Secondary Research | Clara Fasce

Topic: Dispossession of Wealth

Subtopic: Retirement Funds

1: The State of American Retirement

This article takes a detailed look at the state of American retirement funds and provides solid evidence that there is a divide between social classes and their ability to have a comfortable retirement. This divide has only strengthened since the recession.

http://www.epi.org/publication/retirement-in-america/

2: 10 Ways the Recession Has Changed Retirement.

The recession has had a lasting impact on people age 50 and older. This demographic does not really have the ability to make up for the money that just vanished during the recession. They no longer have the ability to the lean on their homes as a portion of their net worth, which greatly depreciates their ability to live as comfortably.

https://money.usnews.com/money/blogs/planning-to-retire/2011/05/27/10-ways-the-recession-has-changed-retirement

3: Retirement Security After the Great Recession: Middle-Income and Middle-Aged Americans Feeling the Squeeze

This document was created by senator Bob Casy and  the Chairman’s Staff of the Joint Economic Committee. It provides an enlightening look behind how the wealth of middle and lower class American has since  evaporated and provides statistics illustrating these losses. A lot of Americans do not have a sufficient retirement fund saved up and are going to have to rely primarily on Social Security to support them throughout their retirement- which only allows them to live right above the poverty line.

https://www.jec.senate.gov/public/_cache/files/4bc4e022-4bc8-476c-a91a-268852d8ff0e/pensions-report—fact-checked-12-21-2-.pdf

Synthesis:

I discovered that the recession has had lasting impacts on the future of retirements- meaning that the average American is not going to be able to live a comfortably in their later years. This hardship is still being faced today- years after the recession. People living in the 50th percentile of income have seen a stagnation in their retirement funds and have not been able to recover the lost savings. The loss of retirements funds is not only a loss of wealth, but a permanent deprecation towards quality of life.

Secondary Research: Team / Disposession of Wealth

DispossessionofWealth_Presentation

Key Points:

  1. Middle-class Americans bore the heaviest weight of the 2008 Financial Crisis.
  2. Wall Street banks faced mostly symbolic consequences and individuals made gains.
  3. Legislation in response to the crisis has failed to equally distribute the consequences of the financial collapse.

Reading Response 1 | Clara Fasce

In what deserves to be called the Great Race to The Bottom, the 2008 financial crisis was riddled with high risk investments, greed, and a lack of regulation. In 2011 The United States Senate Permanent Subcommittee on Investigation put together an enlighteningly detailed document outlining the four major actions which contributed to the crisis and the institutions responsible.

The first act of greed is put on by Washington Mutual Bank.Undoubtedly with a goal to please investors and make record profit, in 2004 the bank decided to engage in a series of lending strategies to pursue higher profits. They did this by emphasizing high risk predatory loans, steering borrowers from conventional mortgages, accepting loan applications without verifying income, and providing compensation for employees issuing a large volume of high risk loans. To their surprise it took a total of two years for their high-risk loans to begin incurring high rates of delinquency and default. By the end of 2007 the securities began incurring ratings downgrades and losses. This then caused the bank to the begin acquiring losses due to its poor-quality portfolio and fraudulent loans and securities. Unsurprisingly, the bank began to lose its inflated value as its stock price dropped and shareholders lost confidence. By September 25, 2008 Washington Mutual had been seized and sold to JP Morgan Chase at a fraction of its original value. Showing that if try hard enough you too can close your company’s doors in simply four years.

While this predatory loaning was occurring the Office of Thrift Supervision was simply hanging back and ignoring the issues at large. Year after year the office would point out issues occurring with Washington Mutual’s lending, but they never held the institution accountable. They even continued to rank Washington Mutual as financially sound. To top things off credit rating agencies were issuing AAA and Investment grade credit ratings to RMBS and CDO securities and deeming them safe investments- this made the market look crystal clear. It wasn’t until mortgage delinquencies intensified they agencies began downgrading their ratings that a red flag was raised. Investors who are rule barred from owning low rated securities were forced to sell their downgraded holdings. Securities held by financial firms were then unable to find investors which then caused the market to freeze.

If there was any hope in the crisis it was collapsed by the investment banks. As loan delinquency increased they began to write off their existing subprime RMBS’s and CDO’s and created shorts against the market. This allowed the investment banks to create a profit margin in the billions once the market crashed.

If the true cause of the crisis still feels ambiguous the article The 2008 Housing Crisis Don’t Blame Federal Housing Programs for Wall Street’s Recklessness helps clear up some misconceptions by looking at the history of housing loans. It starts by summarizing how the 30 year mortgage came into fruition and enabled millions of middle class Americans to purchase homes. It’s not the government sponsored programs that caused the crashed it is the lack of government regulation that aided in the crash. In fact, if more people decided to use government programs like the FHA loan then its possible there wouldn’t have been a crash at all.

When I look at the facts I’m not super surprised by what happened. The goal of most corporate private institutions is to make a profit. The goal of the government should be to protect the people. It’s only when the two are working together can you expect a positive social balance to be achieved. What I find truly sad are how many industries were affected by the financial crash. There were so many more than just banking. The new York times has a series of interactive charts illustrating how each industry’s been affected since then- it’s both disheartening and inspiring to look at.

https://www.nytimes.com/interactive/2014/06/05/upshot/how-the-recession-reshaped-the-economy-in-255-charts.html