>> hello, everyone. welcome to the "journal" on dw- tv in berlin. i am meggin leigh with the news. at >> in i am steve chaid at business desk. >> egyptian opposition leader mohamed elbaradei flies into cairo at the capitol braces for more protests. the german parliament remembers victims of the holocaust. and ancient statues go back on show in berlin after being deduced to revel in the second world war. -- after being deduced to rubble in the second world war. ♪ >> nobel peace laureate and egyptian opposition leader mohamed elbaradei says his country must change, and he is

ready to lead the transition. elbaradei has flown in to cairo to join protests against the government of president hosni mubarak. elbaradei's arrival comes amid mass arrests in an ever-growing security presence on the streets. >> the return of the nobel peace laureate and former head of the international atomic energy agency -- scores of people came to meet him at cairo airport. he could become a figurehead for the demonstrators. he is considered a potential challenger to president hosni mubarak. >> [inaudible] i wish we did not have to go to the street to express to the regime that we need change. we tried an election. nothing worked. all the demands fell on deaf ears. >> elbaradei made it clear before leaving for cairo that he

would be prepared to lead a transitional government if asked by the people. demonstrators are anchored by a whole range of issues, poverty, unemployment, corruption, and repression. this internet video shows overnight rating from suez, protesters set a government building on fire. the moslem brotherhood is also now supporting the demonstrations. -- the moslem brotherhood is also now supporting the demonstrations. >> [inaudible] preventing even the students from choosing. it accumulates. >> for now, carry? -- for now, kyra remains tense but calm. that could change when protesters go back to the streets after friday prayers. >> tunisian is struggling to find unity in its new government

two weeks after massive protests there saw the ouster of the president of the latest official to resign from another cabinet reshuffle was the country's foreign minister. in the meantime, tunisia's main trade union said the prime minister would stay on in his post, but that no other members of the former ruling party would be in the new government. >> in tunisia, thousands of demonstrators again took to the streets to demand the removal of all interim government members allied to the former ruling party. the situation there and other arab nations came under discussion in berlin, where lawmakers expressed support for perot-the marissa movement. >> the german government and i have no doubt this whole house stands on this side of democracy. no ifs or buts. whether i indonesia or in egypt. >> do not shut up the democratic

will of the people. choose cooperation and respect for human rights instead of violence and repression. >> some criticized the west's approach in the region, human rights abuses are being ignored out of fear of extremism. >> if not now, then when are we going to accept that the west's strategy of fighting this have failed? >> the protests in tunisia continued to inspire people across the region to take to the streets and demand peaceful change. >> iraqi officials said 48 people have killed and over 100 wounded in a bomb blast in baghdad. the attackers targeted mourners gathering at a funeral in a mainly she at area in the north of the capital. it is the latest in a series of bombings and left over 100 people dead.

in germany, the parliament marked international holocaust remembered today. and it's their money, lawmakers remembered all the victims of renacci regime, including these two. for the first time, a roma holocaust survivor was the guest of honor. >> in the morning, a piece of music composed for the people murdered by the nazis. this man lost his whole family and the holocaust. he was able to survive by escaping shortly before he was to be sent to of auschwitz. parents and siblings were not so lucky. >> i watched the moment the train left for auschwitz. in desperation, my father shouted out. he said, look after my boy. that was the last i ever saw of my dear father. >> he describes the system magic matter as genocide and

says roman are still subject to discrimination. >> have a million people, men, women, and children were exterminated in the holocaust. society has learned nothing or almost nothing from this. otherwise they would treat us in a more responsible way today. >> romani organizations accused france and italy of carrying out unjustified deportations of these people. the president of the german leadership says it is important. >> we have to tackle the issue during the eu presidency in the first half of this year and its commitment to improving the situation. >> they went on to say the germans have a special responsibility to learn from the past, to keep memories alive, and always remember the atrocities committed during the holocaust.

>> the polish and german presidents gathered at the former auschwitz death camp to remember victims of the holocaust. christian wulff joined komorowski at a wreath laying ceremony attended by camp survivors. it has been 66 years since the liberation of a cautious by the soviet army. not these murdered over 1 million people there, mainly jews. president wulff said auschwitz was a permanent reminder of germany's responsibility for preventing crimes against humanity. let's check in with steve for the latest from the world economic forum. >> france and germany will defend the euro. that is one of the big headlines coming out of davos. the french president has launched a stinging attack on the financial industry, saying irresponsible behavior by managers sparked the global credit crisis three years ago. sarkozy also renewed his call for national governments to

adopt a financial transaction tax to fund development in developing economies. but he had knowledge that many of the g-20, which france is chairing this year, are opposed to that idea. in portland, sarkozy also delivered a very robust defense of the euro. >> sarkozy had the perfect podium to proclaim his global vision. the french president spoke with passion, covering the debt crisis, the cost of raw materials, and inflation. sarkozy intends to use french storage above the g-20 decision to abolish as a global currency trading. and he had strong words on the euro. >> the message on the euro is very simple. it is of such importance that we will be there whenever it needs to be defended. the consequences of it failing

would be so cataclysmic that we can never entertained the idea. >> the debate over how best to solve the european and debt crisis continued in davos. on the one that, those that are arguing for more money for the and that it be used its common on the other are those is that the rescue deal agreed to is big enough to the other, the german government and many german companies. >> i think it is sensible not to simply keep throwing cash at the problem, but rather, lack of concrete conditions. long-term, it is better for stability and more important than simply jumping in brought -- blindly and unconditionally. >> german chancellor angela merkel is expected to arrive in davos on friday, and the debate over the single currency will likely continue. >> dw-tv's vanessa fisher is in

davos and was listening to president sarkozy's speech. i asked if he presented a convincing defense of the euro. >> yes, one could say so. although it was very short. because he was actually speaking on the global governance of this is g-20, and there were questions on the euro. one had the feeling he did not really want to talk about the euro. but he made very clear that he and the german chancellor, angela merkel, would never, never ever let the year-ago down and that europe was the hero, and there were so many forecasts in the past that the bureau would go down and that the bureau did not have any future and the euro is still there. so he was quite convincing. >> a case in point, keeping that theme, the greek prime minister is also attending the form. in greece, of course, being the first eurozone member to receive a big bailout.

as he had anything to say about the euro debt crisis? >> yes, he basically explained the situation grease was in. he said we're doing everything that the european union is saying. we're cutting costs of to the point where it really hurts. we're doing everything, and still, the markets are not responding. they're not responding quite well or in a positive way. it is not up to us to do anything more to tranquilize the markets. it would be frankfurt, berlin, or brussels. he made very clear that the german government -- it was a little bit of criticism on the german government for not boosting the rescue fund as brussels wanted it a couple of days ago. >> benishek fisher, speaking to

us earlier. nokia has reported its third decline in quarterly profits in a row. the world's largest maker of mobile phones has been battling to regain market share against apple's iphone and research in motion's blackberry. they warned of a weak start to the current year, the operating profit margins of the phone unit may drop of to 10%. they plan to unveil a strategy revamp in february. on to the markets. european shares enjoyed a strong gains thursday, as investors responded positively to some strong earnings results and the decision by the u.s. federal reserve to maintain its economic stimulus package. our correspondent sent us this summary of the thursday trading session at the frankfurt stock exchange. >> the mood of the german stock market was again upbeat, fuelled by the ongoing lack monetary policy of u.s. central banks. investors are looking for more profit. shares of an insurer have been

searching. surprises and disappointments from different earnings reports, a software you circuit record numbers. where is the second largest airline missed completely the targets. >> thank you. we stay in frankfurt for a closer look at thursday's market figures. the dax lock in gains of 0.4%, 7155 points. euro stoxx 50 in doing even better, reclining -- climbing by 0.7%, 2989. the dow jones on wall street of just a tad, trading 11,990 two points. on currency markets, the year of trading against the u.s. dollar at a value of $1.3730. as the market for smart phones continue to grow rapidly, so is the number of downloads of mobile applications. u.s. market researcher says

sales of applications are expected to reject value of about 11 billion euros and a dozen 11. nearly tripled the amount record of last year. they predict that by the end of 2014, some 185 billion applications will have been downloaded from online stores, and the majority of applications continue to be downloaded from apple's application store. that is your business update. >> thank you. old man winter is holding on tight. there was another winter white- out in the northeastern part of the united states. a thick blanket of snow fell from the state of maine to virginia and washington and new york and new york has been deluged. have a major of snow dumped on the big apple overnight. airports at to close and thousands of flights canceled. cravaack on the roads. new york has seen 90 centimeters of us know this january, the most since records began.

an exhibition of 3000-year-old statue's has opened in berlin. they were unearthed by in syria 100 years ago and severed meter -- suffered major damage during the war. it has again restores almost a decade to piece them back together again. >> these statues once guarded the palace of an armenian prance. they're part of a collection of sculptures that still awes crowds today. the goddess, it is a miracle the she and the other statues are going on display again in berlin. experts thought restoring the collection would be impossible. but a team of a german archaeologists has managed to do the job. they began with a pile of 27,000 fragments, as well as photographs of the originals. without the aid of computers, they spent nine years restoring the goddess and her attendants

by hand. >> in the first year, every day was like winning the lottery. we kept matching pieces and identify fragments, because the statues are very distinctive. >> the goddess first sparked fascination among archeologist 100 years ago. among them, the orioles leftist, adventure, and hobby archaeologist. he worked off the tip given to him by bedouin nomads in what is in northern syria today. he says he fell in love with the goddess at first sight. today, another team of german archaeologist is it and digging. there may still be treasures to discover in syria's deserts' and making a find on the scale of this is the dream of every archaeologist. >> we will be back after a short break with "in depth." we will be looking at the recent growth in german exports, so do not go away.

♪ >> innovative, precise, future- oriented -- just like us. dw-tv, quality first. [applause] >> speaking foreign-language.

>> china has taken the top spot. the german exports are on the rise. the country has emerged strongly from the bleak days of the financial crisis. and the more recent europe debt crisis has not dented confidence. the german economics minister says the country's growth is based on the twin pillars of exports and domestic demand. and in its annual economic report, the german government has predicted export growth will weigh in at about 6.5%, which is good news for companies which rely on foreign markets. >> this glaeser cuts through steel plates in a fraction of a second. it is made by trump, a medium-

sized company that does much of its business abroad. at the laser device caused at least half a million euros. customers from a round here come to the factory near stood guard. there has been a marked rise in orders from developing countries. at the moment, the boom regions for german exports are china, southeast asia, brazil, russia, and the arabian peninsula. export growth is 40% to 50% higher than the previous year across the board. but by far, the most demand for german exports comes from within the european union. france alone accounts for 10% of german exports. after a drop due to the recession in 2009, products made in germany are again in demand. there are several reasons for this relatively moderate growth and wages have kept german prices competitive. that effect is compounded by a relatively weak year, which

makes german products cheaper to buy. at least outside the eurozone. 20 years ago, german exports were worth less than 400 billion euros per year. the record year so far west 2008, with exports worth just under $1 trillion in euros. then came the global economic crisis. still, analysts expect exports in this year to exceed the one trillion mark for the first time. the order burt -- the order books are full and companies are hiring new workers again. not all sectors are benefiting equally from the robust export demand. the most important export products from the german point of view or cars and automotive parts, minutes -- machinery in a crummy, chemical products, and electronics. the boom could be jeopardized, however, if the euro increases in value and demand from asia drops off. also, prices for raw materials are going up. as it looks now though, the

german economy could return to its pre crisis levels this year. >> earlier, we spoke to david cole, the chief economist of this group, and i asked why german exports are growing so fast at the moment. >> it is a combination of a very strong demand, particularly out of emerging markets. but also, competitiveness improving, and this is a long time thing which germany achieved in the past few years. wage developments had been lower. therefore, competitiveness had been reestablished for german exporters, and this has allowed for their success. >> observers expect strong growth in asia and america. what branches of the german industry to profit from that? >> it is the usual suspects, visibly. the automobile industry, of course. it is a big export industry. also, machinery and chemicals are basically the areas where germany has a strong

competitive position, and innovative position. particularly in the machinery industry. these are the industries which have profitability and which will profit in the future. >> how difficult is it for german industry to keep its edge over its competitors? >> it depends on the industry. clearly, the automobile industry is one. we're globally in oversupply. it is like the situation we had before the economic crisis. that is definitely something where you have to operate by your brand name, and germany is successful there. but it gets more difficult. in o you have to look to the continued development and research. so the competitive edge can be maintained in germany for some time. >> could the booming exports pose a danger for german industry? >> well, it depends on exports.

it implies considerable volatility. once the demand collapses in germany, their heavy implications for the german economy itself. the recession was deeper than in france and other economies which are more domestic-based. overall, germany profits under normal symptoms dances from the strong export position. >> thank you very much for your analysis. >> the government has pegged economic growth in 2011 at 2.3%, up from the previous forecast of 1.8%. small and medium-sized companies form the backbone of the german economy. many of them are family-owned enterprises, which had humble beginnings but have since gone to specialize in products much in demand overseas. in our next report, we will take a look at one such company in western germany. it is now run by the grandson of

the founders and provides warehouse and logistics technology. it is an export-driven business with customers all over the world. >> the psb companies known all run for its solutions for warehouses and factories. visitors get a firsthand look at what the conveyor business is all about today. the head of the company explains one of its biggest projects, the device is situated in a fashion company in britain. the textiles are not packtrain crates are boxes but should instead on hangers, as demonstrated here in the showroom. they develop a customized conveyor. >> this is the world's first fully automatic clothing rack. 5 million articles can be hung on the biggest systems we make. and from the racks, you can automatically transport the products directly to the dispatching date.

>> automated conveyor systems from germany are popular abroad. about 55% of his company's sales come from export customers. big orders can be worth tens of millions of euros. psb says it felt the global economic downturn a couple of years ago but said it put the down time to good use. >> we used the time to create new conveyor systems for our customers. >> one example is the packing system they developed for an online health food retailer. process is long established as smaller companies like this one are being adapted and expanded upon for larger customers. the health food company says the machines have dramatically improved productivity. >> when we used to pack manually, we could do 10 to 12 orders in an hour. today, our workers can pack up

boards of 50 orders in an hour. >> they developed convey your solutions like this for customers all over the world. about a third of employees here have a background in engineering. since engineers are in short supply, the company's pro-active in the developing talent. >> retrain workers ourselves. many more than we need in some areas. we cooperate with trade colleges and universities so we will have enough engineers in the future. >> those engineers will be needed sooner rather than later if the order box keep filling up. >> germany's economy was the focus of our "in depth." the forecast predicts growth despite the european debt crisis. i am meggin leigh. thank you for joining us here on dw-tv. stay tuned. ♪

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♪ - hi, i'm bob scully and welcome to another edition of the world show, entrepreneurs/the dobson series. are you worried about your pension? do you even have one? you might not, which is already a worry in itself. but even if you do have one, you may have some slight suspicion that all is not right. the system

does seem a bit unsound-- and that's not even mentioning social security. everyone in america is worried about what comes next. our guest this week is en entrepreneur. he has designed what he calls a solution system for what he thinks is a coming retirement fund crisis. but he also happens to be a nobel laureate in economics, which does give you some credibility. here's professor robert merton of harvard. professor merton, it's always a privilege to be speaking with a nobel laureate in economics--there aren't many of you around. and even rarer still is a nobel laureate in economics who's entrepreneurial. and i notice that, as an entrepreneur, you have just bravely weighted into an area of the economy that scares a lot of people. and by that, i mean the anticipated decline in retirement funds, public and private. those funds might go broke, quite frankly. nobody wants to talk about the problem, but it's there. so how do you define it?

- the funding of retirement is a perennial problem. it's one that we had to deal with 200 years ago and we'll have to deal with it 200 years from now. it's true in japan or brazil, as well as the united states, canada and europe. and if you want a metaphor for how that has been provided, they often use the notion of a 3-legged stool, which you know is stable. one leg is government, typically what we often think of as social security, the 2nd leg is employer-provided benefits, and the 3rd is personal saving. the major source of the crisis at the moment, or at least the challenge for retirement, is in the employer-provided plans. historically, meaning at least in the last 50 or 60 years, the employer benefits, particularly in large companies, were provided by what was called a defined benefit plan. and in very simple terms, what it meant is that if you worked for the company your work life, and

depending on how many years you worked and how much you made at the latter part of your work life, you would receive a benefit in retirement which paid you an amount adequate to live on, along with your social security, in the standard of living that you had enjoyed in the latter part of your work life. and that benefit continued for the rest of your life, so that you could never outlive it. and most people, even though the plans didn't always work well, liked it. there was one problem: the problem was, we underestimated the cost of these plans. and for many years, it was hidden because of good performance in the stock market. but in 2000-02, we had a coincidence of a decline in world stock markets, a decline in interest rates, the combination of which made many companies, and some of

the weaker ones in steel and airlines, go into bankruptcy because these obligations became far larger than the companies had anticipated. as a consequence of that, corporations around the world have essentially stopped providing any new defined benefit plans, and many have even capped those plans for existing employees. so this shock to the system did not, however, relieve employers of the obligation and responsibility for helping their workers to have retirement benefits. and so, almost by default--because it was the only other broad type of plan out there--, they began adopting what we call defined contribution plans, dc plans. these plans, unlike defined benefits, where they tell you what you will get, in these plans, they simply say that they will contribute a fraction of

your earnings--2%, 4%, some places as much as 8 or 10%-- into an investment account, each year you work, and whatever that account is worth when you retire, that's what you have as a benefit. - that's safer, of course, because you'll get less failures and less bankruptcies, but you may get less money, too. - uh, yes, it is safer in terms of that the account is in your own name, and so it's protected against default by the corporation. i would point out though that in the united states in particular, there's the pension benefit guaranty corp. that guarantees corporate- defined benefit plans at least up to a meaningful level of coverage. so there are protections, but you're quite right. but what it does do, however, is change very much what the responsibilities are of the individual. essentially, the

individual, either par hiring someone or doing it themselves, has suddenly become responsible for solving a very complex and important financial problem, namely how to invest all these funds and how much to save to invest these funds during their work life so as to arrive at a satisfactory desired retirement. - and that's without being able to predict inflation, which has got to be one of the biggest rust factors on the whole system. and if you're going to retire in 20 years, there's not way you can predict what inflation will do in 20 years to the value of your money. so how do you tackle that? - you're quite right. the risks are including inflation. the way you tackle that, in terms of investment strategies, is to design a goal that is first based on inflation protection, and second, that you engage in investment strategies designed to protect against the risks of unanticipated inflation. that's a complex process that, i think,

is best done by professionals. but if we come back to what the individuals should be thinking of, we take it that the goal, for most people when they reach retirement, is to have a standard of living in retirement similar to the one that they enjoyed in the latter part of their work life. and if you're going to concretely define what that means, it of course involves medical care and housing, which i won't go into at the moment. but for the rest of your consumption in retirement, the way we characterize that standard of living is an income, each year that you live, protected against inflation, as a way of capturing that. in terms of that being a standard of living in contrast to a certain amount of wealth, i remind you of the english author of many years jane austen. when she talked about who was a good catch, like mr. darcy, she didn't say he was worth 100,000 pounds:

she said he's worth 5,000 pounds a year. that's the way we think: we think of our standard of living in terms of so much per year. and yet, if you look at the way defined contribution plans as they are instituted now operate, the focus of a goal is on distribution or an amount of wealth. so that's not even the right goal. - [both]: so... - [scully]: yes. - so having established a goal, we then ask ourselves, for the individual, what else we need to do, how do we achieve those goals best, and what can the individual do to contribute to that process. i would say that to ask people to manage their own investments is a little bit like asking people to take care of their own medical services. you need sophisticated knowledge, and it's not reasonable to expect people, whether they're brain surgeons, professors or auto assembly line

workers, to be able to solve these complicated problems and devote the time necessary to implement them. - and when we spoke last time, professor merton, we were talking about banks, financial safeguards and all that. we don't have time to get into that again, but i still remember that great automobile analogy you had. you like automobile analogies, and so you talked about the 4-wheel drive. this time, you've got another one: you talk about formula 1 when you say that these plans, these things have to be robust. what do you mean by robust? - well, if you're designing a car for all of us to drive, it has to be robust, in the sense that some of us won't change the oil for 2 years, we bang the tires into the curb and they get out of line, and we keep driving them. and we have to design a car that'll work even under those kinds of wildly adverse conditions. if you, on the other hand, had a professional driver, not only more skilled but

someone who devoted every day of their workweek to focusing on the car so they changed the oil and were careful to realign the tires, you can design a system that could do many things that a system that requires that robustness could not-- - so that would be your formula 1, but formula 1 is not an industrial product. it's only a tiny, tiny, tiny clientele that can hope to use it. - absolutely. in the absence of a professional financial planner, that's just not feasible. so that isn't really an appropriate approach for the vast mass of employer- provided plans.so, what we've done is just go back to square zero, start over, starting from the goal of maintaining the standard of living in retirement enjoyed in the latter part of the work life. we then say, how can we implement that?

and we design investment strategies that are completely focused on that one goal. - and you and your partners, as entrepreneurs, have a product, i believe, that addresses all this, and you call it smartnest. i'd like to know how would that product protect in a way that the others didn't before. the- the actual product is... i first designed it about 5 or 6 years ago, after it became clear that there was a real need as a result of the decline of db plans. it was then implemented in the small company that i was a part of forming, in europe, for a very large electronics firm. and we installed it in holland, germany-- - that was philips, right? - yes, it's philips electronics. we installed it in holland, germany, and the uk. however, it was very clear that we were not to provide large pension

plans globally. you can't do that with a small company, with the resources and the reputation. so we joined forces and brought this product to a firm called dimensional fund advisors, which is headquartered in austin, texas but is global. and they have been in business for 30 years, with more than $170 billion under management, and their whole business was built on finance science and innovation for solving investment problems like these. and we're now working to bring that into the united states, we hope, in the next 6 to 8 months. the product name now is dimensional managed dc, and, as i say, we've had experience with this now for about 4 years in europe, and we're pleased

with the results. and the key here is to understand that you're trying to solve a very serious problem where the individuals, most of us not only don't have the skills, but we don't have the interest in managing the money. and so, what we've tried to do is take all the complexity, and in effect put it under the hood. we give choice, but meaningful choice. the amount of your asset allocation is no more a meaningful choice than if you were buying a car, going back to the analogy. when you buy a car, you're interested in gas mileage, how fast it goes, how reliable it is. if i tell you your car has a 9.3:1 compression ration or dual overhead cams, you probably know that has something to do with those features, but i would doubt that any of us can really convert that information into a useful choice about what matters-- - but even if i don't want

to look under the hood, if i'm turning to you, i'm assuming that you fixed the engine and that you're not going to want to repeat errors that the predecessor plans have made. and so, therefore, probably you're going to be more conservative, ask people to put in more money... i mean, it'll end up being as simple as that: you get what you pay for. no amount of financial engineering is ever going to get you a golden retirement that you haven't paid for. or am i wrong? - you're absolutely right. and the first and most important thing is to recognize that you may not get what you pay for, but you're rarely going to get more than you pay for. and one has to be realistic. and the way we do that is, we give people choices and we give them essentially a report. they can go online at any time and see where they are or if their tracking in terms of reaching their goals is too far removed from likely being able to succeed. they receive either

an e-mail or a phone call or a letter saying, "look, you're off track. please get in touch with the help desk or go on the site and we'll help you." and we view these reports very much like the doctor's report you get once a year when you do a checkup. when all of us go for our checkup, we want our doctor to tell us that we're great, we're fine. but we don't want our doctor to tell us that if that isn't the truth. because then, what's the point of going for the checkup? so if we do get a report back that says, for example for me, "your cholesterol is 300," that's not good. but then, what does the report say? it says there's something you can do about it. you can take statins, you can change your diet and you can exercise. the parallel-- - and in the case of retirement, i guess it means you can up your contributions. i mean, let's face it, there's not a ton of solutions here. - yes. basically, there are only 3 tools that we have

for improving our chances of achieving the goals we want. we either have to save more or we have to work longer or we have to take more risk. those are the only 3 ways--there's no other magic. and so, what we provide for in choice are meaningful choices. if you increase the amount of your saving to improve your chances of achieving your goal in retirement, you'll see in your paycheck that the next month will be smaller because you're withdrawing more. that's a meaningful decision, giving up consuming now for later. if you decide that, instead of retiring at 65, you're going to work until you're 67, that's working an extra 2 years and that's a meaningful decision. and if you decide that you've done as much as you could with those two and you still don't like your chances, if you decide to increase risk, you have to understand that risk is real. and if you increase risk, there is a chance that you'll do

even worse. and for that reason, we put in also a minimum. we have the desire, and that's what we focus on, but we put in a minimum to ensure that people do not take risks so large that they could find themselves with totally inadequate--not just undesirable but inadequate-- retirement. those are the-- - and i was interested to read in the research that the reverse mortgage, which is of course one of the innovative tools of the past few years, you don't frown on that. even though it has been abused by shady operators at various times, the basic idea that you should be able to take out the equity in your home while occupying your home until you die, for instance, that's an idea that you like. - absolutely. going forward, one of the things in designing the total solution is that nobody has extra money, and we can't be wasteful of any assets. and one of the key assets in implementing and achieving a retirement goal will

be what you do with the house. if you're fortunate enough to own a house or an apartment and that you own the house or apartment you want to live in when you reach retirement, in the united states, but also, i believe it's true in italy and any number of countries, the largest single asset that an american family will have at retirement is not their pension plan but their house. and that's even with the decline in housing prices we've seen in the last few years. and the housing asset is a very important but also interesting one because it serves 2 roles. one role is that you want to have it in retirement because it's like an annuity, paying for a part of your retirement living, which is your housing. and it's just the right thing to have because it's the house you want to live in. so, it provides you the services of housing when you have it and you should keep it. on the other hand, reality

is that none of us are going to outlive our house. sooner or later, we're not going to need it. and then, at that point, the house becomes an asset-- a financial asset that is part of our wealth. what the reverse mortgage allows us to do is to access that value--not the value while you're living in it but the residual value that you have after you no longer need it. and access that part of your wealth at the time of your retirement, so that you can use that extra money to either enhance your retirement income to get the standard of living up closer to what you want, or, if you're fortunate enough not to need it, that's a good time to take that and give that money to those who you'd like make a bequest, such as your children or grandchildren. so, the reason i bring this up is, it's big, it's important, and it is a way

to really help us solve the problem--i think we're going to need it. but, as you mentioned, the reason is that right now, i would say that many of the reverse mortgage contracts are inefficient in design, and the system is not providing reverse mortgages after this crisis except under government guaranteed plans, which highly limit the scope and the amounts. and what we need to have as part of innovation, as we've been doing on the retirement benefits side, is to design reverse mortgage contracts that are efficient, properly priced and properly charged for, and accessible and available to the general population in that way-- - would you favor some kind of safeguard against the excessive bundling, slicing and dicing, and reselling of them? because after all, that's what got us into trouble with normal mortgages. i mean, we do have to remain weary of that.

- we certainly have to be weary of any major financial service particularly being provided to the broad american consumer, especially being provided to provide for core retirement-- an essential part of our consumption needs. that said, we have to break it down to the different needs. we have to be thinking about how to make sure that people adequately understand the product and are getting good value for the product--and that's a matter of disclosure and oversight-- but most importantly, in my mind, getting a good design. but i need to tell you that in order to produce this product, you have to have investors-- institutions or individuals-- who are willing to own these reverse mortgages. you know, they're the other side. and the efficiency of that part of the system is critical to providing

low cost, on large scale, these reverse mortgages. under the conditions that we're coming out of in this financial crisis, that is a major challenge too. i believe we can address and solve that, but it'll take clever entrepreneurship, insightful regulators, and institutions that have gone and designed something and understand the real needs here to make it work. so it's a challenge. - but when i look at the research in general, and specifically what you're doing with dimensional and the research that you're generating for your products, the era of the huge, reassuring ibm-type or general motors-type pension plan, which some people still yearn for and actually look for when they're looking for an employer, in some cases, that era is over and we had better get used to a new era where we are far more individually

responsible than we were before, no matter who the employer is. - that's absolutely correct. what i can say with... one of the few things i can say with a high degree of confidence is that defined benefit plans of the kind you refer to at the price that they were offered with the benefits they offered are not coming back. they were way underpriced--that's been realized--and they won't return. but we can address this problem and address it well. it is not an insurmountable one, but it's one that's going to take entrepreneurship, innovation, enlightened regulation and oversight, and a lot of effort. - and up to what age is the window open to do this kind of personal revolution? i mean, if you're stuck in one of these big dinosaur plans and you're 10 years away from retirement, and you fear that they may not be able to pay you and

government insurance plans won't do it, there's not much you can do. if you're 30 years away, then you've got quite a window to see that coming. so does age matter a lot? - well, age, of course, is a major factor in every aspect of this, both... and sometimes, being younger is good and something it's not so good. but the thing to remember is that someone who has a defined benefit plan that has been capped still has that benefit. and in our analysis, we do an integrated approach. we consider not only the part that we're managing, which is the contributions that are put in through our plan, but we also consider the other contributors to your retirement: your social security, your defined benefits, and other assets that are dedicated to that purpose. because the goal here is to solve a problem, not look at a piece of the problem. so yes,

10 years to go: if you have no accumulation and you have no db plan, you have a lot of problems. you're either going to have to save an awful lot or be prepared to work a lot longer than you had planned, and there's just no way out of it. but this is not to say that everyone who's, say, 55 or 57 or 53 is in trouble because, indeed, depending on your accumulation, you can still enter into a plan like this and, in the end, have a good glide into the desired amount of retirement income. - well, professor merton, we're out of time. once again, you have made the very complicated seem simple and understandable. and unfortunately, we don't have time to discuss another one of your innovative, fantastic concepts: regret insurance. we've go to do that next time, but 'til then, good look to you and the people at dimensional and everything you're trying to do. - oh, thank you

very much, bob. bye. - robert c. merton, nobel laureate in economics and professor at harvard university, was our guest this week on entrepreneurs/the dobson series of the world show. i'm bob scully. have a great week. thanks. closed captioning by sette inc.