LTCI Watch: Washington's trash stinks, too

Some say that rates are low because demand for loans is low. Others say that the Federal Reserve Board has broken the debt markets by jerking rates up and down like a yo-yo in an effort to keep holders of adjustable rate mortgages and FDIC-insured retail banks afloat. Others say the Fed is stuck using the interest rate yo-yo to keep civilization going because members of Congress refuse to make tough choices about how to narrow the gap between the post-retirement income and health benefits we’ve promised the Baby Boomers and the benefits we’ll actually be able to deliver.

Still others say that, even if Congress has put the Fed in a tough position through an inability to make tough decisions, and the underlying demand for loans is really weak, Congress and Fed policymakers have contributed to weak underlying loan demand by defining every potential borrower who actually needs money, and isn’t borrowing it for fun, as an undesirable.

Still others will say, “Look at the Great Recession. The last thing we need is letting people who need money borrowing money.”

So, OK, the rate situation is complicated. It’s hard to know who exactly deserves what portion of the blame, and it seems as if the true goal ought to be to figure out how to make the future work better, not to get angry about what people have done in the past.

But, all that said: Ultra low rates have done far more damage to retirement savers and the companies trying to serve them than a million unscrupulous, wickedly incentivized financial advisors ever could. The low rates let retail banks, blue-chip corporations and adjustable rate mortgage holders use a dollar that was supposed to go toward sustaining older people 20 years from now to pay for 10 cents of emergency rescue today. A casual glance around town suggests that little of the money is going into anything that will make our society physically more sustainable. Maybe Paul Krugman is right, and government budget deficits themselves are unimportant, but how can encouraging money to flow into phone app fads, shoddy McMansions, shoddy apartments built in obvious flood zones, and blocks of bank branches, fast food restaurants, old-fashioned doctors’ offices and drug stores (more drug stores! more!) possibly be getting our country ready to handle the aging of the Baby boomers? I guess that, in the 2030s, we can turn the ruins of the shuttered big box stores we blew the low-rate 2010s money on into Boomer nursing homes, but that doesn’t sound like the foundation of a great Boomer LTC supply plan to me.

So, the artificial low rates are helping us squander future wealth that could, at least temporarily, be going to improve necessary infrastructure, or to corporate bond issuers with ideas for products and projects that could make us more sustainable. And the Fed board generally doesn’t even acknowledge the damage it’s doing to savers and insurers. For the Fed, savers seem to be somewhat less than fully human. Some financial advisors may have incentives to sell savers questionable products, but the Fed seems to have no incentive whatsoever to acknowledge that savers exist.

And Obama is the head of a government that’s somehow involved in this situation. Maybe it created this situation. Before he goes around pointing fingers at financial advisors, he ought to take a hard look at how the federal government has contributed to this financial system mess and think of ways to reform the misaligned incentives shaping the government’s decisions.