The events that roiled Wall Street this weekend and Monday raised real fears about the health of the nation's financial system.
Investors and bank customers no doubt have a lot of questions about what's going on, whether their money is safe and how long this turmoil may last. Here's what some local and national investment advisers and economists had to say:
What should individual investors be doing right now?
Avoid panic. Yes, portfolios and retirement funds such as 401(k)s are taking a beating, but financial advisers caution investors, especially long-term investors, against the urge to sell. Instead, they should consider realigning their portfolios and adding stocks, said Graham Spiers, chief investment officer at the investment-advisory firm Waypoint Advisors in Norfolk. "It's painful," he acknowledged. "It's hard to make the decision to buy into weakness."
"I have no idea of how this will end, but we'll get through this," said Spiers, who said many investors have money on the sidelines waiting to be put to work.
Are investment accounts at brokerage firms still safe?
Up to a point. The Securities Investor Protection Corp. protects the cash and securities - such as stocks and bonds - held by a customer at a financially troubled brokerage firm such as Lehman Brothers. But it doesn't work the same way as the Federal Deposit Insurance Corp. does for bank deposits.
Does this turmoil threaten the safety of insured deposits at commercial banks?
No. Concerns about financial weakness at a California savings bank, IndyMac, triggered a run by depositors in July, and the number of bank failures so far this year has been climbing. However, the FDIC has stepped in to protect insured deposits.
Financial advisers and those familiar with bank conditions insist that deposits of up to $100,000 per account remain secure. It's possible to have more than $100,000 of insured deposits in a single bank by checking with the institution, said Bruce Whitehurst, president of the Virginia Bankers Association.
Savers concerned about insurance limits on deposits or about the financial condition of a particular bank can find information on the FDIC's Web site, www.fdic.gov.
How will this affect individuals hoping to borrow?
If you want a business loan, a car loan, a home loan, a student loan or virtually any other kind of loan, banks are hesitant to lend, lest they wind up with more bad loans.
"Interest rates might be a little bit higher, especially for individuals who don't have stellar credit," said Christine Chmura, president of the Richmond forecasting firm Chmura Economics & Analytics.
Does that hurt the economy?
With lending drying up, auto dealers are sitting with inventory they can't move and real estate agents are showing homes they can't sell. The economy is slowing as credit is squeezed.
The collapse of Lehman Brothers and Merrill Lynch's agreement to be acquired came in the wake of the government rescue of mortgage companies Fannie Mae and Freddie Mac and bailout of brokerage firm Bear Stearns. When is this upheaval among financial institutions likely to subside?
Financial advisers in Hampton Roads said they don't see a quick resolution to the difficulties at giant brokerage firms and banks. So far, most of the difficulties have involved heavy losses on their mortgage-backed securities.
"This has yet to roll through the corporate sector," said Larry Bernert, a principal at the Norfolk money-management firm Wilbanks, Smith & Thomas Asset Management. "Banks haven't written down the values of the loans used for leveraged buyouts," the corporate takeovers that relied heavily on borrowed funds.
At the money-management firm Palladium Partners in Norfolk, principal Katherine Willis described Monday as "a bloody day in the market," and "we've got more to go," she said. "We don't know how the landscape will unfold."
Willis expressed surprise that large financial institutions such as Lehman had not acted more aggressively to curb their exposure to the risks of mortgage-backed securities. "What's startling," she said, "is how companies that were worth billions of dollars and run by very bright people could find themselves in these situations."
What led to the problems at Lehman Brothers and Merrill Lynch?
A. Many of the large banks and brokerage firms that packaged and sold mortgage-backed securities aren't sure what the securities still on their books are worth. That problem is complicated by Wall Street's growing uncertainty over how much particular banks and brokerage firms would owe one another if one of them defaulted, Spiers of Waypoint Advisors said.
A recovery in the nation's housing market would help. One source of the problems afflicting giant banks and brokerage firms was overbuilding in housing, Chmura, the Richmond economist, said. "The housing sector is not going to pick up until the inventory is worked off."
In some parts of the country that witnessed explosive building activity earlier in the decade, falling prices have already begun to reduce the inventories, she said.
The Associated Press contributed to this report.
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tr's socialist aspirations
This is meant to be read by those who believe the goverment should control corporations. For those who believe legal barriers can dictate the success of any company large or small. Here goes:
I sell beans. I have 20 beans. A buyer approaches me needing 40 beans. I borrow at a lower rate and get enough to buy 40 add' beans so I can continue to operate until the person I finance my beans too can pay me back. I check the credit and see he is not worthy. Knowing I can get a higher return of interest I jack up his rate knowing I will make the differnce back. He defaults. I pursue him but my beans are long gone. He's going under. I then try to sell my way out of the situation by borrowing more and getting into shakier deals w/ bean buyers. Eventually my gambling collapses my house of cards. I knew better from the start but I did it anyway. Do I blame the goverment for not telling me what to do or my own poor judgement?
Personally I don't need my diapers changed by the goverment.
Why ?
Why is everyone giving a pass to the true original perpetrators of this whole fiasco ? - the entire chain of idiots associated with the real estate "industry". You know, the "agents" and "brokers" who hyped and sold inflated properties to those who could never afford it, financial houses who bundled up the "debt instruments" into "investment" packages, then transferred the hidden, toxic financial time bombs to the world so it could eat the consequences of bad debt - on a scale that now requires massive government intervention to keep the system afloat.
There's a reason why real estate types consistently enjoy the lowest respect ratings of all professions.
IRA
AIG, Fannie, Freddie, WAMU, Bear Stearns, IndyMac, Lehman, Merril Lynch, these banks http://www.fdic.gov/bank/individual/failed/banklist.html, ...
There is lots 'o blame to go around. But the Rs authored the Gramm-Leach-Bliley Act that repealed the Glass-Steagall Act, REMOVING the barriers that HAD KEPT these now collapsing companies out of the business which has been the root cause of their collapse, then that does play a part. McCain's BFF Gramm (main author of the bill, whose wife was on the board on Enron, hates american 'whiners') has McCain's econ ear, and "De-regulator" McCain have (to borrow an analogy) methodically removed the oversight referees from the financial games. The R's game plan for years has been to demonize gubmint. "Remove barriers. Remove oversight. Let the markets police themselves. Get out of the corporations' way." That ring a bell?
I hope you read this TR
Never, and I mean never does an insurance company make the choices AIG did and maintain solvency. Your reasoning is that the federal goverment is responsible for choices a company does or does not make to become profitable. As thoguh the goverment can write a piece of paper knowing the magical path to solvency and succes. I worked in this business for many, many years. All politics aside, you simply do not know what your talking about. A company makes decisions that are in the best interest of its rating and shareholders. AIG did not and is failing as a result. When they chose a poor path they then tried to sell their way out of it by taking risks. The goverment removed barriers, not advised them to make poor choices. Also, you know that Gramm is no longer w/ the campaign. Regardless, it is irrelevant. Just a convenient excuse and politcal jab.
If you have AIG insurance I
If you have AIG insurance I would recommend you transfer everything to another carrier. If you want to know how well the government responds to claims, you do not have to look any further than katrina or medicare. Really, what is their motivation to provide good service to their policyholders?
Gramm-Leach-Bliley Act (by McCain's econ advisor)
In 1999, McCain joined with other Republicans to push through landmark legislation sponsored by then-Sen. Phil Gramm (R Tex.), who is now an economic adviser to his campaign (and JM's co-campaign chair). The Gramm-Leach-Bliley Act aimed to make the country's financial institutions competitive by removing the Depression-era walls between banking, investment & insurance companies.
That bill allowed AIG to participate in the gold rush of a rapidly expanding global banking & investment market. But the legislation also helped pave the way for companies such as AIG & Lehman to become behemoths laden with bad loans & investments. McCain now condemns the executives at those companies for pursuing the ambitions that the Gramm-Leach-Bliley Act made possible.
(bill fathered by Gramm & Leach & Bliley (all Rs), with a Repub controlled congress, signed by Clinton)
Len
Historically insurance companies are bad investments. In addition, their competitors are much more nimble than the goverment. Now we are competing against our own private companies. Insurance is a highly competitive business. I hope I am wrong but I do not see this turning out well.
Ps. Don't buy stock in luxury cars makers and fine menswear shops. The increasing numbers of mortgage brokers out of jobs will slow their numbers.
Ira, I think we now own 79.9% of AIG
so, welcome to the insurance business. Don't insurance men/women play a lot of golf? I might have to work on my handicap. As far as running the company, AIG didn't do so well on their own. I suppose any losses less than $85 billion would be an improvement. I hope they have more power to run the company than the previous shareholders, because they got the short end of the stick. I am sure they are happy with the previous management.
Canary in coal mine
What we have done is actually buy AIG. Not bail it out. So now, since many are clamoring for goverment health care, why not let the goverment be involved w/ AIG and see how it works out? If they can do it, maybe they can pursue federal health care. It think our canary has been forced on us.
Andrew Jackson quote
"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves." - Andrew Jackson
swd...high risk = high return?
What has really happened on Wall Street is the all the return is at the top with the shareholders taking all the risk. Management was playing casino with our money, took great bonuses and severance packages, then left the shareholders, and now the taxpayers, with the losses. No adult supervision led to lack of impulse control, lack of personal and corporate responsibility, and, of course, lack of scruples. AIG bailout to the tune of 85 Billion is egregious, but think of all the policies, annuities, and other insurance vehicles that would be worthless. The economic and social cost would be catastrophic. Ironically, it is Wall Street and the anti-regulatory faction that has led to some of the largest government takeover of business in history: move over Chavez, you are a piker.
Some things never change.
President Rutherford B. Hayes wrote the following, after he left office:
"The real difficulty is with the vast wealth and power in the hands of the few....It is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations."
That was over 120 years ago. Some things never change. Democrats push social welfare....Republicans push corporate welfare....and the ordinary taxpayers get it in the end. Literally!
Economics 101/102 210 300 and onward.....
This is simply a market correction, albeit a BIG one! Yes, loose credit coupled with sky-rocketing home values, low rates, and aggressive lending/underwriting all worked to bring on this "crisis" (though it's not really a crisis).
Sure, a few big players are taking a hit, but that's the name of the game when investing: high risk = high return, but the downside can be just as bad as the upside is intoxicating. I am glad that the federal government won't be bailing these companies out - it's not the job of the government to do so.
Little of this has to do with any sort of economic "policy" of any past administration. Neither a president, nor his economic policy, has much to do with how markets behave short of armed conflict (which tends to make the market jittery at best). For the record: it was a Republican Congress that balanced the budget under Clinton...
A good time to buy...
And a buying I will go...
Too many people here believe
Too many people here believe political parties control your quality of life. Grow up. Wall St. controls the political parties.
Obama? McCain? What's the difference? Either one will be presiding over a global financial train wreck, in realtime, thanks to the thundering herd.
Go read some history, about the Depression. Read what unregulated and unbridled greed did then, & look around and see what it's done now.
I wonder how many people reading this have paid, or are thinking about paying, their property and other taxes with credit card advances.
We are not going to be able to spend our way out of this one.
And not one of the Wall St. pigmen will ever go to jail.
Blame.
So you want someone to blame? You can blame Alan Greenspan. You can blame Clinton, under his watch regulations were removed which led to risky lending. You can blame Bush, he did nothing to correct it and further ran up our debt (plus the war). You can blame the banks. You can blame Fannie Mae and Freddie Mac, the first of who was full of corruption and fraud (and went unpunished!) You can blame appraisers who lied and hit values. You can blame Realtors for not being honest. You can blame home builders, oh look at those kickbacks. You can blame lenders and brokers, who assisted customers in lying about income. You can blame senators and congresspeople, who got HANDOUTS from Mozilla @ Countrywide for hookups, the same people that are supposed to be protecting us (and went unpunished, Hi Dodd!). And you can blame the people who borrowed more than they can afford, weather to look wealthier than thy neighbor or to get rich quick. In the end, it's all greed. I told you house prices are going to go down 50%. You didn't listen. You should be forced to give back your economics degrees.
let 'em fail
Unless the government's supposed to babysit these giant financial institutions 24/7, let them fail. They'll be replaced with stronger financial institutions that learn (albeit the hard way) how to do business in today's world. They'll know for instance that when someone gets a house loan nowadays, they no longer feel the need to pay it off. They can keep the house and blame the president as cosigner on their mortgage.
DO YOUR HOMEWORK
For all you McCain nay-sayers, if you do your homework you'll see that two years ago McCain pointed out to Congress and the Senate that oversight was needed to look into Fanny Mae and Freddie Mac and other financial institutions. What do think Obama's going to do differently? He (government)CAN'T create jobs, the market creates jobs. By raising taxes, especially Capital Gains we will lose more jobs. Shoot! And to think all I have is a GED and AA.
mapatty
That is perhaps the dumbest thing I've read here.
"Well sure it was Clinton that created the mess, but Bush should have known it was bad policy and fixed it."
LOL - liberal logic.
The Blame Game
You can't blame this crisis on the Clinton administration.Bush had eight years to correct it. The Wall Street Journal reports that McCain supported deregulations while Obama wanted more regulations.
Sorry
Obviously I meant FDR died in office.
You need some more classes
"Now they want us to elect Herbert Hoover(McCain). Sorry, I'm voting for Franklin Roosevelt(Obama)."
There is no comparison of the times or the men. As another psoter and I discussed on anther board FDR would be guilty of literally everything Bush has done. Pearl Harbor was negilence that many perceive to have been a back door to a war citizens did not want. A large portion of FDR's programs actually succeded due to the war. it was a very large employer. Most of our current credit programs were born to feed the consumerism of these returning soliers. As for Hoover his primary kinship w/ Bush is his popularity rating. Both men were smarter than Bush. However, Obama is no FDR. Nor will he have the conditions politically needed to implement the New Deal changes. BTW, Hoover was old. He died in office. I thought you were against elderly presidents?
Too Much -Too Quickly
Of course everything is blamed on this adminstration - but if you would dare to look this situation back you would see that it started way back in the Clinton Adminstration - This is not something that has just transpired - it has been boiling for quite a few years - While he was suppose to minding the store -remember what he was doing?????????? and walked away from it all unseemingly unscathed - I think if he ran for office again - there are voters out there that would re-elect him - just like they are prepared to elect someone who has never had any experience leading - much less leading a nation that has many things about it that needs fixing -
The older generations
The older generations and corporate leaders have bankrupted our country. Too much living on borrowed money, and selling debt to other countries. Too much short term thinking, and personal greed.
The real question that the
The real question that the people would like answered is how much wrong-doing there has been at the upper levels of management in these financial institutions.
TWO REASONS WHY
No oversight looking at the FED and the worst Congress in the history of the United States. Do not let the media fool you?
BAD LOANS
This is nothing more than giving loans to people who lived in Section 8 housing. They are in section 8 housing for a reason and giving them a loan does not change that.
What's next?
What's the next financial crisis coming at us?
Anyone want to lay odds it'll be social security?
Worldwide meltdown of financial markets/banks...
Wow...incredibly tumultuous times! I'm waiting to hear the real headlines as to why Ken Lewis of BofAmerica RAN AWAY from Lehmans books (wasn't he quoted as saying he wouldn't pay a dollar/share for the co). How can a company that was formed in the late 1800's as a commodity cotton business simply fold? Why on earth would the government not bridge a loan to this powerhouse, yet, offer support to Bear Stearns? I believe when when asked how many banks would fold out of 9,000 Mr. Lewis said half would fail!! Guess we need to find some mason jars for our money...
Unregulated Market Results
The false religion of the "free market" and its subsequent deregulation are the root causes for the collapse we are witnessing and this is just the beginning. This adds to the importance of replacing incompetent, ignorant and ideologically driven leadership with its rational alternative.