Treasury Secretary Paulson was adamant that the U.S. would not bail out AIG and in an about face provided 85 billion dollars for a bailout. What a difference a day can make. Presidential candidates McCain and Obama were quoted on Monday, September 15th as agreeing with the Treasury that the U.S. Government should not provide the billions of dollars needed to keep the firm from collapsing.
However, the implications of the pending failure of AIG appeared to be so detrimental to the global markets the U.S. government felt it necessary to step in. Not only did the Federal Reserve provide an infusion of cash but the U.S. now has an equity stake of almost eighty percent in the global insurer. This is unprecedented and probably foreshadows more mergers or failures in the financial sector.
This uncertainty in the markets has investors running for cover as evidenced by the rise in bond prices caused by investors seeking a safe harbor from equities. Will taxpayers continue to foot the bill for Wall Street's financial meltdown? ...
Financial Industry in Turmoil
Wells Fargo, JPMorgan Chase, HSBC and other large banks have all reportedly been approached by regulators seeking someone to rescue Washington Mutual, which has been pounded by the slumping housing market and the subprime lending fallout.
Nick Ut, AP
Some are also speculating on which firm may be headed the way of Merrill Lynch or Lehman Brothers. Media reports have said that Morgan Stanley is pondering whether to remain independent and that it is in talks with Wachovia about a possible combination.
Mario Tama, Getty Images
A trader works on the floor of the New York Stock Exchange, Wednesday, after nervous investors yanked their money out of the stock market, sending the Dow down 450 points. The latest market plunge came after a late Tuesday announcement that the government would bail out ailing insurer AIG. "People are scared to death," one investment strategist said.
Richard Drew, AP
The AIG bailout marked the second time this month that the government put taxpayer money on the hook to rescue a private financial company. In exchange for a 2-year $85 billion loan from the Federal Reserve, the government will receive a 79.9 percent equity stake in the company.
Mark Lennihan, AP
Former Allstate chairman and CEO Edward Liddy, left, is expected to replace AIG's Robert B. Willumstad. Willumstad, a former Citigroup executive, had been at the helm of AIG since June.
AP (2)
AIG, whose shares had been on a freefall, had been on the hunt for cash to shore up its balance sheet. The Fed determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.
Richard Drew, AP
The U.S. government became one of the biggest players in the nation's mortgage market last week when it took control of mortgage finance giants Fannie Mae and Freddie Mac. The two financial institutions, battered by plunging share prices, rising foreclosures and sinking home values, owned or guaranteed about half of U.S. mortgage debt.
AP (2)
The decision to help AIG marked a reversal for the government from the weekend, when it refused to use taxpayer money to bail out Lehman Brothers. The investment bank was forced to file for Chapter 11 bankruptcy protection Monday.
Jin Lee, AP
For many of Lehman's 26,000 employees, the outlook is likely to be gloomy with job losses expected to be substantial even if significant parts of the business can be sold. On Sunday night hundreds of Lehman employees were seen clearing their desks and packing personal belongings.
David Karp, AP
Last week, after posting $3.9 billion in losses, Lehman CEO Richard Fuld outlined a plan to sell and spin off assets to raise money. Fuld, 62, who joined the company right out of college, is the longest serving CEO on Wall Street.
Kevin Wolf, AP
The financial pundits believe this will not be the last shoe to drop and that market volatility will remain until the economy turns around and real estate values stabilize.
It is during these times that average folks who are investing for retirement or for their children's college education need sure their personal portfolios appropriately allocated based on their risk toleranceWhen the stock market is on an upswing it is not unusual for most people to believe they have a high risk tolerance. It is during these prolonged periods of volatility that you can more accurately determine what your real tolerance for risk is. If you are staying up at night worrying about your investments you need to consult with your advisor or plan administrator at work to determine if your investments are properly diversified based on your specific goals and objectives.
There are several types of investments which do not have exposure to the stock market and which are less volatile however you will sacrifice growth potential. An asset allocation tool can help you determine if you have the proper mix in your portfolio. It's time to take your financial future out of auto pilot and make an assessment of the current situation.
Fasten your seat belts we are in for a rocky ride in these uncertain times.
Deborah Owens is host of "Real Money" on NPR affiliate weaa.org and is author of Nickel and Dime Your Way To Wealth. Read an excerpt on her Web site at deborahowens.com
Comments: (6)
Add a comment
By: Jackie on 9/19/2008 9:29AM
I've always thought to myself where will all this money come from. You buy a stock at a low price and then suddenly it makes money for you at a high price. It did not make sense just as lending money to people I knew could not afford some of the homes I saw them living in. It was like a free ride at the amusement park when you pay one price and ride all day. The park does close one day because it cant continue on and on and on and on.
For all of you financial investors my heart goes out to you! America is bankrupt falling in schools, so many teen pregnacies high fuel prices, food just unbelievable.............its amazing and frightening Did you see the President on yesterday Peek-A-Boo for 2 minutes
Reply to this Comment | Report This
By: Jennings on 9/20/2008 9:46AM
I'm no financial expert,but the ones that are,should know,if you loan money to people that are unable to pay it back,you are asking for trouble.Yeah! but it's ok to loan someone else's money,while I'm taking a cut of it myself.The ones running Freddie and Fannie should be held accountable,and at least be made to pay back the money they took.Laws were broken.We know nothing will be done about it.There never is.
Reply to this Comment | Report This
By: Ron on 9/20/2008 11:51AM
I guess we all learned from this that corporate america really does control this country. This kind of resembles bailing out of jail the guy who just robbed you. The heads and employees of these companies need to be held accountable and made to repay any bonuses they received. They are thieves!
Reply to this Comment | Report This
By: C. Howard on 9/20/2008 3:09PM
They keep telling people that we are in a recession, but it feels more like a depression.
Reply to this Comment | Report This
By: pokerwiz on 9/21/2008 11:09AM
Republican fiscal policies at work. 8 years ago we were making money and we had a Surplus! Now we have multi-Trillion dollar deficit and major banks and insurers are failing. Yet and still there are people who believe Bush has the country on the right track!! Of course we will have to bail out the Old Money cronies with the money taken from middle class workers. Its all good though, at least he didn't lie about getting a blowjob.
Reply to this Comment | Report This
By: mary on 9/21/2008 5:20PM
For all you that voted for bush don't cry about the financials now. Deal with it. When mccain is in office you ain't seen nothing yet. Prepare for world war 3.
Reply to this Comment | Report This