American Dream Lost

I know, this one is a long read. It is so hard for me to tell a story in short form. A novel every time. But I do think it needs to be said. So if you've got the time, read on.  And BTW thanks, if you do...

I'm a child born post WWII in what is referred to as the "Baby Boom" thus a Baby Boomer. Yes, there are many of us. When our fathers returned home from military duty, they were as horny as hell, not to mention all the wives and young ladies that were ready for some love'n. The maternity wards were full for over a decade, almost two.

Those of us who have survived these sixty plus years are now ready to receive our just reward in retirement. At least that was what we called the American Dream. But what happened to this dream of working hard, saving money, buying a home, and sending the kids to either college or some sort of advance education in the trades?

There was three pillars that helped us accomplish this goal and to reach retirement with enough money to enjoy the golden years.

First there was the defined and fixed pension plan provided by your employer; that you would probably work for your entire working life. For every year you work for them, the company would put funds in an annuity type of program that would earn a guaranteed amount of money for you to receive upon retirement, as well as some sort of health insurance policy paid by your ex-employer as part of their employer group policy.

Second pillar required that you take some of your extra money after basic living expenses and put it in a safe saving plan, usually with a Savings and Loan Bank or CDs at the locally owned retail bank and you would earn about 4 or 5% on your savings each year, compounded. Then when you did retire at age 64, then moved to 65, then moved to 66, you would have Social Security.

The third pillars was Social Security in which you and your employer would pay each payday into the trust fund and when you reached the age to draw SS, you would have a little more money to live on and maybe enjoy life a little more, like travel and relax after all those years of hard labor.

But today the tree pillars are not what was intended to be. Why?

Companies were not funding the pensions as they were required to do. Instead they took the money as bonuses for the upper management and higher dividends to the share holders to keep the stock value higher than what it would be if they spent the money and funded the pension plan. With billions needed to fund these under funded pension plans, they needed help.

Republicans to the rescue with the 401(k) option. Companies now could convert their defined pension plan into an employee personal investment program that allowed the company to now change how they participated in the funding of that plan. Some generous companies matched what you as an employee put in the plan, others paid in more because of union contracts that pushed to reflect about the same money from the company as it was suppose to pay into the defined benefit pension plan. But most reduced what they paid into their employee's retirement plans to improve profits and eliminate the liability they had to the old pension plan. That erased hundreds of billions of dollars off the liability side of the balance sheet of these companies overnight. Of course their net worth jumped sky high and their stock values did also. So issue more stock and rake in more money. What a game....

This immediately shifted over more than a trillion dollars from more secure investments, like government bonds and fortune 500 notes and commercial real estate mortgages into the open stock market that earned huge transactions fees for the brokerage houses that managed these new 401(k)s. BTW this also caused the government to open the sale of our treasury notes to more foreign governments, since there were fewer pension plans that purchased these notes. This also increased the interest rate we pay on these notes to these foreign countries that hold them, rather than into American workers pension funds.

This shifts a huge amount of government revenue (your tax money) from circulating in-country via pension plans to foreign government capital for them to spend on building better infrastructure than us and thus have an advantage in the global competitiveness. Your tax dollars at work in China building super highways, bridges, high-speed internet service, high speed train systems, state of the art shipping terminals and sea ports, big investment in alternative energy production and advance technologies and building a bigger military at the same time we are reducing our capital expenditure for the same things.

The revenue from the shift from defined pension plans to 401(k)s flooded huge amounts of cash into the Wall Street brokerage firms, siphoning off millions and then billions of dollars in fees to set up these plans and manage these 401(k)s. In fact, there was not enough stock in the entire international stock market network to purchase with all this money. What were they going to do with all this money? Well see my other blog comment about Wall Street and you will see what they did with it; Real Estate bubble anyone?

So now our fixed pensions are fluctuating with the stock market and what gain we have is being eaten up with transaction and management fees by the brokerage houses that control all these funds.

The second pillar was your personal savings. Most people put their money in S&L banks with Certificates of Deposit. The S&L would then loan your deposits out to qualified borrowers for home mortgages. They guaranteed you a fixed interest rate on your CDs. They could do this because the home mortgage business had rather stable interest rates. Especially since most of these S&Ls were non-profit or not publicly traded types that did not have to share the profit with shareholders. Deregulation in the 1980s caused them to collapse when they became publicly traded entities. Now that they are gone, you are forced to put your money in either a commercial bank that pays you less than the inflation rate for use of your money or in a Credit Union, if you quality, where you can earn a little more, but not much. So by the time you are ready to retire, your money has gained hardly anything and you still have to pay taxes on it when you withdraw it, like in a IRA. Again in an IRA you will have fees that come out of the 1% gain you received and you might end up will less money adjusted for inflation than you put in. If you put your money in one of these retirement options that the IRS has set up, then you money is floating in the stock and bond markets, with such things as mutual funds and other securities packages. All of them taking part of the gain in fees and not having to suffer any of the losses they may make with your money. Wow, what a deal the Republican gave to them.

The third pillar is Social Security. Currently the money taken out of your paycheck each month and what your employer pays in each paycheck is used to buy government bonds from the US Treasury, the safest, or was the safest investment with modest return. But the Republicans want to privatize it also and give the trillions of dollars over to these same Wall Street broker/banker companies to manage and invest in the volatile securities market. Maybe you would have some gain or maybe not. Again there would be transaction and management fees charged by the firms and that just might eat up all the gain and then some from the Social Security Trust Fund. In the end, they will win and the retiree may loose some of the money he and his employer paid in over the 30 or 40 years they worked. Wall Street would enjoy all the upside and be immune from any downside losses; which would be passed onto the retiree.

In the end all of the pillars to retirement that was suppose to be so secure and at a known fixed rate that you knew how much you would have to live on when you stopped working are either now in the hands of Wall Street or trying to be given to them.

Part of the employment cycle that allowed those entering the workforce was the ability of older workers to retire sooner. This in turn allows young adults entering the job market the ability to get a job as people in the organization would move up the ladder, opening slots for entry level workers. It was an effective cycle that provided good jobs for the next generation. That is now gone for good. We now see seniors working until their in their 70s and that prohibits young workers from entering that field of work.


Unless you were lucky enough to work for a large corporation and a member of a large labor union, you did not have health insurance upon retiring and probably didn't have it while working either. It was impossible to even get health insurance at that age, because no insurance company would not issue a policy to anyone over 55 or maybe 60 years old. Many seniors went without needed medical care and ended up dead or if they were admitted to a hospital or doctors office, the cost at that time too much for them to cover. That is why Pres. Johnson created Medicare, to cover seniors that the private insurance industry would not. Yes, cost have escalated with advancement in technologies, privatizing many of the nations hospitals which are now publicly traded, and the huge advancement in pharmaceuticals. The premium rate, the payroll deduction you pay each payday and your employer also pays is not sufficient to cover these increasing costs.

But instead of raising the premium and finding a way to reduce cost, the Republicans what to privatize Medicare with a voucher system that would give a senior a limited amount of dollars to purchase a private policy on the open market. First will any private insurance company even issue a policy to a senior, especially if they have health issues? If they do, what will the premium be to cover a person who costs them 4 times what a young family would cost in claims? The voucher would not even come close to covering the premium and with two of the retirement pillars now devastated and the third possibly being reduced or privatize, a retiree in the working class of Americans could not save enough to even think about buying a policy and still be able to live on SS, if any, or any other saving they may have accumulated.

Consider also that wages over the past 30 years have been relatively flat compared to the upper management and the wealthier of us. Most workers have seen inflation eat up all the small gains they've received over the 30 years and have not been able to save much money, and what they have saved as earned so little, if any, that they will retire way below the poverty level and will most likely go without food and healthcare just to survive as long as they can.

So after this long dissertation the conclusion is that what was known as the American Dream is dead and gone. I can't blame it all on the banking system and other financial factors, but they are one of the biggest factors in its demise. Others I will talk about or have talked about, like technology replacing human labor, NAFTA, and exporting jobs to low age countries.

Consider this as an example of this lost dream.  America retail use to be Department Stores. But with wages being flat and purchasing power being reduced, discount stores became the norm and there are hardly any traditional Department Stores still around. Now you have Wall-Mart, Target, Costco, Sam's Club, ShopKo, K-Mart, re-invented Sears, and others. And now even on-line discounters that are capturing market share because they are a little cheaper. That is why so many electronics stores have closed, i.e. Circuit City, CompUSA, Ultimate Electronics, etc.

Can we recapture the American Dream for the next generations? That remains to be seen and will depend on what the Conservatives/Tea Party do in the political arena. At our current situation, I will bet not. It is gone for at least one to two generations.