Sushi Money

It looks like the financial bailout agreement is getting close.  But while we’ve been waiting for Congress to put the supposed rescue package together, they’ve also been busy creating other new legislation with a similar enormous pricetag.
The $634 billion economic spending package has been brewing for some time however, and provides legislative funding for everything from aid to hurricane victims along the gulf coast, to lifting the ban on offshore drilling (except for the oil-rich eastern Gulf of Mexico), loans for big U.S. automakers and funding for pentagon military operations and projects.  This whole thing happened this week in the background of the “financial crisis” we’re facing.

So now they’re also about to pass what may be a $700 Billion financial rescue package.  Even though it may be necessary, it’s worrisome because no one really knows how we’re going to pay for all of this.  What is the real cost down the road? Is there any way out besides what most Americans fear as tax increases?  How do we really benefit from this?

I’ve got to admit the last several weeks have been very disheartening in terms of the degree of bailout assistance and government intervention we have seen.  Some are decrying the death of the free market and believe the political leadership is deluded to be supporting such enormous government intervention without considering the economic impact on taxpayers.  The bailout seemingly provides the most help for the financial institutions that put us in this situation in the first place. 

And others are just upset and confused at the current state of economic affairs and worried about what it means.   The past week was amazing though.  On the one hand the government puts together an $85 Billion rescue package for AIG, but on the other the FDIC “takes over” Washington Mutual bank, one of the nation’s largest, and sells their assets to J.P. Morgan for pennies on the dollar. 

Shareholders of AIG may be pleased with the long term outlook compared to the alternative.  But shareholders of Washington Mutual are totally wiped out. Everyone from employees with 401(k) investments in Washington Mutual to everyday investors were left holding an empty bag.    Except for the CEO of course.  Washington Mutual’s CEO now stands to walk away with millions of dollars after being hired just several weeks ago.  Not bad, huh?

And J.P. Morgan?  Here’s a company that was practically handed the best of Washington Mutual’s properties and operations, and now stands to become one of the big winners of the financial crisis.  And here J.P. Morgan was only last week converted to a banking company, after being one of the top five investment institutions in the U.S.  One of the same investment institutions that created this financial mess in the first place, but perhaps managed their risk better than others.  Of course Washington Mutual helped create the mess as well, with poor lending practices and too much leverage… and the walls came tumbling down. 

It all doesn’t really make any sense. Which may tell us how difficult this situation is for the government, and the challenges that we face.  And what about the Fed and Congress making sure that excecutives and institutions don’t benefit too much from the bailout?  Well perhaps they mean “don’t benefit” after this.

Regardless of the bailout, the U.S. economy - more importantly the nation as a whole - will face continued challenges.  This is just the beginning.  Let’s hope the political leadership  puts together a constructive package that helps the nation start on the road to recovery. 

For investors there’s a lot of financial hand-holding going on these days, and it’s quite understandable. Many of us are thinking about what we have, or what we really need to live on these days.  Rather than give in to fear, we need to sit down and take a look at the reality of our situation.  If you have an advisor or planner, then sit down to look at where you are, compare that to your original goals.  Has anything changed?  For some people the words “risk tolerance” have taken on new meaning.  That’s actually a good thing because it can help you tailor a portfolio allocation to a more appropriate structure over the long term.

If the bailout does nothing else in the short term, at least we can begin to put the current uncertainty behind us and return to more normal financial market functioning.

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