Wall Street turmoil: What this means to you
Posted
Sep 15 2008, 08:52 PM
by
Karen Datko
Rating:
With the confluence of news about Lehman Brothers, Merrill Lynch and AIG, the stock market today had its worst drop since 9/11. It's no wonder that former Fed chief Alan Greenspan on Sunday referred to the ongoing turmoil as a "once-in-a-century type of financial crisis."
Other than the beating your retirement and investment accounts took today, what do these events mean for you?
The best advice is: Don't panic.
In case you've been living under a rock, here's what transpired:
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Investment bank Lehman Brothers filed for Chapter 11 bankruptcy protection, the biggest bankruptcy in U.S. history.
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News about Lehman's impending demise propelled Merrill Lynch, the world's largest brokerage house, to seek a deal with Bank of America, which agreed to buy the troubled firm.
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Government and business leaders were meeting to figure out how to bolster American International Group, the world's largest insurer.
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The Dow Jones industrials were down 504 points today at closing, the worst loss since Sept. 17, 2001, the first day of trading after the terror attacks.
The Associated Press put it all in context:
It was by far the most stomach-churning single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans that have crippled the balance sheets of one bank after another and landed mortgage giants Fannie Mae and Freddie Mac under the control of the federal government.
(By the way, the former heads of Fannie and Freddie won't be getting huge golden parachutes after all.)
If you have brokerage accounts with Lehman or Merrill Lynch, you need not worry. Brokerage firms can't touch the money in individual investment accounts to help them through their financial difficulties.
"And even if, for some reason, your securities weren't safeguarded, the Securities Investor Protection Corporation, a private nonprofit funded by member firms, will protect up to $500,000 of your brokerage assets (so long as your broker is a SIPC member)," says Money magazine. (Our thanks to Free Money Finance for the link.)
Specifically:
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The Securities and Exchange Commission said in a press release that it will "oversee the orderly transfer of (Lehman) customer assets to one or more SIPC-insured brokerage firms." The press release also says, "Customers of Lehman Brothers Inc. may contact the SEC's Office of Investor Education and Advocacy for individual assistance at help@sec.gov."
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As for Merrill Lynch, the purchase by Bank of America will be finalized next year. SmartMoney says: "Once the Bank of America deal goes through, clients will be part of the world's No. 1 securities brokerage, with more than 20,000 advisors and $2.5 trillion in client assets. As a result, your Merrill money is actually safer today because of the deal."
Many experts advise that you shouldn't bail out of the market. If you get out now, you may miss the benefits of the recovery, whenever it occurs, said Ron Lieber of The New York Times. "Better, then, to keep investing in a mix of stock and bond funds, international and domestic, large and small, with some alternative asset classes thrown in for good measure, which are appropriate for your goals and risk tolerance," he wrote.
They also say the worst isn't over. "The thing to worry about now ... is will the financial system be able to lend money to consumers and businesses in the weeks ahead, because if they don't, the economy will come to a standstill," Wall Street Journal economics editor David Wessel told NPR.
On the lighter side (because in times like this, we all could use a good laugh):
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The WallStreet Fighter points out that you may be able to make a killing on eBay if you own T-shirts that say "I Invested my life savings with Lehman and all I got was this lousy shirt.'" (Or you can laugh at old Merrill Lynch commercials.)
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Bank of America's brokerage arm will be known as Merrill Lynch Wealth Management, not Lynch America, as a reader of Boing Boing suggested.
