Wednesday, March 4, 2009

Help the working class

Anyone who started working within the last 20 to 25 years was given the same two pronged financial advice.

First, buy a house, get a fixed rate mortgage, and pay it off. Don't get any crazy adjustable payment or adjustable rate mortgage, and don't refinance every time your house goes up in value. Just buy it, stay there, and pay it off.

Second, put 5% of your pretax income per year in an IRA or 401K. Nothing fancy, nothing crazy, nothing excessive. If you're lucky, you got an employer match. If not, you were still putting away for your future.

It was estimated that any married couple that followed that simple, frugal, conservative economic plan, starting between the ages of 25 and 30, would have between $500,000 and $1.5 million invested in real estate, stocks and savings by the time they retired. Their retirement would be comfortable, and they would not be a burden on family or society.

Well, not so much anymore. Any appreciation in the value of your home is gone. And, your mortgage's principal balance doesn't start to decrease significantly until the last 10 years of a thirty year fixed rate mortgage. Therefore, due to Wall Street's and the banking sector's manipulation of the real estate market, the investment in your home didn't turn out as planned. Of course, the financial sector is being bailed out. Those who bought over priced homes in the past five years on a speculative basis with crazy mortgages? They're getting bailed out, too. Those who invested frugally and paid regularly? No help in sight.

As to the IRA's and 401K's? They've fallen almost 50%. If you'd keep half of your contributions in cash under your mattress, and spent the other half on beer, you'd be in the same financial shape. And the president's response?

"President Obama said Tuesday that he is not intently focused on the “day-to-day gyrations of the stock market,” comparing the downward roller-coaster on Wall Street to the fickle nature of political polls. “You know, it bobs up and down day to day,” Mr. Obama said. “And if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”"

The problem is not the "day-to-day gyrations" that "bob up and down day to day". The problem is the significant straight line downward trend. Anyone who reads that quote, and then reads their quarterly statement, will not be comforted.

The "working class" are those who work. Something needs to be done for the working class (or, in President Clinton's words, those who "worked hard and played by the rules").

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