Ownership Economy Sustained Our Parents & Grandparents through Thick and Thin

Client Therapy:

Once Upon A Time In Middle-Class America

John E. Girouard 10.31.08, 7:30 PM ET

The Great Bailout of 2008 and the death of Wall Street as we’ve come to think of it are the last shovels of dirt on the grave of the once-vaunted “New Economy.” After decades of financial hocus-pocus, inept regulation and corrupt governance, this historic inflection point suggests we’re ready as a culture and an industry to return to some basic values of the old ownership economy, the one that sustained our parents and grandparents through thick and thin.
For those who weren’t around back then, and as a reminder to those who were, once upon a time in middle-class America:

–You saved your money at the nonprofit credit union or mutual savings bank, where you were a member or owner instead of a customer, and where you went to borrow money for a car or college tuition, at favorable rates.
–The predominant form of life insurance was called participating or mutual whole life, where policyholders automatically were “mutual” owners of the company, your premiums accumulated like cash in a bank, you earned tax-free interest on the balance, you could borrow the money back any time no questions asked, and if you repaid the loan, you were repaying yourself.
–You got your mortgage from the local savings and loan company where the loan officer might be a member of your church, you had to put down 20% cash and you had to document every cent of your income.
–You bought a house you could afford and worked extra hours and jobs to pay off the mortgage. You bought a car you could afford, for transportation (not for show) and drove it until long after you’d paid off the loan.
–Investors bought stocks that paid reliable dividends and held on to them for the long term, even when the market flew into an air pocket, allowing them to earn the best return with the least amount of risk.
What went wrong? Under the banner of free-market economics, we destroyed the ownership society enjoyed by all and replaced it with an ownership cabal controlled by few. We have steadily given up ownership of our financial futures in our quest for bigger, speedier returns.
At the start of the 1980s, Congress allowed your local mom-and-pop savings and loan to go into the real estate speculation business. Regulators made it easier for banks to lend many times as much money as they actually had in their vaults. No surprise that banking became highly profitable, and that attracted the sharks on Wall Street.
Investment bankers, who know that the best way to rob a bank is to own one, discovered a gold mine in banking fees and equity deals by persuading the directors of mutual savings banks, credit unions and mutual insurance companies to go public. While the directors of these institutions got rich, the members, policyholders and owners became mere customers of companies serving shareholders.
The result was predictably disastrous. By the end of the 1980s, the thrift industry was virtually wiped out, the taxpayers were on the hook for billions and a parade of bankers went to jail. And here we are again, but this time it’s systemic and global.
Here’s the good news: Some of the “ownership” vehicles that sustained our parents and grandparents are still around. In spite of efforts by the banking industry to kill them off, there are nonprofit, member-owned credit unions in every community, open to anyone who wants to join. Mutual life insurance policies are also enjoying renewed interest as people discover that, as a policyholder-owner of the insurance company, you earn interest on the premiums you pay, and you can borrow your premiums back. It’s like owning your own bank. As for risk, life insurance was the one segment of the financial world that came through the Great Depression relatively unscathed, its policyholders whole. They “owned” the bank.
The Great Bailout of 2008 will no doubt yield its share of villains as the wreckage is cleared away. The silver lining may be that we are waking up as a nation, and as financial services professionals, and also admitting that we let ourselves be blinded by our impatience to get ahead. It’s time to get back to the basics of becoming a true ownership society. Our clients deserve it.
John E. Girouard is author of The Ten Truths of Wealth Creation, CEO of Capital Asset Management Group in Bethesda, Md., and founder of the Institute for Financial Independence, which provides investor-education programs to individuals and financial professionals.

October 21, 2010 · Jennifer · No Comments
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