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 Home > News & Policies > August 2002
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Strengthening the Economy:
Jobs and Economic Growth

The President's Economic Forum

For Immediate Release
Office of the Press Secretary
August 13, 2002

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President's Remarks
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Small Investor and Retirement Security Session
Remarks by the President at the Small Investors & Retirement Security Session - Economic Forum
Baylor Law Center
Baylor University
Waco, Texas

     Fact sheetEconomic Forum Portal Page
The President listens to concerns and ideas from panelists at the Small Investors and Retirement Security discussion session at the President's Economic Forum held at Baylor University in Waco, Texas on Tuesday August 13, 2002. White House photo by Paul Morse.

9:03 A.M. CDT

THE PRESIDENT: Welcome to Texas.

MR. HUBBARD: Nice to be here.

THE PRESIDENT: Thanks for coming.

MR. HUBBARD: It's a long ways; it's nice to be here.

THE PRESIDENT: It is a long ways. It's going to be a great day. I appreciate you all being here and I look forward to hearing what you have to say.

MR. HUBBARD: Well, thank you, Mr. President and welcome to everybody. I hope this will be a very good discussion this morning; certainly a very important topic.

I just want to briefly tee up a couple of issues and then turn it over to my colleague Ann Combs and then to Chuck Schwab. You know, we all know that saving is about the future. And people typically think about retirement saving, but there are many reasons that people save. And the flip side of that is that investing always comes back to our guesses about the future -- you know, what are the economy's fundamentals.

And we all want to, and we want other people to own a piece of something that's valuable. And, ultimately, the something that's valuable is a piece of our vibrant economy. Just a couple of facts to set the stage. We saw a real upsurge in the economy's possibilities in the past decade. We've had very good experience on our economy's ability to grow. And we think the administration's policies are obviously in that direction, as well.

But with that vibrant economy has come also fairly vibrant financial markets. Over the past decade, household wealth grew from $25 trillion to more than $40 trillion. And most important in the minds, I think, of many people, we've moved more toward an ownership society. A decade ago, stock ownership was something we talked about for "the rich," or people somewhere.

Now, more than half of Americans own stock. We've seen a major shift in the way we structure retirement saving from defined benefit plans years ago to defined contribution plans and 401(k)-style plans. These are very welcome trends. But I don't have to tell people here the story that, of course, recent equity price declines have called into question some of this. And some of these gains, as to whether they are gains. And many people have a lot of concerns, and those concerns have to do with investor education and policies for risk taking.

The administration, of course, has taken many steps under the President's leadership in this area. I'd like to turn to my colleague, Ann Combs, for a quick review, and then to Chuck.

THE PRESIDENT: Ann, thanks. Good to see you.

MS. COMBS: Thank you, Mr. President. I want to take just a few minutes to describe some of the steps that you've taken, Mr. President, to restore confidence in our markets, to improve pension security and increase opportunities for working Americans to save for their retirement.

Last year's tax bill, in addition to returning money to people who earned it so that they have more of an opportunity to save also increased the limits for what people could contribute to their 401(k) plans and their IRAs for the first time in many years.

The Corporate Accountability Bill which you just signed will improve transparency and go a long way towards restoring the confidence people need to have in the markets, so that they feel they can save for their retirement. And it also included two of your pension reform proposals that you released in February. Workers will now receive 30 days advance notice before any black-out when they are unable to trade stock in their 401(k) plans. And executives will be prohibited from selling stock if workers are being locked out of the ability to sell theirs.

You have three other proposals that the House passed in April, that we're hoping will move this year, as well. One would give all workers the right to diversify out of employer stock after three years, so that they couldn't be locked into investment and they'd have more rights to diversify.

Better information about their investment options is part of your plan, as well as access to professional investment advice. I think that's something that's so important. Our pension system is the envy of the world, but people do need more opportunities, more tools so that they have the choices and the confidence and the control that they need to be able to save for a secure retirement. Your program, Mr. President, will make those improvements.

Now, I'd like to introduce our speaker today. Chuck Schwab almost needs no introduction at all. But he is, as you know, the Chairman and the co-CEO of the Charles Schwab Corporation. Chuck has been in the securities business for 40-plus years. He works directly with ordinary investors, starting his company in 1974 at the dawn of deregulation of the securities industry.

Today, his company and its 18,000-plus employees serve 8 million investor accounts that hold nearly $800 billion in assets. He operates over 400 investment offices across the country and runs of the world's leading investment websites. He's authored three books on investing and Chuck and his daughter, Carrie, are co-authoring a book due out later this year about talking to your family about how to invest and money.

So, welcome, and please --

MR. SCHWAB: Well, thank you, Ann, and thank you all participants for being here. And particularly thank you, our President. It's a real pleasure to have you here with us.

It's a privilege to be able to participate in this forum today and I especially at this moment in time, when confidence of the American public -- in particular, American investors -- is at a very fragile point in our view. But as someone who has spent a lifetime in the investment world, I also understand that this is temporary. Markets don't remain down forever. They roll along and, as we know, our nation's stock market has taken a brutal correction, to say the least.

But it still remains the best place, in my view, for individuals to invest for the long term. And I think our 8 million customers you mentioned understand that, as well.

To their credit, most investors haven't panicked. We see that through our firm. I was talking to Mickey Siebert earlier, the same with her clients. They still are, to their credit, do need, though, good, unconflicted help and advice is very important for our clients and the investors at large.

Fundamentally, this means, in my view, reuniting investors with the simple principles of asset allocation diversification, which Ann mentioned so much. So many employees throughout corporations simply don't know the basics about investing. We need to do a lot of work in education. We need to reassure investors that a well diversified portfolio remains not only the best weapon against inflation, it's the best vehicle for reaching their long-term personal goals. But, also, it's the best defense, in my view, against the issues like an Enron. With diversification, Enron can be just a small, teeny part of your portfolio, not a major part.

Over time, the stock market has out-performed all other investments, as my friend, Mr. Siegel, Professor Siegel over here has written a wonderful book called "Stocks for the Long Run," has illustrated through his groundbreaking research that stocks have always been the best place to have your long-term assets.

Yes, but there are ups and significant down periods. And some are quite painful as they are right now. The bear market that we're suffering right now is probably one of the worst I have gone through, and it's not a comfortable place to be, to say the least. But we have great confidence about our future.

Investors also need to know that government is on their side. And I think our President, George W. Bush, and Congress have been doing exactly the right thing concerning corporate fraud. They address the issue head on.

Another step that has been a requirement, that came out of all this recent legislation is that CEOs like myself will be certifying our financial reports. We will be certifying ours today, as a matter of fact. And I think most companies will be submitting their certifications by deadline of tomorrow.

I'm also pleased, Mr. President, that you and the Congress have increased the monies for the SEC by 66 percent. That will be what we really need to bring some efforts in that area and you've done just exactly what we had hoped for.

At the same time, we've got to encourage the Financial Accounting Standards Board, FASB as many people call it, to accelerate the development of a consistent system for valuing and expensing options. I'd like to set a target date of January 1, where all companies ought to abide by the same process for expensing options, or we'll just have more confusion in a nation by investors if we don't do a consistent methodology.

But the centerpiece of any effort to restore investor confidence ought to be a crackdown on the conflicts that have left investors so distrustful of Wall Street and many banks related to Wall Street.

Ultimately, in my view, the SEC and Congress should require the CEOs -- me, myself and others like me, and our chief compliance officers of every brokerage firm and bank -- to certify that we have abided by any new conflict of interest rules. We need to get to that point. It is outrageous in my view what goes on in Wall Street on a consistent basis. Just pick up any paper and you'll know what I'm talking about.

Other steps that policy makers should consider as soon as possible include immediately allowing investor to deduct up to $20,000 against their income for losses that they suffered in investment. It is still, right now, a meager $3,000. That is almost an insult, was set 20 or 30 years ago.

We also ought to reduce the double taxation on dividends, encourage companies to pay more in terms of dividends and reward long-term investors. Also, require corporations do a better job of educating their employees about investing and retirement plans and about the dangers of over-concentrating in their employer stock.

And, lastly, increasing the contribution limits on IRAs and 401(k)s. We have that in your new tax bill, we ought to just get on, fast-track it and make sure it becomes permanent on the rates that we've already agreed upon.

Mr. President, thank you very much for this opportunity to address you, and the rest of the participants. I'd like to turn this over to Glenn Hubbard.

MR. HUBBARD: Thank you very much, John, for those opening remarks. Mr. President, did you --

THE PRESIDENT: Well, I think what caught my attention was this business about confidence. I'm spending some time in Crawford, Texas, I think about how people in Crawford look at Wall Street and the numbers. And one of the things I hope that comes out of this discussion, is how do we simplify the numbers so that people can understand what they're looking at.

People in this part of the world get a little suspicious of the fine print. But, yet, a lot of them are now investing for the first time. And I think Chuck brings up a great point, is how can people not only on the East Coast or the West Coast feel confident about what they see, but all throughout America can feel confident about what they see and hear.

Part of it is -- I remember going, working a rope line in New York. And a business professor said, thank you for mentioning in your speech on corporate responsibility that business schools need to learn how to teach right from wrong. Evidently there's this kind of nervousness about being clear about teaching young MBAs right from wrong.

And a guy walked up to me and said, it was a laboring man, and said, well, the best way to teach a lesson is to put some of them in handcuffs. That's the best way to send the message for corporate responsibility -- which we're doing. So we'll enforce law, but confidence is more than just government enforcing the law. Confidence is an industry policing itself as well as understanding the new customer. And I'd be curious -- first of all, I love your ideas about how to account for loss and/or double taxation dividends. That makes a lot of sense.

But one other question I would have for the panelists, and look forward to hearing the recommendations, is how do we take care of the new investor. Chuck does a good job of it by recruiting them and then helping them invest. But throughout the system, how do we understand that the nature of the investor has changed?

A PARTICIPANT: Well, on that great question, I'd like to turn first, if I might, to you, Mickey -- Mickey Siebert, who is somebody who has been a legend in this business -- and talk about how the new investor issues can be best addressed.

MS. SIEBERT: Thank you.

THE PRESIDENT: How do you like being known as a legend, Mickey? (Laughter.)

MS. SIEBERT: As long as I'm a living legend -- (laughter.)

THE PRESIDENT: You look living to me. (Laughter.)

MS. SIEBERT: Mr. President, I saw something in my firm -- we're a mini-Charlie Schwab -- and about three months ago I got a call from the guys in New Jersey and they said, we're seeing something new. I said, what's that? We are seeing people selling their stocks and they want a check -- not going into money market funds, they want a check. I said, Pete, why don't you call them, because we have a habit of calling every account that leaves the firm, asking them why are they leaving. So they answers came back on this group of people, and I get the list every week: Don't trust the system; the system is against us.

When I heard that, I said, okay, Mickey, you know some of these people, go see them. And my first stop was Larry Lindsey for lunch. I talked to Mr. O'Neill. I spent a lot of time with Mr. Pitt and his deputies.

I think one of the things we have to do, and I wrote an op ed article, which was published last week, is to allow the individual investors to double their contributions to the 401(k)s and IRAs for three to five years as a way to building up their retirement funds. I get asked -- and I think they should be allowed to contribute stocks, bonds, any asset, cash or mutual funds, because not all of them have cash and they will not have cash.

I get asked -- I was a keynote speaker for the Miami Daily Herald, and they fill up a convention center, and I got a question from a man that had to be close to 90. "I've lost half of my money. Will they go to jail?" And I'm proud over the bill that you signed because they will go to jail.

I have another idea. There is something called derivatives. They can be very good if they are used to hedge interest rates or commodities, and they can be lethal, they can be misleading. I have testimony -- I testified against derivatives in 1988 after the '87 market break. I testified against them after the long-term capital management.

I would like to see the statements that CEOs have to sign. I would like to see them sign, "These statements represent economic reality." It would take the derivatives that are phoney, that allowed the wash trading in Enron, the energy contracts which, if they traded over the counter were illegal, if they traded on listed markets would be wash sales. I think we could separate reality.

The head of one of our two banks said they will never do contracts again that mask debt. Two of our largest banks were doing prepaid forward contracts where the cash is up front and they were being flipped around as revenues with no expenses against it. We cannot expect individuals to read the paper every day about these things and say, here's my money.

We have done, in my opinion, a very good first series of steps. We have to do more in that. And then, frankly, I -- you know, I think the corporate accountability bill is good, it's a major first step. I'd like to see some additions. I frankly get very annoyed when I see congress doing this. I frankly get annoyed when I see my attorney general doing all of it. I think that we should be the one -- the federal government should be the one, not particularly the congress. And I certainly volunteer my help, and I'm sure that anybody at this table volunteers theirs.

THE PRESIDENT: Well, thank you, Mickey. You bring up a very interesting point that Chuck alluded to. And that is, you know, you talk about some of these fancy financial instruments being designed to inflate revenues, for example. And it takes a fairly sophisticated soul to find out what's going on. And the fundamental question, who is that sophisticated soul, and it seems like to me the sophisticated soul is the recommenders of the stocks. And Chuck brought up a very good point, and that is, the industry itself is culpable of not blowing the whistle on practices that aren't -- that kind of deceive, I guess is the best way to put it. And my question is, you know, apart from government, how best can industry police itself. How best for -- as I one time said, I said, they'll sell or buy you depending upon what's in their interest, and how best to protect the unsophisticated.

Now, a person accumulating a lot of assets from these practices, are pretty darned sophisticated.

A PARTICIPANT: Well, there should be major Chinese walls within companies. They should be -- and, ultimately, these conflicts of interest need to be eliminated and customers need to be protected and the CEOs and compliance officers of these companies providing help and advice need to sign a statement that we have no conflicts of interest. And the SEC should sort of mandate sort of what that might be.

A PARTICIPANT: I wonder if they could come back to the point you were raising, Mickey, about getting the investors back in. But, Syl, if I could turn to you -- Syl Scheiber has been a long-time pension expert. What do you think is the case about individuals, small investors being in --

THE PRESIDENT: Excuse me for a minute. So here's what happens. I'm going to four of these, the Vice President is going to four of them. I can assure you, however, that we look forward to hearing the recommendations -- Hubbard or somebody is going to be a note-taker. We will look at everything you say.

Again, I also want to tell you how much we thank you for coming. And I'll see you at lunch. We've got a great group of our fellow Americans here that really goes to show that people are concerned about the future of the country. I really want to thank you for coming. I know it was a stretch for a lot of you to come, but the fact that you're here is really meaningful for the country. So thanks from the bottom of our hearts.

Again, I look forward to what you have to say. In the meantime, I've got to leave. Thanks.

END 9:21 A.M.


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