Almost like a deadly infusion of carbon monoxide into a happy, functional household — and without much warning — the banks in the United States of American began to decrease interest on all forms of savings.
The drop in interest rates was slow, and there was always the constant bump in the stock market and the applause of the banking system to reward the action of the Fed and its chairman, Ben Bernanke.
Apparently he is judged by this applause, and he recently promised there would be no increase until 2013. More applause, slight bump in the Dow and then back to the base line.
Not all the federal banking people support his ideas, however.
Recently Thomas Hoenig, the president of the Federal Reserve Bank in Kansas City, retired. In a series of comments he made on public radio, he said he has voted against the low-interest-rate policy for years. Now that he has retired, he feels free to speak openly against these policies.
A couple of years ago, he wrote a paper called “Too Big Has Failed," a critique of propping up big banks. He also bucked the Fed’s easy-money, low-interest rate policy for years.
He says keeping interest rates artificially low has actually enabled the problem. Further, he says, “We need to add jobs, but the problem is you just don’t add jobs. You produce things, you make things, and from that, jobs come."
That is the voice of wisdom, but it is apparently unheeded by the powers at the Federal Reserve Bank. Hoenig is being considered a candidate for the University of Missouri System presidency, and he would be a good choice. However, with his streak of common sense and regard for the common man, it is unlikely that he will be selected.
It is difficult to define the Federal Reserve System because it functions both as a private corporation that is not officially a part of the U.S. government but has quasi-government affiliations.
It appears committed to the success and continued profit of established money, the stock market and banks. We have been duped into believing that it is committed to the common citizen. No such thing.
When I started my fiscal life, almost all savings programs were based on a safe return — 5 percent to 7 percent. Most retirement plans are based on those safe assumptions.
Most long-term life insurance plans promising retirement benefits are based on those assumptions. University and union plans are based on the promise of safe money from investments.
But now, with a single swipe of a pen, retirements have been decimated for large numbers of hard-working people. To quote from Woody Guthrie's song, “Pretty Boy Floyd,” some people will rob you with a six-gun and some with a fountain pen.
Alan Greenspan, former head of Fed, reportedly said once that the only thing that counts is the Dow. Maybe for him and his friends that is true but not for the majority of working Americans.
What to do? Many of us are afraid to retire. We would have no renewable income, and to spend savings is to eat the seed corn of the future.
Because we are not leaving the work force, fewer jobs are available for young people. We are afraid to spend down our money. If we had a decent interest rate, we could spend this money, improve the economy and keep our seed money safe.
We are pressured to invest in reckless and unpredictable business ventures because we hear that leaving money in the bank is actually costing us because of inflation.
The average investor lacks the skills necessary to invest and might not have the option of waiting out the market. The rich buy when it is low and sell when it is high. The inexperienced generally wait until the market is peaking, then panic when the market drops and end up selling low.
The advantage of inside trading is left to a few. The rest of us are uninformed and simply play a crap game stacked against us.
The concept of picking companies with great products and dividends has been replaced by speculative gambling fostered by a widely fluctuating market. Those privy to massive computer trading appear to alter the market, so the small investor simply provides the fodder for their profits.
The Fed claims that by lowering the interest rate, all will benefit. Not homeowners who desperately need to decrease their interest rates. Even after bailouts of the banks, executives did not sense any obligation to help them stay in their homes.
Lower interest rates only seduce unqualified buyers to purchase large energy-inefficient homes they cannot pay for and do not need. They have been sold on the American dream, and it has become their fiscal nightmare.
We need to raise the interest rates on savings, CD and bonds to between 5 percent and 7 percent. Those with good savings skills can retire. That will provide openings for new workers and allow the savers to spend the interest on their money.
Banks should once again require a 20 percent down payment on loans and assume the responsibility for those loans. The loans should not be sold; that only frees banks of their moral obligation to make safe loans to customers.
There was a time when a loan from a bank was a contract involving trust and good judgment on both sides. Perhaps if the big banks had failed, smaller banks with traditional values would have filled the gap.
It is not surprising that there is the spontaneous generation of protesters against Wall Street and its policies. These protests represent the general discontent and confusion of hard-working people who expect more than they are getting
Sometimes we need to go back to the past to salvage the future.
Eddie Adelstein is a Columbia resident and an associate professor of pathology at MU.