Wednesday night, the guests at the annual banquet of the UJA-Federation of New York’s Wall Street and Financial Services Division got a message that they may not have liked: The economy and the country are screwed, and you all are complicit.
David M. Walker, the president and CEO of the newly formed billion dollar Peter G. Peterson Foundation, said straight out the he is “very concerned about the future of this country, financially and from other perspectives” and that we are headed toward a real economic crisis that will cut much deeper than the recent bust of the subprime mortgage market.
Government spending is out of control, we are facing a $53 trillion debt to Medicare, and Americans and the government are addicted to debt, which will ultimately kill us, said Peterson, who resigned after nine years as the comptroller of the United States to run the Peterson Foundation in March.
“That started in the 1980s. We used to run deficits and accumulate debt when we had wars, when we had depressions, when we had recessions, but now we are running deficits and accumulating debt burdens no matter what the economy’s like, no matter what the state of peace or war might be. And you ain’t seen nothing yet, because the tsunami of spending associated with my generation, the baby boom generation, is on the horizon, and when it hits, unless we engage in reforms, it could swamp our ship of state and we are not prepared.”
If anyone is qualified to level the accusation, it is Walker, who served under the Reagan, Bush One and Clinton administrations in senior Pension and Welfare positions. As CEO of the Peterson Foundation, started with $1 billion from the former senior chairman of Blackstone Group Management to point out to Americans exactly how this country is running itself into the ground, Walker is currently auditing the United Nations.
But, keep in mind, Walker was speaking to the UJA’s bankers’ group, whose members donate tens of millions of dollars per year to the federation. If Walker’s right, then many of them undoubtedly helped enable what he describes a system of unchecked American spending that could lead us to a crisis that “would affect tens of millions of Americans in ways that they have never experienced in their life.”
He in no way let them off the hook.
“Quite frankly, we need the business community – and the financial community to be much more engaged than it has been of late. It was engaged in the late ’80s and early ’90s and, in all candor, it has been missing in action in the recent challenge. We cannot afford that.”
The Fundermentalist has not heard whether or not Carly Simon told the UJA’s Entertainment division that they were so vain, when she performed at a separate banquet last night.
Read on for a full transcript of Walker’s remarks. (Thanks to Naomi Tarlow, a k a The Incredible Intern, for transcribing the speech.)
It’s a pleasure to be in New York.
I recently accepted a position as head of the Peter G. Peterson foundation. I have an apartment in New York and hope to be able to enjoy it after we get our operation off the ground.
I also have had the pleasure of being able to travel to Israel several times and its an experience I’ll never forget. One of my international capacities is I’m actually on the audit committee of the United Nations. You can imagine it’s a fairly challenging assignment.
They’ve never had one before, and I’m their first chairman for the last several months. We’ll see how it goes.
What I’d like to do is talk to you for nine and a half minutes on some issues that I think are important and will hopefully be of interest.
First, I’ll let you know my family has been in this country since the 1680s. The rosette that I have on my coat is the Sons of the American Revolution. And my wife has a history that goes back frankly before mine.
My point is this: Like all of you, I’m very proud of this country but I can also tell you that having spent 10 years on the front line in Washington DC, being a presidential appointee of Reagan, Bush one and Clinton – I may be the only person on earth appointed by all three of those – I’m very concerned about the future of this country, financially and from other perspectives, and let me just share a few thoughts with you.
We have strayed idly to a grave stand from the principles that our founders brought in establishing this great nation in 1789.
At the beginning of this republic, the federal government represented 2 percent of the economy. The founders felt that the federal government should have an expressed and enumerated set of rules and that experimentation should be at the state level and that all of the power belonged to the people.
Today, the federal government represents over 20 percent of the economy in spending, and it will be over 30 percent of the economy within the next 25 years – and that’s only at the federal level.
Today, the 38 percent of the budget that is called discretionary spending – and therefore not on autopilot – includes every expressed and enumerated responsibility that the founding fathers envisioned for the federal government: National defense, homeland security, federal judicial system, foreign policy, treasury functions, postal service, executive office of the President and Congress of the united states, every single one.
And they are being squeezed increasingly because of mandatory spending. We are the only country on the face of the earth that has written a blank check for healthcare – and if there’s one thing that could bankrupt this country, it’s healthcare. The country has gone from a time where we value thrift and where we had debtors’ prisons, to where today, America and too many Americans have become addicted to debt.
That started in the 1980s. We used to run deficits and accumulate debt when we had wars, when we had depressions, when we had recessions, but now we are running deficits and accumulating debt burdens no matter what the economy’s like, no matter what the state of peace or war might be. And you ain’t seen nothing yet, because the tsunami of spending associated with my generation, the baby boom generation, is on the horizon, and when it hits, unless we engage in reforms, it could swamp our ship of state and we are not prepared.
There are at least four common denominators between the recent mortgage-based subprime “crisis” or what I refer to as the “super subprime challenge,” the federal government’s finances and let me tell you what they are.
First, with the mortgage-based subprime crisis, there was a disconnect between the parties who benefitted from practices and those who were at risk.
Secondly, there was inadequate transparency with regard to the nature, extent and magnitude related to the risk and therefore, there were a lot of bad surprises.
Thirdly, there was a situation where lender confidence and adequate cash flows were not maintained and where the limitation of credit ratings were very much exposed.
And fourthly, we saw both in the private sector and in the government that there was inadequate oversight and risk management attention until a crisis occurred.
Let me mention a few federal parallels.
The federal government is in a situation where it has a $53 trillion financial hole. That is the sum of our liabilities and unfunded promises for social security and Medicare.
We have a situation where today’s taxpayers benefit from low-tax, high-spend policies and tomorrow’s taxpayers will pay the price and bear the burden. That’s my kids and grand-kids and believe me, they don’t appreciate it.
Secondly, there’s inadequate transparency over the real risk associated with federal finances – namely the $41 trillion dollars in off-balance sheet, unfunded promises for social security and Medicare, of which medicare is $34 trillion. And these numbers go up by two or three trillion a year by doing nothing and that’s what Washington’s been doing lately, is doing nothing or else making it worse.
Thirdly, Bear Stearns found out the hard way, that if you lose lender confidence, if you don’t have adequate cash flow, it doesn’t make any difference what your market cap is, what your book value is, that you can engage in a far-sale transaction quickly, and we found out with mortgage based subprime security arrangements, that a triple A credit rating doesn’t mean what it used to. The federal government, quite frankly, is relying upon borrowing whatever it needs as long as it wants, hopefully low interest rates from foreign lenders. It shouldn’t count on that.
It also is experiencing a negative cash flow for Medicare and we will experience a negative cash flow for social security within ten years and we all know that while the federal government currently has a triple-A, triple credit rating, the question is how long will in maintain that rating, if we keep on our current path.
And last, it’s very, very clear that not enough attention is being paid to mitigating the risk associated with our large, known and growing fiscal challenges.
The next President of the United States must focus on our future. The next president of the United States must be prepared to make tough choices.
We have to reestablish budget controls tougher than the ones we had in the 90s. We have to reform social security. We have to reform our tax system. We have to reform our healthcare system. And we need to do it sooner rather than later because if we don’t, we will have a real economic crisis, and a crisis that we should do everything we can to try to avoid because it would affect tens of millions of Americans in ways that they have never experienced in their life, and that is unacceptable.
So Peter Peterson has dedicated $1 billion in order to form a foundation that will help state the facts and speak the truth to the American people, that will help generate issue campaigns, to hopefully generate a movement that will put pressure on Washington to act sooner rather than later so hopefully we can avoid a crisis.
Quite frankly, we need the business community – and the financial community to be much more engaged than it has been of late. It was engaged in the late ’80s and early ’90s and in all candor, it has been missing in action in the recent challenge. We cannot afford that.
So for those of you that care about your country, for those of you that care about your children, for those of you that care about your grandchildren, as I do and I expect that all of you do, we need to work together to try to help make sure that politicians earn their pay, even though it’s a part-time job right now, and we’re not getting very good results.
But the good news is: this is America. We have faced major challenges in the past and we have always risen to those challenges. We’ve done it before, we can do it again if we the people decide it needs to be done.
Thank you very much.