Understanding current financial times
Valbona Bushi
Issue date: 12/5/08 Section: News
Last issue, I tried to relate how we got to the current financial crisis and the dilemmas that we face ahead. This week, we will focus on the act passed by the government to help handle this problem and prevent, as much as possible, any disruptions to the economy and financial system. The government has passed the Emergency Economic Stabilization Act of 2008.
This is the act that created a new Troubled Assets Relief Program (TARP) that enabled the $700 billion bailout plan. Some companies are considered too big to fail, because their failure would create an unacceptable disruption in the larger economy. This is when the government steps in, and usually uses taxpayer money to loan money to, or buys part of, the affected company, including real estate, securities, and other financial obligations based on mortgages.
Also, the FDIC (Federal Deposit Insurance Corporation) limit has been raised up to $250,000 per person. This is the amount guaranteed by the U.S. government in most checking and savings accounts even if your bank should fail.
Acts like this one are needed in a time of turmoil and anxiety, especially with all the stories coming out of Wall Street of banks failing, margining, or selling out. This has led to problems in the credit markets which hurt businesses, reduce investments, and cut jobs. Price inflation leads to a dollar being able to buy less than before, as key items at the grocery store remain high. Employers will be hurting and so will retirement plans.
Markets run on confidence, and looking at the markets today you can see it has dramatically fallen. There is risk involved for taxpayers, but the government has decided that it is willing to take the risk in hopes that we can avoid suffering the larger cost of an economic downturn if the company were allowed to fail. The bailed-out company may be able (and may be required) to repay the money at a later date.
Just remember that panicking does not lead to good investment decisions. Make a plan! The U.S. economy will recover at some point, even though it may take a little bit of time. Most of us are young, so our retirement investments should have plenty of time to rebound before we need them.
Investing is about managing risk and balancing it against potential reward. Diversify by spreading your investments around. A downturn in any one business sector or investment should be offset by an upswing in another. There are several tools to do this, so understand all of your options. Articles on these available options will be in upcoming Observer issues.
The best cures for market fluctuations are having the time and planning. Become financially responsible and take charge of your money and your future.
This is the act that created a new Troubled Assets Relief Program (TARP) that enabled the $700 billion bailout plan. Some companies are considered too big to fail, because their failure would create an unacceptable disruption in the larger economy. This is when the government steps in, and usually uses taxpayer money to loan money to, or buys part of, the affected company, including real estate, securities, and other financial obligations based on mortgages.
Also, the FDIC (Federal Deposit Insurance Corporation) limit has been raised up to $250,000 per person. This is the amount guaranteed by the U.S. government in most checking and savings accounts even if your bank should fail.
Acts like this one are needed in a time of turmoil and anxiety, especially with all the stories coming out of Wall Street of banks failing, margining, or selling out. This has led to problems in the credit markets which hurt businesses, reduce investments, and cut jobs. Price inflation leads to a dollar being able to buy less than before, as key items at the grocery store remain high. Employers will be hurting and so will retirement plans.
Markets run on confidence, and looking at the markets today you can see it has dramatically fallen. There is risk involved for taxpayers, but the government has decided that it is willing to take the risk in hopes that we can avoid suffering the larger cost of an economic downturn if the company were allowed to fail. The bailed-out company may be able (and may be required) to repay the money at a later date.
Just remember that panicking does not lead to good investment decisions. Make a plan! The U.S. economy will recover at some point, even though it may take a little bit of time. Most of us are young, so our retirement investments should have plenty of time to rebound before we need them.
Investing is about managing risk and balancing it against potential reward. Diversify by spreading your investments around. A downturn in any one business sector or investment should be offset by an upswing in another. There are several tools to do this, so understand all of your options. Articles on these available options will be in upcoming Observer issues.
The best cures for market fluctuations are having the time and planning. Become financially responsible and take charge of your money and your future.
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