Unemployment Rate Hits 10.2 Percent; Reducing Workplace Stress;

H1N1 Vaccine Outrage; Post-Bubble World; Combating Climate Change; Time for 401(K) Reform? - Part 2

xfdhe YOUR-MONEY-01

<Show: YOUR MONEY>

<Date: November 8, 2009>

<Time: 13:00>

<Tran: 110801CN.V63>

<Type: Show>

<Head: Unemployment Rate Hits 10.2 Percent; Reducing Workplace Stress; H1N1 Vaccine Outrage; Post-Bubble World; Combating Climate Change;

Time for 401(K) Reform? - Part 2>

<Sect: News; Domestic>

<Time: 15:11>

VELSHI: We can do more with less people...SMITH: ... you have now -- you've...

VELSHI: And Steve, it's these BlackBerries.

SMITH: There you go.

VELSHI: You know the hours that we work. It's a trend and it often happens, and that's why sometimes these recoveries are jobless. This is not the recovery we can risk having -- being jobless.

BRADY: Right. And productivity can be good when it comes through innovation, when it comes through new technologies.

ROMANS: Right.

BRADY: That's when you really like to see productivity gains.

VELSHI: Yes.

BRADY: That's where we really...

ROMANS: Because coming...

(CROSSTALK)

BRADY: Now it's coming because people are doing more in less... SMITH: Allow me to make this one quick point. One of the things that's hurt workers in this sense, too, it shows what we're capable of doing when our backs are against the wall. Which basically means that we've been somewhat lackadaisical...

VELSHI: That's right.

SMITH: ... when we were living in a better situation.

VELSHI: That's a good point.

All right, what the economy and earthquakes have in common. And what it means for you and how you invest your money.

(COMMERCIAL BREAK)

ROMANS: It's been a year since President Obama won the election on a platform of change. And certainly there's been a lot of change particularly when it comes to the economy. Let's take a look.

The economy finally shifted out of reverse last quarter growing 3.5 percent. The economy's growing now. That's about the best economic news of his presidency. The stock market as well has made a dramatic recovery from its March lows. Commodity prices, they have spiked. Look at gold. Also a record high.

But at the same time jobs are still being lost. So are the positive signs we're seeing, the 10.2 percent unemployment rate. Are the positive signs we're seeing false positives due to massive government spending or is this an economy that's been goosed by stimulus is now on the road to recovery?

Here's what President Obama had to say about it.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: In every economic recovery there is going to be a lag between the economy growing again, businesses investing again and businesses hiring again.

The need for us to make up a whole lot of job loss is going to require, I think, some bold innovative action on our part, and on Congress's part , and on the private sector's part.

One of our challenges now, and I've been speaking about this for many months now, is how do we get what I call a post-bubble growth model?

(END VIDEO CLIP)

ROMANS: A growth model that is sustainable. What does the post-bubble world look like? How do we get there? The president may first want to consider how to get the economy out of this bubble or at least pass a little bubble aftershocks.

According to our next guest, Rona Foroohar, a senior editor at

Newsweek. Also joining us again, Diane Brady, senior writer at

Businessweek.

I'm looking at gold, I'm looking at commodities, looking at stocks, and I'm saying, wait a minute. We just got out of a bubble. What's going on here?

RONA FOROOHAR, SENIOR EDITOR, NEWSWEEK: Well, we're seeing an echo bubble. It's something that happens typically after a big bubble. Governments come in, they pump a lot of stimulus into the economy and then you see markets go up. And we're seeing that across the board. There's no asset class virtually that's down this year.

ROMANS: So then what happens after that? I mean there's this little bubble and then -- I mean, does history tell us that...

FOROOHAR: Well, that's exactly what happens. Typically an echo bubble deflates, usually it takes about a year. It doesn't go back to the original lows. That implies a Dow of about 7,000, 8,000, maybe not 6,000. But it does burst. Only then can you start a new business cycle.

ROMANS: Is the new gold echo bubble and then we move on -- then we start talking about the post-bubble sustainable growth world?

BRADY: Well, I think the enthusiasm for gold has a lot to do with the view of the U.S. dollar. I think that a lot of the enthusiasm in the market is the fact that companies are, in fact, have cut to the point where earnings look good.

ROMANS: Right.

BRADY: And one thing we're seeing is a lot of U.S. companies are now getting their growth from overseas. So they're less reliant on the U.S. economy. But I totally agree with Rona, there is no question that when you look at the U.S. economy in the long term health, it doesn't give a lot of reason for enthusiasm.

So, yes, we'll probably go back a bit, but it's not quite as dire as you might suggest. There's smart people investing because they see growth that doesn't come from us.

ROMANS: Let me talk about smart people investing in the housing market. Because we're going to hear -- well, the president, this week, signing this new extension of the unemployment benefits which is key for hundreds of thousands of people and also this expansion of the first-time homebuyer tax credit.

So you're going to get more free money to buy a home. But is that also feeding into this idea of another bubble? I mean, we have to pay for it, first of all. We already know that according to the treasury's auditors, children have been getting the first-time home buyer tax credit.

I mean -- you know there's some fraud already in this program. And aren't we just propping up a market that maybe should be allowed to find its own floor? BRADY: There are probably hundreds of thousands of houses in this country that we don't need. And the reality is that yes, $8,000 helps. But if your real wages are going down, there are a lot of Americans who bought hopes that could not afford to be in those homes.

So I'm not sure the extent of the bubble. But certainly when you look at trends with real wages, we've seen wage cuts, benefit cuts, a lot of people who are being rehired or being hired back at independent contractors. That doesn't bode well.

ROMANS: We call them caramel answers, right?

BRADY: Caramel answers and...

ROMANS: That's the word of the day, folks. Caramel answers.

BRADY: And that is the trend. So there's less job security. That gives a lot more flexibility to companies but it doesn't give a lot of flexibility to investing long term in a home.

ROMANS: Let me ask you about that home buyer tax credit. I mean this got a lot of play this week. Do you think it's a good thing or do you think this is the government getting in the market when it should just get out?

FOROOHAR: Well, I think the latter. I spoke to Bob Schiller actually last week. And he see -- he said he's seen the biggest turnaround in home prices in the last 100 years and this is coming at a time of record foreclosures. There's a disconnect there. The real economy and the markets are not moving in sync and I think that is a problem.

ROMANS: And they need to expand it. Now they're expanding it. It should be $6,500 if you already own your home and you're trying to buy a new one. You're going to move out -- you know, you've lived in a home for five years, and you've moved on.

You've talked a lot, Diane, about it. I know you can see more about this, and raise income cap as well. Look, it's not free. We're going to be -- it's going to be, I don't know, $10 billion. I mean, we're going to have to pay for this. It does go on the bill.

And speaking of the bill, you've talked about this reset. This fundamental reset for America. Back to the post-bubble world. What does it look like for us, the post-bubble world?

BRADY: Well, you've seen a lot of industries that are fundamentally changing, manufacturing moving offshore. A lot of these jobs are not going to come back and we've seen a lot of companies that are not just lowering wages, which is unprecedented. They're actually cutting benefits. They're freezing 401(k)s.

So the standard of living for the average American is going to go down. We also don't have access to the credit we once did to, you know, create a standard of living that maybe we shouldn't have had in the first place. So I think it's going to be a long, hard road for many, many Americans, and our education system's not catching up, and one more thing I'd mention is when you look at the GDP numbers, that does not really track the difference between investments in innovation, investments in training, and investments in just hard assets.

And really we need to see the investment in these tangible areas...

ROMANS: Right.

BRADY: ... for this country to really be competitive.

ROMANS: And here's the problem for the president and his team. All of these things Diane is mentioning, he's got be working -- they've got to be working on all of them at the same time.

FOROOHAR: Yes. I think it's going to make for a very tricky election next time. And I think that it's going to change what it means to be middle class in this country. I think it's not going to mean flying abroad and eating wild salmon anymore.

ROMANS: All right. Rona Foroohar from Newsweek, thanks so much. Diane Brady from Businessweek.

BRADY: Thank you.

ROMANS: Thanks, ladies.

All right, could a Mac truck be the key to combating climate change? Find out next.

(COMMERCIAL BREAK)

ROMANS: The big three with some big news this week. Ford Motor reported a profit. Yes, a profit in the third quarter. The only U.S. automaker not to file for bankruptcy this year, it earned $997 million compared to a very big loss a year earlier.

Chrysler, which has seen its sales drop by half in the past few years, it vowed to return profitability by the year 2011. The company also says it's on track to pay back billions of dollars in bailout loans by the year 2014.

And General Motors announced its plan to cut up to 10,000 jobs in a restructuring of Opel, a European subsidiary of the company. GM frankly shocked German officials, public officials by announcing its decision to keep the European Opel unit and cancel planned sale to Canadian firm Magna.

VELSHI: That was interesting because one of the reasons involved in canceling that sale was General Motors saying the environment. They're ability to raise money is actually better than that it was when they made that decision to sell. So a bit of an indication that things might be getting better.

Let's also talk about Volvo. It's a company that you may think you know. But I'm not talking about the car company. Volvo sold the car unit to Ford back in 1999. I'm talking about the second largest truck company in the world, and it's not just those Volvo or maybe Renault trucks you may have seen on the road, particularly in Europe or Asia.

Volvo happens to own Mac, which makes trucks right here in America. I recently met with Volvo's Swedish CEO, Leif Johansson. And he says if you're concerned about climate change, then we shouldn't ignore the potential of trucks because they do matter in this debate.

(BEGIN VIDEO CLIP)

LEIF JOHANSSON, CEO, VOLVO: You know, trucks actually run 24/7, and with that, they are actually -- they are a good example of how one can make fuel efficiency a very good business also. Because with all of the use of fuel, if we can reduce by 20 or 30 percent, or even 1 percent, that actually turns into good economics for our customers. So I think we have a good situation here where fuel efficiency and the need to reduce carbon actually is coming hand in hand and doing well.

(END VIDEO CLIP)

VELSHI: So it's interesting because we think about industry. We think about cars. But trucks, as he said, run 24/7 in this country. And this is an opportunity, if you make trucks more fuel efficient, you use less fuel, you help the economy. You help the environment. It's a complete sort of a package.

ROMANS: It's also important, Copenhagen. You're going to be hearing a lot about Copenhagen or Copenhagen. This is -- it's this conference on climate change coming up next month. It's critical for laying the groundwork for what big countries and developing countries...

VELSHI: Right.

ROMANS: ... are going to do about climate change.

VELSHI: So a lot of eyes on this Copenhagen meeting. We'll be talking to you a little bit about this as countries from all over the world will try to agree on standards to reduce carbon emissions. Leif Johansson is going to go to this meeting, not just because it's like a 20-minute flight from where he lives...

(LAUGHTER)

VELSHI: But he was telling me how companies like his stand to benefit but the world can actually come to some sort of an agreement in Copenhagen.

(BEGIN VIDEO CLIP)

JOHANSSON: I think in Copenhagen the real crux there is going to be to have a number of countries sign on sometimes with different commitments. And if I was to be on my wish list, I would say we should have those even if they are voluntary, they should be identifiable, quantifiable and measurable. And we should be able to measure effect. If we could get as far as that, then we in industry would know that we have a scenario all over the world that looks basically the same and the market economy and the companies are typically at their absolute best when they know that there is something coming and we know what the long-term requirements will be and we can do it efficiently.

(END VIDEO CLIP)

VELSHI: And finally, he brought a gar damage truck when he was here.

ROMANS: Did he really?

VELSHI: The city of New York is testing a hybrid garbage truck that apparently belches out air that is cleaner than that which it takes in. So it was here in front. We were walking around, looking at the garbage truck. They're testing it out in New York.

You know these hybrids are particularly good for stop-and-go travel, which, of course, is what a garbage truck does.

ROMANS: Did you get to drive it?

VELSHI: I did not. I like it. It was very clean, though. The cleanest garbage truck I've ever seen.

ROMANS: There'll be numerous violations I'm sure.

VELSHI: If I were driving, yes.

ROMANS: You don't have a chauffeur's license and are probably our insurance wouldn't pay for it.

VELSHI: It would be a problem.

ROMANS: All right, great. It's a great interview. Thanks, Ali.

All right, are 401(k)s safe and secure as they should be? We're going to talk retirement solutions, retirement solutions about your money to help you prepare. That's next on YOUR MONEY.

(COMMERCIAL BREAK)

ROMANS: Only about half of Americans participate in a 401(k) account. And among those, the average account only contains enough money to live on for a few years. Not nearly enough to fund a full retirement.

So is it time for Congress to reform 401(k) retirement savings plans, make it easier for us to invest and maybe make sure that this is a better process for us to make sure we're funding our retirements?

Roger Ferguson is the president and CEO of TIAA-CREF. Let me ask you. What do we need to do to make sure there's enough in our 401(k)s and it's a solvent enough system for us to retirement?

ROBERT FERGUSON, PRESIDENT AND CEO, TIAA-CREF: Well, the first that we have to do is you have to recognize that the 401(k) was never meant to be the primary retirement tool in this country. It was meant to be a supplement. And so we now have to build a retirement system for the 21st century which will have four or five basic components.

ROMANS: How? Tell me?

FERGUSON: First thing is we've got to get to a position where everyone is enrolled in and saving for retirement.

ROMANS: They aren't now?

FERGUSON: And they absolutely are not.

ROMANS: Now you have to opt in now at your...

FERGUSON: Exactly right.

ROMANS: When I talk to young people, when I give speeches or even talk to young people here in the newsroom, I say are you signed up? Are you in? You've got to get in. You've got to get in. The younger you get in, the more money you're going to have.

FERGUSON: And you're giving the exactly right message. So we've got to flip it to what is called an opt-out which is to say automatic enrollment unless you opt out. And the second part is as your income increases, the amount that you save should also be going up. So it's called automatic enrollment and automatic escalation.

ROMANS: Interesting.

FERGUSON: Item one. Item two is they've got to make sure that they are fully and appropriately diversified. One of the mistakes that people make is they say, I don't understand the stock market. I'll never invest in that. Or I'm going to be all in to the stock market.

The reality is broad diversification, and by the way, not just stocks and bonds but also real estate investments.

ROMANS: Right.

FERGUSON: Professionally managed alternative investments. So diversification, item two. Item three is look for good, solid objective advice that's not being commissioned.

ROMANS: Not commission based. Right.

FERGUSON: Because commissions obviously change the incentives. So you want objective advice. Someone who understands you, but it's not being insented by a commission.

ROMANS: Right.

FERGUSON: And the fourth part of a system is guaranteed income for life. The 401(k) focuses in on saving, but not planning to get you through retirement. So you need a system -- we need a system that takes us to and through retirement including guaranteed income for life, in the form of a cheap, fair annuity, and you want to annuities enough to pay for your basic expenses, room and board, if you will. And those are the four major elements.

CHRISTINE ROMANS, CNN ANCHOR: And also you have to talk about health care expenses. This is incredibly important. There is health care reform going on. I don't know how that change things. But you have an interesting stat just to leave the viewers with. The average couple 65 or older without employer provided health care will need to have saved $200,000 to $800,000.

FERGUSON: Exactly right.

ROMANS: Incredible.

FERGUSON: A shocking statistic. It is, of course, if you don't have employer provided retirement.

ROMANS: Right.

FERGUSON: But absolutely the fifth element is to start a position in this country where people can save for retirement health care expenses. This is not going to help people my age. You know, the baby boomers. But for folks who are 25 to 35, even to 40, not too late to start saving for retirement health care expenses as well. Because the number is large.

ROMANS: All right. Some big choices. Well have you come back and talk more how to fix it and how we can urge the right fixes from Congress. Roger Ferguson president and CEO of TIAA CREF, thank you so much, sir.

FERGUSON: Thank you.

ROMANS: All right. Simply organic hair care. Wasn't a booming business when it was founded back in the early '90s. But thanks to the founder's son, it's now seeing green.

Mary Snow reports on this week's Turnaround.

(BEGIN VIDEOTAPE)

MARY SNOW, CNN CORRESPONDENT (voice-over): It's become a place where Hollywood hair stylists turn to for beauty products. But Simply Organic hair products' rise to fame was far less glamorous. In fact, its start was near disastrous. Gene Martignetti and Joe Mostrom founded the company in 2001.

UNIDENTIFIED MALE: Would you put methylpropyl paragon on your salad? So why would you put it on your skin or your hair?

SNOW: It strives to use plant-based ingredients whenever possible. But the effects of 9/11 combined with a bankrupt supplier posed an almost insurmountable challenge.

GENE MARTIGNETTI, FOUNDER SIMPLY ORGANIC: It got so bad that I had to sell my house. My car. It got to that point where every dollar we could make went back in. JOE MOSTROM, FOUNDER, SIMPLY ORGANIC: Quite frankly, 2004, I said we are not going to recover unless something dramatic happens. Let's step back and take a look at where we are. That's when the boys stepped up.

SNOW: And step up, they did. Their sons Jeremiah, Gino and Corey decided to take over the business.

MOSTROM: They'd taken a beaten down horse and turned it back up into a resource.

JEREMIAH MOSTROM, PRESIDENT, SIMPLY ORGANIC: It was definitely nerve- racking at the very beginning not knowing where our source of money was going to come from.

SNOW: But the boys partnered with a smaller local manufacturing company who gave them discounts on raw materials. They focused on the internet to help drive sales. And they went beyond hair styling products and introduced accessories like lip balm and candles.

JEREMIAH MOSTROM: We literally went from salon to salon telling our story, and building our business that way.

SNOW: The result of all this hard work is a growing fan base.

MICHELE NADEAU, SALON OWNER: I was so excited, because it was a product line that I actually believed in, but then also gave me results.

SNOW: It also pumped up the bottom line. When the boys took over, sales were less than $100,000. This year, the company is on track to make close to $4 million. The future of Simply Organic looks just as promising.

JEREMIAH MOSTROM: I really see this as being something that - that I'll be passing down to my kids some day and really truly building an amazing family business.

SNOW: Mary Snow, CNN, New York.

(END VIDEOTAPE)

ROMANS: Why is your money or the lack of it such a hard problem for the Obama administration? We'll explain next.

(COMMERCIAL BREAK)

ALI VELSHI, CNN ANCHOR: All right. We welcome back Business Week senior writer Diane Brady and journalist/commentator Stephen A. Smith.

ROMANS: OK. Two new polls show, once again, it's the economy stupid. And that's potentially troubling for President Obama. The Republicans scored two victories in Virginia and New Jersey this week. Bottom line voters are increasingly concern about the economy.

As you can see, nearly half the respondents in one of our polls say the economy is the most important issue to them. Here is where it gets dicey for the president. A majority of those polled now disapprove of how President Obama is handling unemployment. Is this economy going to determine President Obama's legacy? Or at least the chance of -

VELSHI: We are a year into it.

ROMANS: Or, I would say, or at least his chance to get a second chance.

DIANE BRADY, SENIOR WRITER BUSINESS WEEK : This is a dicey period. We bottomed out. You know, the jobless numbers are increasing. Of course, there's going to be a bit of a protest. And I think one of the things that people are angry about is he's had a light touch with Wall Street. On the regulatory front, there's a lot of attention on health care. But there hasn't been as much on a lot of the players that really people think got us into this mess in the first place.

STEPHEN A. SMITH, COMMENTATOR: Couldn't have said it better myself. And that's what this really comes down to especially if you have been pushing the agenda you have been pushing. You are focusing so much on universal health care. I'm a guy who grew up in the streets of New York City, the African-American community, grew up poor.

I understand the importance of universal health care. Please don't get me wrong. But if you gave me the choice of having health care or having a job to go to with money in my pocket where I can then determine what level of health care, what quality of health care that I can get, then you know what, I'm going to pick the latter.

At the end of the day, it comes down to understanding that it is about jobs. That it is about the economy. You consider the fact that the unemployment rate in the black community is over 15 percent and you have a black man who happens to be the president of the United States of America that doesn't seem to get that, it's highly offensive.

VELSHI: You don't think he doesn't get though?

SMITH: I'm just saying.

ROMANS: Even before this 10.2 percent unemployment rate, the president said look, I do get it. And we are doing every single thing we can do.

BRADY: I think the reality is the president of the United States does not have that much control over the jobless numbers. You need a healthy economy. You can only put so much stimulus into the system. Yes, there are problems with lending. There's problems with, you know, taxation. But we need companies to be healthy and hiring again.

SMITH: Please let me add this. I'm not disagreeing with a single word you just said. The point that I'm making is that hasn't been his focus verbally.

BRADY: I see. SMITH: And because it hasn't been his focus verbally, even though he's made it a priority this week, he hasn't given that impression over the last few months.

ROMANS: He has too many irons in the fire?

SMITH: Well, probably so. Because he's got too many people to deal with. I think the people in Congress and the House are going to suffer more than he does. I think he's got some time. He's got until 2012.

ROMANS: Right.

SMITH: They are the ones that need to be pushing the (INAUDIBLE).

BRADY: Reagan was popular. He did not suffer, but his party suffered.

VELSHI: Well, speaking of that of the 2010 election, where the House may suffer, the House wants to move up new tough credit card rules to protect consumers. They want it to go into effect as soon as possible. The move is in response to credit companies raising interest rates and fees ahead of the new laws. They know it's coming in. So now they're moving ahead. We have been hearing a lot about this from our own viewers.

The Senate and the president have to sign off on this. Is it an election ploy? Well, probably. But it sounds like they've got to do it.

SMITH: Ali, it's a classic example of the American people looking at Congress and saying, where have you been? How clueless can you be? Here you are, you pass these laws because you want to make sure that you protect the consumer from these credit card companies.

But the laws are going to be enforced in February of 2010 -

VELSHI: Right.

SMITH: And then August, and then you move it up. Well, excuse me. Duh, they have to do something wrong in order to - I mean, you knew ahead of time that they were going to try to circumvent all of this.

ROMANS: It's very hard when so many people have been given you contributions for so many years and suddenly you actually have to be a watchdog.

BRADY: And their earnings are terrific, by the way. Did you see Capital One last week. Credit card companies are doing very well right now.

SMITH: You knew they were going to try to circumvent. I got a cousin, a nephew rather that just came to me and said they gave him a credit card. Rates went up 29 percent.

VELSHI: Yes. Forget it. SMITH: This is what they do. You know they are going to do it. Why would you need to see that in order to enforce them, move up the deadline?

VELSHI: That's the cluelessness that we wonder, don't these people live in the same place, the same America we live in where that kind of thing happens?

SMITH: That's how you know they live in a different world. That's the problem.

ROMANS: All right. Stephen A. Smith, Diane Brady. Thank you both.