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Iowa News Analysis: October 2, 2008 National Economy, 401k Plans, and Retirements

posted on October 3, 2008 at 11:25 AM

Associated Press reporter David Pitt discusses the state of the national economy and how it affects Iowa businesses, 401 K funds, and future retirement plans.


Paul Yeager: Hello and welcome to The Iowa Journal.  The nation's financial crisis and thecongressional debate over a bailout have dominated the news this week,overshadowing, if not redefining political races.  The impact of the dilemma on Wall Streetextends well into "fly over" America.  While Iowa'sgovernor insists the state's economy is solid and points to state governmentreserves as evidence, conditions may vary. For example, agriculture is a capital intensive endeavor as are many ofits companion industries.  Manufacturingalso demands regular capital infusions and Iowa'sinsurance sector is tied directly to Wall Street and global financialmarkets.  So the state may not be asinsulated from the times as we'd like to think. On his beat, David Pitt of the Associated Press follows money and the Iowa economy. David, you sat here a week ago and we had almost the exact sameconversation.  What is different fromlast week besides the failure of the vote of that bill to this week?  What have we learned about the impact of whatthis financial bail out is going to have on this state?

David Pitt: Well, I think the concern is growing that ifsomething doesn't happen soon that the credit markets are going to dry up andwe're already seeing some early signs that there just isn't enough liquidityout there, enough credit for companies particularly and I think that's one ofthe biggest concerns because if we start seeing a problem with companies notbeing able to keep their line of credit going or to get enough money to keeptheir business going we're going to start seeing some real problems and thatwill obviously have a ripple effect throughout the economy.  So, that is the concern and that's what weneed to do.  I think that's what theproponents of the legislation before Congress are saying, you know, we justneed to get this thing fixed so that people have more confidence.

Paul Yeager: But if I'm at home watching why do I care ifa bank can loan to another bank?  Whatimpact does that have on me?  Thatdoesn't seem like that would be something I should care about.

David Pitt: I think that it means jobs, it means theeconomy in general being healthy.  Ithink we probably don't realize enough that there are a lot of connections andinterconnectivities between how our companies work, our local businesses workwith banks and the banking industry and this whole issue started obviously aswe have talked before with mortgages and failure of mortgages and the fact thatthat whole ripple effect throughout the economy has created the fact that therejust isn't enough money to go around for companies to borrow, for people toeven get loans for their cars or for their homes.  So, we need to keep enough money fluid in theeconomy to keep it going and that's the issue I think that is the street levelfor us, the thing that affects us here at home.

Paul Yeager: You wrote a story this week, stock lossestake heavy toll on retirement savings, that's one issue.  When writing that what were some of thefindings that you came up with?

David Pitt: I think there was a concern that a lot ofpeople were beginning to pull money out of their 401K or to pull money out oftheir invested funds and I think there was a concern that people wereoverreacting.  It's difficult when yousee a 401K, you check it somewhat regularly, you see that you've lostthousands, perhaps even tens of thousands of dollars and pulling that money outwhen the market is at its bottom is probably not the best thing to do.  Going in and reacting in a knee jerk fashionor overreacting is only going to get you in trouble.  I think all of the analysts will tell you,the people who advise people on investments will tell you that if you starttrying to play the market you're going to lose almost every time because youcan't guess what it's going to do next and you can't react quickly enough ifyou pull your money out now to get it back into the market so that you can seethe gains.

Paul Yeager: Especially if we're up 700 points, down 400,whatever it happens to be which we've seen in the last week.  You talked last week about 401Ks and peoplepulling that out.  Is that trendcontinuing this week or have we seen some of that stabilization?

David Pitt: It has continued and I think the importantthing that people will say is that you're investing for long-term if you'reinvesting for your retirement.  Thepeople that obviously are in a real predicament are those who are maybe acouple of years from retirement.  Italked to some folks yesterday who tell us in a typical bear market they didsome analysis historically, it will take probably three or four years to getback what we lost from this week.  And soyou've got to look that long-term, you can't expect to gain it back within acouple of months, you can't expect to gain it back in a year even perhaps.  So, we need to think long-term and thatunfortunately means for some people who are really, really close to retirementthey need to work just a little bit longer to recuperate.

Paul Yeager: Any idea how long that's going to have tobe?  You say three to four years but Iread one article, it might even have been in this article it was maybe they'dhave to work another ten years.

David Pitt: I think it depends on who you talk to and hownegative they are I guess about the whole perspective on the economy.  But I think the people who have, I mean, ifyou look back at the last five bear markets, which is a 20% drop in a specificindex, if you look at the past five bear markets you'll see that the recoverytime has been around three to four years. We've been into this one almost a year now already from the time that wewere at the high to the low, which we reached the other day when we saw the 700point drop.  So, if you look at that asthree or four years it sounds like a long time to get your money back but it'sactually money you didn't lose in the first place, it's paper.  It's hard to think of it that way, I know itis.

Paul Yeager: Just put that 401K statement underneath,don't read it.  Quickly in the last 30seconds, David, what are you working on next? Where do you see next year your article would go?

David Pitt: Well, I think probably what we're going tocontinue to do is monitor that situation and we're going to look to see wherewe end up in Congress to see whether things stabilize.  If we do have that bill passed there will besome more fluidity perhaps in, again, the credit markets and that will probablyunlock a lot of the problems that we're seeing in the economy right now.

Paul Yeager: David Pitt of the Associated Press, asalways, thank you for stopping by. Appreciate it.

David Pitt: You're welcome.


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