I'm taking the liberty of sharing the last section of Financial Reckoning Day Fallout with you because I think that it is a must read. If you can't buy the book, please check it out of your local library. Get a copy via interlibrary loan if your local library does not have a copy.
Last Section in a Chapter labeled Moral Hazards:
ADVICE TO THE CLASS OF 2009
So far, not a single major university has asked us to make the commencement address. Nor a minor college. Not even a school of cosmetology or taxidermy. But as we write from London, protected by a broad ocean and a narrow reading of the First Amendment, we will give advice no one asked for.
"Plastics," was the advice given to college graduates in Mike Nichols' 1967 film The Graduate. But that was when there was still hope for the United States' manufacturing sector. Even then, it was too late. The percentage of GDP from the manufacturing sector fell for the next four decades, from more than 20 percent in the last [I assume this should be late] 1960s to barely 12 percent in 2008. Better advice would have been "derivatives." They stank just as bad, but they were much more profitable. Although only 8 percent of GDP, finance accounted for 40 percent of corporate profits in 2007. And derivatives grew from nothing to a face value of 16 time the GDP of the entire planet.
But your elders are always giving you bum advice.
"You cannot decline the burdens of empire and still expect to share its honors," said Pericles to the class of 430 B.C. He lived during a time not unlike your parents' era in the United States -- when Athens was on top of the world. But vanity got the better of him. He launched an attack on Sparta that backfired badly. He soon died of plague and Athens was not only ruined, but enslaved. Athens' "golden age' turned to lead. Young Athenians should have shrugged off the burden rather than accept it. You should do the same.
When you were born 20-some years ago, the nation's total debt per person was less than $90,000 -- adjusted to 2009 dollars, of course. Although that was a lot of money, it was nothing compared to what was coming. Now it's $186,717 per person -- more than twice as much, in real terms. Fortunately, private debt is not inheritable. But it comes to you as a lien against property. Instead of paying off their mortgages and leaving you a house, free and clear, the baby boomer generation spent the "equity" in their houses even faster than they got it. House prices rose. But mortgage debt rose faster. Although your grandparents owned 80 percent of their houses, by 2007, the typical homeowner only really owned four rooms of an eight-room house. And then, when house prices fell, so did his remaining equity...to the point where one out of six homeowners is now underwater. You could still eventually inherit a house, but you may have to scrape the barnacles off the front porch.
But that's not even the half of it. Although your parents had control of the U.S. government, they allowed themselves a little larceny. Add the unfunded retirement and health care benefits they voted for themselves to the official national debt, and together they are scheduled to cost your generation four times the total annual output of the United States. This is over and above the private debt they accumulated.
Some of this debt can be carried. Some will have to be paid down. But as it stands, as much as $77 trillion [with a "t"] of post-2009 earnings must be stolen from the future in order to pay for the liquor your parents drank...the bombs they dropped on god-forsaken foreigners...and the interest on their debts. So, forget about saving for a European vacation or a house of your own. Even if every penny of your savings -- and every other American's savings -- are put to the task you will still be paying for your parents' expenses all your life.
But wait, there's more! The burden is getting heavier. Federal budget projections show an additional $7 trillion in deficits over the next 10 years. Described as the cost of fighting recession, the present generation buries its own mistakes under cash that the next generation hasn't even earned yet. Today's bankers, businessmen, and speculators are being bankrolled by you -- tomorrow's bankers, businessmen, and speculators. Today's homeowners get a helping hand...from whom? Tomorrow's homeowners -- you. Today's employees get a boost, too. Same story. Where do you think the money came from to pay Wall Street bonuses? How do you think GM stays in business...and Fannie Mae...and AIG...Who pays those salaries? Who pays to keep troops all over the world and keep old people supplied with new drugs? Who pays for hundreds of billions' worth of "shovel-ready" boondoggles? You will. At least, that's the plan.
The luck [or bumbling idiocy] of one generation is the curse of the next. Like Pericles, your parents inherited a dollar; they leave you a peso. They took over the strongest, richest, most competitive nation in the world. And like Pericles they minded everyone's business but their own. Now, not only does the United States owe money all over town, its government puts out trillions more in IOUs every year -- each with your name on it. You're not even out in the real world yet, and you're getting the bill for 50 cents of every dollar the feds spend -- almost none of it earmarked for you. But that is the thing about the real world your teachers probably forgot to tell you about. It is more unreal and fantastical than anything you studied.
Here's what's real: You've been dealt a bad hand. From the bottom of the deck...your parents have slipped you some nasty cards. Our advice? Fold 'em. Get up from the table before they clean you out.
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