Spenders Get the Gold Mine, Savers Got the Shaft

September 10, 2008 by  
Filed under Money and Behavior, Spending

Some of you may be old enough to remember Jerry Reed of “Smoky and the Bandit” cinematic fame.  Sadly, Jerry died recently, leaving a musical legacy that includes his 1982 classic “She Got the Gold Mine, I Got the Shaft.”   OK, maybe it wasn’t a true classic but it was funny.

I’ve been thinking of that song recently, as our government continues to confirm that when it comes to acts of responsible money behavior by some American consumers – the “savers” – no good deed goes unpunished.

Let’s start with a review of …

What the “savers” have done in recent months:

Avoided credit cards (and 0% credit card offers) like they carried avian flu

Driven our aging, paid-for, four wheeled chariots with pride

Diligently paid down our fixed rate mortgage on a house we could afford from payment one

Saved for retirement in 401(k) accounts and IRA’s

Put away cash for emergencies and rainy days

Paid income taxes to the federal government for the benefit of …..  the “spenders” (see below)

Paid 7.5% of our income to Social Security and Medicare programs that will be gutted and means tested before we retire

Does anyone see anything evil, sinister, or unpatriotic about any of these actions?  Anyone?  Surely, then, we can now assemble a list of …..

Government fiscal and monetary policies that have rewarded “savers”:

[Sorry – my mind is drawing a blank here -I guess we will have to come back to this one.]

The Government punishes savers

Moving on, let’s review the highlights of how our politicians and government have led us away from the gold mine and into the shaft:

Lowered interest rates so that yields on our savings accounts and CD’s have fallen from 5.25% in 2007 to 3% or less now in most accounts.

Overspent on numerous out of control programs, causing deficits that drive wholesale inflation to a 9.8% annual rate.

Ignored sound energy policies, causing consumer prices to ratchet up at a 5.6% annual rate.

Shaken the U.S. equity markets to the core.

Gee, thanks for all that from this grateful saver.

Switching over to the “spenders”, it seems that our

Government has been rewarding “spenders”:

In August 2008, Congress passes and the President signs the $300 billion Housing and Economic and Housing Recovery Act of 2008.  This law increases to $625,500 (from $417,000) the size of home loans that Fannie Mae and Freddie Mac are allowed to buy.  After all, it’s just not fair that over-spending, broke Americans could only qualify for a $417,000 government-backed mortgage.  Six weeks later, government regulators seized control of Fannie Mae and Freddie Mac, wiping out shareholders.  Guess who owned a lot of that now worthless stock?  The savers.

By the way, the Housing and Economic Recovery Act also grants new homeowners a 15 year interest-free tax credit/loan to buy a home.  We savers who already have loans?  We get the bill.

And as a final slap in the face to savers, the Housing and Economic Recovery Act grants re-financing relief to borrowers on existing mortgage loans.  To be eligible, you must have a mortgage payment that exceeds 31% of your income! What were Mrs. ToughMoneyLove and I thinking when we made sure we could afford our mortgage payments without refinancing?

The number of Chapter 7 bankruptcy filings-designed to give individual debtors a “fresh start” by discharging many of their debts-rises by 36%.  Guess who pays more for goods and services after the spenders’ debts are discharged?  The savers.

In July 2008, the FDIC seizes control of IndyMac Bank.  The bank failed primarily due to questionable loans to unqualified borrowers (spenders).  Now we hear that the FDIC may lower mortgage rates for delinquent IndyMac borrowers (spenders) after suspending their foreclosures.  Hey, will someone please take over my bank and lower my rate if I promise to stop paying my mortgage?

Finally, let’s not forget this year’s government stimulus checks, sent out for one purpose:  to get people to spend.  Go spenders!  It’s your patriotic duty!  They didn’t send Mr. ToughMoneyLove a stimulus check.  I guess they were afraid I would save it.

The Hard Truth Bottom Line

That sums up Mr. ToughMoneyLove’s feelings on the matter.   I still can’t think of anything to put under the “saver rewards” column above.  I’m concerned that the pattern of shafting savers to help the spenders will continue.

Maybe I should write a sequel to Jerry Reed’s song.  Anyone want to contribute a verse? Or do you feel the government rewards you for being a saver?

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14 Responses to “Spenders Get the Gold Mine, Savers Got the Shaft”
  1. MasterPo says:

    Great article! This kind of stuff has to be said loud and often!!!

    I would add one more point – TAXES!!

    If you save you have to pay taxes on the bank interest, dividends, cap gains etc. thus punishing savers and investors even more.

    Just imagine the BOOM in personal savings if the tax on bank interest was eliminated! Imagine how much cashflow into the banking system there would be!

  2. PT says:

    Great tribute to Jerry Reed.

    I heard it said about our govt that they like to privitize the gains, yet socialize the loses. I wish they’d start taking some profits from Fannie and Freddie to pay for some of these losses.

    I’ll add a line from my favorite Jerry Reed song, “east bound and down”:

    “we keep doing what they say can’t be done”

  3. I think cutting the dividends capital gains tax was a plus for savers. Although, that perk could be up in the air depending upon the election.

    Too bad about the Snowman… didn’t know that.

  4. MasterPo: I wish it were true that lowering taxes on savings would cause spenders to become savers. Instead, I think it would simply increase the savings rate of those who already save.

    PT: Thanks for remembering Jerry. I actually represented him in a trademark dispute years ago. Funny, down to earth guy.

    Matt: I agree about the dividend tax perk but that’s old news compared to a lot of this other stuff. Plus, I think Charlie Rangel is going to take care of that soon. See tomorrow’s post.

  5. MasterPo says:

    TML – Possibly. But what would be so bad about that anyway? 😉

  6. MasterPo – Nothing bad about increasing the savings rate of savers but unless we get some spenders involved, we still get screwed.

  7. Similar scenario in the UK. All those arrears with the mortgage are to get help, whilst those that worked extra hours, cut back or downsized get nothing. No wonder people try to buck the system.

  8. Uncommonadvice: Hadn’t heard about government help to mortgage deadbeats in UK. What help are they getting there?

  9. If you are facing repossession, the government will buy the house from you, clear the arrears and then let you live their rent free (via housing benefit).

    They’ve cut back the time it takes them to intervene when you get in trouble from 39 weeks to 13 weeks.

    So rather than work hard I could be just as well of by quitting my work and living rent free (in my own home) for the rest of my life!

  10. Dave says:

    Wait until they find a way to tax your retirment funds before you withdraw them.

    It seems clear to me that it is the only thing left to tax except perhaps the air. Wait, they do tax the air by the money to the EPA.

  11. RetirementNotMarketedToYouth says:

    I’ve worked as a consultant on online presences and campaign “innovation” now for five major financial organizations that provide retirement products and services. In all five cases, I presented the case that a younger demographic (18-30) is not being marketed to, and in every case, I was told to refocus and that this was not the retirement market. How much sense does it make to market retirement products to retirees? I still don’t get it.

  12. Troy says:

    So these are some stream-of-consciousness comments that perhaps span a few of the blog subjects. Also I apologize for the length, but the many issues are complicated, interconnected, and too often oversimplified to further an agenda.

    I think there needs to be a third separate category- the speculator. Not really spending per se, but not content to merely keep (save) the wealth he may have created/earned, speculator’s collective greed is (was) one of the driving forces of the housing bust->economy problem. I believe in the risk/reward corollary and people that were nearing their retirements should have gradually shifted their investments into more stable and secure investments- gold, say. Younger investors have the time to recoup their losses without it being so catastrophic. (So no finger-pointing from the soon-to-retire baby boomers or blame-it-all-on-the-liberals rants allowed- this fundamental bit of economics I’m sure is taught in 101.)

    Moreover, the greedy bastards that bought multiple houses as investment tools with no intent to ever live there drove up the housing market prices and furthered the continually-rising-price-myth which further enabled the liar/ninja loans etc… On the other hand if you were in the market to buy a home to actually live in, particularly in CA where I live, you saw homes that were obviously priced way above their intrinsic values just because the ever-touted free market would bear it. (You can look on Zillow.com’s historical value graphs on individual properties and see the almost universal price spike around 2005 when it really started.) It was those speculators’ collective greed (and thus risk) that got them out there on a limb- and it is with glee that I now watch them suffer as their psychologically induced financial feeding frenzy ended with a pop. Unfortunately, the savers, the spenders- we are all in this together now and we will all have to dig ourselves out of an ever-deepening hole. Ironically, the savers are forced to spend… And the spenders are forced to… well, spend- but they will spend on something different (taxes instead of the TVs, cars, and houses they couldn’t afford), which is kind of like saving in that it forces them out of their previous bad spending habits(excessive consumerism) into new ones that will hopefully stick once the coming high tax period is over and the true fiscal conservatives (whoever they are and wherever they went to) regain power.

    I agree with most of what is said above- CC debt is bad, federal debt is bad (but perhaps a necessary evil if we look beyond the myopic 4 year blinders that most POTUS administrations wear and actually start fixing instead of postponing our problems (i.e. infrastructure, energy, health care, etc)- but that’s another post) People need to live within their means and they are just as guilty, probably by and large, as the corrupt financial institutions that got them to sign the fine print on these ARMs without reading/understanding them. It looks like our government is not holding either of them accountable though, maybe because when you add the evil/corrupt free-market businessmen to the dumb give-me-a-handout sheep (the masses, apparently), you probably have most of the country on your hands- certainly a majority in the voting base. And politicians just give people what they think they want, even it means avoided blame and deferred debt payment.

    Anyone who invested heavily in the mortgage companies was committing the same sin as above said sheep which was to assume that home prices would continue upward and betting the farm/house on it. Anyone who risked their retirement on investments heavily weighted in a booming housing sector (i.e., mortgage companies) should have been around long enough to know that real estate comes and goes in cycles- up/down, boom/bust. So they were greedy and foolish. pfffft.

    Again, going down the savers’ list- CC debt bad, agreed- driving paid-for cars, agreed (see living within one’s means), paying down your mortgage, agreed (you still own your home, no chance taken on the gov bailing you out), having cash on hand, agreed (maybe gold is better hedge against inflation though), paying taxes and social security, good (although the spenders pay taxes too, no- does these two items really belong here?) 401K/IRA – this is where I draw the line between saving and investing. So it’s not really saving is it, it’s investing (again, risk/reward). Everybody is really clamoring about their lost “savings” but it’s really the loss of their investments that they mourn. If it were really savings, such as cash on hand or a paid-for car/mortgage, then these things persist beyond the downturn. So what? It’s not like the government is seizing everybody’s gold again. (Add financial and mental security to the list of savers’ benefits.) You save, you keep. Simple.

    IMHO, the big-time financial criminals should be treated like China treats their own (massacred, and for good measure and an American twist, all on Friday night prime time TV as an example to the other would-be villains). The auto companies should be allowed to fail so that they can fully shake the unions and emerge long term solvent/competitive. The banks should be allowed to fail and no golden parachutes this time. The people who bit off more mortgage than they could chew should be penalized not rewarded (but due to the sheer number of them, probably impractical to throw them all out on their butts.) And investors/speculators (not to be confused with ignorant first-time home buyers or the true savers) should learn that markets and governments are fickle and unpredictable in the long run. As Aesop said, “Grasp the shadow and lose the substance.”

    Ironically, I am all for government spending as an investment in our future (like infrastructure and energy). Hopefully, our current high-stakes gamble will pay off and then we can get out of the hole and back to saving.

  13. P says:

    you are right but there is one thing, spenders are rewarded only when they make a big purchases, such as first house or new car etc. Spenders brings lot of fees, late fees, charges and interest that greedy banks are not making off savers.

    Credit score is such a example where spenders are rewarded but one is not if he/she buys with cash. It is greed at its worst.


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