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Friday August 1st 2014

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House of Sticks: Where have all the retirement savings gone

Burningmoneyx300
By Kent Lyndon
Inside Wall Street and the world of stocks, bonds and banking with someone who knows where the skeletons are:

When stock markets are rising, people tend to forget the risks they have taken. Looking back a mere seven to eight years ago, retired people could earn 3 percent to 5 percent, at low risk, on their money market funds, certificates of deposit, and short term bonds.

Then came the 2007 financial fiasco which mainstream media continues to refer to as a “retail mortgage crisis.” The Federal Reserve had to bail out the largest commercial and investment banks on the planet because of a retail mortgage crisis in the U.S.

Really?

Today, if an investor wants to earn 5 percent in fixed income, the junk bond market must be accessed unless people are willing to turn in the direction of “alternative” investments, many of which contain plenty of leverage. How did our retired population and working senior citizens get themselves into this predicament?

The fault hardly belongs with them.

The deep need of the Federal Reserve to bail out its banking comrades at the expense of the American taxpayer, in general, and retired people, in particular, is your culprit.

Cutting short term interest rates to a mere notch above zero lined the coffers of banks at the expense of their depositors. Purchasing power of citizens, unwilling to take what, for them, would be historically unnecessary risks, has taken its toll. Bond market activity has been reduced to a snail’s pace because of institutional hoarding thanks to continued scarce supply.

The avenues for safe income continue to be filled with roadblocks. The Federal Reserve recently announced its intent to keep interest rates low for years to come.

Why?

Get more familiar with the term DERIVATIVES.


Kent Lyndon is the nom de plume of Wall Street veteran who has to be anonymous because of relationships he has in the stock and bond markets and in the banking industry.