After three days of staggering volatility, all eyes remain on financials and the sector’s exchange traded funds (ETFs) to see what they’ll do next.
The Federal Reserve and the world’s other major central banks stepped up their assistance to the global markets today, making almost $200 billion available after bank lending ground to halt, report Matthew Saltmarsh and Keith Bradsher for the New York Times. The Fed authorized a $180 billion expansion of its temporary reciprocal currency arrangements (known as “swap lines”), which would allow banks to borrow more dollars in money markets at lower rates.
One of the last two independent, U.S.-based investment banks – Morgan Stanley (MS) – is reportedly in merger talks with Wachovia (WB), according to CNBC. Morgan prefers to remain independent, and it doesn’t mean a deal will be done.
Washington Mutual Inc. (WM) also appears to be headed toward a sale, report Michael Liedtke and Sara Lepro for the Associated Press. Some sources are saying that both Wells Fargo & Co. (WFC) and Citigroup (C) have expressed interest.
One major investor, investment firm TPG, may have cleared the way for a sale. They could have stymied the process because of protection when it injected $7 billion into the bank this April. The clause could have required a buyer or another investor to pay the firm hundreds of millions. TPG agreed to waive the clause after concluding that WaMu needed all the help it could get.
We know many investors out there are asking questions, and we’re doing our best to get them answered.
Among them:
- How Safe Is Your Money Market Fund?
- What’s Next? What Do I Do Now?
- Some ETFs Suspend Trading In Europe; Could It Happen Here?
- How Am I Protected At My Bank and Brokerage?
Another question making the rounds is that of insurance policies in the wake of the government takeover of American International Group (AIG). Kathleen Pender for the San Francisco Chronicle says that your AIG policy is probably safe.
While AIG needed money from the government, its 71 state-regulated U.S. insurance subsidiaries have always been well-capitalized and were in no danger of not being able to pay claims.
If an insurer can’t pay its claims, the regulator in the company’s home state would start a rehab process. If that fails, the company is liquidated and claims would be paid up to a certain limit, which vary by state.
In the case of life insurance or annuity policies, state regulators usually try to transfer in-force policies to a new company.
For AIG customers, its subsidiaries are neither in rehab nor liquidation. Some will probably be sold to other companies, which will take over the policies.
In a sign of how this week has been, the ProShares UltraShort Financials (SKF) is up 21% in the last five days and Rydex Inverse 2x S&P Select Sector Financial (RFN) is up 24%, while the Rydex 2x S&P Select Sector Financial (RFL) is down 27.3%.
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.