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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.

JONAS MAX FERRIS: I believe that in a recession, during a weak economy, when you're near 10 percent unemployment, you want to run a big deficit and spend more than you take in. The government shouldn't do that in a strong economy, which they do and that's a problem. But in general this is a good idea, and they are spending a little less this year than they did last year, and taking in a little more tax revenue than they did last year, which is the right direction to go in as the economy improves. The picture of the economy is a little better than it was last year. If we can keep that path going, someday, we'll be okay.

GARY B. SMITH: I'm about to agree with Jonas for five seconds. Technically Jonas is correct. The state of Virginia got about $2.5 billion. Look, if you give someone $2.5 billion and allow it to pump it into the balance sheet, they're probably going to show a surplus. But the agencies cut $175 million in spending. There are only three metropolitan areas in the country that saw an increase in income tax revenue. It was rising incomes in the northern Virginia area that was one of them.

ERIC BOLLING: Remember when we spent $3 billion on Cash-for-Clunkers? What happened? People bought cars. The problem was that when we stopped giving them the $2,500 or $4,000 payments, they stopped buying cars and auto sales crashed. How about the first time home buyers credit—the $8,000 credit? People bought homes and when they stopped giving them the money, home sales dropped 30 percent—the biggest drop in history, the month after that program expired. When you take the money away, all the economic activity stops.

Predictions

GARY B. SMITH: Hormel Foods (HRL)

TOBIN SMITH: Unilever (UL)

KRISTIN BENTZ: Crocs (CROX)

JONAS MAX FERRIS: Comcast (CMCSA)

ERIC BOLLING: Valero Energy (VLO)

Cavuto on Business

This week Neil Cavuto was joined by Charles Payne, Gary Kaltbaum, Rob Stein, and Dagen McDowell.

D.C. Summit on Fixing Fannie and Freddie Giving Us No Solutions

CHARLES PAYNE: We should put a wooden stake through their hearts, but unfortunately we've given them a bottomless pit of taxpayer money; the remnant of course is the housing bubble wouldn't exist if it wasn't for Fannie and Freddie, but I think you've got to close them down. It's time for this transition to the free markets and even though the administration has kicked a lot of the free market to the curb ,we've got to try to make the transition before it is too late.

DAGEN MCDOWELL: Even people who want full-on private market, it's going to take 15 years for us to extract ourselves from government out of housing altogether. Fannie, Freddie and the FHA touch nine out of ten mortgages in the country; full on 90 percent. So, whatever happens will take a lot of time. But, let's look at Canada: no Fannie, no mortgage interest deduction and a higher home ownership rate than we have in this country.

GARY KALTBAUM: I have news for you: we don't have to go cold turkey. There are plenty of big hedge funds and companies picking up all of these loans from different places and handling the workouts themselves and it is getting done and Fannie Mae and Freddie Mac have been doing more than a fraud ridden unaccountable entity and think about this, 150 billion dollars, we're not talking millions anymore, $150 billion that taxpayers got to pay for their mistakes. It should be done now let's get it started.

ROB STEIN: It's kind of like don't hate the player, hate the game. Quite frankly, the private sector banks haven't done much better than Fannie and Freddie; over 300 banks have failed this year and a lot of the reasons are because of their mortgage lending programs and policies. I think you need to change the rules of the game. That's where the issue is, not necessarily abolishing and dismantling Fannie and Freddie. But that would probably be a good step.

Schools Sitting on Emergency Funds To Save Teachers' Jobs

DAGEN MCDOWELL: This perfectly illustrates everything wrong with government spending. The government — whether it's state, local, or federal — does not spend money efficiently; it would be better spent by the private sector, number one and illustrates that these localities in the states, they're black holes, there is no end to the money they want or will need down the road and you see it in this.

CHARLES PAYNE: We keep using the kids, the teachers, the firemen as excuses… and we don't talk about the other jobs that this money has gone to bolstered. Yelling fire in a crowded theater has been the modus operandi of the administration from day one and gotten a bunch of laws and we don't understand. This is outrageous and they've got to stop playing us like that.

GARY KALTBAUM: I think it changes when elections show there are repercussions. Charles made a great point. Everything is an emergency when it comes to spending and it has to be done now. What I have marveled at the last few months is the emergency to extend unemployment benefits. Also, I've got news for you: there's a couple hundred billion dollars in the stimulus that could have paid for all this months ago if it was so important.

ROB STEIN: I think people complaining that the money they are getting, they're not using, so they're sort of darned if they do, darned if they don't. There are school systems getting it right away and they are bringing back teachers that were laid off. While we'd love to get into each individual school and look at their budget and see if we can legislation and help get the budgets on track and hire the teachers, it's a fire and we need to put the fire out.

Health Care Law Sparks New Debate Over Rationing

GARY KALTBAUM: Two new words we are going to hear about on health care in the future, and that's cost effectiveness. Instead of worrying about how to take care of somebody, we'll worry about how much it costs. It's a British style model and I'm worried.

CHARLES PAYNE: You don't have to be a brain surgeon to understand there are millions of people that are going to pour in the system and you've got to worry about quality of care, don't you? We'll have a shortage of doctors no doubt about it. Emergency rooms are going to be piled out to the street. When I was a kid living in Harlem, I can remember going to these kinds of clinics and packed to the gills. The doctor was seeing me for like five minutes and that's it. The quality of care is going down and we're all going to suffer and rationed. No way around it, it's just come on sense.

DAGEN MCDOWELL: Look at Great Britain: the new Prime Minister moved to spend more money, it was like a billion pounds, to provide cancer treatments and other services and surgeries that people in the national health services cannot get and that's the road we're going down.

ROB STEIN: Capitalism and prices is all about controlling how scarce resources get distributed. It's not true to be able to call everything rationing. At some point, everybody would love to live in beach front property. Everybody would love to go to the best doctor and be the first in line, but you have to have some mechanism that controls how you distribute resources.

More for Your Money: Charles' Next Big Winners

Posco (PKX)

American Eagle Outfitters (AEO)

Akamai Technologies (AKAM)

Forbes on Fox

On Saturday, August 21, 2010, David Asman was joined by Steve Forbes, Rich Karlgaard, Bill Baldwin, Mike Ozanian, Victoria Barret, Stephane Fitch, Quentin Hardy, and Fox Business Network's Elizabeth MacDonald.

In Focus: Companies Expect Health Care Costs to Rise 9 Percent Next Year; What Does That Mean for Job Market?

(BEGIN VIDEO CLIPS)

HOUSE SPEAKER NANCY PELOSI: It saves the taxpayers $1.3 trillion.

PRESIDENT BARACK OBAMA: We passed health insurance reform that will finally make coverage affordable.

SENATE MAJORITY LEADER HARRY REID: We need to lower the rising health care costs.

HOUSE MAJORITY LEADER STENY HOYER: This bill is the biggest deficit reduction bill that any member of Congress is gonna have the opportunity to vote on.

PELOSI: We have to pass the bill so that you can find out what is in it.

(END VIDEO CLIPS)

DAVID ASMAN: That was then. This is now. Key White House allies telling Democrats on the campaign trail to abandon claims the health care law will bring costs and the deficit down. The about-face coming as the nation's largest companies now expecting the law to add 9 percent to their costs. And someone here says guess what they're cutting to pay that extra 9 percent? Jobs!

Hi everybody, I'm David Asman. Welcome to Forbes on Fox. Let's go In Focus with Steve Forbes, Lizzie MacDonald, Rich Karlgaard, Quentin Hardy, Victoria Barret, and Stephane Fitch. So Steve, a lot of these big companies saying this thing is going to cost us more and therefore, we can't afford to hire more workers.

STEVE FORBES: Well David, it's very basic. When the cost of hiring goes up, you do less of it. If you don't know the rules of the game, you're going to just hold back. That's why the cash is not being put to work, and it's even having a more perverse effect on small businesses; they're in a mood to just shovel it off to the government. So yes, it is costing jobs. It's basic arithmetic, higher costs of hiring, you do less of it.

QUENTIN HARDY: Well David, let's be clear. This is an argument about perception. They think it's going to go up by 9 percent. And the Democrats? Their message isn't going well so they should change it. Well, 20 percent of the country thinks President Obama is a Muslim. Sometimes people just don't have the facts at hand. An independent study calculated costs might go up 1 or 2 percent over 10 years. That didn't calculate savings from having the whole group covered when that drives down the emergency care costs. You really don't know where this going to go. Companies are saving money because there's going to be no more stimulus spending; they're going to be on their own and corporate profits are under threat.

RICH KARLGAARD: When you talk to small employers, you get stories like this: It's going to cost me $80,000 a year to hire somebody who I'm going to pay $50,000. Not all of that is health, but that's the sum total of all of the regulatory overhead that you have. When you talk to large employers… I'm fortunate to live on a block where I have controllers, one at Cisco and one at Apple, who live on our block. You talk to them during block parties and they're just very, very, very nervous about adding to their payroll right now in the U.S. because of all of these regulations, including health care.

STEPHANE FITCH: Well, we all want to get invited to Rich's block party so we can get better jobs. But look, here's the thing, I think this health care thing is maybe a job creator because you make it a little easier for the individual, self-employed entrepreneur to get health care, group health care. By the way, ignore the silly 9 percent number, which isn't very far above the 7 percent number of recent years and by the way, is just a non scientific survey. The real number to focus on is the 13 percent of employers who say we'll now start covering kids even if they're sick. It's illegal to deny kids coverage. I think that's good for American competitiveness.

VICTORIA BARRET: We're not going to save money. Everything about this bill increases the cost of insurance. And Stephane, I mean, you look at a small business, this doesn't make it easier. I spent some time this morning looking at what a small business has to do to figure out if they qualify for these wonderful tax credits, and it is a labyrinth. Small business owners will spend an inordinate amount of time just figuring out who they have to insure and how and whether they can qualify for these tax credits. These are all things that stymie small businesses from hiring, from expanding, and even from starting in the first place.

ELIZABETH MacDONALD: Yeah the medical business sees it coming. And also, the chief actuary of Medicare put out a pretty damning report saying, Look this is fantasyland accounting of the cost savings. In other words, the chief actuary for Medicare saying the cost-savings promise in the health reform bill is fantasyland bookkeeping. He's saying to deliver those cost savings, it'd be about as easy as herding gnats to a hurricane. It just ain't gonna happen. When you look at a company-to-company basis, you see AT&T, Caterpillar, Deere, talking about this hitting their bottom lines, but surprisingly, UPS saying one part of it, retiring Medicare drug costs, isn't going to affect them; it will be fractional.

China Is Now World's Number 2 Economy; Is America's Stimulus Stimulating China?

DAVID ASMAN: This week China took out Japan to become the second biggest economy in the world and now it's gaining on the U.S. And guess what's helping them do it? America's stimulus money! At least in part, some economists saying stimulus money is being passed on to China and other foreign firms. So Steve, this is just more proof our stimulus is not working?

STEVE FORBES: It is proof the stimulus is not working. We're overspending, overtaxing, over-regulating, which is why this economy is lagging. We're also setting a bad example for the rest of the world, which they're now turning away from. Spending does not work. When are we going to learn what Europeans learned 10 years ago?

ELIZABETH MacDONALD: I have to agree with Steve, this stimulus package was structured incorrectly from the start. Only $230 billion going toward an infrastructure updating of our highways and bridges and roads, and only $66 billion being spent there. And China, as Mike is going to say — sorry I don't mean to steal your thunder — China is doing it right with its own infrastructure spending. This infrastructure spending should have been done from the get-go to create American jobs instead of American money going overseas.

MIKE OZANIAN: One of the things that disturbs me, David, is that U.S. productivity is declining while Japan's is still going up. And I think with all this stimulus money that we've shuffled into housing, trying to prop up the housing industry, we've neglected other industries. That's why Japan's productivity and its economy are doing better than ours right now.

STEPHANE FITCH: Golly, can we come to peace with this? Yes some of our stimulus money helps China. Some of their money helps buy our bonds and helps us back. This is how global trade works folks. I mean, Americans as individuals or sometimes through their government buy stuff in the best place they can find it. If that means finding cheap plastic crap from China, then that's where we go.

BILL BALDWIN: I would stop worrying about whether China is picking up some of our money when we buy Chinese machinery and I'd look at some other big problems with stimulus. Stimulus under President Obama means we that we take money away from businesses that make a profit and give it to the ones that don't; it means we take money away from homeowners who pay their bills and give it to the homeowners who don't; it means taking money away from the productive part of society and giving it to crooks like New Jersey.

QUENTIN HARDY: David, Japan lost to China because of a bloated financial sector, over-leveraged financial sector, housing bubble like crazy, and crony capitalism between big companies and the government. Sound familiar? Yeah a little bit. Now for this thing, you seem to be suggesting the solution would be just earmark jobs for America. We should have stimulus spending where companies don't have the freedom to spend it to the way they want in the most productive way. That doesn't sound very good to me.

Flipside: America's Biggest Ripoff? College!

DAVID ASMAN: Now for the Forbes Flipside. The biggest rip-off in America is college tuition! It's soaring even though the economy is falling. And look what some universities are splurging on. How about a 5-story climbing wall? Or a jumbo Jacuzzi big enough for 50 of your closest friends? Or nearly $34,000 on each member of a golf team? And a school president raking in over $1.5 million in salary? Rich, most folks say the investment is still worth it, but not you, right?

RICH KARLGAARD: The investment had been worth it for about 50 years. But starting about right now, the investment for the majority of people who pay outrageous tuitions is going to be negative. The ROI (return on investment) is going to be negative. And that's because the Internet allows people to learn what they need to do and what they need to do to succeed on their own for free.

QUENTIN HARDY: We have a culture that believes that students are like customers and they should be treated in this fantastic way. A couple of weeks ago I saw Bill Gates. He watches MIT lectures on the Internet. He said the big battle coming up is going to be over accreditation. People can learn that stuff, but you can't prove it, you can't show it, you don't have the quality in the eyes of society. So Rich, if your kid got in at Stanford, you'd send him there right?

BILL BALDWIN: David, I love looking through college catalogues. My favorite course is this one: Video games as gender spaces. Listen, the people who are in the college racket will tell you that college grads make $1 million over their lifetime more than high school dropouts. That's true, but not because of the college. People who do go to college have the aptitude, the persistence, the drive that gets them ahead. It wasn't that video game course that made them succeed. And Bill Gates dropped out.

STEPHANE FITCH: We were talking about hot tubs earlier. My view is if you don't like the hot tubs and you can't afford them, then don't stay in those dorms; don't spend that money. I think college is basically a good investment. I went to college, got a degree in American Literature. I've got my $10 haircut, my cheap tie, my bad suit, I've got no pants on, and I'm wearing makeup right now. Thank you, University of Maine.

(LAUGHTER)

STEVE FORBES: David, like anything it depends where you send the kid and what the kid can get out of it. Getting a degree shows the kid's got brains and has discipline to get the job done. They should take a cue from Norman Borlaug who won the Nobel Peace Prize years ago with the green revolution, saved tens of millions of lives. He got his undergraduate degree in physics and the like. But he also took political science courses and economics, and he told college students before he died, Get that broad education because you never know what you need to draw on when you go out into the real world. So if a kid has the right mind, he or she will get good things out of college, and parents can then look at the metrics and decide, Is this worth it or not? Some will do it, some won't.

Informer: Stocks That Will Pay You Off, Not Rip You Off

DAVID ASMAN: And we're back, with the stocks that will pay you off!

BILL BALDWIN: Allstate (ALL)

VICTORIA BARRET: Symantec (SYMC)

STEPHANE FITCH: Alcoa (AA)

Cashin' In

President Obama Says Social Security Can Be Fixed With "Modest Adjustments." Is That Code For Tax Hikes?

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Social Security is not in crisis. What is happening is that the population is getting older, which means we've got more retirees per worker than we used to. We're going to have to make some modest adjustments in order to strengthen it.

(END VIDEO CLIP)

CHERYL CASONE: Uh-oh. Is "modest adjustments" code for huge tax hikes?

TRACY BYRNES: Tax hikes are coming, and big ones! This is what the Democrats do when there's a problem. They raise taxes. The problem though, is that when they collect all this tax money, nobody knows what they do with it. We all know that Social Security is the biggest Ponzi scheme ever and they keep robbing from it. The right thing to do would be to pay it back, but they won't do that. They'll raise taxes, they'll say they're using it to fund Social Security, but who knows where it will go. They already came out and said they are not going to raise the retirement age because they don't want to lose those votes, so you better anticipate high taxes.

CHARLIE GASPARINO: My conspiratorial mind says this is a cover for raising taxes. The Social Security "trust fund" isn't really a trust fund of any kind. It's a piggy bank for funding programs. And they President wasn't very convincing with that "modest adjustments" stuff. All you have to do is listen to that with a little ear for "Obama-isms" and you know that something bad is coming with Social Security.

JULIAN EPSTEIN: Let's look at some facts. The Social Security trust fund has a surplus of $2.6 trillion. It is taking in more money than it's paying out in benefits. Every single analysis has shown that the Social Security trust fund will have surplus until the year 2037. I think if we're going to reform Social Security we should start means testing. I don't think rich folks need to be getting the kind of benefits they are. You could use some of that income for a payroll tax cut. But the idea that the Social Security system is in trouble is wrong.

WAYNE ROGERS: The Social Security tax is going to go up, there's no doubt about that. And when the President talks about tweaking it or making a modest adjustment, it's a euphemism for raising taxes. If you go from 12.4 percent to 14.35 percent, which is what it will take to extend it for 75 years, it's not a big jump. And the person who is getting taxed isn't even going to notice it. But it's a constant encroachment. And Congress just uses the Social Security fund as its own piggy bank. Soon it will be empty.

JONATHAN HOENIG: You can't really call it a surplus or a trust fund. There is no account with your name on it, Cheryl. There's just a promise to tax future generations to pay for your benefits. And of course, whatever those benefits are is up to the whim of politicians. There really is no safety in the "safety net" because all of the safety we talk about is up to the discretion of these future generations. Social Security is already 20 percent of the federal budget. I think either taxes will have to rise or, more likely, benefits will have to fall, just like they are in Europe.

Should Teacher Performance Be Evaluated By Student Test Scores to Save Taxpayers Money?

CHERYL CASONE: The Los Angeles teachers union is calling for a massive boycott of the LA Times. It's targeting the paper for exposing how student test scores expose which LA teachers are making the grade and which ones aren't. Wayne, you say grade all teachers this way to save our money?

WAYNE ROGERS: What better test is there than the results of something? If I'm a teacher and my student is regressing, why shouldn't I be judged on that basis? I should be judged based on the product of what I am doing. If a teacher is not judged on that, and that doesn't go into the pay scale, we are wasting a lot of money. Teachers unions insist on tenure after 3 years which is just crazy, and we are paying for teachers who are obviously not qualified and who are not producing students who are learning. That needs to stop.

CHARLIE GASPARINO: I'm all for grading and scoring teachers, but you have to judge them differently. Someone who teaches Special Education should not be judged on the same scale as someone who teaches high school honors courses. It can't be purely, across the board student performance. Take New York City—it's not an easy place to teach. The kids are rough, and to have the same scale for those teachers as for the ones that teach honors students in another school is ridiculous.

TRACY BYRNES: But that's the point. I taught in the education system for a year. There is no incentive to bust your butt and teach these kids if you know what you're going to be making over the next couple years. These teachers need to be paid for their performance. There are some damn good teachers out there and they are not being rewarded. Part of the reason we didn't want to see the scores in LA is that there are teachers out there who aren't doing anything! They get their tenure, they sit on their butts, and they collect their paychecks. That is affecting our children and that will affect our economy in the long-run.

JULIAN EPSTEIN: I think the unions are objecting to the way the LA Times actually reported and the methodology it used. I do agree with Charlie that test scores are a crude measure and shouldn't be the only measure. But remember, in 2007, when Obama was behind in the polls in the presidential primary, he is the one who took on the teachers unions and said that they have to be held accountable for their performance. I agree with him and I disagree with a lot of my friends in the union movement. But we need to use a variety of measures and the good teachers aught to be rewarded and the bad teachers aught to be gotten rid of. I think Democrats need to cross the Rubicon on that.

JONATHAN HOENIG: There are many different forms of education—everything from Montessori to narrative evaluation. I'm not an education expert and I don't think the President is either. But in K-12 in this country we have this disastrous combinations of unions and government monopoly. Put it together and you have a recipe for waste and lethargy. There was an interesting report out this week from the Wall Street Journal which said that only 25 percent of the kids who take the ACT are actually prepared to pass a university course. The prescription we have now—government monopolized education—hasn't worked, and the unions have only made it worse.

Should Politicians Be Paid Their Constituents' Median Income?

CHERYL CASONE: And that rage was before they knew about this. It turns out that those same local California politicians who got the boot for taking home hundreds of thousands in pay, also got huge government loans to buy fancy homes. Not only does Tracy have the fix to end the pay abuse that might be happening in your town or city—she says it will raise your pay. How so?

TRACY BYRNES: Pay them what their constituents make. It will end the corruption and force them to increase the salaries of their constituents instead of spend the money on themselves. This has got to stop. The notion that the Bell, California city manager made $800,000 is outrageous. Our president only makes $400,000. Let us all come up to together! Stop keeping the money just because you hold office.

CHARLIE GASPARINO: I think politicians should make what their constituents make. But I think we need to figure out if what happened in California was just an aberration, or if this is an across-the-board, major problem, in which case we have to act accordingly. I don't think you can draw the broad conclusion that everyone in government is making these salaries that are 30 times more than what their average constituent makes.

JULIAN EPSTEIN: I think there is a more immediate solution. This is fraud. What's going on here is criminal behavior. What we need is prosecution of officials who engage in this kind of stuff and much more transparency in terms of their non-salaried benefits. Secondly, I don't know if you want to make the rule that rich districts should be entitled to have representatives that get paid 3 or 4 times what poor districts' representatives would make.

JONATHAN HOENIG: I don't think we want to pay politicians the average wage. I don't think we want average people to be our politicians. People aren't attracted to politics for the money. I think the $800,000 city manager is an aberration. People are attracted to politics because of the power lust. They'd rather make $175,000 as a congressman than the millions they could make as a lawyer or on Wall Street, because they want to tell people how to live their lives!

WAYNE ROGERS: You can't just make a pay scale based on what the constituents are earning because rich people will get rich representatives and poor people will get poor ones. That's the reverse of what it should be. What happened in Bell was fraud. It happened in Jefferson County, Alabama. Those people should be put in jail.

What Do I Need to Know?

Tracy Byrnes: Don't believe the bulls on Wall Street. Main Street is still hurting.

Charlie Gasparino: Former Lehman Brothers executives could be charged by the SEC in September.

Wayne Rogers: China is still out-producing us. Buy (PGJ): an ETF of some the country's major companies.

Jonathan Hoenig: Ladies underwear company (WACLY) is "scaling new peaks."