Remember this old ad slogan?: "When E.F. Hutton talks, people listen."
Wall Street wants to believe people are listening, even through the current market disaster. But are retirement investors tuning out?
Americans are alienated by Wall Street. Evaporating retirement portfolios have stoked anger; so have stories about the ponzi schemes of Bernard Madoff and Allen Stanford and self-dealing corporate executives (see: tax-financed bonuses, private jets and $1,400 "parchment waste cans").
The anger is flowing on the Internet, where you can find a flood of commentary about Wall Street con men, the casino stock market and comparisons of stockbrokers and mobsters.
At a recent hearing held by the House Education and Labor Committee to examine shortcomings in the nation's retirement security in the wake of the market crash, Committee Chairman George Miller (D-Calif.) called the current 401(k) system "little more than a high-stakes crap shoot."
A cultural signpost confirming Wall Street's low standing came into view earlier this month on "The Daily Show," which ran a brilliant--and devastating--feature that took apart CNBC, the financial news network limb by limb. Jon Stewart showcased the network's record of bad market calls and rosy forecasts on companies headed down the tubes. But all he really did was to make CNBC the poster child for all the market excess that's causing so much pain and anger.
One of CNBC's biggest stars, Jim Cramer, took a stab at reasserting the stock market's standing during a recent appearance on the "Today Show." Kramer started off by blaming the market's plunge on President Obama's economic policies and budget plans: "We have an agenda in this country right now that I would regard as being a radical agenda," Cramer said. "We had a (federal) budget come out that I think put a level of fear in this country that I have not seen in my life and I think that changed everything."
When another "Today" guest from CNBC--Erin Burnett--suggested that President Obama's policies might actually be good for everyone but Wall Street, Cramer said this: "The stock market is the country right now. This is where people's wealth is. This is their pension plans, their 401(ks)s, their IRAs."
I'm sure Cramer and the people who run CNBC wish that were true. But the facts about retirement security suggest otherwise.
Pensions? Yes, defined benefit pensions remain prevalent in the public sector--and many pension funds are under severe strain right now. But overall, just 17 percent of all American workers have defined benefit pensions today, according to the Center for Retirement Research at Boston College (CRR).
For most Americans, what's at stake are 401(k) and IRA portfolios. But even before the market plunge, the average American household had a surprisingly small amount of their wealth tied up in retirement accounts.
The CRR reported recently that households approaching retirement age had just seven percent of their wealth in 401(k) or IRA accounts as of in 2007--and that was before the market crash. The more important categories of wealth were Social Security (44 percent of wealth) homes (22 percent) and defined benefits (18 percent).
Overwhelming evidence suggests that the system of voluntary investing has not produced retirement security. Participation rates in workplace plans have always lagged, with only 63 percent of eligible employees participating, according to Fidelity Investments. Those who do participate often don't make good asset allocation decisions.
Here's the other interesting thing: Obama's policies don't seem to be the source of investor fear that Cramer claims. A recent NBC News/Wall Street Journal poll showed that:
- 68 percent of Americans have a favorable view of the president, including 47 percent whose opinion is "very positive."
- 67 percent feel hopeful about his leadership.
- 54 percent say Obama has the right goals and policies for the country, and 57 percent "tend to support" the recently passed economic stimulus package.
- 41 percent say the country is headed in the right direction, up from 26 percent in January.
None of this is to suggest Americans aren't scared. Those who do have retirement portfolios have watched their holdings fall 40 percent or more in value just as jobs are disappearing and home values plunge. So there's no shortage of fear to go around.
But the system of retirement saving based on investor-managed accounts has failed to encompass all of America in the way Cramer claims. It wasn't working well before the market meltdown--and now it looks less relevant than ever.
Instead, the talk in Washington is beginning to focus on finding new ways to insure retirement security. Retirement experts are calling for safer, more automatic savings options, ranging from a so-called Automatic IRA that converts to an annuity upon retirement, to a federally run pension program that would sit alongside Social Security.
Cramer and all the other market pundits are still talking. But is anyone listening?
Copyright 2009 Tribune Media Services, Inc