Crisis Coverage: FDIC Rumors

It appears today's market activity and the news regarding Merrill, Lehman and AIG has spiked an interest in my earlier post about the safety of financial institutions.  I read on the tape today that one economist was emphasizing bank failures and the possibility of the FDIC running out of the reserves used to insure deposits up to $100,000.  Let us examine this possibility from a rational perspective:

What a day!

1:19pm ET: As you might guess, I am extremely busy monitoring the markets today, but I wanted to drop a quick note to say that so far, action on Wall St. is much more orderly and contained that one would have expected given the news over the weekend and the foreign markets overnight.  Simply put, Wall St. is fearful, but not panicky (yet) over what happened.  What happened?  Lehman Brothers filed Chapter 11 and no longer exists; the rest of Wall St. must sort out the damage from counterparty risk and trade to replace lost or illiquid bets held at Lehman; Merrill Lynch will become part of Bank of America; and AIG is on the ropes.  AIG's situation is the most difficult to assess and also potentially the most impactful given it's $1 trillion balance sheet.  More thoughts on the day's events to come later.

You Know It Is Bad When

Fall brings cooler weather and of course football season. For any overseas readers, that is "American Football" I refer to, not the round ball with 90 minutes of continuous play and very few commercial breaks. Being Sunday, I wanted to see what time the Broncos game started and so headed to the refrigerator. Normally we have several fridge magnets with the Broncos, Rockies and Avalanche schedules posted. You wouldn't be a typical Coloradan without such info ready and handy.

A bit about IRA's

We left off discussing pensions with the concept of using IRA's to save on your own instead of in a 401K. Let me start by reemphasizing the benefits of a 401K over an IRA. Four important things come to mind although there are more.

Sokath, his eyes opened

I recently moved back to Canada after living for four years in Seoul, Korea. Before Seoul, I spent four years in Seattle, WA. For the first time in eight years I'm a Canadian tax payer and soon to be a voter again. We're having a Federal election in October. I'm thinking of voting for the Natural Law Party as a kind of protest vote. The Liberal and Conservative parties look nothing like the versions I knew eight years ago.

One of the interesting things about living abroad is you begin to understand how much internal propaganda your own nation generates and how much you subconsciously swallow. It's not until you live abroad and see Americans or Koreans telling themselves nearly the same kinds of things Canadian tell each other, you realize this.

Economic Idiot of the Week

The Fed doesn't get it, at least not entirely. While I normally don't read the minutes to the Federal Open Market Committee meetings, I thought they might shed light on the Fed's thinking at this critical stage in the economy. Here is a paragraph from the minutes of the August 5th meeting:

Unprecedented Government Bailout

My title is just one way to put it. "Fannie/Freddie Shareholders Wiped Out" is another. Over the weekend, the U.S. Treasury announced it's plan to take over Fannie and Freddie to prevent bankruptcy and shore up the mortgage market. Basically, the government effectively now owns Fannie/Freddie and is using the taxpayer's balance sheet to keep the world's financial system from complete meltdown.