For some time I thought I could do a better job explaining financial terms to students than the glossary sites I was using. While I worked around these problems, what really pushed me over the edge was the economic and housing boom and subsequent recession that began in late 2007. Thanks to Wall Street greed, regulator incompetence, and compromised politicians, we should give up any delusions that putting our faith in these people will lead to a prosperous future.

Now more than ever, it is important that someone level with today\’s teens. The United States is at a crossroads, the rules are being changed on the fly, and it\’s no longer acceptable to be ignorant about the big picture. Below, is a more personal look at what prompted me to create http://www.investeens.com back in 2009. Since then, it has taken on a life of its own, and hopefully will soon ignite a movement of teens whom I believe are the largest group of disenfranchised citizens of America.

1. Embarrassment: The actions of the various players in the housing and mortgage crisis have left me deeply embarrassed. Just 30-something miles from where I live and work, one of the major players, Wall Street, created and sold around the world over $1 trillion of mortgage-backed security “investments” that turned out to be nearly valueless. Their actions caused extraordinary pain around the globe, ultimately bringing the world’s financial system to its knees in early 2009.

2. Anger: I am troubled by extraordinary greed of all the parties involved the mortgage food chain, but am especially disturbed by the actions of Wall Street’s CEOs. The book A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by former Lehman Vice President Lawrence G. McDonald and Patrick Robinson chronicles how CEO Dick Fuld ignored repeated warnings from executives that the housing bubble was about to burst. He fired one. Others left on their own, no longer wanting to work for a man either purposely or naturally clueless. Later, in congressional hearings after Lehman Brothers’ collapse, Fuld acted shocked about the company’s collapse and hurt that the company he cared so much about was allowed to fail. If it wasn’t so tragic for the many rank and file employees of the company who lost everything, his story and reaction to the demise he presided over would be downright funny. According to Forbes.com, the average yearly income Fuld received from 2001 through 2007 was $66 million. I wrote “received” and not “earned” because clearly, he didn’t earn anything. Similar stories of malfeasance are told about James Cayne, former CEO of Bear Stearns.

At least one CEO may not escape unscathed. In June of 2009, Angelo Mozilo, the man who built was Countrywide Financial into the nation\’s largest mortgage company, was charged with securities fraud and insider trading. His lapse? He apparently documented his real beliefs about what the company was doing in email that the government got its hands on.

3. Befuddlement: The government has talked tough throughout this crisis, but, save for Lehman Brothers, has basically given any amount of money to nearly any failing company that has asked for it. The most egregious example is AIG. This company irresponsibly wrote insurance policies (i.e.: credit default swaps) that were too risky and which totaled much more than the company could ever hope to pay. If you can\’t appreciate the irony here, recall that AIG is an insurance company, the largest in the nation before it collapsed. As such, it is supposed to be an expert in assessing a little four-letter word called risk.

When companies that AIG insured failed, AIG’s liabilities became dramatically higher than its assets. This means the company was not only worthless, but it had enormous negative worth. Still, to avoid a complete financial meltdown, the government stepped in and bailed AIG out. If it was going to give money to a worthless company, one would think that the first thing the government would do is wipe out all existing shareholders and take complete ownership of the company for the benefit of the taxpayers whose money the government was using. Instead, it took the carefully-calculated figure of 79.9% ownership. I\’m sure Treasury Secretary Tim Geithner has a complete explanation. All told the government of the United States invested $180 billion in this worthless firm but couldn’t be bothered to own the whole thing and end the charade that the company could exist on its own. This story is repeated with other companies such as Citibank and General Motors.

4. Shock: I am stunned that the major credit rating agencies, specifically Moody’s, Standard & Poors, and Fitch, placed A or higher ratings on investments that were backed by loans to people whose ability to pay them back was highly doubtful. This critical stamp of approval meant that pension funds, insurance companies and other entities with large sums of money to invest – which were trying to do the right thing by putting their money into safe investments – could go head and invest in them with confidence. Were they ever misled. To compound the problem, as the investments were starting to crumble, the credit rating agencies stubbornly held onto their high ratings, not wanting to admit how wrong they were. Further, when questioned, their response has been that “they stand by their methodologies”. What methodologies? Don\’t these agencies have any responsibility for the ratings they put on investments in return for the money they charge, ratings that were heavily relied upon by nearly the entire financial community? The stock market peaked in November of 2007. While there has been a lot of finger pointing and congressional hearings, the rating agencies have largely escaped scrutiny.

Thankfully, someone is doing finally doing something about it. On July 15, 2009, a year and a half into the crisis, California’s Public Employees’ Retirement System (Calpers for short) announced that it was suing the three agencies mentioned above for putting “wildy inaccurate” ratings on investments. Calpers (http://www.calpers.ca.gov/) is the nation’s largest pension fund. It has an enormous pool of money that it uses to pay retirement income to public employees (i.e.: people that work for the state of California or one of its smaller governments). It put a lot of money into investments that these agencies rated very highly. Read more about the lawsuit at http://www.nytimes.com/2009/07/15/business/15calpers.html.

5. Concern: I have watched as the amount of debt the nation is taking on explodes. This debt will harm future generations, starting with today’s teens. The maneuvers that are being pulled by the government right now to kick the can down the road and keep the mess from unraveling are truly shameful. One example is the government’s printing of money that it then loans itself (by buying its own bonds) to create the impression that people are eager to loan the government money because they consider the government a safe borrower.

6. Amusement: After the markets bottomed in early March, 2009, nearly everyone, from the White House to Wall Street to the financial press have been cheering the rise in the stock market and the end of the recession. They would have you believe that things are returning to normal. But there’s nothing normal about what is happening. The economy is recovering because the U.S. government his borrowing massive sums of money and feeding it into the economy in myriad ways. This is not sustainable. It is an artificial recovery. The government’s borrowing might be excusable if it wasn’t in so much debt already, but that\’s not the case. We cannot afford to borrow another dime, and yet we\’re doing so more aggressively than ever.

7. Disgust: Our politicians in Washington are not without a substantial measure of blame. They cheered as the decade of the 2000’s unfolded with home prices going higher and higher and the underserved being able to achieve home ownership for the first time. They didn’t seem to care that what enabled all of this to happen was their own decision to have the taxpayer guarantee an ever-larger amount of mortgages. At one point, the taxpayers, through the Federal National Mortgage Association (aka Fannie Mae) and Federal Home Loan Mortgage Corporation (aka Freddie Mac), guaranteed $5 trillion in mortgages. Today, these politicians have the audacity to get on TV, deny involvement in the crisis (despite videos of Congressional hearings showing them stifling any attempt to rein in these organizations), and then assert they are doing everything they can to clean up the mess! Again, if it wasn’t so tragic it would be downright hilarious.

Even now, two years later in 2011, the situation is not much better (albeit some say it has gotten worse). Where do we go from here?

Author Bio: Tom Barrella is a leading teen investing educator who teaches his Investment Decision Making course to several sections of students each year and advises another 50 students as members of the Investment Club at Syosset High School on New York’s Long Island. Mr. Barrella also teaches a college-level course in corporate finance at Syosset and is founder of http://www.investeens.com.

Category: Education
Keywords: finances,investments,economy,teens,investeens,education,high school,math,financial,advocacy,communit