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Bulls & Bears
Record Number of People Are Raiding Their 401ks for Money; Sign That More Economic Hardship Is Ahead?
BRENDA BUTTNER: 401, not O-K. A record number of workers are now raiding their 401Ks. They're out of cash, out of options, and now digging into their retirement savings to make ends meet. They're making what are called "hardship withdraws" and some here say it's a sign there are more hardships ahead for this economy. Is it?
ERIC BOLLING: This is bad news. It means people are having a hard time. This week we heard news of mass layoffs—more than 50 people at a time—hitting 1,600 last month. That's almost a record—we have such elevated levels of unemployment. And how about the news that 21 percent of all home mortgages are underwater? This all points to not only a bad recovery, but maybe even a double-dip recession.
KRISTIN BENTZ: I follow the consumer and out here in Arizona a record number of homes are underwater. On the local news, they talk about how it's easier not to pay the mortgage and send the keys in. The consumer is tapped out and scared. I'm surprised that people are dipping in again. They did this last quarter and now they're doing it again. It's definitely a harbinger or bad things to come.
JONAS MAX FERRIS: It's not a good thing that people are taking hardship withdraws but in general, at the bottom of the economy and market, you often see people taking withdraws from mutual funds and 401Ks. 401K loan were big in 2002 at the bottom of the stock market before the economy recovered. In the boom periods is when people were adding the most and getting into stocks, so it could be a sign that this is the end and we've hit the bottom.
TOBIN SMITH: You have to combine the fact that they're pulling money out of 401Ks with the fact that a lot of money is coming out of mutual funds in general, and that's really worrying. Usually, at the bottom of a downturn is when people pull the most money out mutual funds and 401Ks, but in this case, they've been liquidating the stocks in their 401Ks all throughout this run-up. That's different than what we've seen before.
GARY B. SMITH: Let's go through some of the economic indicators. The unemployment rate is just going north fast. Secondly, consumer spending has pretty much flat-lined and is probably going down. Pending home sales are down. Factory orders are down. How anyone can say that this economy is going the right way, on top of this 401K news, I just don't understand.
Are Union Pensions the Next Big Bailout?
BRENDA BUTTNER: First it was banks and autos, then teachers and states. Now reports that the next big bailout is going to be for union pensions. We were one of the first saying it could happen and if someone here is right, President Obama just promised that it will happen. The news coming as a new study shows pensions are under-funded by $3 trillion.
GARY B. SMITH: Obama is losing his base and of course he's lost the Independents. One of the last bastions he has is the unions. We saw that with the GM bailout—that was a bailout of the unions and bondholders got the shaft. Now we're trying to bailout the unions which have been losing membership for years, so all of the funds that go into those gold-plated pension plans are drying up. Unions across the board put themselves into their own hole and I am galled that Obama wants to do this.
JONAS MAX FERRIS: These retirees should get their benefits—it's not the workers fault. However, the way it should work is the way it works for private pensions. The pensions pay a premium to PBGC which is a government agency like FDIC, and then when they fail, this agency picks up the tab. That's how it works if you work in the private sector and it's how it should work for unions, because those pensions are more crooked than private ones. The government needs to manage them through an organization.
TOBIN SMITH: Let's look at some of the facts here. More than 50 percent of the people who are covered by these plans are already retired! And, they've all used these crazy estimations that they'd be earning 8 percent or 9 percent annualized returns, when in fact they haven't earned those returns other than on bonds in the last 12 years. Only the public has allowed this to go on. If this were a private company, you would have had to report this as a public company and show that you were under-funded. But in the states, they have Uncle Sam to come in, so they just keep promising.
ERIC BOLLING: The states should pay for this but they can't because they're broke. California says its pensions are under-funded by $100 billion but Schwarzenegger came out a couple weeks ago and said that number is more like $500 billion. So this $3 trillion could be $5 trillion and there's no way the states can pay it. They can't print money—only the fed can and that's why they are looking up to the federal government for help. Unfortunately, Mr. Obama and the unions have each others ear right now, so you may see some form of a bailout. I'll tell you what though, if he does, it'll be the last thing he does because he won't be around in 2013.
KRISTIN BENTZ: I think this is a nightmare. How many more bailouts can there possibly be? The consumer can't handle it—where is their bailout? This just perpetuates the myth that the government is going to take care of everyone and bail them out and hand them everything. It's a nightmare.
Did Stimulus Spending Create Virginia's State Surplus?
BRENDA BUTTNER: The new deficit projections for 2010 are in and they're not pretty. $1.3 trillion – it's the second highest on record. But that's not stopping some lawmakers from touting spending. They're pointing to the state of Virginia as proof that the stimulus is working. That state just announced a budget surplus that doubled.
TOBIN SMITH: First off, Virginia cut its spending. Secondly, northern Virginia for all intents and purposes is Washington D.C., and the only reason they had an increase in tax revenue is because there's so much federal spending going on in Fairfax County. They're saying that we need to take 25 percent of workers in every state and have them work for the government, like is the case in northern Virginia. Then you'll have a surplus.
KRISTIN BENTZ: We can't spend our way out of this. What we really need is growth and jobs. You can print more money, but we can't make more jobs and that's what we need. Even if you brought unemployment down to 8 percent, that would be a huge improvement.