The Bailout : New FDIC limits will hurt banks and you too

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Now that the Senate has passed a new version of the controversial bailout bill, consumers and businesses worried about what may happen to their bank deposits if more banks go under could breathe a little easier. Embedded within the amended legislation was a provision to raise the limits on the amount of money that the Federal Deposit Insurance Corp. insures for bank accounts to $250,000 from $100,000. Federal bank regulators, who first floated the idea to Congress late Tuesday, said that bumping up the insurance limits would help improve liquidity at banks across the country. It may also provide a much-needed dose of confidence for consumers who may be worried about the health of their bank. .

Many on Wall Street and the rest of us are still digesting the momentous events of the last 10 days. Between one and three trillion dollars worth of financial assets have evaporated. Wall Street has been effectively nationalized. The Federal Reserve and the Treasury Department are making all the major strategic decisions in the financial sector and, with the rescue of the American International Group (AIG), the U.S. government now runs the world's biggest insurance company. At $700 billion, the biggest bailout since the Great Depression is being desperately cobbled together to save the global financial system.

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Bank regulators close IndyMac, transfer to FDIC - Jul. 11, 2008
... transferred to the Federal Deposit Insurance Corp. ... in history, but it's too soon to say," FDIC ... The bailout package adds new provisions - including raising the FDIC insurance cap.
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Political Radar: Stephanopoulos: Officials Meet Behind-the-Scenes on ...
... to make a quick buck on real estate, and the banks ... signed a letter to Congress opposing the Bogus Bailout. And new ... We do not want this bailout. If you are losing your home.
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Following the Bailout Hearing - The Lede - Breaking News - New York ...
... institutions, similar to FDIC fees, to defray part of the cost of the bailout ... and it is not American too. But the bailout ... In New York? Just how rich do you think they are?!
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Winter (Economic & Market) Watch » FDIC Closes More Banks
... that the FDIC is waiting too ... by the FDIC. You can ... failed banks was the least costly resolution and all depositors - including those with funds in excess of FDIC insurance limits ...
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Bank regulators close IndyMac, transfer to FDIC - Jul. 11, 2008
... Supervision and transferred to the Federal Deposit Insurance Corp. ... bank failure in history, but it's too soon to say," FDIC ... Awaiting new bailout bill; What to do with your 401 ...
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House ready to try again after Senate approves bailout
... spending of over $1 trillion dollars ($1,014,000,000,000) of our hard earned money to bailout corporations and banks that screwed you ... glad they didn't give the blank check that Bush first requested but I think we need a new speaker of the house too ...
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Source: Rocky Mountain News
NewsDateTime: 4 hours ago

Hopes hang on bailout tweaks
I don't think you're going to see a lot of change in the bill we ... The new version also is likely to include stronger protections ... is that it could add to taxpayers' costs if the problems that banks are now experiencing grow worse. Although the FDIC ...
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Source: Los Angeles Times
NewsDateTime: 10/1/2008

Taxpayers Shouldn’t Fund Wall Street’s Bailout
The U.S. can set up new banks, the labor force will remain, and the capital can come ... It's a tad too late to figure out who to point the finger at for the problem ... up for another. Stop scaring Mr. Bernanke and Mr. Senator, you vote for bailout, you ...
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Source: BusinessWeek
NewsDateTime: 9/30/2008

Lawmakers try to revise bailout, FDIC hike seen
I hear there's no gas in B-N too, you better fill up or you'll be ... have some insight to the investment practices I can tell you that this financial mess, although it does hurt ... In my opinion it was meant for one thing, and that is to bailout the banks ...
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Source: Pantagraph
NewsDateTime: 9/30/2008

Update: McCain: "Let's not call it a bailout"
I think the JPMorgan base case is too optimistic. My guess is ... As Congress argues over limits on executive pay, the New York Times reports that the chief ... 1) The bailout is necessary and you should support it. 2) It's President Bush's fault that ...
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Source: Los Angeles Times Blogs
NewsDateTime: 9/30/2008



the financial system is on the verge of collapse. But the complacency exhibited by many market pundits in the wake of the most wrenching episode in modern financial history is sufficiently shocking that it almost demands some scare-tactic response. By our count some 300 articles were published last month telling investors "don't panic" or "not to panic." Urging calm is one thing. But too much soothing talk implies that there are no lessons to be learned. What's the use of a vertigo-inducing bout of market turbulence if the only conclusion is "stay the course"? At the very least, it's a good reminder to take a hard look at your financial plans and to reevaluate how much market risk you can truly withstand in your portfolio. Because - don't panic! - this might not be completely over. Richard Bernstein, the chief investment strategist at Merrill Lynch, worries that investors still don't appreciate the scope of the credit crisis. "It's weird - the canary in the mineshaft has fallen over, and now everyone thinks there's a problem with canaries," says Bernstein, who, despite sounding the alarm about a global credit bubble as far back as 2006, could find himself out of a job after Merrill's forced sale to Bank of America. (Too bad Bernstein's Merrill bosses didn't heed his warnings.) In Bernstein's eyes, the canary is the U.S. mortgage market, but the silent killer of loose credit was an international epidemic. "I don't perceive that most investors fully appreciate either the depth of the credit bubble or how broad-reaching it was in terms of emerging markets and hedge funds and commodities and all these other inflated asset classes that were dependent on easy credit," he says. If consumers suddenly can't refinance their mortgages and credit cards and if more corporations can't issue bonds or tap lines of bank credit, their ability to weather any slowdown will be diminished. "The fundamentals are still extremely scary," says star financial-sector analyst (and recent Fortune cover subject ) Meredith Whitney of Oppenheimer & Co. "It all gets down to how much liquidity will be created for consumers and corporations, and at the moment there's still less and less by the hour." Here's another reason to be concerned: The professionals managing your money haven't gotten this market right. Consider that at the market low on Sept. 17, only five diversified U.S. equity mutual funds - out of a universe of 9,100 - had positive total returns for the year, according to Morningstar. FIVE! Even after the market rebounded, there were still only three funds with returns this year of 10% or better: Parnassus Small-Cap, Heartland Value Plus, and Forester Value. If you haven't heard of any of those funds, that's the point. The investing world's best and brightest appear to be just as confused as the rest of us. Like Bill Miller. His streak of beating the S&P 500 now a distant memory, the Legg Mason Value Trust manager is down 35% this year. CGM Focus's Ken Heebner, whom Fortune dubbed "America's hottest investor " in June, is down 16%, while FPA Capital's Bob Rodriguez ("the best fund manager of our time," according to our sister magazine Money) is down 3%. So how did the three 10%-plus returners beat the odds? One common thread is that they all stayed away from bank stocks. Beyond that, each went his own way. Thomas Forester, who runs his eponymous $20 million fund out of his study in suburban Chicago, made a successful bet on consumer staples - names like Anheuser-Busch, J.C. Penney, and Wal-Mart (WMT , Fortune 500 ). Brad Evans, manager of Heartland Value Plus, got into and out of oil stocks at the right times. And Jerome Dodson, the 65-year-old manager of Parnassus Small-Cap, was king of the contrarians, earning his double-digit returns with an assist from the unlikeliest of sectors: homebuilders. "Every one of my analysts said, 'Don't do it,'" Dodson says of his early-year decision to buy the builders. But Dodson was convinced that the companies' stocks would bounce back long before their plummeting earnings did. He wound up taking sizable positions in Pulte Homes and Toll Brothers, which are up 40% and 17%, respectively this year. Dodson himself admits he got a little lucky. You can't count on hitting that kind of jackpot. But by taking a hard look at your portfolio, you can minimize your losses and prepare yourself to take advantage of new opportunities. And this is one time when following simple financial-planning tips could be worth more to your bottom line than picking the right stocks or funds. So let's start with some strategy before we get to our specific investment recommendations.
Credit remained hard to come by Thursday, even after the revised government bailout plan cleared the Senate, as investors waited to see if the bill can pass through the House. The Senate on Wednesday night passed a financial industry rescue plan that was slightly changed from one rejected by the House just two days earlier. The bill would allow the Treasury to buy up to $700 billion of troubled assets from financial institutions. Those assets, mostly mortgage-related, have caused the credit markets to seize up. With loads of troubled assets on their balance sheets, banks are hesitant to take on more loans if the risk of default is high. Furthermore, when banks need to write down those assets, they have less cash on hand to issue loans. That stops the financial system's gears from turning, in turn hurting customers who need a loan to finance a home, a car or tuition. Frozen cash flows also affects companies' ability to make payroll, which can result in layoffs. The major aim of the government's bailout plan is to free up banks to start lending again once their balance sheets are cleared of toxic holdings. But as the legislation faces a tough second vote Friday by the House, credit remains tight.

Market gauges: One indicator of how willing banks were to lend to other banks, called the "TED spread," showed high prices of loans between banks. The TED spread measures the difference between 3-month Libor and the 3-month Treasury borrowing rates and is a key indicator of risk. The higher the spread, the bigger the aversion to risk. On Thursday, the spread retreated slightly to 3.28% from 3.35% on Wednesday. On Tuesday, the measure surged as high as 3.53%, its highest level in more than 25 years. On Sept. 5, the TED spread was only 1.04%. Furthermore, the difference between the decade-old 3-month Libor and the Overnight Index Swaps rose to an all-time record 2.55%, up from 2.44% Wednesday, according to data reported by Bloomberg.com. It's the fifth-straight record for the measure, showing that banks are hoarding cash rather than lending to one another. The Libor-OIS "spread" measures how much cash is available for lending between banks, and is used by banks to determine lending rates. The bigger the spread, the less cash is available for lending.
Take some tax losses. If you buy and sell stocks in a taxable portfolio, it's likely that you have some holdings trading for well below what you originally paid. Our advice: Sell your losers pronto and book the capital losses. Those losses can be carried forward from one tax year to the next (and the next and the next) and thus used to offset future capital gains whenever the market rebounds. Not only that, but Boston accountant Gale Raphael of Raphael & Raphael points out that taxpayers can deduct up to $3,000 in capital losses from ordinary income. That amounts to a tax savings of $990 a year to someone in the 33% tax bracket. What if you think your losers are about to rebound? IRS rules prevent you from buying them back for 30 days. But if you can't wait, try using the proceeds from your tax-loss sale to purchase stocks similar to the ones you're selling. If you take a loss on United States Steel, for instance, replace it with rival steelmaker Nucor (NUE , Fortune 500 ). John Maloney, who manages high-net-worth accounts with M&R Capital in New York, says the IRS rules even allow you to take a tax loss on, say, Schlumberger, and replace it right away with an oil-services exchange-traded fund in which Schlumberger is a major holding. Says Maloney: "It won't trigger an objection unless it's materially the same security."
Market gauges: One indicator of how willing banks were to lend to other banks, called the "TED spread," showed high prices of loans between banks. The TED spread measures the difference between 3-month Libor and the 3-month Treasury borrowing rates and is a key indicator of risk. The higher the spread, the bigger the aversion to risk. On Thursday, the spread retreated slightly to 3.28% from 3.35% on Wednesday. On Tuesday, the measure surged as high as 3.53%, its highest level in more than 25 years. On Sept. 5, the TED spread was only 1.04%. Furthermore, the difference between the decade-old 3-month Libor and the Overnight Index Swaps rose to an all-time record 2.55%, up from 2.44% Wednesday, according to data reported by Bloomberg.com. It's the fifth-straight record for the measure, showing that banks are hoarding cash rather than lending to one another. The Libor-OIS "spread" measures how much cash is available for lending between banks, and is used by banks to determine lending rates. The bigger the spread, the less cash is available for lending. The Libor, or the London interbank offered rate, is a daily average of what banks charge other banks to lend money in London. Treasurys: Rather than invest in other financial institutions with similar risky assets on their balance sheets, banks and common investors bought up government bonds. Treasurys are considered to be safer havens than stocks or commercial paper, as they are less volatile and guaranteed by the U.S. government. The benchmark 10-year note rose 2/32 to 102-7/32 and its yield fell to 3.73% from 3.74% late Wednesday. Bond prices and yields move in opposite directions. The yield on the 3-month bill - considered by many to be the safest investment - rose to 0.80% from 0.79% late Wednesday. The 30-year bond rose 12/32 to 105-6/32 and its yield fell to 4.19% from 4.20%. The 2-year note edged up 2/32 to 100-14/32 and its yield dipped to 1.79% from 1.82% Wednesday

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