The Effects at Home After Wall Street's Shake-Up
Monday, September 15, 2008
The turmoil sweeping through the financial markets has left many people worried about their own stocks, bank accounts, and retirement funds. The tottering of investment bank Lehman Brothers, the weakening cash position of AIG, and the purchase of Merrill Lynch -- all taking shape over the weekend -- are forcing average investors and homeowners to ask serious questions about what steps to take now.
I own Merrill and Lehman stock.
Should I panic?
Bank of America has shown a vote of confidence in Merrill with its $50 billion purchase of the brokerage. But there are risks. Merrill has billions of dollars in assets linked to devalued mortgages and has faced a tight credit squeeze. The company is a huge player in the retail brokerage market. If Lehman files for bankruptcy, its shareholders could suffer. In a bankruptcy, common shareholders are the last in line for claims on assets.
Are my money market funds safe?
No need to worry about your money market accounts or any holdings you may have invested through Lehman Brothers or Merrill Lynch, said Securities and Exchange Commission spokesman John Nester.
"Nothing that happens on the holding company level can imperil or threaten a customer account," Nester said. "The firms are never allowed to and don't reach into customers' money."
Nester said he could not comment on a Merrill Lynch deal, but that "as a general matter an acquisition doesn't change the customer's account status."
Will this put more pressure on home prices?
Peter Morici, an economist and professor at the Robert H. Smith School of Business at the University of Maryland, said home prices could be affected if the swirl of news leads to a significant and sustained drop in stock prices. "But I don't see that happening," he said. "I see an initial shock just like we saw euphoria after the Fannie Mae and Freddie Mac rescue."
The availability of mortgages also should not be affected, he said.
Is this the bottom?
Morici was resolute: "We're not going to hit the bottom of the stock market yet because the economy hasn't bottomed out," he said. "The economy is slowing and even without Lehman, the economy is headed for a bottom around the beginning of the new year."