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I wanted to take this opportunity to say a few words about the situation we’re in, how we got here, what’s likely to happen in the days ahead and what you should be doing to protect your family’s finances. These are my thoughts alone…not any station’s, network, or website. And while I have more than 10 years of Wall Street experience and 20 as a TV commentator, I don’t have a crystal ball. So I can’t guarantee that what I’m thinking is any smarter than what you may be thinking.
Let’s start with how we got here: in my opinion, this banking crisis stems from nothing more or less than bonehead judgments by four groups: mortgage lenders, who made ridiculously bad decisions about who to lend money to. Homeowners….particularly in bubble markets like California, Nevada, Arizona and Florida…who thought they didn’t need to read fine print and believed that trees grew to the sky. Wall Street, who packaged the resulting stupid mortgage investments and then not only sold them by the billions…but bought them as well. And Washington, who despite ample evidence over decades that Wall Street can’t be trusted, trusted them anyway and refused to put in place even the simplest and most logical of safeguards.
That’s the short course on how we got here. Now the question is what’s next. Your guess is as good as mine as to when or if the government’s rescue bill passes and, more importantly, whether it will work if it does pas. But one thing I do believe is that we’re better off with some sort of rescue package than without one. Because if our credit system ultimately fails…meaning consumers and businesses can’t borrow money…our economy…and the millions of jobs that depend on it…will be in serious trouble.
To those who believe the bailout will unfairly benefit those who caused the problem…I agree, and it’s a bitter pill. Unfortunately, however, sometimes the rascals and the righteous are in the same lifeboat so you can’t rescue one without rescuing all. Not fair, but better to save all than none.
Now I’d like to say a word about what you should be doing right now…bailout or no bailout. First, if you have money in a bank, if it’s less than 100,000, it should be safe. But this is a good opportunity to learn how to check on your bank’s safety, and you should. You can learn about FDIC insurance at FDIC.gov, and you can check out your bank’s safety…at least somewhat… at numerous websites including Bankrate.com. If for nothing other than piece of mind, do it.
As far as stocks go, this will depend largely on a bailout. If we get one, the market stabilizes sooner, although it won’t be smooth sailing for a while. If we don’t get a government rescue, the market will get worse…potentially a lot worse. So what do you do? For most people…say, those with a 401(k) plan at work who are years from retirement…the answer is you do nothing. You don’t sell and you don’t stop contributing. Because unless you the think the American economy is going to go to zero, you could be selling at the bottom. So be patient. I began my television career with a series of interviews back in 1987 when I was a broker at EF Hutton. The circumstances weren’t all that different….in fact, in some ways they were worse: the Dow dropped 20% in one day. It was scary, people were freaked out and it took years to recover. But believe me: in retrospect, it was a much better time to start investing than to stop investing.