After months of turmoil in the credit markets and exchange traded funds (ETFs), one can’t help but wonder: what’s next?
What’s Happened So Far
The markets were mostly down this morning ahead of the anticipated Federal Reserve rate cut – which didn’t happen. Then the markets sank even lower before turning around again and ending on a positive note. The Fed’s decision not to cut rates seemed to send a signal that the economy is not in dire straits.
Since the credit crunch began in August 2007, 13 banks have closed their doors, according to the Federal Deposit Insurance Corporation. This year alone, 11 of those banks have gone under. Among them:
- Silver State Bank in Henderson, NV
- Integrity Bank in Alpharetta, GA
- IndyMac Bank in Pasadena, CA
The real trouble began here in the United States when Bear Stearns‘ CEO resigned over subprime losses in January. The firm was bought by J.P. Morgan in March for $2 a share, and the deal was backed by the Federal Reserve, providing up to $30 billion to cover possible losses. In May, UBS AG announced plans to slash 5,500 jobs by the middle of 2009.
But this month has been the worst of it: On the 7th, the government took over Fannie Mae and Freddie Mac. On the 14th, Merrill Lynch was sold to Bank of America. The next day, Lehman Brothers filed for bankruptcy. And today, both Moody’s and Standard & Poor’s downgraded ratings on American Insurance Group’s (AIG) credit.
Suddenly, everyone’s looking around and waiting for the other shoe to drop, if it hasn’t already. Christopher Palmeri for Business Week wonders if Washington Mutual is next. All eyes are on the bank and its new CEO, Alan Fishman, who is working to restore investor confidence, much like Wachovia managed to do earlier this year. One analyst predicts that if Washington Mutual were to fail, it could cost taxpayers $24 billion.
Well, Now What?
If you’re like most investors, you’re probably not only wondering what’s next, but how this affects you and what you should do.
Ron Lieber and Tara Siegel Bernard address the issue of what action you should be taking at a time like this. Their take: no one can predict how this is going to pan out, but this market will hit a bottom at some point. If you’re wonderig if you ought to spend or save – saving in any climate is always a good idea, not just when we’re in crisis mode. In fact, it’s a whole lot easier to sock away emergency money when gas isn’t hovering around $4 a gallon.