Financial Planning, Retirement Plan, 401k, Investment Blog

Financial Planning, Retirement Plan, 401k, Investment Blog

Posts Tagged ‘savings account’

Banking on American Banks: Why US Financial Institutions Will Survive the Crisis

Posted March 16, 2009 by Bernz

So far this year, the news has been pretty frightening. Banks have been taking huge bottom line hits on their assets. Some banks have teetered on the edge of financial collapse before receiving a $700 million life line from the federal government. Specters of the Great Depression dominated financial markets and, for the first time in two generations, people started wondering if their money was safe in some of the largest banks in the country.

To understand the banking crisis and why US banks will survive it, you have to understand the sub-prime mortgage fiasco. Most of us know that sub-prime mortgages were home loans made to those who couldn’t qualify for conventional bank mortgage financing, making them high risk. Most of these loans contained a low-interest teaser rate to attract new borrowers, but, buried deep in the fine print of the contract, lurked a much higher rate after the first few months. As the rates went up, so did defaults and the mortgage assets weren’t worth as much to banks. What made the situation worse is that banks and other financial institutions bundled these loans up into packages called mortgage-backed securities and sold them to various investors. Many of these investors were not aware of the risk of the underlying loans. Those securities that sat on banks’ balance sheets rotted away until no one was sure what their true value was, if any. As their assets deteriorated, banks ran into a liquidity crises where their current assets were in danger of not being sufficient to meet their current liabilities. That’s when the federal government stepped in with their bailout.

(more…)

Posted in Financial Education, Investing Basics, Loans, Misc, Saving Money, Stock Market Investing, Wealth Building | 1 Comment »

The Lost Art of Savings

Posted March 9, 2009 by Bernz

Once upon a time in a land far far away, people put aside some of their earnings for a rainy day. They knew that there would be flush times and lean times. When things were good, they would squirrel away crops, can their own vegetables, and tuck some money away under a mattress. Inevitably, hard times would come, and those who had prepared ahead of time survived from their savings, while those who hadn’t bothered saving when times were good suffered.

The average amount of savings per capita in the United States has declined by more than 80% in the past twenty years. What were once luxuries that people saved up for are now waiting to take home with a simple signature on a loan document. Total debt versus income has more than doubled in that same time frame. Now, instead of setting aside savings every paycheck, many people are making loan payments.

Debt represents risk. The more debt you have, the more vulnerable you are to economic shifts like the one we’re having right now. The prolonged recession we are experiencing is causing many- who live on the financial edge at the best of times- to falter. Personal bankruptcy rates are soaring as debt loads become unbearable and incomes disappear. Living beyond their means has caught up with many people and there is only more pain on the horizon.

(more…)

Posted in Financial Goals, Frugality, Retirement Planning, Saving Money, Wealth Building | No Comments »