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From The Mailbag

401(k)s lose value, investors sue financial
companies and global currencies become
highly volatile as global economy falters
Wild swings in the global currency markets are causing radical shifts in monetary exchange rates that are frustrating transnational bankers and the merchant princes of the world who see themselves in the drivers' seat during what they thought was the final phase of globalization. Global currency traders see the wobbling currencies as a sign of trouble. The outlook for global trade in 2009 is troubling on two fronts. First, universally, the demand for goods from the emerging nations has plummeted. Add to that woe inventories of already manufactured goods which are not moving through the distribution pipelines as growing joblessness in the United States and the other industrialized nations dries up discretionary spending.

Over the past week, the Australian pound lost 10% of its value against the Swiss Franc; the Euro lost .9% of its value against the US dollar which is surprising since the Fed lowered interest rates to near 0%. Currency watchers are banking on the dollar's recovery faster than the currencies of Europe based almost entirely on the stimulus package that President-elect Barack Obama's incoming administration has proposed and will likely sign into law by January 23 in a Rooseveltian twist in which the White House will use FDR's 1933 national emergency rhetoric to push the legislation through both Houses of Congress in one day, sending the bill to the White House for Obama's signature before midnight.

As the Euro slid over the last three weeks, Euro-watchers wondered if the decade-old monetary unit might collapse. The doubts about the Euro spring from arguments in several of Europe's nation states whose economies were not initially impacted as hard as their larger industrial neighbors, raising the specter of reintroducing independent monetary policy in the smaller EU states were weaker currencies actually benefit their local economies.

The financial collapse in the United States began with the criminal mismanagement of Fannie Mae and Freddie Mac through their decision—lobbied by the US Congressional Black Caucus, and earlier, by Illinois State Senator and community activist Barack Hussein Obama—to guarantee mortgages for completely credit-unworthy home buyers whose household incomes consisted, all or in part, from welfare benefits. Millions of these substandard mortgages were approved in the 1990s when Congress and the Clinton Administration weakened underwriting rules in order to provide minorities with home ownership—without regard for whether or not those homeowners had the means, or the historic inclination to pay.

The gloomy outlook, vanishing jobs and the retreat of shoppers from the nation's malls, is dragging sales and profit predictions down, adding to the woes of the economy. The bleak outlook, reinforced by employment numbers that show another 524 thousand jobs were lost in December, creating a vicious cycle causing a cyclonic spin on the economy: jobs disappear, spending drops causing a loss of private sector sales, the loss of company profits followed by even more job losses. This is followed by even greater retreating stock values which then impact the values of 401(k) retirement programs. Standard & Poor's 500-stock Index was $1,279.64 in Jan., 1999. The monthly value of the Index on Jan. 6, 2009 was $934.70, or a loss of 27%.

When the entire economy goes into the dumper, its no longer abstract math. It's personal because it changes your life in real numbers. Here's the reality. If you had $100 thousand in your 401(k) invested in average mutual funds last year, you lost $39.5 thousand, or 39.5% of its value. To get back to where you were on Aug. 1, 2008, your 401(k) will have to earn 66%. That's probably not going to happen anytime soon. People are asking themselves what to do to salvage their retirement nest eggs. Right now, there are no good answers. If you are one of those who carefully watch their 401(k) status updates and know the market well enough to know how to roll your nest egg over into a money market fund, your losses would probably even be worse today.

Most passive investors (those with the nest eggs in mutual funds), realize that everyone's in the same boat, and the alternatives aren't any better than what you have. Moving your money out of mutual funds and into a 10 year Treasury note, it will take you 29 years to recoup your losses. In reality, the best bet is to suck it up and sit it out. The S&P stood at $1,320.28 on Dec. 31, 2000; at $879.82 on Dec. 31, 2002; at $1,111.92 on Dec. 31, 2003; at $1,418.30; at $1,468.36 on Dec. 31, 2007 and, finally, at $899.22 on Oct. 10, 2008. While investors today are acknowledging that what does up goes back down, the simple truth is, what goes down always goes back up. That's the nature of the market. The stock market is naturally volatile. It is not the best past-time for the faint-at-heart.

Unlike the investors of the 1930s who took their lumps quietly, Injured investors are now fighting back by filing record numbers of lawsuits against financial institutions and Wall Street firms. A total of 210 federal securities class-action lawsuits were filed in 2008. This was on top of 144 such lawsuits filed in 2007 when the sub-prime mortgage industry collapsed, resulting in a domino-effect toppling of bank and mortgage company failures. Of the lawsuits filed in 2008, 103 of them are against Wall Street firms and 97 are against investor-equity losses from banks and mortgage companies. The lawsuits, collectively, are seeking reimbursement of $856 billion in investor losses. Most of the lawsuits allege that because banks and other financial institutions deliberately understated the toxic assets they owned, investors were not told the truth about their financial conditions, and bought stock they believed was much healthier than it actually was. Some of the lawsuits targeting banks allege the bankers deliberately made bad loans to people they knew could not afford the loans and lacked the means to make the payments. Twenty-one of the lawsuits were centered auction-rate securities (sub-prime bonds) they had purchased but were unable to sell when the sub-prime market collapsed and there was no market for the bonds.

Had the Democratically-controlled US Congress legislatively mandated that Bush Treasury Secretary Henry Paulson use the $700 billion stimulus package to purchase foreclosed subprime mortgages, and require that US banks would receive sums equal to, but not greater than, the unpaid principle (excluding accumulated interest) as payment-in-full for the mortgages which would then be surrendered to the Resolution Trust Company. The Resolution Trust Company would then manage those properties, restoring the foreclosed mortgage holder into the homes with refinanced terms that would allow them to live in the homes they originally purchased until such time the house could be sold to a home buyer who could afford it.

What that would have done was restore the bank or mortgage company's asset-debt ratio. This would free up money to loan to consumers, reversing the collapse of the economy and restoring sanity to the market place.

The American people are being duped by its government which is using US tax dollars to bolster its over-extended and ready to collapse global economy. This happened because the New Worlder's are rushing to complete the task they started over one hundred years ago. And, they know they need to get the deed done before the American people wake up and realize precisely what they are doing. Well, once again, for whatever it's worth, you have my two cents on this matter.