Tuesday, September 16, 2008

How Will The Wall Street Crisis Affect Me?

With all the commotion on Wall Street one has to ask - Am I going to suffer from this?
Well that all depends.

If you work for Lehman Brothers or Merrill Lynch - the answer will be most definitely yes.
If you hold stock in their company the same holds true.

AIG can very well be the next domino to fall in this credit crisis.
Those big guys are not getting the same generous bail out form the government as Freddie Mac and Fannie Mae did, but the Federal Reserve is springing into action with some sort of plan (some sort of short term fix along with some words of confidence? no interest rate cut as of today.)

Jobs are at stake and investments are also going to suffer.
There have been bank failures, and markets overseas are taking a hit as well.
In the end we are going to see tighter requirements if you are looking for a loan, especially if you are looking to buy a house or a car.

But how this affects the everyday Joe's bank account - well it doesn't directly - and even if your bank fails, your money is most likely FDIC protected.
The Federal Deposit Insurance Company (FDIC) offers some pertinent information on their website about what happens when a bank fails.
The Federal Deposit Insurance Corporation is an independent federal agency created in 1933 to promote public confidence and stability in the nation’s banking system.

Throughout its history, the FDIC has provided bank customers with prompt access to their insured deposits whenever an FDIC-insured bank or savings association has failed.

In the FDIC’s 75-year history, no customer has ever lost a single penny of insured deposits.
You should also know this:
The basic insurance amount is $100,000 per depositor, per insured bank. This includes principal and accrued interest up to a total of $100,000. The $100,000 amount applies to all depositors of an insured bank except for owners of certain retirement accounts, which are insured up to $250,000 per owner, per insured bank.

Deposits in separate branches of an insured bank are not separately insured. Deposits in one insured bank are insured separately from deposits in another insured bank.
It's indeed brutal in the financial markets.
However, this was all bound to happen as Wall Street firms' business was, and is, perched upon a huge (and I mean "ginormous") pile of debt - bad debt at that. People were given loans who should never have been given loans in the first place. This started even as far back as the Clinton administration and probably further; this did not happen just in the past 8 years alone.This credit mess has been long time in the making. When the price of energy soared, then it became a real struggle for people to pay the mortgage and the associated costs of owning a home, especially for those who got adjustable rate mortgages and bought way over-priced homes. The rating houses also screwed people by over inflating investments and really putting lipstick on a whole bunch of pigs!

Now people will have to either sell their homes or refinance if they had a debt/mortgage they can no longer carry. Selling their homes might be a problem now as credit dries up and house prices may continue to drop. Some may drop lower than what the original mortgage was for in the first place. Hopefully banks and financial institutions will liquidate their bad debt or allow refinance with low interest rates and no closing costs.

Regarding our jobs, we might be a bit more concerned about the company we work for, and how it will function in this recession - and pray that our jobs are not eliminated. Find out if your company is going to suffer in any way from the shake-out from Wall Street.

We'll also bound to see some inflation as prices rise.

The money you have in the bank is for the most part safe - but it's value is dropping. The money you have in your 401K plan may decline in the short term - depending on what your portfolio holds. This is a tragedy for those people who are living off those pension accounts now.

This for sure is a history making banking crisis - one that has far reaching global implications - and it isn't over yet.

Your best bet is to make sure you have a good handle on what your assets and liabilities are, go over how you are budgeting your income and think about what your plan will be if you lose your job. Stay informed on what is going on and read up on the issues. Don't impulse buy and for heavens sake - put that credit card away!

The only real difference between counterfeiting and inflation is who’s doing the printing. - Jim in San Marcos