Mid Week Update March 18, 2008 - Bear Sterns Sold for $2, Federal Reserve Largest Mortgage Holder, Fed Reduces Rates
It has been a few days since I updated Leading Rich, but I am sure you have heard the latest and if you missed it, here it is again.
Bear Sterns stock price was nearly $160 per share last year, it was trading at $58 on Thursday March 13 then fell to $30 on Friday March 14, 2008 and over the weekend, JP Morgan Chase made a bid to purchase them for $2 per share. From a valuation of $21 Billion Bear Sterns was dealt a blow on Sunday with a valuation of $230 Million. With the backing of the Federal Reserve Bank of New York, JP Morgan received a guarantee of all mortgabe backed securities and also the very lucrative Manahattan Commercial Real Estate owned by the 85 year old firm that was the 5th largest investment bank in the US.
What does this mean for you?
It means that the government bailed out the Rich and really don’t care for Americans who are hurting in this economic environment. Will the Federal Reserve back my subprime mortgage with my Bank and bail me out - I think NOT!!!!!
Federal Reserve Largest Mortgage Holder
Now that the Bear Sterns deal is moving forward, the Federal Reserve will be the largest holder of mortgage debt. They can sit on all this debt or properties for a long time, or until property values go up. And where are they getting this money from… they are just going to print it.
How does this impact you? It means that the real estate market may not corret appropriately, they will take their eye off the ball with the economy as they focus on their holdings and therefore impact your life by extending the economic hardships for years rather than months.
Federal Reserve Lower Fed Funds Rate by 3/4 point
Federal Reserve Lowers Rates - Great News - NOT!!!! If you have CD’s, then expect all your rates to fall for your savings. You will now get 3% on your 1 year CD, when you were getting 5%. And at the same time inflation is running at 4% plus. So you will be losing 1% purchasing power on your money in 2008. Most people will move their money to the Stock Market, but how can they do that when the stock market is falling. Don’t look at todays $400 plus move on the Dow, for all of 2008, the market has been in a free fall.
It is time to hunker down and protect your assets. Here are a few tips for 2008.
- Job Security - Solidify your position at your company.
- Make sure that management sees the value of your contribution to the organization
- Work smarter and stay later to show that you are committed to getting your job done when others are leaving to go home
- Find new ways for your company to save money or incrase revenue in this economic downturn
- Protected Your Financial Assets
- Make sure that your mortgage is solid and will not be subject to a rate adjustment
- Refinance to protect your low interest rate
- Clean up your dogs - Get rid of Stocks that have no future return - Remove the emotion of your holdings
- Pay off credit card debt, banks may start raising rates even if you have a low promotional rate
- Get Control of your Budget
- Manage your monthly budget and closely monitor spending
- Don’t buy the Flat Screen TV with your tax rebate
- Cut out luxuiries in your life - Get coffee at 7-Eleven rather than Starbucks
- If you still need your Starbucks, get a small coffee and cut out the blended drinks and muffin
More tips to follow. Remember that if you take care of your finances now so you can get ready to invest at the market bottom and really make out when the economy recovers.
