Tom's Life Bits

Jeannine Aversa, The Associated Press
WASHINGTON - Two giant mortgage companies get into hot water over risky investments. The government steps in to throw them a lifeline should they need it.

Hundreds of thousands of Americans buy homes more expensive than they can afford. Congress approves a rescue package.

Troubles erupt at a Wall Street investment firm that made bad bets on mortgage investments. The Federal Reserve steps in and provides financial backing for the company's takeover.

Meanwhile, tens of millions of people pay their mortgages on time, don't max out their credit cards and put money into retirement funds. They might even save a little extra on the side.

In return, they get rates on their savings that don't keep up with inflation. They see their nest eggs shrink as the value of their homes plummets and the stock market tumbles.

Washington policymakers seem intent on rescuing those who behave badly and put at risk the taxpayers who've played by the rules and shunned the get-rich-quick schemes.

If the government can toss a lifeline to troubled mortgage underwriters Fannie Mae and Freddie Mac, they why won't they do something for Americans who save their money?

Why aren't the nation's savers storming the Federal Reserve or the Treasury Department or the halls of Congress demanding that something be done for them?

“Perhaps there is a mentality that you can't beat city hall,” says Ric Edelman, financial adviser and author. Or maybe it's just that the mentality of people who are savers also helps make them flexible enough to roll with the punches.

The elderly who no longer work and live off their income from savings and other investments are getting walloped by the current economic hard times.

“People like my mom. You expect them to be upset. People who are doing a lot of saving now versus people who are done saving are two very different groups,” said John Huizinga, an economics professor at the University of Chicago's Graduate School of Business.

The average rate on a one-year CD these days is about 2.3 percent, according to Bankrate.com. But inflation has been rising closer to 5 percent over the past year, so savers are seeing their returns wiped out.

“Savings are taking it on the chin,” says Greg McBride, senior financial analyst at Bankrate.com. “The Fed's rate cuts geared to aiding ailing homeowners with adjustable-rate mortgages have come at the expense of savers and retirees dependent on fixed income,” he said. “For the past 12 months, there has been a double whammy for savers as interest rates have fallen and inflation has increased.”

The average rate on a savings account is a rock-bottom 0.37 percent, Bankrate says.

David Middleton and others are so mad about the situation in Washington that they formed the grass-roots group Fed Up USA. The group, which has about 50 members, has protested in Washington and elsewhere against “federal financial irresponsibility.”

Middleton, 32, who is self-employed, says he was spurred to act earlier this year. That's when the Fed provided a loan of $28.82 billion as part of JPMorgan's takeover of the ailing Bear Stearns.

“I was outraged,” he said. “These companies make their decisions and their bets. … They should not be bailed out on the backs of the taxpayers.”

He was equally aghast at the sweeping housing-rescue package approved by Congress and signed into law by President Bush last month. It gives struggling homeowners cheaper mortgages and lets the government lend money to Fannie Mae and Freddie Mac or buy their stock should they need it.

Middleton said policymakers in Congress, in the Bush administration and at the Fed should hold accountable the banks, investment firms and others involved in the nation's financial debacles. And policymakers should bolster their oversight and provide more information to the public.

Middleton has written to Fed Chairman Ben Bernanke and his lawmakers in Washington. “I got back the standard form letter … thank you for your comment,” he says.

Bernanke and Treasury Secretary Henry Paulson have said the rescues were needed to avert a broader financial meltdown. And the Fed's rate cuts, which did help distressed homeowners with adjustable-rate mortgages, were aimed at shoring up the wobbly economy. That benefits savers and the profligate alike.

Older savers may think that keeping their hard-earned money mostly in a bank is the safest way to go, especially as they watch some of the big nose-dives on Wall Street.

Yet experts say the recent collapse of IndyMac and other banks is increasing anxiety about that.