Exactly where is it written that another generation should leave itself exposed to the same costly mistakes of those who went before them?
Out of countless daily examples provided by the media that covers the financial industry, let’s start with “Slow and Steady Saving Still Pays” from The Wall Street Journal.
The piece focuses on what “younger savers” should be thinking about as we begin a new decade. While acknowleging the “stomach-churning ups and downs of the stock market during the past decade,” as the title of the article indicates the ultimate advice here seems to be that if the younger generations just stay steady on the traditional course of riding out market cycles everything will turn out fine in the long run.
Really? What happens if as these younger savers approach or are in retirement, and, like their parents and grandparents before them, they find themselves caught in a bad cycle, are getting clobbered with losses and simply don’t have the time to recover?
Or is it really the case that what brought the most powerful economy in the history of mankind to its knees — not to mention the rest of the world — was just a short-term glitch, everything is now under control, back to normal and it won’t happen again?
Consider first that a “lost decade of growth” (2000-2010) equals about 1/3rd of the average person’s peak years of productivity. Compound gain is our friend. But its equally powerful and evil twin, compound loss, that impacts TIME as well as money, now has the upper hand and is causing untold, irreparable damage.
In the interest of learning from the hard lessons we now see occurring everywhere, is there no need for younger people and all those who live and work on Main Street to have in place, ahead of time, some kind of backup plan that will protect against the downside of Wall Street’s way of thinking?
Maybe we better take a closer look at how things have changed — fundamentally — and why the line between advertising by the financial industry and arms-length, objective journalism has lost focus and become quite blurred.
Who Pays the Bills?
As a principal sponsor who like few others can afford to pay their big bills, Wall Street has its boot firmly planted on the neck of the mainstream financial media. And while in plain sight the casino mentality and business model that goes with it has been deeply rooting itself into the soul of Wall Street, the rock-and-hard-place choice for the mainstream media continues to be either keep the eyes wide shut, poms poms at the ready or say adios to the career.
Nothing new here in the world of power politics. However — and this is the most important point of this post — what is new is how this equation of leverage has entered an entirely new phase with far greater impact on the course of events than what we once realised. As the size of Wall Street’s bets with what is commonly known as OPM (Other People’s Money — better yet, Our Public Money) have compounded into the stratosphere, the BPSI (Boot Pressure Per Square Inch) on the media’s objectivity has grown accordingly. How else coud it possibly be explained that basically no clear general alarm was given by the pervasive media punditry that a Financial Hurricane of epic proportion, cooked up by those they cover and pal around with everyday, was gathering force and heading our way? Particularly when it comes to those who broadcast their play-by-play punditry of the Big Casino’s action over publicly-owned airwaves, exactly whose interests are they serving first and foremost?
There has been an abundance of after-the-fact exposés on the Financial Crisis such as Frontline’s “The Warning” from PBS indicating that there were clear signals flashing “Mega- Disaster Ahead.” Yet, at the highest levels across the entire media spectrum, no self-evident, decisive action was taken to mitigate damage. Is it hopelessly naive to think that it is central to the media and its star pundit’s raison d’etre that they BE the doppler radar for this kind of brewing man-made calamity? Imagine the difference if the media would have stood up to their sponsors with just a small portion of the strutting boldness we see played out as they attack and defend endlessly in their battles to claim superior emotional identity — or what is otherwise known as ideology. We get how all this pyschodrama makes the ratings machine go cha-ching, but at what cost to public interest?
How to Run a Casino A few basic psychological rules when running a casino:
Rule # 1: No clocks in the casino! The last thing the pit bosses of Wall Street and their media/marketing reps want you thinking about is that once gambled away, the all-important factor of time is irreplaceable.
Rule # 1(a): On the subject of what matters most about market timing, never, ever discuss the potential of getting trapped permanently on the dark side of the moon. As referred to at the top of this post, individuals have absolutely no control over the timing of market cycles and how they will impact or coincide down the line with date-certain responsibilities and milestone events such as college tuition for the kids and your retirement. Rule # 2: The financial coin has only one side. Never, ever attempt to explain the ramifications of Compound Loss. Don’t even mention the words. In our world of fantasy where all dreams come true, there are no losers — only winners!
(By the way, you hear the media reciting statements like “During the financial meltdown, Trillions of dollars went up in smoke.” Either they do not truly understand the principle of Zero-Sum Gain or this is another example of PR spin for the benefit of the general public on how the Big Casino game really works between those betting long on success vs. those betting short on the opposite. Which is it?)
Back to the Real World
Obviously the tail is wagging the dog here when the “new normal” going forward will be an economic environment ruled by market volatility engineered by the self-serving and rapacious Gordon Gekko types. And right before our eyes, we are seeing how this manipulated volatility — think the kind of action that the gambling mind craves and thrives on — is working against the best interests of the real economy that Main Street depends on. We are fortunate to have a few people with the experience and character of Elizabeth Warren, the White House adviser assigned to set up a U.S. consumer financial-protection bureau, who are stepping up and taking tough, unpopular stands on our behalf against very formidable opponents on both sides of the nexus between Wall Street and Washington.
But lets’ be realistic in our expectations. You can beef up regulations and certainly do a better job of policing the gambling mentality that is preying on the viability of the real economy in which we all have a stake. Keep in mind that the name “consumer financial-protection bureau” was chosen for a reason. However, the bigger questions are: How do you change an embedded way of thinking? How do you break the enabling, co-dependent relationship between the media and its principal sponsors that is really greasing our slide downhill? How long will it take, one person at a time, to restore a stabilizing amount of integrity to the system?
Before you can implement real solutions that will take hold and last, it’s twelve step time on a grand scale to get at the root of these kinds of problems.
Notwithstanding the kind of short-term time frames currently being put forth by the punditry for economic recovery, it’s seems logical to expect that if it took a generation or more to morph into this kind of systemic dysfunction, that’s the time frame we’re looking at as far as digging ourselves out. Quite unfairly so there’s no getting around the fact that a big part of this responsibility will fall to the younger generations.
In the meantime, is there a backup plan that will save the life savings of not just the younger generations but all Main Streeters who make the real economy work, and, most importantly, that will keep them in step with the unalterable realities of the life cycle? Start by never walking into the Big Casino with more than you can afford to lose. Do what the wealthy have always done with discipline to protect and preserve their core financial resources...