Celebrating 17 Years of Service

April Newsletter

Apr 26, 2024

NAVIGATING CHANGES: Deregulation to Retirement Planning

The last few decades have seen significant shifts in the financial landscape, driven by deregulation and changes in financial policy. Particularly impactful were the policies in the mid-1990s that altered the course of housing finance, setting the stage for the 2008 financial crisis. After the Great Recession banks once again became more regulated and lobbying dollars shifted from banking to insurance industries. Recent trends in retirement planning now emphasize this shift as annuities and insurance products have become more prevalent, potentially compounding risks for retirees.

Deregulation and the Path to the Great Recession:

 In the mid-1990s, under President Clinton’s administration, a series of deregulatory measures were enacted that significantly loosened the criteria for qualifying for government-insured real estate loans, like those from Fannie Mae. The idea behind the deregulation was to make homeownership possible for more Americans. Previously, substantial down payments and proof of repayment ability were mandatory. The shift allowed banks to act mainly as brokers, arranging these loans and selling them to investors, thereby removing the risk from their books and collecting substantial fees.

This deregulation led to an era of excessive borrowing under minimal scrutiny—often termed “liar loans.” Banks were required to retain a portion of the loans they sold and maintain certain debt-to-equity ratios—a protective measure learned from the Great Depression. However, many of these safeguards were dismantled, leading to unsustainable lending practices.

The Glass-Steagall Act, repealed in 1999, previously separated commercial banking from investment banking and insurance operations. This repeal enabled the creation of large financial conglomerates that could engage in various business activities, including investment and commercial banking, insurance, and other financial services. Enacted during the Great Depression in 1933, the Glass Steagall Act aimed to reduce risk and prevent conflicts of interest by prohibiting commercial banks from engaging in investment banking activities, and vice versa. However, over time, regulators introduced loopholes that allowed banks to participate in the securities and insurance sectors. The Gramm-Leach-Bliley Act (GLBA) of 1999 officially repealed the Glass-Steagall Act’s restrictions on banks’ affiliations with securities firms.

The Fallout: Recession and Response:

The resultant high leverage and risky financial products triggered the collapse of banks and insurance companies, spiraling into the Great Recession. With the burst of the real estate bubble,    consumer spending plummeted as many used the rising real estate values to finance extravagant purchases. Following the recession, global central banks introduced low interest rates and monetary stimulus to avoid a deeper depression, mirroring lessons from the Great Depression about limiting   indebtedness.

The Shift to Annuities in Retirement Plans

Post-recession, the focus of financial lobbying shifted from banking to insurance, leading to significant changes in retirement planning. The introduction of products like annuities into 401(k) plans, bolstered by legislation like the Secure Act 2.0, reflects this shift. These changes, purportedly to benefit retirees by reducing expenses, have been criticized for instead funneling profits to insurance companies at the expense of retirees.

Critically, the definition of “fiduciary” has been manipulated to align with the interests of insurers and brokers rather than retirees. Efforts by figures like Robert Reich, former Secretary of Labor, to enforce fiduciary standards on financial advisors handling retirement accounts were temporarily successful but faced substantial pushback from the insurance lobby.

The story of financial deregulation and its consequences on the economy and individual financial security continues to unfold. The rise of annuities in retirement plans, driven by heavy lobbying, serves as a cautionary tale of how policy can shape market practices and individual financial futures, often aligning more with corporate interests than those of consumers. As we move forward, a critical examination of these policies and their long-term impacts is essential for safeguarding economic stability and retirement security.


In recent years, the U.S. national debt has escalated dramatically, a trend not solely attributable to war or economic recession, but also to consistent overspending relative to tax revenue. This increasing debt poses significant challenges for economic stability and growth.

The Scale of the Debt

After the Great Recession and the passage of TARP (Troubled Asset Relief Program) the public debt stood at $6.3 trillion when President Obama took office on January 20, 2009. Today, it has ballooned to $34 trillion and is projected to reach $50 trillion by 2030. This rapid increase reflects a fundamental imbalance: government expenditure consistently surpasses its income from taxes, a gap that is bridged through further borrowing or deficit spending. Deficit spending become the norm after the Bretton Woods system collapsed in the 1970’s and the US abandoned the gold standard. 

Economic Implications of High Debt Levels

The relationship between national debt and GDP is a critical indicator of economic health.  Historically, nations can sustain a debt-to-GDP ratio of up to 90% without severe repercussions. However, the U.S. has now surpassed this threshold, with a current ratio of about 120% and rising. This high level of debt necessitates increased tax revenue to cover interest payments, which can stifle economic growth.

Policy Responses to Debt

The prevailing policy solution to manage debt has been to raise taxes, but this approach often leads to reduced economic activity. An optimal tax burden, which does not significantly hinder economic growth, is suggested to be around 18% of GDP. However, current fiscal proposals by the Biden administration, suggest spending at 28% of GDP. This is a level far above the optimal rate, and would be an unsustainable fiscal trajectory.

Alternative Solutions to Debt Management

· Default: While effective for some smaller nations, defaulting on debt is highly unattractive for a major economy like the U.S., as it would severely undermine future borrowing capabilities.

· Inflation: Historically favored by many governments, inflation reduces the real value of debt but has long-term negative effects on the economy, such as diminishing purchasing power and     increasing prices.

· Economic Growth: The most sustainable solution is fostering economic growth. By making growth a national priority, the economy can expand, increasing jobs, incomes, and the overall standard of living, which in turn facilitates debt reduction through higher tax revenues without raising tax rates.

In Summary:

The escalating national debt is a looming crisis that demands immediate attention. While  increasing taxes is a common short-term fix, it’s clear that fostering economic growth and controlling spending are more sustainable long-term solutions. As policymakers navigate these challenges, the decisions made today will have lasting impacts on the economic landscape and the financial stability of future generations.


For the last five years, we have strategically focused on reducing portfolio risks, particularly within our bond portfolios by shortening maturities and enhancing bond quality. This approach has successfully preserved the principal value of these portfolios, shielding them from significant declines as interest rates surged from 1% to 5%. While many investors faced substantial losses during this  period, our clients benefited from our proactive management.

We invest right alongside you, owning the same stocks, bonds, and ETFs, and together, we strive for decent returns by prioritizing quality companies with low to moderate risk. Our bond strategy remains focused on short-term, high-quality bonds and bills, anticipating that as more people recognize persistent inflation and the likelihood of sustained higher interest rates, we will adapt by gradually extending bond maturities to capture higher yields before the next recession.

Our equity strategies are centered around high-quality companies that have strong market shares and robust financial fundamentals, which enable them to navigate through tough times. These companies offer products and services expected to stay in demand and grow. In the short term, we anticipate continued market strength, although much of the positive news may already be reflected in current prices. While we remain cautious about global economic growth influencing earnings, we are watchful of risks, especially those stemming from potential fluctuations in bond yields.

Our simple goal remains: to ensure we all sleep well at night, confident in our financial stability and the careful management of our investments.