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America has been forced to sit on the national sofa and confront the uncomfortable truth it is not as rich as it pretended to be during the past decade.
Call it a financial intervention.
A nasty meltdown of the economy required the country to admit it has a mountain of debt, no savings and put basic shelter at risk by tapping the equity of housing values inflated by low interest rates.
Our collective ignorance about money matters is stunning and crosses all income strata. No one has escaped. I suspect the lack of information was compounded by an unwillingness – or perhaps a belief it was not necessary – to pay attention. Our financial lives were on autopilot.
Show of hands please: How many of us still have unopened mail from brokerage houses that dates to the third quarter of 2008? So many people simply do not want to acknowledge the decimated state of their retirement accounts.
At the pointy end of the income pyramid, big earners in wealthy households lost extraordinary sums to that epic crook, Bernard Madoff. His investment operation was a scam through and through, and he provided no information to his clients. Ask for details and risk being shoved out in the cold. Besides, their incomes assured them they were too smart to be duped.
Legions of ordinary Americans were left to the sideshow antics of cable-TV financial advisers, like that barking seal Jim Cramer on CNBC.
How does it reach a point when the investment advice of a man honking horns on TV has credibility? Check out the goofballs on “Fast Money,” who make sports-talk shows look dignified.
Of course, there was the option of going to a hotel ballroom and buying software that tracked stocks from the comfort of the kitchen table. Is Acme Widget a sound investment? Sure, look at the little green line.
In this sorry, uncertain state of financial affairs, two remedial steps are called for. One is education, especially for the next generation. Washington Sen. Patty Murray has some excellent ideas coming out on that. Second, the country needs help adopting a savings habit.
Congress could promote basic, plain-vanilla savings by not taxing the first, say, $50,000. Create an incentive to save up a financial cushion for predictable expenses and household emergencies. Survey data collected by MarketWatch found only half the country has a 30-day cash cushion if laid off.
Peg the amount high enough so it moves toward a 20 percent down payment on a house. In 2008, the national median price for a home was $170,000. In Washington, it was $316,000 in the second quarter of 2007, and it was $266,000 in the last quarter of 2008. I suspect prospective homeowners would be more inclined to pay attention to the details of a housing contract if they put down real money.
I am not too worried about the consequences of my Household Solvency Act for the national treasury. The federal government had no qualms about selling bonds to China to pay for tax cuts for the super wealthy.
A robust savings plan for America is no threat to economic recovery. Solvent families are a source of strength, and the money always gets spent.
