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In Uncategorized on March 26, 2009 at 16:45

So Much for the 401(k). Now What? By THE EDITORS (Photo: Spencer Platt/Getty Images) Tens of millions of Americans are enrolled in private employer-sponsored retirement plans — the great majority of them in 401(k) plans, which long ago replaced traditional pension benefits. These plans are easy to participate in with payroll deduction, and most people — once signed up — don’t spend much time thinking about the investments they’ve chosen. All that has changed in recent months. The huge loss of value in those accounts, caused by the stock market decline, has imperiled retirements for older workers and caused younger workers to wonder whether they should have participated at all. Given the wipe-out of years of savings, are there ways to make retirement nest eggs safer? What might replace the 401(k) as the dominant savings vehicle? Alicia H. Munnell, Center for Retirement Research Jacob F. Kirkegaard, research fellow, Peterson Institute Thomas R. Saving, economist, Texas A & M Teresa Ghilarducci, economist, The New School David C. John, senior fellow, Heritage Foundation Thomas C. Scott, money manager They Can’t Do the Whole Job Alicia H. Munnell is the Peter F. Drucker professor of management sciences at Boston College’s Carroll School of Management and director of the college’s Center for Retirement Research. Even before the financial crisis, I was concerned about the ability of 401(k) plans to provide secure retirement income. They were not designed for that role. When 401(k) plans came on the scene in the early 1980s, they were viewed mainly as supplements to employer-funded pension and profit-sharing plans. Since 401(k) participants were presumed to have their basic retirement income security needs covered by an employer-funded plan and Social Security, they were given substantial discretion over 401(k) choices. We need a new tier of retirement income that would allow 401(k)s to return to their original role as a supplementary savings plan. Today most workers with pension coverage have a 401(k) as their primary or only plan. Yet 401(k)s still operate under the old rules and the balances in these plans will likely be insufficient as the sole supplement to Social Security. Therefore, we need to consider a new tier of retirement income that would allow 401(k)s to return to their original role as a supplementary savings plan. The goal of this additional tier would be to replace about 20 percent of pre-retirement income. To accomplish the goal, participation should be mandatory, participants should have no access to money before retirement, and benefits should be paid as annuities. The system should be funded and reside as much as possible in the private sector. Moving beyond principles is difficult. The challenge hinges on the trade-off between lifetime returns and the required contribution. Equities offer a higher return, but they also bring greater risk. The natural response is to think about trying to protect people by offering guarantees. The problem is that low rates of guarantee –- 2 percent or 3 percent inflation-adjusted –- would have done nothing to protect workers over the last 84 years. The reason is that no retiring cohort would have earned less than 3.8 percent on a portfolio of equities, so low guarantees would never have kicked in. Only high guarantees – like 6 percent – would have had any impact, but standard finance theory says such guarantees are not possible, as long as the guarantor shares the market’s aversion to risk. Perhaps the best we can do is a tier modeled on the Federal Thrift Savings Plan for federal employees with sensible target date funds. Such an approach would avoid unnecessary risks, such as investing in a single stock or holding too large a share in equities just prior to retirement. But it would be nice to think a little more about guarantees and risk sharing. Stop Rewarding the Wealthy Jacob F. Kirkegaard, a research fellow at the Peterson Institute for International Economics, is the co-author of “U.S. Pension Reform: Lessons From Other Countries.” The tax-code is a powerful redistributive tool, and the term “401 (k)” comes from the section of the tax code that describes the tax breaks given to employee retirement savings plans. Approximately 60 million Americans today have a 401 (k) plan, or just over 40 percent of the non-farm work force. In other words, more than half the United States work force does not have a 401(k) plan and thus derive no benefits from the associated tax break. It is bad government policy to subsidize relatively well-off American’s 401(k) retirement savings, especially when these are increasingly held in risky assets. Yet tax-breaks cost our government a lot of money. The latest data shows that 401(k) plans in 2007 alone resulted in lost federal tax revenue of $46 billion. Because the 40 percent of American workers with a 401(k) plan are overwhelmingly found among the higher income groups, this makes the plan a very regressive government policy that in effect transfers billions of dollars from poor to rich Americans. It is bad government policy to continue to subsidize relatively well-off American’s 401(k) retirement savings, especially when these are increasingly held in risky assets. At the end of 2007, two-thirds of 401(k) assets were held in equities, up from about 40 percent in the early 1990s. This increase is irrational, considering how the American population aged over this period. If Americans want to gamble with their nest eggs in the stock market, they should go ahead, but they shouldn’t get a government subsidy through a tax-break to do so. Instead, 401(k) tax-breaks should focus on middle- and low-income workers, and favor only low-cost portfolios with an explicit portfolio-weight link to age and equities held only in index tracking funds. This will lower investment risk and cost, and ultimately help make 401 (k) plans both safer and available to more Americans. Don’t Judge 401(k)s in a Crisis Thomas R. Saving is the director of the Private Enterprise Research Center and professor of economics at Texas A&M University. So your 401(k) has tanked, what do you do now? There is little doubt that the majority of us had a significant portion of our 401(k) invested in equity markets and most of us have experienced a loss of nearly 50 percent in the value of that investment over the past year. While this inverse financial tsunami is a rare event, rare events happen. The essential question is, would you have been better off if your 401(k) was invested entirely in U.S. Treasuries? Your future is still more secure if you own it rather than someone else. For example, consider the last bad drop in the stock market in 2000 to 2002. The inflation-adjusted yield on a 35-year portfolio invested in the S&P 500 if sold at the market peak in January 2000 was 9.74 percent, but at the market trough in July 2002 it was still a robust 7.35 percent. Both these yields are far greater than the inflation-adjusted yield on Treasuries. There is no doubt that the world is risky and rare events happen. But what is the alternative? Assuming that the current value of equities represents the future earnings of the underlying corporations, then unless you believe that something fundamental has changed so that the long-term future of the economic system is one of stagnation, you should continue to invest in your 401(k) and maintain an age-adjusted equity share. The one fundamental that has changed, at least in the short run, is the market’s perception of the “rare event” risk. It is common for our perception of the likelihood of a rare event to rise immediately following that event. In the investment world, the consequence of this perception is an increase in the compensation investors require for assuming market risk, the “equity premium.” Thus, even if the market expects firms to return to their former profitability, the current value of these equities will be below pre-rare-event level. As time passes, the “equity premium” required to account for market risk falls, allowing the market value of equities to return to pre-rare-event levels. The real question is whether there exists a superior instrument, in this case meaning an instrument with less risk and an acceptable rate of return? Essentially, what is the alternative to the individually-owned 401(k) system? The solution is not a return to the defined benefit plans of the past that depended on the viability of the firms responsible for paying the benefits. Your future is more secure if you own it, rather than someone else. Would you be safer if we nationalized the 401(k)s and gave national guarantees? Taxpayers already provide substantial insurance to retirees in the form of inflation-adjusted Social Security benefits. The security of these “promised” benefits depend on taxpayer willingness during times of economic distress to pony up the money for your well-being while they suffer. Life has no real guarantees. It is better to have a genuine property right to an uncertain retirement benefit than no enforceable right to a promised benefit. A Supplement to Social Security Teresa Ghilarducci, chairwoman of economic policy analysis at the New School for Social Research, is the author of “When I’m 64: The Plot Against Pensions and the Plan to Save Them.” The 401(k) is a failed experiment of how well individuals can save for their retirement in commercial individual accounts. Instead, we need a supplement to Social Security that competes with the 401(k) — what I like to call a “guaranteed retirement account” plan to which all workers and employers would contribute 2.5 percent. What we need is a guaranteed retirement account to which all workers and employers contribute 2.5 percent. The contributions would be offset by a $600 refundable tax credit provided to all regardless of income. These contributions would create credits toward a lifetime pension based on a guaranteed real 3 percent annual rate of return. Congress would distribute the surplus — above a balancing fund maintained to ride out periods of low returns — to all accounts if actual returns are higher than 3 percent inflation. Under these accounts, retirees do not outlive their savings and inflation does not erode buying power. The plan could provide for a partial lump sum of 10 percent of the account balance or $10,000, whichever is higher. Through Social Security and this guaranteed retirement account, a full-time worker making $40,000 per year who contributes into the plan for 40 years would receive roughly 71 percent of their pre-retirement income. Reform the Accounts David C. John is a senior research fellow at the Heritage Foundation and a principal at the Retirement Security Project. 401(k) plans will probably be replaced by — 401(k) plans. The sad fact is that any form of retirement plan causes risk to someone. Traditional pensions put the risk on the company; government-managed systems put it on the taxpayer, who already must pay for Social Security and Medicare excess costs. What is needed is a way to reduce risk on the individual 401(k) investor. First, we need to make retirement saving easier. Automatic enrollment has made the 401(k) process simple, especially for those most prone to under-saving: younger workers, women, small business employees and minority workers. However, only about half the work force is employed by a company that offers 401(k) plans. Phased annuity investments would reduce the risk that a worker reaches retirement with inadequate savings. The bipartisan, cross-ideological “automatic I.R.A.” (which has support from the Obama administration and was also endorsed by the McCain campaign) would enable workers whose employers do not sponsor a pension or retirement savings plan to put money into I.R.A.s with payroll deduction and automatic enrollment. It is simple and easy for employees to understand, and cheap for the employer. Reforming the tax code’s credit for savers so that it sends tax benefits directly to the accounts will help to build balances even faster. Second, we need to make retirement investments safer for older workers. One way would be to include a phased annuity purchase into that investment. Workers would end up with annuities that provide guaranteed lifetime income as well as a lump sum of savings. This would be greatly reduce the risk that a worker reaches retirement with inadequate savings. Finally, we need to encourage more saving. Even under auto-enrollment, initial amounts are often too low. Automatic escalation gradually increases savings to a better level, and should be standard in every 401(k). No retirement plan is perfect. Improving the savings vehicles that we have will bear faster and more secure results than any alternative that hasn’t been tested. The Risk-Averse Future Thomas C. Scott is the chief executive officer of Scott Wealth Management and the author of “Fasten Your Financial Seatbelt.” The future shape of retirement saving will likely borrow from the past, before people became enamored of the notion that the stock market could help them retire as a “401(k) millionaire.” Indeed, that aspiration is an idea that seems quaint. Older investors now want what their elders had: a pension income they can count on for as long as they live. A Fidelity Investments survey released last week found that 85 percent of investors 55 to 70 years old placed greater importance on a guaranteed monthly retirement income than on above-average investment gains. Expect to see new, more conservative financial products and government initiatives to encourage voluntary savings plans. But few have figured out how to get there. A 2007 consumer finance survey by the Federal Reserve Board found that only 5.5 percent of families owned an annuity, a financial product designed to provide reliable retirement income but rarely chosen by the layman because they tend to be complex and confusing. Now that so many people face running out of money before they run out of time, and are willing to swap the millionaire dream for a Social Security-style guarantee, you can expect to see new, more conservative financial products and government initiatives to encourage voluntary savings plans that provide guaranteed incomes. Our parents and grandparents worked decades for the same companies because their pension plans promised a secure retirement. Those days are over but it seems inevitable that, with some new wrinkles, we’re headed back to basics in our retirement planning.



In Uncategorized on March 4, 2009 at 03:03


In the fall of 2008, the credit crunch, which had emerged a little more than a year before, ballooned into Wall Street’s biggest crisis since the Great Depression. As hundreds of billions in mortgage-related investments went bad, mighty investment banks that once ruled high finance have crumbled or reinvented themselves as humdrum commercial banks. The nation’s largest insurance company andlargest savings and loan both were seized by the government. The channels of credit, the arteries of the global financial system, have been constricted,cutting off crucial funds to consumers and businesses small and large.

In response, the federal government adopted a $700 billion bailout plan meant to reassure the markets and get credit flowing again. But the crisis began to spread to Europe and to emerging markets, with governments scrambling to prop up banks, broaden guarantees for deposits and agree on a coordinated response.


The roots of the credit crisis stretch back to another notable boom-and-bust: the tech bubble of the late 1990’s. When the stock market began a steep decline in 2000 and the nation slipped into recession the next year, the Federal Reserve sharply lowered interest rates to limit the economic damage.

Lower interest rates make mortgage payments cheaper, and demand for homes began to rise, sending prices up. In addition, millions of homeowners took advantage of the rate drop to refinance their existing mortgages. As the industry ramped up, the quality of the mortgages went down.

And turn sour they did, when home buyers had to leverage themselves to the hilt to make a purchase. Default and delinquency rates began to rise in 2006, but the pace of lending did not slow. Banks and other investors had devised a plethora of complex financial instruments to slice up and resell the mortgage-backed securities and to hedge against any risks — or so they thought.

The Crisis Takes Hold

The first shoe to drop was the collapse in June 2007 of two hedge funds owned by Bear Stearns that had invested heavily in the subprime market. As the year went on, more banks found that securities they thought were safe were tainted with what came to be called toxic mortgages. At the same time, the rising number of foreclosures helped speed the fall of housing prices, and the number of prime mortgages in default began to increase.

The Federal Reserve took unprecedented steps to bolster Wall Street. But still the losses mounted, and in March 2008 the Fed staved off a Bear Stearns bankruptcy by assuming $30 billion in liabilities and engineering a sale to JPMorgan Chase for a price that was less than the worth of Bear’s Manhattan skyscraper.

Sales, Failures and Seizures

In August, government officials began to become concerned as the stock prices of Fannie Mae andFreddie Mac, government-sponsored entities that were linchpins of the housing market, slid sharply. On Sept. 7, the Treasury Department announced it was taking them over.

Events began to move even faster. On Sept. 12, top government and finance officials gathered for talks to fend off bankruptcy for Lehman Brothers. The talks broke down, and the government refused to step in and salvage Lehman as it had for Bear. Lehman’s failure sent shock waves through the global banking system, as became increasingly clearin the following weeks. Merrill Lynch, which had not been previously thought to be in danger, sold itself to the Bank of America to avoid a similar fate.

On Sept. 16, American International Group, an insurance giant on the verge of failure because of its exposure to exotic securities known as credit default swaps, was bailed out by the Fed in an $85 billion deal. Stocks dropped anyway, falling nearly 500 points.

The Government’s Bailout Plan

The bleeding in the stock market stopped only after rumors trickled out about a huge bailout plan being readied by the federal government. On Sept. 18, Treasury Secretary Henry M. Paulson Jr. publicly announced a three-page, $700 billion proposal that would allow the government to buy toxic assets from the nation’s biggest banks, a move aimed at shoring up balance sheets and restoring confidence within the financial system.

Congress eventually amended the plan to add new structures for oversight, limits on executive pay and the option of the government taking a stake in the companies it bails out. Still, many Americans were angered by the idea of a proposal that provided billions of dollars in taxpayer money to Wall Street banks, which many believed had caused the crisis in the first place. Lawmakers with strong beliefs in free markets also opposed the bill, which they said amounted to socialism.

President Bush pleaded with lawmakers to pass the bill, but on Sept. 29, the House rejected the proposal, 228 to 205, with an insurgent group of Republicans leading the opposition. Stocks plunged, with the Standard & Poor’s 500-stock index losing nearly 9 percent, its worst day since Oct. 19, 1987.

Negotiations began anew on Capitol Hill. A series oftax breaks were added to the legislation, among other compromises and earmarks, and the Senate passed a revised version Oct. 1 by a large margin, 74 to 25. On Oct. 3, the House followed suit, by a vote of 263 to 171.

When the bill passed, it was still unclear how effective the bailout plan would be in resolving the credit crisis, although many analysts and economists believed it would offer at least a temporary aid. Federal officials promised increased regulation of the financial industry, whose structure was vastly different than it had been just weeks before.

The first reactions were not positive. Banks in England and Europe had invested heavily in mortgage-backed securities offered by Wall Street, and England had gone through a housing boom and bust of its own. Losses from those investments and the effect of the same tightening credit spiral being felt on Wall Street began to put a growing number of European institutions in danger. Over the weekend that followed the bailout’s passage, the German government moved to guarantee all private savings accounts in the country, and bailouts were arranged for a large German lender and a major European financial company.

And even as the United States began to execute its bailout plan, the tactics continued to shift, with the Treasury announcing that it would spend some of the funds to buy commercial paper, a vital form of short-term borrowing for businesses, in an effort to get credit flowing again.

Continued Volatility

When stock markets in the United States, Europe and Asia continued to plunge, the world’s leading central banks on Oct. 8 took the drastic step of a coordinated cut in interest rates, with the Federal Reserve cutting its two main rates by half a point.

And after a week in which stocks declined almost 20 percent on Wall Street, European and American officials announced coordinated actions that included taking equity stakes in major banks, including $250 billion in investments in the United States. The action prompted a worldwide stock rally, with the Dow rising 936 points, or 11 percent, on Oct. 13.

But as the prospect of a severe global recession became more evident, such gains were impossible to sustain. Just two days later, after Ben S. Bernanke, the Federal Reserve chairman, said there would be no quick economic turnaround even with the government’s intervention, the Dow plunged 733 points.

The credit markets, meanwhile, were slow to ease up, as banks used the injection of government funds to strengthen their balance sheets rather than lend. By late October, the Treasury had decided to use its $250 billion investment plan not only to increase banks’ capitalization but also to steer funds to stronger banks to purchase weaker ones, as in the acquisition of National City, a troubled Ohio-based bank, by PNC Financial of Pittsburgh.

The volatility in the stock markets was matched byupheaval in currency trading as investors sought shelter in the yen and the dollar, driving down the currencies of developing countries and even the euro and the British pound. The unwinding of the so-called yen-carry trade, in which investors borrowed money cheaply in Japan and invested it overseas, made Japanese goods more expensive on world markets and precipitated a steep plunge in Tokyo stock trading.

Oil-producing countries were hit by a sudden reversal of fortune, as the record oil prices reached over the summer were cut in half by October because of the world economic outlook. Even an agreement on a production cut by the Organization of the Petroleum Exporting Countries on Oct. 24 failed to stem the price decline.

Stock markets remained in upheaval, with the general downward trend punctuated by events like an 11-percent gain in the Dow on Oct. 28. A day later, the Fed cut its key lending rate again, to a mere 1 percent. In early November, the European Central Bank and the Bank of England followed with sharp reductions of their own.

Federal officials also moved to put together a plan to aid homeowners at risk of foreclosure by shouldering some losses for banks that agree to lower monthly payments. Detroit’s automakers, meanwhile, hard hit by the credit crisis, the growing economic slump and their belated transition away from big vehicles, turned to the government for aidof their own, possibly including help in engineering a merger of General Motors and Chrysler.

The leaders of 20 major countries, meanwhile, agreed to an emergency summit meeting in Washington on Nov. 14 and 15 to discuss coordinated action to deal with the credit crisis. The group agreed to work more closely, but put off thornier questions until next year, in an early challenge for the Obama administration.

The Crisis and the Campaign

The credit crisis emerged as the dominant issue of the presidential campaign in the last two months before the election. On Sept. 24, as polls showed Senator John McCain’s support dropping, heannounced that he would suspend his campaign to try to help forge a deal on the bailout plan. The next day, both he and Senator Barack Obama met with Congressional leaders and President Bush at the White House, but their efforts failed to assure passage of the legislation, which went down to defeat in an initial vote on Sept. 29, a week before itultimately passed.

The weakening stock market and growing credit crisis appeared to benefit Mr. Obama, who tied Mr. McCain to what he called the failed economic policies of President Bush and a Republican culture of deregulation of the financial markets. Polls showed that Mr. Obama’s election on Nov. 4 was partly the fruit of the economic crisis and the belief among many voters that he was more capable of handling the economy than Mr. McCain.

As president-elect, Mr. Obama made confronting the economic crisis the top priority of his transition. Just three days after his election, he convened a meeting of his top economic advisers, including the billionaire investor Warren Buffett; two former Treasury secretaries, Lawrence H. Summers and Robert E. Rubin; Paul A. Volcker, a former Federal Reserve chairman; and Eric E. Schmidt, the chief executive of Google. After their Nov. 7 meeting, he called quick passage of an economic stimulus package, saying it should be taken up by the the lame-duck Congressional session, and that if lawmakers failed to act, it would be his main economic goal after assuming office Jan. 20.

Mr. Obama also faced a host of other demands as president-elect, including calls to bail out the auto industry, particularly General Motors, whichwarned that it would run out of cash by mid-2009. And some economists and conservatives questioned whether, given the economic crisis, he could still meet some of his pledges from the campaign, like rapidly rolling back the Bush tax cuts, which some felt would hurt demand, and pushing ahead with his planned expansion of health care coverage, which could greatly increase a soaring deficit.

Deeper Problems, Dramatic Measures

With credit markets still locked up and investors getting worried about the big banks, Wall Street marked a grim milestone in late November when stock markets tumbled to their lowest levels in a decade. In all, the slide from the height of the stock markets had wiped out more than $8 trillion in wealth. The markets inched back in the weeks that followed as investors looked forward to a new administration and a huge economic stimulus package, but key indicators of the economy only got worse.

In December, an obscure group of economists confirmed what millions of Americans had suspected for months: the United States was in a recession. The economy had actually slipped into recession a year earlier, a committee of economists said, putting the current downturn on track to be the longest in a generation. Unemployment rose to its highest point in more than 15 years. Trade shrank. Home prices fell farther. As inflation virtually halted, economists began to worry about deflation, the vicious cycle of lower prices, lower wages and economic contraction.

Retailers suffered one of the worst holiday seasons in 30 years as worried consumers cut back, raising the likelihood that dozens more would join stores like Sharper Image, Circuit City and Linens ‘n Things in bankruptcy.

On Dec. 16, the Federal Reserve entered uncharted waters of monetary policy by cutting its benchmark interest rate to nearly zero percent and declaring that it would deploy its balance sheet and essentially print money to fight the deepening recession and locked credit markets. Investors cheered, sending the Dow up more than 300 points, but many economists began to worry about the world’s appetite for hundreds of billions of dollars in new Treasury debt.

Other countries followed the Fed with rate cuts of their own. Britain’s central bank a wave of refinancing that nevertheless skipped many homeowners.

But as Mr. Obama took office, investors were just as worried as ever, as evidenced by Wall Street’s worst Inauguration Day drop ever. The fourth-quarter corporate earnings season was marked by billion-dollar losses and uncertain outlooks for 2009. The economy showed no sign of turning around. And many lawmakers and analysts began to wonder whether the first $350 billion in bailout money had any effect at all. Banks that received bailout fundssat on their money, rather than lend it out to consumers or home buyers.

And bailout recipients such as Citigroup and Bank of America were forced to step forward for additional lifelines, raising one of the most uncomfortable questions a new president has ever had to address: Would the government nationalize the American banking system?

A New Administration

The initial steps taken by the new Treasury secretary, Timothy F. Geithner, did not venture that far. In formulating the Obama administration’s response to the crisis, he was reported to haveprevailed in discussions with presidential aides in opposing tougher conditions on financial institutions, like dictating how banks would spend their rescue money, or replacing bank executives and wiping out shareholders at institutions receiving aid. On Feb. 10, he outlined a sweeping overhaul and expansion of the government’s rescue effort, seeking to marshal as much as $2 trillion from the Treasury, private investors and the Fed.

The plan included a public-private rescue fund, often described as a “bad bank” for holding toxic assets, that would start with $500 billion with a goal of eventually buying up to $1 trillion in assets. There would also be direct capital injections into banks, which would come out of the remaining $350 billion in the Treasury’s rescue program. And the Treasury and Federal Reserve would expand a program aimed at financing consumer loans. The two agencies had originally announced their intention to finance as much as $200 billion in student loans, car loans and credit card debt. Instead the program would be expanded to as much as $1 trillion, and the Fed said it could broaden the plan to include both commercial and residential mortgage-backed securities.

But Mr. Geithner left major questions unanswered about the workings of many components of the new plan, and officials acknowledged that they had yet to decide many of the thorniest issues. So it remained unclear whether the Obama administration would be able to attract the large volume of private investment that Mr. Geithner sketched out in his speech. And the lack of specifics was also blamed for a negative reaction among investors, who sent stocks down nearly 5 percent.

After two weeks of declines on Wall Street marked by rumors of bank nationalization, the Obama administration came back with more details of their plans to perform “stress tests” on 19 of the country’s largest banks, to see whether they had a large enough capital cushions to withstand further declines in the economy. Regulators plan to examine how banks will fare if the economy performs close to the consensus views (which are not good) and under a “worst case” scenario, in which the economy shrinks 3.3 percent in 2009 and home values fall an additional 22 percent. Any bank that fails the assessment would have six months to raise additional capital privately, or would have to take it from the government in the form of preferred shares that could be converted to common stock.

With Wall Street’s gaze glued to the banks, Mr. Obama shifted his attention back to the housing crisis and unfurled a $275 billion plan to help as many as nine million families refinance their mortgages or avoid foreclosure. The plan, which won praise from consumer advocates, offered incentives to homeowners who are current on their payments and to lenders who lower interest rates on home mortgages. “This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild,” Mr. Obama said in announcing it on Feb. 18. But analysts cautioned that Mr. Obama’s plan would not help millions of homeowners who are “underwater,” owing much more than the current value of their homes. And it inspired a populist invective by Rick Santelli of CNBC that encapsulated the frustration of people who believe the government’s bailouts are doing little else than rewarding bad behavior by investors and homeowners.