I only have basic accounts there (no investment accounts), and am not out looking for credit. Fortunately my only debt is a fixed rate mortgage, with about 10 years left. I’m thinking about retirement being around the corner, though, and wonder if I’m being naive about all this not affecting me.

How would Citi of BA going under affect people like me?

The good news is that you’re not being naive about the effects. In fact, since your money is in regular accounts, it is FDIC insured for up to $250,000 per account. That changes back to $100,000 at the end of the year — assuming the new insurance level isn’t extended. So, your money is safe — even if your bank isn’t. Of course, that doesn’t mean it will be a snap to get it if the bank fails. You will have to wait in line to claim your account, and then likely wait for a check from the government, if your bank fails and goes into receivership. For the 19 biggest banks, that isn’t very likely to happen. The government will probably do everything in their power to keep these large banks from folding.

If you have you Billpay and automatic withdrawals on your account, they should still be in effect. Additionally, direct deposit will still work. If the bank is bought by another bank (as is usually the case), you might have to make new arrangements for these services — or you may not, depending on how the merger works out. If you are concerned, you can set up back up measures at another bank. Your approved tax advantaged accounts are separately insured for up to $250,000 as well.

If you are an investor in an institution that fails, the story is different. You could potentially lose a great deal — or all — of your investment as the stock plummets to $0 a share. If you are bought out, it is usually for only a fraction of what you have invested.

image source: Wikimedia Commons

Post from: EveryJoe

What Happens When a Big Bank Fails?

Happy Friday!

Post from: EveryJoe

Friday Fun Video: Compensation for Failure

It’s a plan that represents not just new policy, but a whole new approach to meeting our most urgent challenges. For if we hope to end this crisis, we must end the culture of anything goes that helped create it – and this change must begin in Washington. It is time to trade old habits for a new spirit of responsibility. It is time to finally change the ways of Washington so that we can set a new and better course for America.

There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy. It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy – where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.

That is why we need to act boldly and act now to reverse these cycles. That’s why we need to put money in the pockets of the American people, create new jobs, and invest in our future. That’s why we need to re-start the flow of credit and restore the rules of the road that will ensure a crisis like this never happens again.

Post from: EveryJoe

Obama Addresses The Economy This Morning

Happy Friday!

Post from: EveryJoe

Friday Fun Video: Hitler’s Housing Downfall

All of this is somewhat excerbated by the recent attempts to shore up the economy by rewarding those who haven’t been quite as responsible, reports BusinessWeek:

All of which might be tolerable to the lonely and beleaguered saver if he weren’t taunted daily by lopsidedly pro-spending, pro-creditor news stories. Forget about moral hazard. Forget about rewarding profligacy. Washington is hell bent on putting a floor beneath the housing market. And subtlety got vetoed out of the process.

Some of the stories that have come recently include these gems:

• There has been an increase in Chapter 7 bankruptcy filings.
• Bear Stearns was “saved” with government help.
• Fannie and Freddie have been authorized to increase the mortgage amounts they can accept.
• The FDIC could lower mortgage rates for delinquent borrowers at IndyMac.
• Worries abound that Lehman may be the next bank that is “too big to fail.”
• Some banks are halting foreclosures.
• Congress is considering allowing the DAP loophole to remain open for a while.
• Another round of stimulus checks is being considered.

On top of this, there is no real effort by our leaders to encourage us to save. Quite the opposite. Everything is aimed at keeping consumerism going, and helping debt remain a cornerstone of the economy.

And this not good news for savers, since such policies usually mean interest rate cuts to keep economic growth “sustainable” (which also contributes to increased inflation). And those cuts directly affect the rates of return you receive on your cash savings — money market accounts, high yield savings accounts and CDs. So, if you are a saver, your money probably isn’t working as hard for you as you would like.

On the other hand, if you are trying to pay off debt, now is the time to do it. With interest rates so low, more of your credit card payment can go to the principal. If you have credit card debt, perhaps it is time to shift focus a bit more toward dramatically paying down that debt while the interest rates are more in your favor.

Are you a saver? Do you feel as though you are getting railed?

Post from: EveryJoe

Savers Losing Out in the Current Economy

Diversify your investments.

You don’t want all your eggs in one basket. Indeed, it is very important for you to have a reasonably diverse investment portfolio so that you can better handle things when one of your investments is down.

image credit: US government

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Post from: EveryJoe

Personal Finance Tip #20: Diversify Your Investments

You’ve heard the success stories probably more times than you can count. People always talk about how they built their own personal wealth and had excellent success in their financial endeavors. Unfortunately, no matter what people say, there’s no perfect way to build wealth, and for every far-fetched success story, there are probably many more stories of failed attempts at making cash. That being said, I’ve decided to offer some practical advice on building personal wealth, and obtaining personal financial security. It’s not some get-rich-quick scheme, but rather five ways one can help work to build his or her own wealth and achieve financial stability.

1. Get an Education – The fact remains that with increased education; one’s earning potential drastically increases. If you took college courses, but never finished the degree, you should seriously consider doing so. Some have stereotypical views concerning online education or finishing a degree in an on-campus setting after a certain age, but that shouldn’t dishearten you. The bottom line is that education is one of the best ways to drastically increase wealth in the long run. While it can sometimes get costly in the short-term, if you are able to take out loans, earn scholarships, or finance your education in another way, the benefits can really pay off.

2. Manage Your Money Well – Managing finances is one of the most challenging things for many people in their daily lives. It’s no secret that many people can be impulsive buyers, or simply don’t think far enough in advance. Being organized and keeping an eye on finances is a terrific way to help build personal wealth. You may not see results very quickly, but the improvement can be quite significant over time. If you are managing money more successfully, and avoiding pesky late fees and other things that could hurt your bank account, you are definitely on the right track to potentially building yourself some personal wealth.

3. Make Informed Investments – I am a big fan of investments, whether it is the stock market, real estate, or an interesting business venture, I think most investments are at least worth looking into. Investments can be incredibly rewarding, and the payoffs can sometimes be almost unimaginable. With that in mind, it’s important to note that you should always be educated before investing. Realize that all investments where your money is personally involved deal with a certain amount of risk factors. Investments can work out, but they can sometimes backfire and cause you to lose money. However, being educated regarding the investment, and possibly even having professional advice can often help. Many people who have found success started by making an informed decision on an investment. There is sometimes luck involved, but there’s no substitute for making informed decisions.
4. Save Your Money – The old adage, “a penny saved is a penny earned” really does hold true. One of the best ways to build personal wealth is to simply save money. Any little bit you can spare can really add up over time. Some people like to put a specific amount of their paycheck in a special savings account. Others prefer to put a lump sum at the end of each month, or other determined period of time. Whatever your method of savings, the important thing to remember is that if you want to have more money in the long run, you sometimes have to build it up over time. Not tom mention, when an unfortunate event happens that might constitute a financial crisis; you can have a back up plan. As long as you’re intake is more than your output (cash-wise), you should be able to see savings that increase gradually.

5. Turn a Hobby into a Business – This is more of a personal opinion. However, I’ve met many people who have been able to turn something that they are interested in into profitable ventures. It’s easy to understand how it can be done. If you are actually interested in something, you will be much more inclined to work hard on it, and you’ll probably be better at it. For example; someone with a keen interest in hunting and fishing would be very suited to write a book on the topic, or make a web site. A great idea to help work towards building personal wealth is to think about what interests you, as well as what you’re good at. If you can somehow think how to profit from that, then you’ll have a good chance at possibly making some money that could put you well on your way to being financially secure.

At the end of the day, there’s no bulletproof method for maintaining personal wealth. People may have their ideas, and there brilliant business plans. However, there’s just no substitute for hard work, resourcefulness, and informed decisions. If you try any of these few ways of building personal wealth, you just might be surprised at the results that dedication yields. Remember, consult a professional before investing, and don’t ever put all of your savings into one idea without careful consideration. Rome wasn’t built in a day, and neither can wealth nor financial security is.
Heather P. Johnson is a freelance writer, as well as a contributor for Credit Card Lowdown, a site for finding credit card reviews. Heather invites your comments and freelancing job opportunities at her email address: heatherjohnson2323@gmail.com.

Post from: EveryJoe

5 Ways to Build Personal Wealth

CDO: Collateralized Debt Obligation

A CDO is basically an investment that is backed by debt. This debt can include one or more of the following sources: bonds, loans and other assets that have collateral. Mortgage loans (including subprime loans) have been popular inclusions in CDOs for a number of years.

Financial institutions invest in them to generate more cash. Unfortunately, like all investment, CDOs come with risk. And that is what is getting some in the financial sector into trouble.

Instead of fully disclosing what kinds of investments they had, some banks glossed over the details of CDOs. When the full impact of losses came to light in terms of earnings, well, investors were disappointed to see the results.

Post from: EveryJoe

Ask the Piggy Bank: What are CDOs?