WALL STREET AND MAIN STREET: THE TWO AMERICAS

(written 4/20/08)

In case one missed the news of the week, it is as follows: Magazine publishers sent reeling in first quarter; Wachovia posts $393 million loss; Blockbuster to buy Circuit City, and Delta and Northwest merge creating potential job losses; Retail chains caught in a wave of bankruptcies, and finally Citigroup posting a $5 Billion loss, declaring they will cut 9,000 jobs.

Wall Street’s response? They finished the week with a 524 point gain. Why not? Lost jobs improve a company’s P&L and balance sheet which investors love. That’s part of the dichotomy of a capitalist country no longer based on work, but wealth. A mere reminder a similar market increase occurred based on a Bear Stearns bailout which secured wealth.

The admonishment of working hard and saving money to become an investor no longer applies. Wages have stagnated and workers fear losing their job. Consumer confidence is disappearing. Costs haven’t stagnated, eating away at salaries and we are now bearing the burden of paying for baby boomers, our own social security in jeopardy. Firms, struggling to find a better balance sheet have terminated defined pension plans and workers now contribute more out of pocket funds towards their retirement, an add on cost. We have a negative .5% savings rate, which means we officially survive on credit. What happens when that dries up?

The “greatest generation” purchased homes that were half of their final salary before retiring. Today if someone buys a modest home for $250,000 somewhere in Timbuktu and earns a salary of $80,000, they will never retire making the same, let alone double the original purchase price of their home.

Add to the problem the disparity that 90% of wealth is held by 5% of the population, and the fact we no longer produce (10% of workforce is in manufacturing – an all time low) but have become a service economy (easily shopped overseas) and Main Street is getting clobbered.
Something will need to be done or prepare for a lollapalooza of a recession, the kind that is a depression for those who lose their jobs.

Possible solutions? Gear tax cuts towards those who need the money and will place it into service, keeping our economic wheel turning, rather than giving tax cuts to the wealthy to become wealthier. This is not an assault on the wealthy, but rather a way for them to share their patriotism, the way low and middle income families do when they send their children to war.

Like the recent tax rebate to workers to stimulate the economy, money must be put in the hands of the masses who need to spend to survive.

Declare outsourcing of American jobs as unpatriotic as flag burning. Solve the healthcare crisis which accounts for 80% of all bankruptcy filings. Spend tax dollars on education as easily as we do on making war, otherwise our future will be catastrophic.

Global competition with no safe guards has resulted in the “dumbing down” of American standards to that of the third world countries we compete against.

Our current generation will be bailed out by the old money of our parents. What will become of our sons and daughters who are already being told they will not have the standard of living as past generations? How will they survive on shrinking income and rising costs for their basic needs?

We have isolated the two Americas John Kerry spoke about. Perhaps we should take a cue from Martin Sheen to his son Charlie in the movie “Wall Street”: Its time you learned to create things rather than live off the buying and selling of others hard work.

David DiBello