The stock market, God help us, has become the social security system for half the population. Not only the savings but the retirement money of the entire middle class is tied up in it and to it. Hence the financial markets, whose essential function once was confined to the efficient allocation of capital, now has a second, no less vital but utterly dissimilar, function, which is the assurance of much of the nation’s general welfare and stability.
The government, the securities industry, the political parties and didacticists of one sort or another have combined to pressure and lure millions of people into taking their pension money and putting it into what on some days seems the operational equivalent of Las Vegas. For the past few years, the one-armed bandits have been coming up with triple fruits, and the switch over from staid pension programs, conservative savings instruments and annuities to high fliers has been working out quite well, even though we don’t know what might occur if stocks stop appreciating at intergalactic rates, if there is inflation, if many millions decide to realize their paper profits at the same time, if, if, if. Indeed, we don’t know much about this new social security system we have been pushed and enticed into by people who, I strongly suspect, had not thought through what they were doing. Former Secretary of the Treasury Robert Rubin and the other Wall Streeters, who will be given the credit or the blame for what has been done, have never once publicly indicated that they knew or even guessed the dimensions of the change or its enormous risks.
People need to have money that they can count on to come in, and as the market’s gyrations of late have shown, with stocks the only certainty is that the price of securities ascend and descend, so pity the person who has to retire during a descent. Think of someone who gets the gold watch and the boot out the door on one of those days when the Nasdaq is losing 20 percent of its value. That’s a happy way to begin those not-so-golden years. Young people can recover from setbacks; old people don’t have the time. It’s just nuts to stampede people into a situation in which they don’t know from one month to the next whether their old age is going to be spent with a modicum of comfort and peace of mind or whether it’s going to be worry and scrimp into the grave.
Wall Street’s motives for getting a hold of the nation’s savings are obvious: fees and commissions. Briberies of one sort or another aside, our office-holders had sufficient political motives to go along with Wall Street: social democracy on the cheap.
Throughout the Clinton years, a Democratic President and a Republican Congress have carried out what looked like a foolproof formula for addressing great and pressing needs without spending public money. Instead of the government spending for medicine, education or retirement, it created tax-sheltered savings accounts. People are more or less forced to deposit their money into 401(k)s, I.R.A.’s, Roth I.R.A.’s, etc. At the same time the President, his Republican friends and the securities industry, which apparently owns both parties, have done everything to keep interest rates down but lie on top of them. Since putting the money in those tax-sheltered accounts into money market funds or old-time savings accounts paid bubkes , all that dough- trillions of bucks-went into the stock market and each and every time one of those bucks went into the market, a stock broker hit the key of a cash register and pocketed a commission.
It was inevitable with so much money that things would get out of hand. Degrading excess and rackets abound. The selfsame brokers are even being plundered by their own junior employees. They find themselves paying illiterate twits two years out of Yale a hundred grand a year, plus they must pick up the twits’ laundry and cleaning, provide them with limo service home and return the twits’ videos to Blockbuster for them.
The brokers coddle the twits because the twits are deserting Wall Street for dot-comville, where they pay yet more money in cash and promises. The dot-comeriki can outbid Wall Street for the twits’ services because Wall Street itself has engorged the dot-coms with unfathomable amounts of money. For the last three or four years whenever you turned on a TV there has been some broker or other pitchperson trying to get the family money out of the sugar jar by extolling the dot-coms and inflaming an avid if not avaricious public with financial wet dreams.
When two investment banker sharpies or stockbroker con persons flimflam each other, they’re evenly matched and may the worst person win. But now millions have been drawn into these schemes, millions of working people with real jobs and productive occupations who have been told by everybody from the President on down that the way to pay their doctors’ bills and their children’s college educations and reach a comfortable old age is to invest, buy mutual funds, get a piece of the new economy, get in on the ground floor, don’t let the opportunity of a lifetime pass you by, don’t miss the greatest bull-market corrida in history, hitch your wagons, little people, to the dot-comets. Get rich, rich, rich, richer than you would if Ed McMahon and Regis Philbin rang your doorbell together.
Some of the men and women in high finance who are already rich have long since had second thoughts about what’s been happening. You can overhear them talking about the market’s being oversold and overpriced. For the last several years they’ve grumbled and let it be known they’d like to see the Dow or the Nasdaq drop 20, even 40 percentage points, not that they would take any overt action. The big rich, for all the glorifying articles written about their business careers, aren’t risk-takers. Talk about the new economy and how the old rules have ceased to be apposite, they’ve snuck out of this precarious market and left the financially naïve masses holding the bag. It’s a known fact that God protects children and drunks, so He may also protect the American investor. There may actually be something in that bag when they open it. Maybe, but those with knowledge and experience obviously don’t think so.
Alan Greenspan has been accused of or quietly praised for trying to do something, be it talk the market down or squeeze it down by raising interest rates. These efforts, however, have been ineffectual, at least until recently. But no one can say if the markets’ downward slope has to do with Mr. Greenspan or a dozen other possible causes.
Whatever he may or may not have done doesn’t arise out of any stated policy. None exists. Whether there is an unstated policy that is acted on from time to time, who can say? There were radio reports in March when the market did one of its grand, stomach-turning, woozy-making, downward pitches that the Federal Reserve Board had rushed to prop it up. In the wild hours of a major market swoon people say a lot of things, so who knows?
After the banks collapsed and the bank savings accounts of the middle class were vaporized in the early 1930’s, the government instituted Federal Deposit Insurance, but no such device exists for today’s middle class with its money in the stock market, and inventing one would take some very clever doing. If you guarantee a price level for a market, any market, it’s no longer a free market. A nonfree stock market would not only be dysfunctional, it would be positively dangerous. In a couple of years it would wreck the economy.
Possible solutions to this riddle exist. Mr. Greenspan may know of one or two but he doesn’t have the power to do more than propose them with the attendant risk of being misunderstood and starting a panic. No, this is a topic a President has to take up, but it won’t be this one or anyone unless some toes are held to the fire.
And who’s to do that? Certainly not the workaday, average Washington journalist whose habitual lack of knowledge and preparation was shown up the other day by Leonardo DiCaprio, whose interview of President Clinton could serve as a study model for Cokie, Sam, Ted, Peter, Tom and the rest of ’em.
Get those I.M.F. protesters back in town. They’ve got the moxie and mental wherewithal to get this little item on the agenda.