Not that long ago, working families placed their savings in banks and savings and loan companies literally in their neighborhoods.
For the most part, those institutions kept the dollars in the community and circulated them through loans for homes, businesses, and major purchases. The workers could, to a significant degree, see their savings at work.
When those families could do so, they invested some of their savings in stocks and bonds to supplement their retirement funds or plan for their children’s college educations.
The world was a much less complicated place. A “derivative” back then was some element in a mathematical equation, and the tax code was simple enough for taxpayers to fill out their own returns.
Ordinary men and women—the workers who are the backbone of this nation—are losing faith, hope, and confidence in our financial system. Instead of a stairway toward a more sound fiscal future, it has become a gauntlet of treachery and danger for them.
Since most investors aren’t highly sophisticated, they often placed their investments in mutual funds or similar instruments. They trusted others with investing in their futures. Undoubtedly, they thought there was strength in numbers when making those investments.
Today, ordinary investors have seen retirement and college funds greatly depleted by the financial shockwaves that far too often roll through the stock and bond markets.
Their dollars are no longer remotely anchored in their communities. Mortgages, car loans, and every imaginable financial instrument are bundled and sold countless times around the world.
Banks that belly up in Tokyo or Montreal, “bond vigilante” attacks on government securities in Europe, or the collapse of a hedge fund in the Caymans can diminish the standard of living of most American families.
In a global economy, regulation to prevent abuses in the financial system always seems to be three steps behind the problems. Within countries, consumers have not been well-served by the regulators who are supposed to protect us.
There seems to be a natural tendency to over-regulate where regulation is less needed and to under-regulate where more regulation is clearly needed.
The family investors today feel overwhelmed by the crushing complexity of the system into which their dollars flow.
It is little wonder that almost every other commercial on cable television today seems to be from firms selling gold.
They hammer home the fact that you can hold it in your hands and take it out and look at it anytime you want.
They know that many investors feel threatened by the current system and are at a loss to figure out how to protect the money they have set aside for their future.
Though gold and other commodities are also subject to wide swings in value, many consumers looking for “safe harbors” are flocking to them.
For many decades, stocks, bonds, and government securities have formed the backbone of a financial system that has created wealth and security for workers and families around the world.
Today, the future of that system has been called into question by the legion of small investors whose every day economic activity is the key to its strength.
The crux of the problem and the key to the solution may not be primarily in fixing the problem of firms “too big to fail.” It may instead be in restoring the confidence in the family investors who feel “too small to succeed.”