Street, USA merchants who agreed to discount their wares if people paid in cash. For the same reason – merchants get to keep all the money on sales made with cash or check. Unfortunately, the idea never materialized. It is, however, still a good idea. Today, payments systems are much more comprehensively coercive.

Once you’re in the credit card system, lack of privacy and access to your credit are just the tip of the iceberg. That is why companies can impose penalties, surcharges, overcharges and a myriad of other corporate raids on your private treasury. They get immediate payment. If you object, you could see a lowering of your credit score or your credit rating. Besides, you don’t even know you agreed to all of these dictates – banks have over 300 different special charges for their revered customers – in fine print agreements that you never saw, read or even possessed to sign or click on. What’s the likelihood that banks would continue to surcharge you if they had to bill you instead of debit you?

The sheer pace and brazenness of corporations when they have instant access to your credit is stunning. The recent crimes of banking giant Wells Fargo, including selling auto insurance and assigning new credit cards to millions of their customers who had no knowledge and gave no consent for these charges, which resulted in damage to these customers’ credit scores and ratings, can only be committed when consumers are turned into economic prisoners. There are still no criminal prosecutions of the bank or its bosses. Wells Fargo bank stock rose to a year high last month. To their credit, the CFPB imposed a $100 million dollar fine on Wells Fargo, which barred them from deducting the fine as a business expense.

Coercive fine print contracts rob you of your consumer rights by preventing you from going to court, imposing fines as high as $35 fines for  bounced checks (which typically cost the banks less than $2), and decreeing that you agreed in advance to all kinds of unconscionable abuses, so long as you are in a “customer” status with them. Some companies are even charging customers for quitting them.

The rapacity inflicted on cashless purchasers prevails across the economy – insurance, mortgages, telecommunications, healthcare, stock brokerage, online buying and, of course, requirements to use electronic payment systems.

The more consumers become incarcerated by the companies that purportedly serve them, the more lucrative commodity consumers become. This leads to, among other problems, massive computerized billing fraud in the US. In the healthcare industry alone, billing fraud amounts to ten percent of what is spent, according to Harvard applied mathematics professor Malcolm Sparrow, author of License to Steal. This year’s expenditure of ten percent of the $3.5 trillion expected to be spent amounts to $350 billion. A cashless economy further facilitates these larcenous practices.

A computerized economy is one where fraud can easily be committed on a massive scale, according to Frank Abagnale who, after serving his time in prison for identity theft, has become an impassioned educator (serving institutions ranging from the FBI to AARP) on how to detect and avoid such crimes, which he estimates to cost people about one trillion dollars each year.

What it comes down to is whether consumer freedom is worth more than consumer convenience or whether the points earned for future purchases (assuming the costs are not passed on in hidden ways) are worth minimizing impulse buying, avoiding big data profile manipulations, keeping personal matters personal and requiring your affirmative consent to transactions where you decide what you want to buy and how you can pay.

However, it’s becoming increasingly difficult to pay by cash or check. Try renting a car or occupying a hotel room or buying a snack or drink on an airline without a credit or debit card.

In the latest example of such coercion, new boutique eateries like Two Forks, Dig Inn, Dos Toros or Pokee in New York City operate entirely through payment systems that reject all cash purchases. “But isn’t cash legal tender?” you might ask. How could they reject cash on the barrelhead? Simple, says the Federal Reserve, so long as they notify you in advance. It’s that fine print again.

The New York Times, reported these rejections and noted: “Not surprisingly, the credit card companies, who make a commission on every credit card purchase, applaud the trend. Visa recently offered select merchants a $10,000 reward for depriving customers of their right to pay by the method of their choice.” The nerve!

Cash consumers of America arise, band together and organize a National Association for the Preservation of Cash Purchases. You have nothing to save but your freedom, your desire to push back and your precious, affirmative and personal right to consent or not to consent, before you are forced into contract peonage.

Interested? Let’s hear from you at info@csrl.org.