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Retirement Planning:Your Money Until it is Invested October 11, 2008

Posted by retirementwithaplan in retirement.
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There are places in the world where people do not invest. They save. Perhaps it is your neighbor, the one who doesn’t understand what all of the commotion is about and is feeling quite smug about having no real retirement plan to fret over, no loss of invested stock value and more importantly, probably no debt to speak of. These are the unknowns, the folks who live outside of capitalism’s grip on the economy. They are the un-depressed.

Who are these people?
I have met many of these people over the years as I wrote about personal finance, retirement planning, prudent and often conservative investing, . They have ignored the pundits as they talk about depression, recession and credit freezes. Billions of dollars have no meaning to these folks and the banks that we are desperately trying to rescue. Yet their taxes, just like those of us who are fretting daily over stock market declines, grim financial news and an economy turned on its ear, will go to to pay for these enormous transgressions against the public trust.

I am also aware that these folks are sleeping better than most of us and will wake tomorrow completely ignorant of what is happening on a global scale. They have resisted globalization in their silence and now, we are envious of them. We can no longer cast a downward looking eye on these people as we count our retirement savings, plan our retirement lives, and dream daily of the life beyond the workplace. We may now be closer to what they are than vice versa.

Where we are now
We have had weeks to examine the path that has led us to this point. And it will be many months until the trail we have taken, albeit unwittingly will be traveled. Many of us will wake on Monday morning with news about the G7 meeting of finance ministers.

The G7 Finance Ministers is comprised of seven nations who believe they hold the key to world’s financial well-being in their hands. Among those meeting, each brings a different agenda and in some cases, finger-pointing blame to the discussion. Whether that will get the job done remains to be seen.

Canada’s Finance Minister James Flaherty, who is more concerned about Canada’s access to credit than the results of any financial gamble like the one made stateside suggesting ahead of the meeting that he wants “to be proactive in Canada in our view to make sure that we protect Canadians and that we protect that availability in Canada.

Also in attendance is French Finance Minister Christine Lagarde. She took the high road ahead of the meeting suggesting that no one was to blame. She said: “”I’m not in the blame game and it is pointless to do so. The first lesson to be learned is humility.” And that humility should be exhibited among the financial executives responsible for the mess by re-examining how we compensate these individuals.

German Finance Minister Peer Steinbrueck simply suggested that the British have the right plan. Their recent nationalization of eight banks seems at least to the Germans, the quickest and most prudent approach. Everyday Germans are notoriously under-invested compared to their US counterparts, many of whom rely on a system of community banks for savings and loans. They rely on foreign investment to fuel their economic growth. Any continuation of this credit freeze will slow the German economy but will not end its overall growth.

Italian Finance Minister Giulio Tremonti has pointed out that much of what these ministers were trying to do was just business as usual. Despite a common currency, the Europeans have little in the way of central regulation. Knowing this, Mr. Tremonti thought the agenda was “a bit weak”.

While the rest of the world is worried about the health of their own banks and credit, Japan’s Finance Minister Shoichi Nakagawa is taking a much broader stance, one that acknowledges the problem on a truly global scale. His belief that the IMF should be funded to offset the trickle down effect that the financial misdeeds of the few will have on emerging nations, has called upon economies equally as large (China and the Middle East, glaringly absent from the discussion) to help. This approach of helping the customers rather than the supplier is somewhat out-of-sync with the methods so far employed by Treasury Secretary Henry Paulson and the U.K. Chancellor of the Exchequer Alistair Darling, who have supported the banks rather than the taxpayers of their respective nations.

Revamping the System
And the world sits and waits for some solution. But do we need one? The idea of a central bank is good one. But the notion that four banks need to control 50% of the banking business is not. This financial wake-up call should have all of us running to our community banks again. While these institutions are generally much smaller, the risks they take are also in proportion to that size. They are F.D.I.C. insured and they make prudent lending decisions based on creditworthiness and the ability to pay back the loan.

Our banking system is a regulatory mess with numerous states and authorities exercising a wide range of policies that originally was meant to keep the central bank from having too much power. Instead, the power it did have was under-utilized and incredibly slow to the punch. It enabled risk rather than tempering it. It knew what was going on – it had to with so many business minded people in its employ to be completely caught unaware while so many others saw the consequences of these risky markets months, even years ago.

As much as I would like to see an admission of global blame shouldered by the US, it is unlikely. But then so is a solution. Many nations have harbored the feeling that our form of capitalism has escaped our own grasp and because of what we understood but chose to ignore, the world is paying the price. But if the G7 does emerge from the weekend meetings with a plan, it will be because of the humility the US will need to show. I’m not so sure Mr. Paulson is the right person to step up and say, “we were wrong”.

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