My Crystal Ball

By Stan Hinden | February 2009

About
Stan Hinden

Many years ago, while I was working at The Washington Post, someone sent me a large crystal ball mounted on a wooden base. On closer inspection, I discovered that the crystal ball actually was a hollow glass ball filled with cloudy water.

I never found out why it was sent to me, but for a brief moment I entertained the notion that my "crystal ball" might help me predict the ups and downs of the stock market. It didn't.

Since then, there have been many times when I wished I had a real crystal ball that would help me see what lies ahead. This is one of those times. Today's retirees and tomorrow's retirees badly need some clarity about what is going to happen to us in the months and years to come.

I am not sure that I have either the wisdom or foresight to provide that clarity. But based on my years as a political and financial journalist, I am willing to climb out on a couple of limbs if my readers promise not to hoot too loudly.

So here is what I foresee for the future-meaning the next five to 10 years:

Let's begin with what we know now. The United States has suffered a series of enormous financial and economic shocks. These shocks have reached down into the lives of millions of Americans-costing them their homes, their jobs and their savings.

The full impact of the Great Meltdown of 2008 has yet to be felt. We will see more businesses in distress, more layoffs, more foreclosures and more personal financial losses. It will be a long time before the survivors can emerge from the rubble and rebuild their lives.

We also know two other things:

First, the federal government is playing a major role in cleaning up the economic mess-at a huge cost. In time, that effort will have tax consequences for all of us.

Second, there will be an endless string of Congressional and federal investigations into the causes of the Great Meltdown of 2008. Once blame is assigned, there will be a flurry of legislation aimed at preventing the Great Meltdown from ever happening again.

So, during the first two or three years of the Obama administration, we will see efforts to tighten the federal oversight of banks, brokers, mortgage companies, credit rating agencies and anyone who may have contributed to the Great Meltdown. We will also see new controls over the use of high-tech investment products-called derivatives--which were at the heart of the Great Meltdown.

Hedge funds, too, will be subject to new scrutiny from market regulators. The hedge funds, with their huge pools of money, were able to wield enormous power over the markets.

None of these efforts will take place without opposition from the securities industry. Their lobbyists will argue that regulation stifles innovation and interferes with free markets.

But those arguments are not likely to prevail. The power of the securities industry has been badly damaged. And the Great Meltdown of 2008 is proof of what can happen when innovation and the "free market" folks are allowed to run rampant.

While all this is happening, the Obama administration will be dealing with a dozen major problems-not the least of which is finding trillions of dollars to pay for the economic stimulus program needed to pull the economy out of a tough recession.

Obama also has to find ways to meet the financial needs of Social Security and Medicare, vital federal programs that affect 50 million Americans. I suspect that Social Security's long-range problems will be solved by taxing wages above the current ceiling of $97,000 a year, and by raising the age for full retirement benefits from 67 to 69. It also seems likely that the earliest age to receive benefits will be raised from 62 to 64 or 65.

Medicare will be harder to fix because the federal dollars that are needed will be difficult to find-given the swollen federal budget. Thus, it seems likely that Congress may decide that Medicare, which now pays 80 percent of approved medical expenses, will pay only 70 percent of those expenses.

Currently, millions of Medicare enrollees, including this writer, carry secondary health insurance policies-called Medigap policies-which pay the 20 percent that Medicare does not pay. If Medicare were to pay only 70 percent of those bills, Medigap policies might pay the other 30 percent. But the cost to policyholders would be considerably higher. One way or another, health care costs for retirees will continue to rise.

Meanwhile, Obama's efforts to create a comprehensive health insurance program will get off to a slow start because of the nation's severe financial problems.

I do think that somewhere down the road, future retirees will benefit from a series of new federal tax incentives, which will do the following:

Encourage small companies to create 401(k) plans for their employees and give them matching funds for their contributions.
Encourage all Americans to save for retirement through a new federal program that will match an individual's contributions-perhaps dollar for dollar. When that person retires, the savings will be paid out in the form of a monthly annuity.
Encourage future retirees to buy long-term care insurance and thus ease the pressure on the Medicaid system from 77 million aging baby boomers.

Beyond all of these nitty-gritty issues, I believe the Great Meltdown of 2008 has created a national psychological problem that may plague America's leaders for years to come.

We do not yet know the full dimensions of the damage to the American psyche. Americans who lost their homes, their jobs and their savings do not understand why the Great Meltdown had to happen and why their government did not prevent it. The national mood, I suspect, is one of anger and resentment and skepticism about the effectiveness of governmental systems that are supposed to protect Americans from financial harm.

Finally, I believe that the biggest casualty in the Great Meltdown of 2008 has been trust: trust in government, trust in the markets and trust in banks, brokers and major corporations. Rebuilding public trust in the honesty and fairness of America's institutions will be the fundamental challenge facing President Obama, Congress and all of our national leaders.

It won't be easy. The American people have been badly wounded and they won't soon forget the pain that they've endured.

The author was compensated for writing this article by AARP Financial.

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