Trickle Down Crisis

Maryann Padilla worked and saved and scrimped all her life, and now she simply wants to know that the modest retirement she has planned for will be safe.

But like millions of Americans, the retired teacher and Grants, N.M. native is worried about how the financial crisis on Wall Street will affect her retirement plan and the $100,000 worth of annuities she bought 40 years ago to supplement her retirement.

Her annuities have taken hits before when the economy has faltered, and Padilla, who is 62, said she expects she will have almost nothing left by the time she really needs to rely on them.

“I certainly expect the crisis on Wall Street to trickle down to me,” she said, alluding to the economic theory that conservatives such as Ronald Reagan used to promote the kind of top-heavy benefits that were supposed to eventually trickle down to the poor and middle class. “It seems like the only trickle-down effect we get is the negative kind.”

Padilla said she’s outraged about plans for a $700 billion government bailout of the private investment banks whose recklessness precipitated the crash.

“I called everyone in the New Mexico congressional delegation to tell them to vote no on the bailout,'” she said.

“I don’t want (Treasury Secretary Henry) Paulsen to get the kind of authority he’s seeking. There’s no oversight.”

Plus, Padilla said she questions the morality of a plan that would bail out rich bankers while ignoring the millions of people who have lost their homes to foreclosure.

“It’ll put the fat cats back in charge of the process again,” she said. “My tax dollars will be going to protect them, not the people whose houses are being foreclosed on.”

Senior University of New Mexico economist Lawrence Waldman said he hears concerns like Padilla’s all the time. As an economic forecaster with UNM’s Bureau of Business and Economic Research, it is Waldman’s job to study past data and predict future economic trends. He is often called upon by those in the media to help make sense of what’s happening in the economy.

In a recent interview with Clearly, Waldman placed blame for the current crisis on several factors, including the greed of predatory lenders in the housing market and the piling-on of investments based on the sub-prime, unstable loans that resulted.

Laws were on the books to prevent those kinds of actions, but no one insisted that the laws be followed, said Waldman.

“Fraud and dishonesty were at historic levels,” he said. “Self-interest is only human nature.”

Going forward, the only thing that will prevent a similar corruption and abuse of the system is strict regulation, said Waldman.

“More oversight and regulation is needed. Wall Street needs to adopt a set of ethics, and follow them.”

Another part of the puzzle that is already being addressed is to reassess what limitations and liabilities are assigned to large companies such as Bear Sterns and Goldman Sachs.

“We’ve got to keep companies from getting so large that they can’t fail.”

As far as the first line of effects from Wall Street, Waldman said he expects that lending and credit markets will tighten up as banks decline to lend to each other.

New Mexicans, like most Americans, will likely have trouble buying homes and obtaining loans, and their retirement plans and investments may be affected.

The number of foreclosures will go up as unstable mortgages continue to fail.

During this uncertain period, New Mexicans should save money and pay down their credit, he said.

Investing in Treasury bills is still relatively safe, he said.

The investigation into what went wrong should continue to prevent the same violation of trust from happening to the American taxpayers ever again, he said.

“Generally people are resentful of large corporations and if it turns out that the people on Wall Street were reckless and didn’t care about the fallout, then there will be a bitterness in this country for a long time.”

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