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Is your money safe?
Bank, mortgage bailouts, making investors jumpy
| Saturday, Aug 16 2008 6:24 PM
Last Updated: Saturday, Aug 16 2008 6:24 PM
This summer, we have seen the federal takeover of the largest bank in decades. Federal regulars are warning more bank failures are likely. The Bush administration is making moves to shore up two corporations that back up real estate loans. These developments are making Wall Street and even modest savers very jumpy.
The Californian asked members of its Opinion section Sounding Board to weigh in on what some are calling a financial crisis. Their responses appear on this page. On Monday, Bakersfield business consultant Lou Leto presents a more expanded view of the U.S. economic downturn.
Sounding Board members were asked: Are you confident in this nation’s economy and financial institutions? Are you doing anything different to protect your investments?
What do you think? Are your savings safe? Will the money be there when you need it? What are you doing to protect your nest egg? Send your comments to opinion@bakersfield.com.
I have confidence in the long term resiliency of the U.S. economy. We have been through downturns in various sectors of the economy in the past, which, while disruptive in the short term, provide new opportunities for businesses and individuals through a relatively free market system. In the short term, we will continue to have corrections until the past imbalance of cheap money, easy credit and escalating real estate prices work their way through the economy and prices decline. The good news is that just in the past few days, I heard stories of three young couples who were able to purchase a home that was out of their reach a year ago. The various financial regulatory agencies now appear to be on top of the situation, with particular focus on anything to do with real estate. This necessarily impacts bank capital reserve requirements and thus their willingness to lend, especially on real estate. Those banks that continue to follow sound lending policies will thrive. In terms of personal investments, we, along with our investment advisor, have repositioned our portfolio at least 15 times since September 2007, and will continue to do so. Sheryl Barbich is a Bakersfield business consultant.
The level of confidence in our nation’s economy has to be based on the understanding that it is a “system” within which financial institutions are a critical — but not exclusive — component part.
All elements of an economic system affect one another. None exists in isolation. That’s the nature of a system. Therefore, it’s unrealistic to view our economy only in the context of its financial institutions. Other elements need to be considered — the diminishing value of the dollar, homebuilding bubble, energy crisis, unfunded liabilities of all levels of government, etc.
At this point, It’s not a “pretty picture.”
The government must give our private sector the freedom it needs to reverse current trends. In this country, no president nor any legislative body can claim credit for a strong economy — although they try to. However, either or both can make decisions that trigger a weakened economy. Our nation is amazingly resilient, if only our political leaders will simply “get out of the way” of private enterprise.
The banking debacle will be resolved in time by the private sector, with the support of FDIC insurance of the government.
We’re admittedly in a downturn but still not “officially” in a recession. I’m cautiously optimistic and investing for long-term outcomes, not for the next quarter. Therefore, my investments are fundamentally unchanged. I’m not doing anything very differently.
John Pryor is a Bakersfield risk management consultant.
I am more concerned with the Chicken Little “the sky is falling” self-fulfilling prophesy of doom than I am with widespread bank failures. The same can be said about the overall economy in general.
The banking system is essentially sound. Sufficient regulatory safeguards are already in place with regular audits to verify stability.
Unfortunately, when financial institutions are mandated by government to disregard their proven loan qualification standards to reflect government’s social engineering ideology, bad things happen. While some banks may be facing financial challenges, I think the recent drop in bank stock prices are due more to perception than to reality.
I have confidence in our general economy (even though certain sectors are troubled) as long as market-driven forces are given time to follow their normal course and are not sidetracked by government intervention.
A classic example of the mess caused by such meddling is the recent ethanol debacle. Ethanol has proved to be an significantly more costly energy source and by taking large amounts of corn-producing acreage out of food production, the cost of many food products have skyrocketed.
My liquid assets are invested in New York Life’s AAA bond portfolio and are fully guaranteed, enhanced by its $15-billion surplus.
Angelo Haddad is a financial consultant and New York Life insurance agent.
I anticipated a collapse of our economy over a year ago. As such, I made the necessary adjustments to insure stability in my portfolio. There are many, however, who were betrayed by financial institutions who preyed on the ambitions and dreams of Americans who aspired to become homeowners.
As a businessman, I am somewhat confident in our country’s major financial institutions, yet disgusted with their practices. I am not, however, confident in the current economy. Like many of those who are business owners, I take comfort in relying upon money market managers who are adept and skilled in handling bleak economic phases such as the one our nation is currently experiencing.
Maintaining contact with one’s financial advisor, as well as diversification of both real estate and monetary investments is, in my opinion, the key to protect or preserve one's assets.
David A. Torres is a Bakersfield attorney.
Federal intervention on our banking system and the financial leeways extended to mortgage creditors will surely result on the people’s loss of confidence on our economic and financial institutions. Federal regulators and the highly-paid CEOs of these institutions should have foreseen what was coming.
The federal bailout, although it may stall the economic downturn, is a safety net for the greedy banks and mortgage companies, as well as the irresponsible or undeserving-to-be-helped people who availed themselves of the soft loans to acquire beautiful homes otherwise beyond their reach.
Fueled by greed and speculation, the buying frenzy in the real estate market fed off the voracious appetites of buyers and sellers. As a result, real estate prices escalated. Typical in capitalistic and free enterprise systems, the federal or banking authorities did not intervene. Knowledgeable people who should have intervened just folded their arms. The result is an ever-growing mess of abandoned houses and failing financial institutions.
The economic health of a country or the whole world, for that matter, is governed by a confluence of many factors or events, political or economic. The sub-prime mortgage crisis may be just one of them. The fuel crisis, for sure, is another.
To have a grasp of our country’s economy and future, take on a broader, or world perspective. There might be no need for people to take “drastic” measures to protect their investments or savings. A bank run would lead to a total market collapse. People should be resigned to just let their investments ride the economic turbulence.
I used to be an islander and wizened to the whims of an angry sea. Weathering the current economic crisis to me is just like navigating in turbulent and choppy waters. Sometimes, you are up riding on a short-lived crest of a wave. A lot of times you are downwalled in by the roaring waters.
Manuel Fuderanan is an engineer with the City of Bakersfield.
I am not doing anything different as I have always held money in a variety of places, including savings accounts at traditional banks, as well as various credit unions. We also invest in mutual funds and stocks and utilize professional managers to manage portfolios on our behalf. Our checking account is in a mid-size bank and I am assured each time I see the sign at the bank reminding me that my money is FDIC insured.
Part of the collapse of Indy Mac was widespread media coverage of their financial situation. Once the public learned that the bank was on the verge of failure, everyone grabbed their money before the collapse. That knee-jerk reaction was probably normal, but contributed to the ultimate and rapid demise.
Despite being FDIC insured, I don’t think anyone really knows what might happen if their bank collapsed. We all know that the FDIC exists as insurance, but in my lifetime, I have never met anyone who had to file a claim with FDIC to get money back. I have many questions about how that would work.
Jim Luff of Bakersfield is a business manager.
The current problems with Fannie Mae and Freddie Mac are the fallout predicted by some financial analysts when the real estate market bubble burst. Many of these same analysts spoke out during the boom about the danger of interest rates which were artificially low.
In an effort to raise additional capital, Fannie Mae issued $3 billion in two-year bonds recently at a yield of 3.272 percent. The interest rate on residential mortgage money was 6 percent.
It doesn’t take advanced math to come to the conclusion that with this margin, companies that purchase mortgages and securitize loans, such as Fannie Mae and Freddie Mac, are going to encounter major capital shortages.
Add in the losses from defaults — $11 billion since last year — and the fact that Congress is allowing the companies to purchase and guarantee loans up to $729,750, instead of the $427,000 limit from years past, and any wise investor would be very worried.
In spite of the current turmoil in the financial markets, I still have very high confidence in this nation’s economy and financial institutions. I share the view of some analysts that interest rates must be raised, borrowers must have more upfront cash and government must act to prevent the failure of financial institutions, which Secretary Henry Paulson defined as having “a systemic impact on the nation’s economy.”
I also agreed with Secretary Paulson when he stated that “any potential commitment of government support should be an extraordinary event that requires the engagement of the Treasury Department and contains sufficient criteria to prevent costs to the taxpayer to the greatest extent possible.” Whew, hope Congress was listening!
If you have been living on the edge financially, it is time to get professional help. My financial advisors accepted my very conservative approach to investment years ago, so there is no need to make drastic changes now.
Karen Wass of Arvin is a retired real estate broker.