March 17, 2008
-- by Dave Johnson
For years and years and years people have been saying that Americans are taking on too much debt. The government has been borrowing too much. People are using credit cards too much. Second mortgages used for consumption are too much debt. There is too much corporate and financial system debt.
Debt has been fueling the growth we have been seeing for some time. It fueled the housing bubble. And now with the housing bubble bursting the debt bomb might also be exploding.
You might be hearing about problems on Wall Street and with the big financial firms. You might be hearing about the mortgage market having problems.
Well today you'll be hearing about big financial firms having serious trouble. Over the weekend a number of things happened. The big firm Bear Stearns basically went under and the government helped JP Morgan buy them for $2 a share. And the Federal Reserve did an emergency rate cut last night, with another expected tomorrow.
Asian stock markets are way down, and when the markets open this morning there are fears that it will drop.
Part of what happened with Bear Stearns is there was a "run." People were worried that the company would go under and asked for their money. And Bear Stearns didn't have it. This means that other people will be wondering if their money in other firms is also at risk, and might be asking to get it out. This might be what happened over the weekend.
If you have any money in money-market accounts, move it into federally insured bank accounts. You can lose money if it is in these accounts. You shouldn't have any money anywhere that is not federally insured until this thing blows over. Federally. IF, if we are looking at a systemic problem the private insurance companies will also be affected.
Have I mentioned that you shouldn't have any money anywhere that is not federally insured right now?
Posted by Dave Johnson at March 17, 2008 5:38 AM
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