Indeed, after fees are subtracted, inflation is accounted for and taxes are paid, many investors in C.D.’s, government bonds and savings and money market accounts are losing money. In fact, Northern Trust waived some $8 million in fees on money market accounts because they would have wiped out all interest, and then some.
“The unemployment situation and the general downturn in the economy had an impact, but what’s going to happen now as C.D.’s mature is that retirees and the elderly are going to take anywhere from a half to three-quarters of a percent cut in their incomes,” said Joe Parks, a retired accountant in Houston on the advisory board of Better Investing, an organization that works to help people become savvier investors. “It’s a real problem.”
Experts say risk-averse investors are effectively financing a second bailout of financial institutions, many of which have also raised fees and interest rates on credit cards.
“What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” said William H. Gross, co-chief investment officer of the Pacific Investment Management Company, or Pimco. “It’s capitalism, I guess, but it’s not to be applauded.”
“It’s capitalism, I guess, but it’s not to be applauded.â€
It’s not to be applauded, but no, it’s not capitalism.
#1 There is capitalism in theory and capitalism in fact. Clearly, plenty of capitalists are motivated by money enough that they don’t care that the government gives it to them, even if it as the expense of the taxpayer.
Are capitalists motivated by money? Or by entrepreneurship? If by the former, why not take the money from the government?
It is a consortium of private banks, collectively known as the Federal Reserve, that has a monopoly on production of the fiat currency that we use which I believe is the primary villain taking money from the elderly and the rest of us by their policy of low interest rates combined with a massive infusion of liquidity as they continue to monitize the debt.
Of course, that’s just one man’s opinion.
I believe that the comment in #2 fails to take into account the investment horizon of the elderly as compared to the investment horizon of more youthful investors. Retirees do not have the same luxury of time to mitigate the swings of market performance that youthful investors enjoy. Add to that that they are typically on fixed incomes…well, what is happening to them is a shame.
God is not mocked and he hates a dishonest scale. No good for those responsible can come of this massive swindle going on right now.
#2. The issue is the interference of government in economic matters rather than the motivation of capitalists.
Economies work best when capital is allowed to flow where it will be the most productive. Government expends much of its time interefering with this efficient flow. This is why we spend trillions bailing out companies which make bad decisions, thereby rewarding incompetence.
To be sure, government has a role in the economy such as preventing monopoly power from abusing the populace. It also has a humanitarian role to play, but much of the time, government functions as incompetents rewarding incompetence.
It depresses me that people are so ignorant of economics as to think that the government is forcing this to happen. They are enabling it, because they are keeping rates that represent costs to the bank at very low levels, but they are not requiring the banks to charge these very low rates. The rates are so low because there is little pressure on the banks to offer better rates, because for whatever reason bank customers are not putting that pressure on them. Well, actually the reason is right there in the article: people are afraid enough of non-bank investments that they will take next-to-nothing rates in exchange for the security of an FDIC-insured deposit account. If people thought, “hey, corporate bonds are safe enough that I’ll take my savings out of the bank,” rates would go up because the banks would have to provide attractive enough rates to keep their cash reserves in line with lending. T-bill rates stay low because people are willing to pay the low rates; if they were too unattractive, the rates offered would have to improve in order for the feds to meet their debt obligations.
All of this is pure classical econ, right out of Adam Smith and David Recardo. Rates are low simply because consumer demand for higher rates doesn’t put enough pressure on the banks to raise them.