KPCC's business analyst Mark Lacter talks about the Occupy Wall Street movement and income inequalities in California.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, the Occupy Wall Street movements seem to be showing their wear.
Mark Lacter: Well, what do you expect when there’s no real agenda, and no leadership, and no big interest in working through the electoral system – as in actually voting? And now we’re seeing signs of the movement being appropriated by some troublemakers – most notably in Oakland – but there have been a few incidents in L.A. as well. And Steve, it’s getting cold to be sleeping in tents. I expect many of the protesters will break camp in the next few weeks, which is a real shame – a real missed opportunity.
Julian: There’s no question that the economic classes have splintered badly over the past decade.
Lacter: Also no question that the major banks are among the reasons that the real estate bubble got so out of hand. But this is a complicated story, and you can’t just pin the blame on rich people or on Bank of America. Remember, there was a reason that so many investors went after those mortgage-backed securities: They offered a good return – way better than the 1 percent that was being offered through many kinds of government bonds. And as many of us are now finding out with our CD accounts, 1 percent doesn’t get you very far if you want to retire one day and live off your savings.
Julian: So the idea of bundling of securities seemed like a reasonable idea at the time…
Lacter:…except that it created huge amounts of risk that the government turned a blind eye to. Let’s also not forget that regulators didn’t stop mortgage brokers from approving home loans that should never have been approved. But this is a hard story to digest, and so what the protesters have been focusing on instead are the sideshows – things like B of A trying to implement a $5-a-month fee on debit cards (the bank subsequently pulled back on the plan, which frankly was not that big a deal).
Julian: Any sideshows that COULD be a big deal?
Lacter: Well, one would be a proposal to have the city of L.A. cut ties with the major banks that have been accused of some sort of financial wrongdoing. The city’s budget chief, Miguel Santana, has been warning the council not to pursue this idea because it would require the city to pay tens of millions of dollars in termination fees. Not great timing because the city already faces a budget deficit next year of $200 million. Clearly, people are frustrated and they want to take it out on institutions they feel are responsible for the tough times, but a move like this really isn’t the answer.
Julian: So with all the attention on income inequality, what’s the biggest financial problem that people are not paying enough attention to?
Lacter: My vote would be for the large number of people approaching retirement age who have little or no savings for retirement. There’s a new UC Berkeley study out showing that low- and middle-income Californians plan to rely largely on Social Security, which presents a real problem because Social Security is not nearly enough to keep someone going.
Julian: Many retirees never received any kind of retirement plan I imagine…
Lacter: Could be because the companies they worked for didn’t offer a pension or because they were self-employed and not in a position to save. And so now we have a population of baby boomers that’s starting to turn 65 – the UC Berkeley study projects that nearly one-half of California workers are going to face some serious financial problems in retirement. That is a stunning projection.
Julian: What to do?
Lacter: One obvious answer is to work later in life, though that might be tough considering how hard it is for anyone to land a job. And the future of Social Security itself might be problematic. I honestly don’t know how these folks are supposed to get by, and yet there’s been little discussion from elected officials. That’s probably because there’s no easy answer, and also because this isn’t an immediate crisis – just the kind of that creeps up on us. Whatever you call it, I’d be a lot more concerned about this than banks charging a fee to use debit cards.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.