Saving Young People From Themselves – Steve Rattner

StevenRattner.com: Saving Young People From Themselves

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Saving Young People From Themselves Posted: 13 Apr 2014 11:38 AM PDT Originally published in the New York Times. RETIREMENT is a financial obligation that today’s younger generations are not handling well. That may be through no fault of their own — they suffer from lower incomes, after being adjusted for inflation, and student debt that makes it a struggle to save. But regardless of the reason, the failure to save for retirement is setting up Americans in their 20s and early 30s for financially stressed golden years. The statistics are startling: Only 43 percent of eligible workers under 25, and 62 percent of those between 25 and 34 participate in 401(k) plans, compared with 70 percent or more of those over 45. And the young contribute less — 4.3 percent of income for those under 25 and 5.5 percent for ages 25 to 34. In contrast, Americans between 55 and 64 direct 8.7 percent of their incomes to these plans. Skimpy retirement assets might be manageable if they were being offset by other wealth accumulation. But that hasn’t happened. In fact, adjusted for inflation, members of Gen Y — those born after 1980 — are poorer than their parents were at similar ages. We should address this looming crisis via a radical restructuring of our retirement plans, including mandated savings. While the saving problem may be acute for young people, it’s hardly limited to them. After rising during the financial crisis, the overall savings rate of Americans has once again declined to paltry levels. For those who have saved and invested in equities, the surge in stock market prices since the recession ended has helped, which has pushed up the value of retirement holdings. But in an unfortunate irony, many millennials, who watched share prices collapse in 2008, then steered clear of the market, thereby missing out on its rise. Typically, these young Americans keep about half of their portfolios in cash — not a sensible long-term investment strategy. Earlier this year, to take a stab at addressing the retirement issue, President Obama proposed a new form of Individual Retirement Account that would allow Americans with household incomes below $191,000 to put aside money that would accumulate tax free. Unfortunately, the Obama idea is only a symbolic and inadequate gesture. For one thing, its cap of $5,500 per year is too small, and it lacks automatic enrollment or mandatory employer-contribution. For another, contributions would initially be invested at low Treasury rates. Younger workers should be investing mostly in equities, which, over time, should provide higher returns. Under the Obama plan, when an individual’s account reached $15,000, funds would be moved into an investment offering from the private sector, which would confront people with the same daunting and unfamiliar choices that face holders of 401(k)s and Individual Retirement Accounts. A better idea, but still offering only marginal improvement, is the one proposed annually by the president and ignored annually by Congress: requiring employers who do not provide 401(k) programs to offer automatic enrollment in I.R.A.s. I’d love to see the restoration of defined benefit pensions, which combined automatic saving and sensible, long-term investment strategies. But that’s not going to happen. So at the least, we should take the responsibility for managing retirement funds away from ill-equipped individuals. To that end, Senator Tom Harkin, Democrat of Iowa, has proposed a plan that would offer a more certain retirement benefit than existing individual plans provide, together with automatic enrollment, universal coverage, portability from employer to employer and professional management. However, Senator Harkin’s plan has its own flaws — it doesn’t require any employer participation, and participants would be allowed to reduce their contributions or opt out entirely. The best solution would take up the question of mandated savings. I understand that in today’s world of stagnant incomes, forced savings mean less money for individuals to spend now. But would we seriously prefer that our children become impoverished senior citizens? The approach I like is Australia’s superannuation program, which requires that 9 percent of workers’ pay be diverted into retirement accounts. Tax incentives are also provided, to encourage additional deposits. The superannuation funds collectively have $1.7 trillion in investment assets. Adjusted for population, that’s the equivalent of $25 trillion for the United States, over twice what Americans have parked in 401(k)s and I.R.A.s. That’s an idea worth considering. Young Americans are on track to be worse off in retirement than their parents. Let’s not just sit by and watch that happen. Saving Young People From Themselves.

“Drive” What Motivates Us – RSA

I have watched several of this groups videos that are made like this one, and I love them all. This might be my favorite one so far though. It discusses several things in regard to what motivates people, but probably the most interesting to me is the research on at what point money no longer is a motivating factor. I think this is one of those things where I can’t actually add all that much with my own words, I just encourage you to watch this and share it with others.

Elizabeth Warren Rips Regulators in Banking Committee Hearing on Illegal Foreclosures

There is something wrong with our society if a video like this doesn’t outrage virtually everyone you know… We know that the game is rigged, and we know that some people have such built in advantages that they are simply insurmountable, but when it’s put in front of us like this there had better be some outrage… Ms. Warren has been a very divisive figure over the last couple of years due to her aggressive sentiment towards financial regulations. I am sure that if many things were dumbed down for me enough I would find that I disagree with what she wants, and that she would want more regulation than I would. However, this short clip shines light on an what seems to me to be such blatantly obvious injustice that I can’t imagine why someone would agree with Senator Warren, outside inhumane greed… Does this sound completely reasonable to everyone else?

The Liberation of General Motors – Steve Rattner

I still have my questions about bailouts in general, but I tend to sympathize with the auto bailout much more than the bank bailout, mostly because we’re talking about an actual product rather than financial/imaginary products that are much more subjective in valuation. I mostly recommend watching this because it is about the Auto Bailout, and it’s written by the man who has been in charge of monitoring the whole bailout (Steve Rattner). Please feel free to tell me what you think about this, or any other bailout.

The Liberation of General Motors

DECEMBER 19, 2012

Originally published in the New York Times

Like Willy the whale, General Motors has finally been freed – or nearly so.

Today’s announcement that the Treasury Department had agreed on a process to extricate the government from its ownership stake in G.M., the world’s largest automaker, is welcome news.

For General Motors, the separation will conclusively remove the appellation of “government motors,” a stigma that the company had argued affected the buying decisions of a meaningful segment of consumers.

The divorce will ultimately also liberate G.M. from a number of government-imposed restrictions, importantly including those relating to executive compensation. These restrictions adversely affected G.M.’s ability to recruit and retain talent. Now, compensation decisions will be made by the company’s board of directors, just as they are in every other public company in America.

From Washington’s point of view, divesting its remaining shares will end an uncomfortable and distinctly un-American period of government ownership in a major industrial company.

Neither the George W. Bush nor the Obama administrations volunteered to bail out G.M., Chrysler and other parts of the auto sector. Both subscribed firmly to the longstanding American principle that government should resolutely avoid these kinds of interventions, particularly in the industrial sector.

However, in this case, that was simply not possible, as Mr. Bush and Mr. Obama both concluded. I and the other members of the Obama administration’s auto task force determined that the industry’s crisis was caused not only by the financial and economic meltdown but, equally, by poor management that had run these American icons into the ground and exhausted their cash resources.

We were faced with a classic market failure: Not a penny of private capital was willing to provide the financing essential for these companies to keep running. Those (like Mitt Romney) who contend that G.M. and Chrysler could have been restructured without government involvement simply don’t understand the facts.

The only alternative to government stepping in would have been for the companies to close their doors, terminate all their workers and liquidate. That would have led to huge failures and layoffs among the suppliers. Even Ford would have had to shut down, at least for a time, because of the unavailability of parts.

Here’s another important lesson of the auto rescue: It would not have been possible without the existence of the much-hated $700 billion Troubled Asset Relief Program.

Without TARP, we could not have provided the $82 billion to these companies without Congressional approval. And given the dysfunction of Congress, I don’t believe there was any chance that the legislature would have acted within the few weeks that we had before the companies would have collapsed.

In a perfect world, I would not be a seller of G.M. stock at this moment. For one thing, the company is still completing the reworking of its sluggish management processes in order to achieve faster and better decisions and lower costs.

For another, G.M.’s financial problems slowed its development of new products during 2008 and 2009. Now, a passel of shiny new models offering great promise is about to hit showrooms.

And in my view, G.M. stock remains undervalued, trading at about 7 times its projected 2013 earnings, compared with nearly 13 for the stock market as whole.

But as my former boss in the White House, Lawrence H. Summers, kept reminding us in 2009, this intervention needed to be the opposite of Vietnam: We wanted to have as small a footprint as possible while the government was a shareholder and to get out as quickly as practicable.

While the government still retains (temporarily) a majority stake in Ally, G.M.’s former finance arm (formerly known as GMAC), the scorecard for the auto rescue is nearly complete.

Of the $82 billion that the two administrations pumped into the auto sector, Treasury is likely to recover all but about $14 billion.

No doubt, bailout haters will focus on this loss of taxpayer money. But remember two key points:

First, the $17.4 billion initial round of bridge loans that was provided at the end of 2008 was necessary only because GM and Chrysler had been utterly derelict in not preparing for restructurings through bankruptcy that were clearly inevitable. G.M., in particular, wallowed in an irresponsible state of denial. Had the companies been properly prepared, the loss of that $17.4 billion could have been avoided.

Second, for $14 billion – 0.4 percent of the government’s annual expenditures – more than a million jobs were saved at a time when unemployment in the Midwest was well above 10 percent.

The auto industry has not only survived but it is flourishing. Car sales, which had sunk as low as 10.4 million in 2009, are now running at an annual rate of more than 15 million. As many as 250,000 new workers have been added. Disastrous past industry practices – from bloated inventories to excessive sales incentives – have been curbed. As a result, G.M. earn more in 2011 than in any year in its 104-year history.

Finally, let’s keep well in mind the most important lesson of the auto rescue: While government should stay away from the private sector as much as possible, markets do occasionally fail, and when they do government can play a constructive role, as it did in the case of the auto rescue.

via The Liberation of General Motors.

Fiscal Cliff Blame Game Polling, and Historical Tax Rates vs Economic Prosperity

Public opinion is often not the most accurate predictor of truth or fairness in my opinion (see civil rights), however public opinion matters in a democracy. I first want to show a chart that I came across which tells a story that people seem to not recognize in a public consciousness. Over the last century the highest tax rate has change significantly many times, but the actual marginal rate that the people categorized as members of those highest tax brackets haven’t necessarily changed quite so much, mostly due to loopholes in the tax code. This chart however tells a story of the economy in relation to those high end tax rates changing, and I’m posting it to say that speaking of higher taxes doesn’t kill the economy as it is said to, but there is undoubtably a threshold, and we must approach this conversation with an understanding of nuance.

With this chart out of the way, and the debate over taxes still raging let’s examine public opinion of who people seem to hold most responsible.

So, it seems that in political terms that the President has an upper hand right now, but the before they start to do some kind of victory dance we should also note that people still seem to believe that they won’t make a deal…

I share, to a degree, some level of skepticism over whether or not they’ll pass a deal (even if that means after January 1st), but I tend to believe that we are witnessing theatrics. I think that as our nation is so polarized the people expect a fight, and anyone not seeming to put up a fight risks losing support from their base. I might be overly naive, but I really hope this is the case…

-Grady

From All Sides, Fiscal Plans Fall Far Short of What’s Needed – Steve Rattner

From All Sides, Fiscal Plans Fall Far Short of What’s Needed.

Well, long story short, I agree with Mr. Rattner again. I think that he’s right that neither side has had a sufficient plan, but that doesn’t make their proposals equal (that would be just too convenient for the Ralph Nader’s of the world, who I actually do like). I think that in the middle of these debates it would have been wonderful to watch real reforms take place. Let’s look at it from a health stand point, as if our nation was a human body – we are having a very hard time trying to stop the bleeding from our wounds after having fallen on our face in a drunken stupor, but we don’t seem willing to stop the drinking that is causing our wounds inside and outside of our body… Does that make senses? We have a broken system, and it can’t get better until we have a discerning decision making body that wants to live and thrive. I have plugged this group multiple times before, but maybe it takes some outside ideas to get things working again, and I think No Labels might be our 12 step program… If for no other reason I encourage you to check out their plans for reform that would help us move forward, especially their plan to Make Congress Work.

– Grady

From All Sides, Fiscal Plans Fall Far Short of What’s Needed

DECEMBER 3, 2012

Originally published in the New York Times

We don’t yet know whether our economy will take the icy plunge off the fiscal cliff, but do we know this: At present course and speed, any budget deal that emerges from the intense brinkmanship now under way would fall short of every sensible ambition for fiscal reform.

Forget about balancing the budget. Forget about paying down any of the government’s $11 trillion of obligations (the debt owed to the public). Nor will the package currently being discussed achieve the minimal target of centrist deficit hawks (myself among them), that of stabilizing the rate in which the national debt is growing in relation to the economy.

Battered by four years of trillion-dollar-plus deficits, this “debt-to-G.D.P.” ratio has climbed from 36 percent in 2007 to 73 percent at present. Halting its rise would require at least $4 trillion of revenue increases and spending reductions (including the nearly $1 trillion of savings enacted last year) over the next decade.

President Obama has put on the table a package that should be commended for its willingness to both increase taxes on the wealthy and at least dent the mushrooming costs of entitlement programs, most importantly Medicare.

But “scored” fairly, the Obama plan would contribute about $3 trillion to lower projected deficits, at least $1 trillion short of what’s needed.

The Republicans are much further from the mark, having not yet even put forward a formal plan. However, none of the intimations from their leaders suggest that their plan will exceed the White House’s in size.

While the Republicans have importantly conceded on the need for tax increases, they’ve vociferously objected to Mr. Obama’s proposed $1.6 trillion in added revenue as excessive. On Sunday, the House speaker, John A. Boehner, said that he would support around $800 billion of new revenue over the next decade, similar to what he offered during budget negotiations with Mr. Obama in July.

And on the spending side, while criticizing Mr. Obama’s proposals as too timid, the policy changes that the Republicans have endorsed – such as raising the Medicare retirement age and slowing cost-of-living increases for Social Security – fall well short of Mr. Obama’s.

Both sides appear more interested in reaching an understanding that avoids the cliff than in achieving the full range of necessary reforms.

And forget about the huge overhaul of our Rube Goldberg tax system and government spending priorities dreamed about by fiscal reformers. What’s likely to emerge will be better described as tweaks, and maybe not so many of those.

The bible of deficit hawks – the report of the Simpson-Bowles commission – now feels quaint, with its talk about rewriting the tax code to eliminate loopholes and lower rates, not to mention its call to revamp federal spending to emphasize investment programs that will aid American competitiveness and growth.

Perhaps a surge of courage will inspire Congress and the White House to embrace more sweeping change.

But the brutal process of stabilizing America’s fiscal problem is so charged with political peril, for Congress and the White House alike, that the willingness to go big and to go bold seems likely only to diminish as the cliff steadily approaches.

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© Steven Rattner 2012

Morning Joe Charts: Fiscal Cliff (Uncertainty, Investment, Confidence) – Steve Rattner

Morning Joe Charts: Fiscal Cliff.

These charts tell a very simple, but very important story. What we can pretty easily decipher from these charts is the idea that ideology isn’t necessarily that important in the eyes of the financial markets. What is important rather is certainty in the market often based on whether or not we have a functioning government. I’ve sighted several times before the simple fact that Standard and Poors (S&P) downgraded the United States credit rating based on us not having a government capable of governing. With the recent conversations over raising taxes (whether by closing loopholes, or raising rates) softening it will be interesting to see what happens with Grover Norquist’s Tax Pledge, and how it will play into these very important times.

And now, some charts:

FRONTLINE | The Choice 2012 (full episode) | PBS

FRONTLINE | “The Choice 2012” (full episode) | PBS.

Here it is… On October 9, 2012 Frontline put out this election cycle’s film about the Presidential race, and I love it… If there is one thing that you are going to pay attention to this campaign season I recommend this special. I have been open with the fact that I plan to vote for President Obama, but even though I have problems with Romney I actually respect him a lot… That might seem weird, considering that I’ve posted about him being dishonest, but I think that the reasons for him being somewhat dodgy are complex. So, I just say that to insist that this special really is as non-partisan as you are going to find… Really… Gov. Romney’s Wife Ann Romney and brother Scott Romney are both willingly interviewed, and they are very candid, and it seems like they’re having fun.

I’m sure that there are some great jokes about PBS and Big Bird to make here, but I’m not going to do that, because I very seriously want to reiterate that I think you should watch this… I love Frontline, and I love Presidential politics, because it stirs the people’s melting pot. Presidential politics can sometimes be the best way to quantify where this great and diverse nation sees it’s self now, and in the future. I hope that you enjoy it, and if you do please share it with people who you think might be struggling with the bickering, these are 2 great men…

If you enjoy the video or are interested in learning more go to the FRONTLINE website, there is a lot more information outside of this film. And if you really like it, like me, you might want to buy it on itunes to support great work like this (remember, the way you spend your money is a form of voting, and that’s why Honey Boo Boo is on TV…). So feel free to buy it for $2.99 (that’s not very much money…) on iTunes, you can just click below:

Frontline – The Choice 2012 (iTunes)

There were a lot of great pictures in this special, and I took a lot of snap shots, so I’m including them… Hopefully they’ll help tell part of the story.

Are You Better Off? – Bloomberg News

Are You Better Off? Take a Look at the Stock Market – Bloomberg.

This Bloomberg study about whether or not we are better off than we were 4 years ago was pretty interesting, so we’ll start of with the picture book version, as I do love charts/numbers, and then you can read the article. I think it’s worthwhile. I would imagine that a lot of people would be glad to dissect the article on their terms and explain why we are or aren’t better off, but I would like to present the article. If anyone would like to add their analysis I’d love to read it, and I’ll definitely consider posting it if it’s really compelling. I think that the article speaks to a level of our speculation as voters/consumers.

Are You Better Off?

Do you remember the news four years ago? Banks collapsed, markets cratered, companies struggled to make payroll and millions of people lost their jobs. Your retirement savings were decimated, the value of your house plunged, credit was unobtainable. Politicians dithered and economists argued. Only confusion prospered.

Against this background, it’s surprising to hear Republicans returning to Ronald Reagan’s classic debate question: “Are you better off than you were four years ago?” To anyone whose memory extends a full electoral cycle, the answer is clearly yes.

When assessing our politicians, what matters isn’t just the here and now. It’s at least as important to consider how well we are set up for tomorrow, next year and the decades that follow.

This distinction is particularly important in assessing the aftermath of the last recession. The anxiety that gripped us in late 2008 wasn’t born out of a typical cyclical decline that hurts for a year or two before the economy returns to growth. Rather, it was a fear that something more fundamental had changed, altering our whole economic trajectory.

Only a forward-looking indicator can pick up both this fear and its ultimate resolution. Unfortunately, most economic statistics tell us only what happened last month, last quarter or last year.

Stock Market

The stock market, by contrast, is obsessively focused on the future. When investors decide whether to buy a company’s stock, they aren’t just thinking about its current earnings (if they were, a company like Twitter Inc. would be worthless). They are trying to figure out what its future earnings will be, and what that stream of income should be worth today. Their collective judgment, while far from perfect, tells a compelling story about how America’s prospects have changed over the past four years.

On the day of President Barack Obama’s inauguration, the Standard & Poor’s 500 Index (SPX)closed at 805, just over half its pre-recession level. In other words, investors thought the recession had done so much damage that the future earnings of corporate America were worth only about half what they were before. And because corporate earnings are a roughly constant share of the broader economy, the stock prices suggested a decline of historic magnitude in investors’ assessment of the long-run prospects for the entire U.S. economy.

As of Sept. 10, the S&P 500 index stood at 1429, about 78 percent higher than it was on inauguration day. Probable translation: Investors believe the long-run outlook for the American economy has improved enormously.

True, the stock market can rise for various reasons. Investors might expect corporate profits to grow faster than the economy, or corporate taxes to fall. They might have become more patient, causing them to place a higher value on earnings way out in the future. Given the current political climate, and the way the crisis shattered peoples’ complacency, none of these stories seems particularly plausible.

The stock market is also an imperfect proxy for the outcomes we truly care about. If there were futures markets more directly tied to economic output, unemployment or perhaps even well-being, they would provide an even better picture.

Surveys asking people to evaluate their well-being can also provide a useful insight given that people’s responses are influenced by their outlook. One index run by research company Gallup Inc., for example, shows people’s perceived well-being at a four-year high. (Disclosure: Justin Wolfers is a senior scientist at Gallup.)

Of course, the stock ticker can’t answer the most important political questions. It can’t say we are better off because of Obama’s policies, or for other reasons. It can’t say whether we are better off than we would have been under President Mitt Romney. It does, however, capture well the narrative of disaster, survival and recovery that has marked the past four years. It helps us to remember how bad we felt back then, and to appreciate where we are today.

(Betsey Stevenson is an associate professor of public policy at the University of Michigan. Justin Wolfers is an associate professor of business and public policy at the University of Pennsylvania, and a non-resident senior fellow of the Brookings Institution. Both are Bloomberg View columnists. The opinions expressed are their own.)

Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View editorials, columns and op-ed articles.

Today’s highlights: the editors on what to do about Libor’s overseer and on King Abdullah and Jordan’s subsidy addiction; Jeffrey Goldberg on power failures and Mormon food hoarding; William Pesek on China’s education policies in Hong Kong; Ramesh Ponnuru on how muchRomney could actually accomplish as president; Barry Nalebuff on why New York should ban calories in beverages.

To contact the writers of this article: Justin Wolfers at jwolfers@wharton.upenn.edu Betsey Stevenson at betseys@wharton.upenn.edu

To contact the editor responsible for this article: Mark Whitehouse atmwhitehouse1@bloomberg.net

Complete Vice Presidential Debate 2012: Joe Biden vs. Paul Ryan – Oct 11, 2012 – Elections 2012

Complete Vice Presidential Debate 2012: Joe Biden vs. Paul Ryan – Oct 11, 2012 – Elections 2012.

I will relay my thoughts about the debate later, I plan to watch it a few more times before I write a more full post. In short I think that Biden won, but that there will be some push back for having scoffed, laughed, and smirked at so many of the things that Paul Ryan used said… Although, I did find that his reactions were somewhat warranted at times, as Ryan seemed to be pretty full of it… Moreover, Biden needed to come across as strong, and he definitely wasn’t weak… Ok, I’m done for now, but I hope you enjoy the debate, and feel free to let me know what you think.