Thursday, September 18, 2008

Wall Street and the Economy. Oy.

Well, I guess I didn't see this coming.

It's scary. Under the radar, Wall Street has allowed a few unofficial monopolies to form: major mega-brokerage firms, major banks holding huge amounts of assets, major insurance firms. The size of these institutions has given us a certain amount of warm and fuzzy security; after all, how can they fail when they hold billions of dollars of assets, affecting hundreds of thousands of people? When these institutions do fail, we stand there with our jaws gaping, powerless, wondering what's going to happen next and worrying and panicking about our money and our futures.

Since there's a major presidential election going on, the blame game is going on in full swing. Democrats, of course, blame the incumbent administration, and warn the American public that the future holds more of the same if McCain gets into office. McCain blames greed and the old boys network of Wall Street.

So who is right? Here's the thing. No one knows. Really. This Wall Street mess is a complex one. Does it have to do with the mortgage disaster? Absolutely. The failing banks and brokerage firms overextended themselves on risky, ridiculous mortgage deals. But it goes far deeper than that. It has to do with the falling dollar. It has to do with risky securities called derivatives. It has to do with greed and it has to do with deregulation and under-monitoring. It has to do with Fannie Mae and Freddie Mac. It even has to do with some things that Alan Greenspan did way back when. But the bottom line is that even the financial and economic experts are scratching their heads on this one and scrambling in their analysis of the situation. Why this is happening now and why all these formerly sound entities are falling simultaneously is not easily determined. I think it's pretty funny when I read blogs and articles that definitively point to one thing or another as THE reason for the Wall Street mess. These are often expressed by writers who have never bought a security in their lives. It's complicated, people. We're still in the middle of it. It'll probably get a little worse before it gets better. We are still bleeding and we've got a few more bullets coming. One of the reason the politicians are speaking in such enormous generalities is because no one really knows for certain what has happened here and no one knows for certain what will fix it.

That said, I don't think it's the End of the World As We Know It. I'm not pulling a dime out of the stock market. (Unless, God forbid, Obama wins the election. Then I will have to rethink things.) It makes no sense to sell stocks in companies that are fundamentally sound, just because the market is so low. I never invest money that I need immediately, and I am willing to let things ride, settle down, and come back. I'm also not pulling my money out of my bank accounts. I've got the bulk of my money in Chase, Coutrywide, and WaMu, and all accounts hold less than $100,000, so they are covered by FDIC insurance. If WaMu fails, my money is still safe, and even if I have to wait to get it back, I've got money in the other banks. If you have all of your cash in one bank, I strongly advise you to spread it around just a bit, and certainly don't keep more than $100,000 in one bank. Sign up for online banking so that you can exert more immediate control over your money.

Fasten your seat belts. Let's see what today holds. Let's see what this week holds. Hang on to your blame and watch closely. Here we go.

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