Wall St. should’ve taken the long, slow 401(k) road

February 28th, 2009 at 05:21pm Annette LaCross

Three or four times a week, someone will ask me why They were allowed to do it.

“They,” of course, are the Wall Street bankers who thought slicing and selling mortgages was a terrific idea — until it wasn’t. Or the mortgage lenders who pushed too many people into subprime loans — even buyers who qualified for lower-yield mortgages — then sold the mortgages to eager Wall Street firms. Or the homebuyers who bought more house than they could afford and need taxpayer dollars to climb out of the red.

Now, these people fume, we’re paying for Their greed.

Too true. However, there’s another culprit at work here, one I suspect has contributed to quite a few of our economic troubles these days: the fundamental conflict between our 401(k) plans and Wall Street.

A 401(k) is a retirement plan. It’s a long-term investment strategy.

Wall Street has no such design, operating as though every minute is its last. These days, in fact, it seems to double as the applause-meter for the Obama administration, reacting almost instantaneously to every burp or gurgle emitting from Capitol Hill.

Last week, Ben Bernanke’s optimistic comments about the second half of 2009 drove share prices up, followed almost immediately by a sharp downturn when it occurred to investors that we still seem to be weathering banking and housing crises.

Only in such a setting could the housing bubble have expanded so rapidly and to such an extent — not one company could resist it.

And not one shareholder would have allowed such a thing. If you own shares of XYZ Co., and XYZ’s CEO calls for restraint in an environment as improbable and unpredictable as an asset bubble, you start calling for the CEO’s head.

When everyone else’s 401(k) is making money hand over fist, you want a piece of the action, too.

In that rapid-fire, do-or-die environment, a corporate CEO has little interest in planning for the company’s future. He is too busy planning for his year-end bonus, which requires daily progress, than positioning the company for the future.

In that environment, then, we place our hopes for our future comfort.

Perhaps most peculiarly of all, it works — as long as we don’t concentrate on Wall Street every day.

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