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| Financial Moves - What to do now? | 9/22/2008 | “When Wall Street sneezes, Main Street catches a cold” is an old axiom in the financial world, and most Americans now know what it means. World financial markets have been in a tailspin, and the most instructive comment I have heard from any colleague in the financial services industry is to recognize that we are in uncharted waters.
The bankruptcy of Lehman Brothers investment banking firm, the sale of Merrill Lynch to Bank of America, and the bailout of AIG Insurance Company, Fannie Mae, and Freddie Mac by Uncle Sam is a wake up call for every American. While there won’t be quick fixes to the financial problems that abound, there are key points to keep in mind.
The issue on the minds of most readers could be how they are affected by the bailout of AIG (American International Group) which is the world’s largest insurance company. The AIG parent company fell prey to the sub prime mortgage debacle along with many other insurance companies, and the stock plummeted from over $60 to the $2 range in a matter of weeks.
The main people hurt by the AIG meltdown have been the stockholders. Individuals with life insurance policies and annuities should know that the AIG subsidiaries issuing the contracts remain well capitalized and should not be impacted in the short run. In addition, each state has a guaranty fund. AIG variable life insurance policies, like all variable life policies, will be negatively impacted in the short run as the underlying account values of their policies have generally been tracking the downward spiral of the markets.
Merrill Lynch customers, like all customers of well known stockbrokers, are protected up to $500,000 for the value of their securities by SIPC (Securities Investor Protection Corporation) so that the primary damage would be to those investors holding Merrill Lynch stock. Like AIG stock, it has plummeted. Bank of America, in their decision to buy Merrill Lynch in a stock swap, has indicated they will retain the Merrill Lynch name.
Typical investors have legitimate worries about their 401(k) plans, their IRA’s, their stocks, and their mutual funds, all of which have seen major declines over the past year, and particularly the past two weeks. Congress plans to pass a bill this week to stabilize the financial markets by buying up the bad mortgages which will help in the short run but will have considerable effect for many years to come.
While there is no silver bullet answer to these concerns, everyone should remember not to panic. Indeed, one of the primary reasons for the Great Depression beginning in 1929 was the panic among investors who all wanted to sell. There has been extensive panic selling in the past month. Be sure you are working with a knowledgeable and experienced professional who understands market cycles and is able to apply the knowledge to your individual circumstances.
Regular visitors to my website know that this is a multi-purpose website and it is used for community projects as well as financial/insurance/professional reasons. Accordingly, you are invited to scroll through past entries on 7/11/2008, 5/6/2008, 11/4/2007, 6/18/2007, 5/9/2007, 3/23/2007, 2/20/2007, 1/30/2007, 11/15/2006, 11/8/2006, 11/2/2006, 10/18/2006, 10/11/2006, 10/4/2006, 9/27/2006, and 9/20/2006 to learn about specific issues relating to life insurance, long term care insurance, investments, and related financial planning issues.
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