More Government Needed

[DeepGreen]

Here's what happens when you give the federal government more of your hard earned money to spend as THEY see fit.

Does anybody out there have any memory of the reason given for the establishment of the DEPARTMENT OF ENERGY during the Carter Administration? Anybody? Anything? No ?

Didn't think so.

Bottom line . . we've spent several hundred billion of dollars in support of an agency the reason for which not one person who reads this can remember.

Ready? It was very simple, and at the time everybody thought it very appropriate.

The Department of Energy was instituted 8-04-1977 TO LESSEN OUR DEPENDENCE ON FOREIGN OIL. HEY, PRETTY EFFICIENT, HUH?

AND NOW IT'S 2008, 31 YEARS LATER, AND THE BUDGET FOR THIS NECESSARY DEPARTMENT IS AT $24.2 BILLION A YEAR, THEY HAVE 16,000 FEDERAL EMPLOYEES, AND APPROXIMATELY 100,000 CONTRACT EMPLOYEES AND LOOK AT THE JOB THEY HAVE DONE!

THIS IS WHERE YOU SLAP YOUR FOREHEAD AND SAY 'WHAT WAS I THINKING?'

Ah yes, good ole bureaucracy. And now we are going to turn the Banking system over to them? God Help us.

[Coffee and TV]

The Department of Energy was instituted 8-04-1977 TO LESSEN OUR DEPENDENCE ON FOREIGN OIL. HEY, PRETTY EFFICIENT, HUH?

http://seattlepi.nwsource.com/connelly/271725_joel26.html

[EagleD]

If, in the last 6 years, we had invested all the money into alternative energy that we put into the war in Iraq, we might very well be energy independent. Or at least a hell of a lot closer. And we would have created something called "jobs". I hear good things about these "jobs". We should have more of them.

[meangreendork]

Ah yes, good ole bureaucracy. And now we are going to turn the Banking system over to them? God Help us.

Because letting the banks do as they see fit was a great idea. It's such a great idea, the taxpayers are going to throw $75 billion at it. Now they're begging for money they shouldn't have needed in the first place, and the banks are basically being given the liberty to do as THEY see fit with the bailout money. Frankly, I think a bit of regulation (and a bit, mind you) is what the doctor ordered.

[keith]

Because letting the banks do as they see fit was a great idea. It's such a great idea, the taxpayers are going to throw $75 billion at it. Now they're begging for money they shouldn't have needed in the first place, and the banks are basically being given the liberty to do as THEY see fit with the bailout money. Frankly, I think a bit of regulation (and a bit, mind you) is what the doctor ordered.

The free market is usually the best regulation. Politicans can't fathom the thought of not doing anything. It is against their nature. The taxpayers don't need to throw $75 billion at this problem. Politicans in Washington are taking you money and my money and throwing it at the banks. Most of this mess was the result of stupid laws anyway that forced unnatural behavior and valuation of assets. If the government just stopped this would all be worked out in the market place.

Keith

[UNTflyer]

Because letting the banks do as they see fit was a great idea.

If the banks were allowed to do as they saw fit, we wouldn't be in this mess.

http://www.lewrockwell.com/dilorenzo/dilorenzo125.html

[Guest JohnDenver]

If the banks were allowed to do as they saw fit, we wouldn't be in this mess.

http://www.lewrockwell.com/dilorenzo/dilorenzo125.html

That is the biggest line of BS that I hear all the time... If the free market could TRULY regulate itself, then this wouldn't be true:

The only way these borrowers could qualify for their mortgage loans (even ignoring their bad credit ratings) was to take out adjustable rate mortgages, some of which had astonishingly low first-year rates in the 3 percent range, and sometimes lower. This is what has largely fueled the subprime mortgage meltdown

Who invented the ARM? Who came up with these types of loans?

Nothing in the CRA *EVER* said they *HAD* to give risky loans. The CRA stated that riskier loans could be approved on (qualifying) loans with no higher then a few percentage points higher than less risky loans.

The BANKS came up with mish mash loans. They came up with 0%. 100+%. HELOC. 80/20. All that crap. Just to get the loan on the books, then have it wrapped up in a some investment fund and sold off to investors as AAA loans.

Give me a break.

It is pure hog wash.

[UNTflyer]

Well the great thing about social sciences (like economics) is that there is a lot of theory, but nobody can every truly be right or wrong.

However, the free market is capable of self-regulation if government gets out of the way. GM, Ford, and Chrysler could go bankrupt and force themselves to reorganize, shed their outrageous labor costs, and streamline operations like the foreign car companies did 20 years ago. Citibank, Goldman-Sachs, etc. would also go belly-up and their assets purchased by the stronger financial institutions who chose not to wade into the government-sanctioned social engineering.

There are lots of opportunities in bull markets, and even better opportunities in bear markets. This is the time to buy up stocks. GM at $3 a share is a steal. These government bailouts only serve to subsidize failure. We are setting a very bad precedent that poor decisions on the part of politicians, regulators, and business leaders will not be penalized.

Business exists for one reason - to make money. it is not an engine of social change, nor should it be the driver for political influence.

[meangreendork]

If the banks were allowed to do as they saw fit, we wouldn't be in this mess.

They were able to make these subprime loans, but not pushed to do it or forced to.

However, the free market is capable of self-regulation if government gets out of the way.

Yes, but that's after the free market goes and causes itself to fail, and again, human greed in action. The worry is that bailout money won't go to anything that actually helps the economy but it will go to pad shareholder's pocketbooks. Now, I heard on NPR that something is being lined up to make 600 of that 750 earmarked for easing up credit markets by basically buying up the bad loans. That could be just what's needed here.

[The Fake Lonnie Finch]

I think it's hilarious to hear the "energy independence" phrase thrown around by environmentalists. If we could drill everywhere we have oil and natural gas reserves, we would have long ago been energy independent! And, even moreso if we had been able to build more nuclear plants...like f'n socialist France! So damn stupid that France is beating us at this game. So f'ing damn stupid!

Instead, we get ridiculous crap shoved down our throats about turning corn into gas, which we now know (well, some of us knew beforehand) isn't good for engines of almost any type. Or, wind-harvesting. Or, wave-harvesting. Or, a bunch of other crap that costs more than oil and gas.

This junk will be continually foisted upon us before its time because we have morons running around as if the earth will be flooded or snowed under...or whatever wacko scenario it is this week...if we don't so something right now. Don't wait for real research. Just barrel ahead in spite of the consequences or costs.

Stupid. Just stupid.

F'n France. Pathetic.

[GreenMachine]

They were able to make these subprime loans, but not pushed to do it or forced to.

Exactly, in the end, the borrower was the one that made the decision and signed the mortgage contract. Living in the metroplex, everyone should realize that a huge number of people knowingly buy things they can't afford, but hey, it sure makes them look good to the neighbors (the same neighbors that bought more house than they could afford also). Time to stop blaming the banks and mortgage companies for the ARM fiasco and start placing the blame where it belongs, on the borrower.

[Guest JohnDenver]

Exactly, in the end, the borrower was the one that made the decision and signed the mortgage contract. Living in the metroplex, everyone should realize that a huge number of people knowingly buy things they can't afford, but hey, it sure makes them look good to the neighbors (the same neighbors that bought more house than they could afford also). Time to stop blaming the banks and mortgage companies for the ARM fiasco and start placing the blame where it belongs, on the borrower.

Completely backwards thinking. If the "market" really looked out for its own best interest, it would have looked at the fools who came in wanting a 300k house, and sent them packing. Instead, the banks abused lax regulations, padding their pockets with tricked out loans (ARMs, interest only, etc) and collected their checks. That hardly sounds like self regulation. No one forced them to issue risky loans. That isn't want CRA did -- blaming CRA is only a CYA.

If I went into the bank and said, "hey, I want to start a small business, but I don't have any investment money, nor a business plan, but DAMN, my product will sell!" They wouldn't give me the loan. Because the can't bundle my loan as a solid investment and sell it to investment banks... Instead, they figured *any* property sales were solid and ran with it.

[GreenMachine]

Completely backwards thinking. If the "market" really looked out for its own best interest, it would have looked at the fools who came in wanting a 300k house, and sent them packing. Instead, the banks abused lax regulations, padding their pockets with tricked out loans (ARMs, interest only, etc) and collected their checks. That hardly sounds like self regulation. No one forced them to issue risky loans. That isn't want CRA did -- blaming CRA is only a CYA.

If I went into the bank and said, "hey, I want to start a small business, but I don't have any investment money, nor a business plan, but DAMN, my product will sell!" They wouldn't give me the loan. Because the can't bundle my loan as a solid investment and sell it to investment banks... Instead, they figured *any* property sales were solid and ran with it.

so the borrower has absolutely no fault in this? Come on, haven't we as a nation placed the blame on other people long enough?

I have worked at a mortgage company for 7 years, maybe we should hire you to teach us about MBS's and selling them in the secondary market.

[UNTflyer]

Completely backwards thinking. If the "market" really looked out for its own best interest, it would have looked at the fools who came in wanting a 300k house, and sent them packing. Instead, the banks abused lax regulations, padding their pockets with tricked out loans (ARMs, interest only, etc) and collected their checks. That hardly sounds like self regulation. No one forced them to issue risky loans. That isn't want CRA did -- blaming CRA is only a CYA.

The problem with this theory is that the banks lost tons of money. Nobody was "padding their pockets". And CRA was most certainly a factor in the push for these subprime mortgages as government regulators and activist groups threatened to stall M&As and give bad bank ratings if banks didn't increase mortgage lending to people who really have no business taking out a 30-year mortgage. These were loans that should have never been made, loans that your most junior analyst would have called a bad investment. Now we see the effects of an over-reaching government that attempts to use the free market to advance a social agenda.

These bad loans were talked about back during the 2002 recession, and that they when the chickens came home to roost it would be bad... nobody listened. Bush tried to get Congress to do something about Fannie and Freddie 5 years ago, and nobody listened. As a result of bad government oversight, we are on the brink of a depression. Now we have another bad government policy with these bailouts, the same pattern of government interference that caused the Great Depression to be worse than it should have been.

[BeanCounterGrad'03]

Exactly, in the end, the borrower was the one that made the decision and signed the mortgage contract. Living in the metroplex, everyone should realize that a huge number of people knowingly buy things they can't afford, but hey, it sure makes them look good to the neighbors (the same neighbors that bought more house than they could afford also). Time to stop blaming the banks and mortgage companies for the ARM fiasco and start placing the blame where it belongs, on the borrower.

I've remained relatively quiet on this and other related topics, and its driving me nuts! So here's my release:

I believe both lenders and borrowers are to blame. That, to me, is not debatable. What is debatable is which is more to blame. I believe borrowers are more to blame, but the banks definitely are not innocent.

My belief is based on my personal experience as a recent home buyer. As my new wife and I started the housing search almost 2 years ago, we visited a "community in progress" that had homes ranging from the 200's (our range) to the 500's. After touring a couple home models in our range we filled out forms with the builder to allow them to check out our credit worthiness. We made it clear to them we were looking in the low 200's range. Yet, they took the effort to sit us down and TELL US what we could afford. It was difficult for me to keep a straight, respectful look as the salesman told me I could "afford" a $400K+ house with a 5/1 ARM. We politely listened to their "presentation" and we told them "we'd get back to them". Needless to say, we didn't give them a second look. In fact, I felt a little insulted that they were telling us what we could afford, like we were to stupid to make our own decisions. Thankfully, we are intelligent enough to know when we are being played.

To back up JohnDenver on his above post, lenders knew exactly what they were doing when they "invented" ARM's, Jumbo, Balloon, Interest-Only, and whatever other silly/complicated loans they could come up with. They took a risk...and failed! That's right, just as borrowers took the risk that they would be selling the house within 5 years or make enough in 5 years to afford an ARM...and failed!

In my opinion, to place all blame on uniformed borrowers is sticking your head in the sand to the possibility that free markets are not the godsend some of you make it out to be. Call me socialist if you like (I personally don't see it as an insult). I prefer to call myself a "limited capitalist" or something like that. Do I agree that free markets can regulate themselves? Yes. Do I agree that over-regulation can be detrimental? Yes. Do I like asking myself questions and answering myself? Yes.

Where I disagree with some of the free-market proponents is the way that free markets regulate themselves. In my view, regulation is meant to assist the free markets in "smoothing out" economic growth. If the market was allowed to "roam free", I'm sure, at times, that the economy would explode beyond our wildest dreams. But when it stalls, we would see the lowest of lows. As a history buff, I draw this opinion from what happened in the early 1900's with the roaring 20's and the subsequent Great Depression. I could go on a while on this topic, but I'll spare yall the beating.

But what do I know...I am a CPA and internal auditor, not an economist or MBA degree holder. (my disclaimer )

Edited November 26, 2008 by BeanCounterGrad'03

[Guest JohnDenver]

The problem with this theory is that the banks lost tons of money. Nobody was "padding their pockets". And CRA was most certainly a factor in the push for these subprime mortgages as government regulators and activist groups threatened to stall M&As and give bad bank ratings if banks didn't increase mortgage lending to people who really have no business taking out a 30-year mortgage. These were loans that should have never been made, loans that your most junior analyst would have called a bad investment. Now we see the effects of an over-reaching government that attempts to use the free market to advance a social agenda.

These bad loans were talked about back during the 2002 recession, and that they when the chickens came home to roost it would be bad... nobody listened. Bush tried to get Congress to do something about Fannie and Freddie 5 years ago, and nobody listened. As a result of bad government oversight, we are on the brink of a depression. Now we have another bad government policy with these bailouts, the same pattern of government interference that caused the Great Depression to be worse than it should have been.

It is absolutely not true that pockets weren't padded. There were a lot of fortunes made at the expense of most. That is where the self regulation falls apart. The upper echelon of the company will get their bonus, regardless. They will get a pension. They will get their buyouts. The salaried worked in the middle to low end of the tier, will do whatever it takes to earn their bonus and keep their job. If that means cut throat now (hell, everyone else is doing it! why not me!?) and then lose their jobs later.. then so be it. That is what they did.

Free market advocates try to use it to solve everything, now you claim that is what the government did wrong? I have heard about "run schools like a corporation, they will have to answer to share holders", "stop all government aid, private sector will pick up because of the supply demand", etc etc.

Free Market is the solution to everything. I am glad to hear you don't think charities and human aid should be run by self regulated free markets.

[Guest JohnDenver]

Where I disagree with some of the free-market proponents is the way that free markets regulate themselves. In my view, regulation is meant to assist the free markets in "smoothing out" economic growth. If the market was allowed to "roam free", I'm sure, at times, that the economy would explode beyond our wildest dreams. But when it stalls, we would see the lowest of lows. As a history buff, I draw this opinion from what happened in the early 1900's with the roaring 20's and the subsequent Great Depression. I could go on a while on this topic, but I'll spare yall the beating.

I completely agree with you. Regulation should smooth us all out, so the people that "drive the economy" won't be the ones to feel the complete burden when there is a terrible low. I wish that all those that played in the "market" would be the only ones to be affected. That isn't the case though. If I had zero money invested (hardly possible, with 401k), I would still feel what greedy wall streeters did...

As an example, flyer (as do many others) say that bear markets are were the real money is made. Very true. But the middle and working classes of this country don't have 100(s)k that they can tied up in some investments until the markets recover. They *need* their money to pay bills, because after all, us being consumers is what makes the rich get richer. I wish I had 500k to put solely to some investment, so I can be a mega millionaire when some new balloon market hotness arises in a few years... then I can sell before the bottom falls out, sit back and say, "free markets are teh awesometown! anyone can do this!"

...but alas, all I can really do it watch my spending, stop buying expensive goods, add to the failed consumer confidence and hope my job doesn't go oversees (so my company's board can be happy with the bottom line spending.) I don't have the money to invest in a bear market AND keep paying bills *if* something bad does happen. This is where the majority of people are. In this awesome boat. But, as you say, bear markets are the bomb, if you are already rich and pretty much sheltered from a bad market. It is like the Lehman brothers CEO that held up his account statement saying, "this has hurt me too. I have lost ... (wait for it) 30 million dollars." However, he still had 100 million in the bank. OH NO!~ That sucks for him. Poor guy. I wonder if he will have money to invest in a bear market?

Free Market advocates can't blame people for their desire to want. Hell, they were doing the same things the banks were, exploiting the lax regulation.

Thought process: "I will buy (on margin?) a house that I can only afford the 5 year ARM. The house will appreciate at 10% a year, I will sell in 4 years (to be safe, silly) and take the profit to buy another house, and do the same. Let's ride this property ladder all the up to retirement. I mean hell, the banks wouldn't loan out money on a risky proposition. They are regulated."

Instead, they ended up getting overvalued property with no buyers when the banks froze up...

Investors do that all the time. They buy on margin, borrow money to invest, naked shorts, etc. You call them smart, but you call a person who viewed their house as a five year investment as reckless.

Talk about a double standard.

[UNTflyer]

Where I disagree with some of the free-market proponents is the way that free markets regulate themselves. In my view, regulation is meant to assist the free markets in "smoothing out" economic growth. If the market was allowed to "roam free", I'm sure, at times, that the economy would explode beyond our wildest dreams. But when it stalls, we would see the lowest of lows. As a history buff, I draw this opinion from what happened in the early 1900's with the roaring 20's and the subsequent Great Depression. I could go on a while on this topic, but I'll spare yall the beating.

You are absolutely right. I am not opposed to all regulations... free market self-regulation is possible, but it requires both consumers and suppliers to be well-informed. Again, this is all theory and real-world application doesn't always shake out the way we expect, hope, or want.

When consumers got stars in their eyes about living in a $400k home by just paying interest on the note, they were NOT doing what was in their best interest. When lenders pushed those loans, they were NOT doing what was in their best interest. When government created this horrible regulation, they were NOT doing what was in our best interest. Certainly lots of blame to go around on all sides, but I will say again that the answer is NOT to throw over $7 TRILLION at the problem. The answer is to let these businesses fail and allow the free market to pick at the carcasses of failed businesses, bad investors, and consumers who made poor decisions. The sooner we hit the the bottom, the sooner we'll start climbing back up the economic cycle.

[UNTflyer]

As an example, flyer (as do many others) say that bear markets are were the real money is made. Very true. But the middle and working classes of this country don't have 100(s)k that they can tied up in some investments until the markets recover. They *need* their money to pay bills, because after all, us being consumers is what makes the rich get richer. I wish I had 500k to put solely to some investment, so I can be a mega millionaire when some new balloon market hotness arises in a few years... then I can sell before the bottom falls out, sit back and say, "free markets are teh awesometown! anyone can do this!"

Why does it have to be $100s of thousands of dollars? I am hardly rich, but I am buying into this market at a higher rate than I usually set aside for investment. It's not one extreme or the other. This whole class envy thing gets us nowhere. But free markets are awesome... buy low, sell high, but low again. It's the American way.

[GreenMachine]

To back up JohnDenver on his above post, lenders knew exactly what they were doing when they "invented" ARM's, Jumbo, Balloon, Interest-Only, and whatever other silly/complicated loans they could come up with. They took a risk...and failed! That's right, just as borrowers took the risk that they would be selling the house within 5 years or make enough in 5 years to afford an ARM...and failed!

First off, congratulations on being a well informed, educated buyer. You knew what you could afford and didn't let the builder (don't know why they would be telling you what you could afford, that is usually where the HLC comes in and works his magic) but you didn't agree to buy more than you could afford. No harm no foul on anyones part.

Lets be honest, most of the people getting into ARM's did not do it as an investment, hoping to sell the house after a few year of appreciation. They did it because they weren't satisfied with what they could afford so they got stars in their eyes and bought more than what they should have. No matter what a loan originator tells someone, only the individual truly knows what they can and can't afford.

On a side note, I've been looking into buying a HDTV for awhile and everytime I go into Best Buy and Circuit City, I tell the associate what I want and what I am willing to pay. How come they are ALWAYS trying to upgrade me to a larger, clearer, higher resolution TV? If I let them talk me into spending more than what I can afford, who's fault is it, mine or the associates?

[Guest JohnDenver]

Why does it have to be $100s of thousands of dollars? I am hardly rich, but I am buying into this market at a higher rate than I usually set aside for investment. It's not one extreme or the other. This whole class envy thing gets us nowhere. But free markets are awesome... buy low, sell high, but low again. It's the American way.

Aren't you a student and newly married? Maybe I am confusing you with someone else..

I assume no kids, and maybe no house payment? Maybe, if you are in college, no car payment either?

With that little responsibility wieghing on you, then I say, hell yeh.. go for broke, put all you can in.

Let's take a reasonable example.

One is making a good salary.

Two kids.

Wife at home.

House payment (affordable within means of family)

Two car payments.

Two student loans that are in payment.

This family puts 20% in 401k and 10% in ESPP stock program.

They have 6 months of an emergency living fund.

No credit card debt.

Their 401k is down 40% over two years.

Their ESPP isn't really worth anything either.

The only money they really have to put into this bear market is the 6 months living emergency fund. Would you tell them to do it? You know, to make *some* money in the future.

Or would you say, keep you money there, just in case... you would hate to pull your kids our of their schools, default on your cars and have your house repo'ed while you were searching for another job in a very bad job market.

This is a normal situation. They max out their 401k and that money is untouchable. They invest in ESPP, but that is upside down now (down 50% over the last year). They save for a rainy day case... but not much more to spend to get rich. I guess they can sell a car, and invest that $300 a month car payment into some stocks... but.. $3600 more a year invested in the bear market will hardly make anyone rich. I say it is almost worthless. You can buy 120 shares of a networking giant's stock and cross your fingers that in 2 years it will be worth 30% more. Then you can sell and have $4680 in case in 2 years. Wow. $1080 profit.

Free markets work very well for people that are already rich or who profit for bubbles ala Mark Cuban (tech bubble).

*note*, this is not my situation. I have no kids... Nor two car notes.. nor a stay at home wife... just not my situation at all.

But I don't feel that the risk of investing a 6 month emergency fund and sitting on it for 2 years is NOT worth it. Mostly because I have little faith in the self regulating free market. I think companies will free market my job to China, to make investors happy. I mean hell, having only 10% year over year growth... that sucks. They should save on costs, screw the loyal worker and export the jobs overseas. Everyone wins! wait.

[GreenMachine]

Their 401k is down 40% over two years.

why is their 401K down 40% over two years? I'm not an investing genius but when the market started tanking, I moved funds from some higher risk, higher return vehicles to more bond dominated, safer investments. I also shorted some long holdings to hedge any losses. Like lifer said before, you can make a ton of money in a down market or you can play it safe and minimize your losses.

Buy low, sell high.

You can also short stocks when they are lossing value.

[Guest JohnDenver]

why is their 401K down 40% over two years? I'm not an investing genius but when the market started tanking, I moved funds from some higher risk, higher return vehicles to more bond dominated, safer investments. I also shorted some long holdings to hedge any losses. Like lifer said before, you can make a ton of money in a down market or you can play it safe and minimize your losses.

Buy low, sell high.

You can also short stocks when they are lossing value.

I can't say why in my hypothetical scenario their 401k is down 40% in two years.

I would say that perhaps that the shift in 401ks over pensions has put the responsibility of total knowledge on people that don't have it. Meaning, if I had a pension through the company, a professional would be in charge of purchasing power and investments. Now, the 401k, make the PERSON responsible for watching daily to their account. Besides, in 401k, you have limited opportunities really. You have 20 funds that you company approves to be available (through schwab or whomever), and you get to pick what you want and what percentage to each. You trust that those fund managers will do the right thing, but we have seen they don't... and what Schwab says was a stable not risky fund, ended up being somewhat risky.

I just checked my company's 401k and there are 20 funds we invest in.. All of them are down over 20% (with 3 exceptions, they are only down 13%).

Now, I guess this person could quit their job and just want their existing 401k to manage it through hard times, or they could trust their fund managers and the Morning Star ratings.. and Lippor averages... whatever they are. Likely free market schmos just lying to the public to keep me investing.

In the 401k world, there is no shorting. As I see it.

[GreenMachine]

I can't say why in my hypothetical scenario their 401k is down 40% in two years.

I would say that perhaps that the shift in 401ks over pensions has put the responsibility of total knowledge on people that don't have it. Meaning, if I had a pension through the company, a professional would be in charge of purchasing power and investments. Now, the 401k, make the PERSON responsible for watching daily to their account. Besides, in 401k, you have limited opportunities really. You have 20 funds that you company approves to be available (through schwab or whomever), and you get to pick what you want and what percentage to each. You trust that those fund managers will do the right thing, but we have seen they don't... and what Schwab says was a stable not risky fund, ended up being somewhat risky.

Now, I guess this person could quit their job and just want their existing 401k to manage it through hard times, or they could trust their fund managers.

In the 401k world, there is no shorting. As I see it.

but here again we put the blame on schwab. Its not very hard to research exactly what mutual funds you have available in your 401K. Lets take Fidelity as an example. I can research the 50 mutual funds available to me. I can see exactly what companies make up that mutual fund. I can research those companies and see if I think it is a wise investment or not. No matter what the fund managers say, I can be informed on my own. People can't just sit back and let other people tell them what to do with their money. You have to take a little initiative and do the research and come up with a plan on your own.

You are right, you can't short you holding in your 401K. However, you aren't limited to just holding a 401K, you can buy stocks outside that, or you can short stocks outside that. Many different investment strategies out there to make money, or lose money.

[Guest JohnDenver]

but here again we put the blame on schwab. Its not very hard to research exactly what mutual funds you have available in your 401K. Lets take Fidelity as an example. I can research the 50 mutual funds available to me. I can see exactly what companies make up that mutual fund. I can research those companies and see if I think it is a wise investment or not. No matter what the fund managers say, I can be informed on my own. People can't just sit back and let other people tell them what to do with their money. You have to take a little initiative and do the research and come up with a plan on your own.

You are right, you can't short you holding in your 401K. However, you aren't limited to just holding a 401K, you can buy stocks outside that, or you can short stocks outside that. Many different investment strategies out there to make money, or lose money.

I say that in this case, Schwabb would be responsible for offering a product (fund) with a dismal output. They are charging people money to use their service, fees, %, etc... Free market should have kept them wanting to make their people money, so they got more money. Sure. the end user should have transferred it all to bonds of some sort, but hell, they are even down a lot. But, they are young, the risky funds will come back (so free marketers tell them) and just don't look at the 401k often. It will all work out. Yes, I read that on cnnmoney, msnbc, fox, etc. That is how they recommend to stay sane in this market condition.

In anything you do, you are trusting someone somewhere. Your research as to what investments a fund has... doesn't tell you completely what you need to know. I don't see a fund out there at all (even the Sin Fund) that has done *even* this year.

That is precisely what a 401k is (or at least what is advertised). You put your money in. The fund managers are supposed to watch it and keep everyone's interests in mind ... i.e.. make money. Don't make faulty investments on behalf of your customers.

Sure, you can post-tax invest your money in stocks. But I doubt a person who isn't quick enough to login to their 401k to reallocate investments, will be quick enough to (effectively) day trade. Especially if they are a busy person with personal matters (soccer games, life, etc). They will have to trust someone and some point. It isn't even a reality to say you have complete control.