Seven days, three seemingly disconnected announcements, and one subtle theme: what we have here is a failure to communicate… or more to the point, a failure to educate. America and much of the world is in the midst of financial literacy crisis that goes well beyond one's ability to manage his or her own money. Consider what's going on at home and abroad.
First, the attorneys general of 49 states agreed on a $26 billion package with five major banks in order to settle lawsuits brought by those states alleging improper mortgage practices and rampant foreclosure fraud. Then the stock market went through the roof when the Greek government agreed to a series of truly severe austerity measures hailed as yet another final solution to the teetering solvency of that once-prosperous EU country. And finally, the Obama administration released its new $3.8 trillion budget proposal, which projected a massive deficit for the coming fiscal year, and significant deficits for each of the next six years.
[Article: Eastwood Meets the West Wing]
What a web we weave.
You may not realize it, but these three events are part—and an excellent illustration—of the global financial literacy crisis, one of the overriding problems of the modern financial world. Let's start with a little context: The $26 billion settlement package of course received as many brickbats as it did kudos, but whatever you think about its specifics, you need to know that American residential real estate today is estimated to be about $700 billion underwater. I wonder if most people understand that the settlement is little more than a drop in a very large bucket.
In Greece, the new austerity measures include a 22 percent cut in the minimum wage and the elimination of 150,000 government jobs over the next 3 years. This, in a country decimated by 5 years of steep recession and an unemployment rate over 21 percent, represents a new kind of Greek tragedy. The night before Parliament passed the new legislation, there were violent demonstrations in half a dozen Greek cities, including a turnout of about 80,000 in Athens where the cocktails were provided by Molotov. That's quite a statement for a city with a population of some 650,000. Despite the proportion and emotion of the popular outpouring, the new austerity legislation passed by well over a two to one vote.
I wonder if those demonstrators in Greece understand why their elected officials did what they did, and what they had to do; and I wonder if Americans really grasp the significance and relevance of the near collapse of the Greek economy.
And then there came the new proposed U.S. budget, with its 60,000 line items jacketed in blue but awash with red ink, which projects a deficit of over $1.3 trillion for fiscal 2012, and a deficit every year for the next six, gradually shrinking to "only" $575 billion in 2018. I wonder if anybody, on the Hill or elsewhere, really understands anything about that budget.
Thus in short, the mortgage settlement addresses at best only about 4% of the overhang, the unrest in Greece is likely to accelerate with no guarantee that the new austerity plan will actually solve the problem anyway, and the Obama budget pleases no one, and was predictably declared on life support by many observers on both sides of the aisle.