economy
AVATAR - Is it worth spending millions?
Wed, 01/20/2010 - 13:44 | 
20Century Fox
Avatar, the movie which has made headlines all over the globe, movie which has given another avatar to the Hollywood movie industry during this recession, and a movie which is the topic of many house hold dinning table talks. It has broken many records and making history in the world movie industry.
Before I talk about the main interest, here are some titbit's you might be interested if you are not aware of them.
1. Producers spent around $300 in production cost and more for marketing.
2. It already raked up 1 Billion from all over world in just 2.4 weeks. According to Box Office Mojo it’s current box office total stands at $$1,018,811,000 million.
3. Opening Weekend: $77,025,481
(#1 rank, 3,452 theaters, $22,313 average)
% of Total Gross: 21.9%
Widest Release: 3,461 theaters
In Release: 17 days / 2.4 weeks
A movie which cannot stop making money and surely a movie to watch. After hearing rave reviews and commentaries,especially setting itself apart from ther sequels like Lord of the Rings with Sanskrit title, I was intrigued to see it. I finally watched the movie yesterday and it surely didn't fail to surprise with spectacular animation, special effects and astonishing camera. I was totally blown away by the Himalayan effort put forth to bring this movie as a sensational entertainer with a great message for this time.
James Cameron proved himself again as the Best Director of all time by giving back to back hits. But, as an person born and bought from India, I felt that the story is old and many of my Indian friends agreed with me. I have seen similar kinda of movies when I was a kid in the Indian cinema with little special effects available at that time frame. Those movies had stories where person transfers from body to body too. I am talking about 20-30 years back. Except the special effects, graphics and animation, I see the old story line in many aspects but with new scientific proofs which makes it believable. It has lot of connection and adaptation from Veda's(Sanskrit literature) and many other Indian literatures. Even the character visualization and makeup's can be related to many ancient Indian traditions and especially the body color can be related to Lord Krishna avatar deplicted below in the picture.
Being said all that, James Cameron not only just gave new look to the old story but a brand new planet creating a new paradigm for the many more avatars to come. As money examiner, I would say it surely money maker but do have couple of questions.
What was James Cameroon thinking? While the nation is just recovering from recession, 300 million dollar spent in making a movie, doesn't really makes sense? At the same time, it is giving people totally new experience in a new world and also bringing them to theaters to spend money during the holiday season helping the economy.
Share your thoughts about Avatar and money spent in making the money. Is it worth spending this much money or waste?
Cash for Clunkers, A True Success?! - A look back - Final Part
Last week, we looked back the Cash for Clunkers program weighing it on 3 different areas like, economy impact, consumers view and environmental aspect. This week we flip the coin to look on the other side which adds lot of hurt feelings from many organizations including nonprofits.
Non-Profit's Loss
Many Nonprofit organizations raise fund for their programs through car donations. They accept old clunkers, repair them with help of their volunteers and sell them to the low income people for reasonable price to make extra cash. These organizations share some mixed feelings about this program. Philanthropy.org reported, Cheryl Rios of Texas Can, a Dallas nonprofit organization that serves troubled kids, estimated the organization has lost $75,000 due to a reduction in car and truck donations.
Similarly, Point Richmond's Vehicle Donation to Any Charity has seen a 20 percent drop in donations reported on sfgate.com. A big dent in the $3 million the company usually raises from reselling donated old cars and distributes annually among 4,500 charities nationwide. Car Talk donation which turns over its share to National Public Radio also hurt by this program.
Car dealers Struggle
Old auto dealers got to make a living by selling the clunkers. They sell to lower middle class people with lower income who doesn't have real credit depend on them dealers who sell cars for cash and personal credit. This program means fewer clunkers, and possibly less cash for these dealers another story reported in Houston Chronicle.
About 750,000 cars removed from the market and sent to junk yard. That accounts for a 2 percent reduction in overall supply, which may create a bubble in used-car prices, according to Kelley Blue Book, which tracks car values. “It's going to take some of the inventory away from people who sell basic transportation for lower income people.”“It will cause the price of our inventory to go up,” according to a old car dealer in Houston. The sort of increase can make a big difference for his customers, most of whom have an average individual income of less than $25,000 a year.
Many old auto car lots are often called as “note lot.” Note lot dealers pick through trade-ins that new-car dealers don't want to sell. They repair them, clean them up and resell them at a markup to subprime buyers, who often pay a steep interest rate — as much as 20 percent — because of past credit problems.
“There's still people who need these cars,” he said. “They need a ‘clunker.'?” The program puts an unfair burden on low-income car buyers, many of whom need inexpensive vehicles to get to work.
Repair Shops worry
The vehicles being mashed by government decree still have value, both as a whole and as parts. According to a repair shops, the clunker program could affect non-clunker repairs, too, by driving up the cost of parts.“The long-term implications are the shortage of good used parts. When you crush a car, you take away a lot of parts that have no effect on fuel economy.” That includes body parts and engine components such as alternators and starters. Used parts, like used cars, tend to appeal to lower-income customers who can't afford new ones.
It is unneeded hardship as per many auto shop owners. In this economy, increasing the hardship on people struggling the most, those clinging to their jobs and stretching their budgets, isn't a stimulus.
Dealers Frustration
Even dealers who celebrated this summer with great sales through this program have few things to say. It was overly complicated, a nightmare to manage for dealers and difficult to understand for consumers. Many dealers worried about getting their money back from government and stopped offering this program. Small dealears funds got strapped when government took its own time to process the reimbursements churing lot of frustration.
Was the cash-for-clunkers program a true success?
Short answer is Yes and No. With some creative marketing and dealing, dealers were evidently able to convert many nonqualifying shoppers into the buyers of other new or used cars, a trend that created a sizable positive impact on sales as an indirect consequence of the program. Consumer spending edged up 0.2 percent in July with help of this program to boost the economy.
Many call it as more of a political stunt, psychologically satisfying but not economically meaningful. It's been good for new-car dealers and the automakers, it's tweaked the overall economy, and it may even help the environment a tad, but there were many hidden losers gone unnoticed by the government. If we all can maintain our cars like the young lady tin this video, we don't even have to create programs like this one. Don't you think?
Sources - chron.com, sfgate.com, npr.org
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Cash for Clunkers, Is it Runaway Success?! - A look back - Part I
While the Obama administration and auto dealers are claiming a runaway success of the 3 week's Cash for Clunkers program, there are lot of things went wrong on the side lines. This program lasted only a short time, but it apparently will have a long-lasting negative impact on nonprofit organizations and businesses. The program should be evaluated so that similar programs in the future can be more effective.
As usual, I picked my magnifying glasses to look closer and research deep enough on various areas to identify were all this program created the spark. Just a take ride along with me for quick look back. In my previous post on the same topic, I questioned the credibility of this program on 3 main context like whether it is helping consumer, economy or environment as it promised. Let me address those points again with more facts and figures and in my next post share some more interesting stories.
Economic Sense
Let us take a look at some final numbers released on CARS.gov by the government,
Dealer Transactions
Number Submitted: 690,114
Cars sold: Around 700,000
Dollar Value: $2,877.9M
Top 5 New Vehicles Purchased
Toyota Corolla
Honda Civic
Toyota Camry
Ford Focus FWD
Hyundai Elantra
The program accomplished what it was set out to do, which was to get consumers back into the showrooms and to jump-start new-vehicle sales. It also created lot of buzz around nation on spending with expense of 1 billion tax payers dollars set out by the congress. The funds was reloaded with another 2 billions again. It is all well and good but does it really had an economic impact is the major debate. When the foreign car companies like Toyato, Hyundai and KIA topping the list in sales, how it actually made an effect in US economy is many people question.
Spending 3 billion dollars in 3 weeks to replace 700,000 cars in the road cannot be considered as proper measurement to evaluate the success of this program. Yes, it did create a short spike in the consumer spending and had an impact but it just short-lived. According to an analyst, if we assume an average selling price of $25,000 for the program, and total unit sales of 700,000, the cash-for-clunkers program generated at least $17.5 billion of economic activity, not including incremental sales of additional products, such as extended warranties, alarm systems and financing revenue for the dealerships — as well as roughly $875 million in sales-tax revenue for state governments. That's a pretty good return on $2.6 billion in government spending.
When we add in the fiscal multiplier effect, the net impact of the program was easily north of $25 billion — if not much higher. Motor vehicle sales in the U.S. account for more than 18% of total retail sales. NADA estimates that dealers generate in excess of $20 billion in annual sales tax revenue from the sale of vehicles. This revenue is an important part of the budgets for state and local governments across the country.
What's more, the sales represent only a portion of the economic impact. Ford, for example, announced that it is increasing production of some models. GM brought back around 1300 workers to start production on its new car models. However, the impact has a short life expectancy and once the program is over, the impact is pretty much over as well.
Of course, it's possible that car sales will simply revert to their pre-Cash for Clunkers numbers in September. But that won't mean the program was a failure. Fiscal stimulus is supposed to be a bridge between a period when people aren't spending to a more prosperous future, when, with a growing economy and (presumably) an improving job market, people will start spending more on their own, without special inducements. So it will be the next challenge for auto manufacturers and dealers to take this momentum and convert into the actual sales in future months to come.
Consumers Aspect
I argue this program is actually putting many consumers into debt by tempting them to buy newer cars when they don't have job and cannot afford to spend for big purchases at the first place. But auto dealers have a different point. Let see.
Average Fuel Economy
New vehicles Mileage: 24.9 MPG
Trade-in Mileage: 15.8 MPG
Overall increase: 9.2 MPG, or a 58% improvement
According to stats from automotive dealers on the CARS Program shows clunker consumers getting a 69% mile-per-gallon (mpg) improvement which saves them an average of $750 in gas bills a year by replacing their clunker with a new fuel efficient vehicle. "After gas and repair savings many consumers will spend less to drive a new car then they were spending to keep their clunker on the road," says Sharon O'Connell, the director of www.CashForClunkersInformation.org. The program worked far better than anyone anticipated at moving consumers out of old, dirty trucks and SUVs and into new more fuel-efficient cars.
Many of those auto purchasers were already in the market for a car, according to the anlalyst. And it's possible that the incentives have just lured people who would have bought cars later this year into the showrooms earlier--thus stealing sales from future months. The real measure of the effectiveness of the program would be the degree to which it caused people who weren't even thinking about buying a car to take the plunge.
Based on the types of cars being purchased and his assessment of purchasers, NADA economist Taylor believes that as many as 40 percent of the cars purchased under Cash for Clunkers were bought by people who would not have bought a new car in this calendar year. For a significant number of buyers, he argues, the rebates of $3,500 or $4,500--depending on the car purchased after the trade-in--changed the calculation of whether it made sense to purchase a new car.
My argument on adding consumer debt through this program still holds true and strong. How? As per the analyst, 40% of the people who never even thought about buying a car bought one just because they are getting the credit. I am sure around 80% of them bought via financing adding to their debt. May be they saved up some money and will eventualy save lot more in the long run on gas and auto repair expenses. Still whether they really need this debt at this troubled times is the another big question. Government is suppose to help make people life easier not pile more debts on them!!
In a climate where people are buying school supplies on layaway many consumers need some extra prodding to make large purchases. In August, the Cash for Clunkers program clearly provided the necessary encouragement and I should push for a large number of consumers to buy a car which they could have avoided. We are still going towards spending economy instead of saving.
Enviromental Impact
The last and most important of all, enviromental impact of this program. It is the major push for this program to even get implemented at the first place. They wanted to reduce carbon residues and emission by taking out old cars/ gas guzzlers from the road. But many experts argued it is not going help much because it takes 5-7 years to just offset the carbon residue created by the new cars by their gas savings. Let look at the CARS.gov numbers again.
Vehicles Purchased by Category
Passenger Cars: 404,046
Category 1 Truck: 231,651
Vehicle Trade-in by Category
Passenger Cars: 109,380
Category 1 Truck: 450,778
If congress pushed for greener vehicles, they should have limited this program to purchase only cars with better mileage. You see the figure, around 40% Category Truck(SUV, minivan, trucks) are sold again which are true gas guzzlers even with 22 mpg and around 90% traded-in are trucks. Basically, lot people just traded-in their older truck and got a new similar kinda of toy. That's what it means. Lets look at some more interesting points I discovered.
According to NADA , as of June 30, 2008, there were about 250 million vehicles in operation. This program only replaced 700,000 cars, which is just 3% of vehicles with little energy efficient ones. The impact is merely a fraction compared to the overall numbers.
Another report by CTA (Center for Transportation Analysis),
Carbon dioxide emissions emitted by United States accounts for 5,982 million metric tonnes in 2005. Transportation share of U.S. carbon dioxide emissions from fossil fuel consumption 2007 - 33.6%
Motor gasoline share of transportation carbon dioxide emissions - 58.6%
The U.S. accounted for 23.5% of the World’s carbon dioxide emissions in 1990 and 21.3% in 2005. Nearly half (44%) of the U.S. carbon emissions are from oil use. The numbers tells us lot of things. Just by replacing fractional number of vehicles won't have a big impact on the carbon emission.
This program only affects a small portion of economy thorough auto industry by spiking the auto sales, added debt to consumers and only had fractional impact on enviroment. Is it a true success? I know some will argue, you cannot bring a big change all of sudden, changes can only be enacted slowly. But spending 3 billions for small impact is a costly affair. There should be a program which has broader impact similar to banning incandescent lights by 2012, controlling emissions from factories and so forth.
In my next week continuation post on this topic, I will share more on how this program caused uproar and upset many non-profit organizations, small auto sales companies and auto repair businesses by looking at another side of the coin.
Sources - newsweek.com, time.com, nada.com, cta.org, npr.org
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NOTHING IS TOO BIG TO FAIL - FINAL PART
In my last week blog post, Nothing is too big to fail - Part 1, I shared information about Citibank and CIT, biggest commercial lender. How these big companies are struggling in this tough economy? As I concluded, this week final part will have an another interesting story about Harvard facing hardship on its own. I did my conclusion with lesson learned from these stories. So Read on...
What's up with Harvard?
It is not just financial companies which are failing in this recession. Harvard University is facing what some say is the worst financial crisis of its 373-year history. While many of the nation's top universities are experiencing problems as a result of the financial meltdown — even Harvard University, which has the largest endowment of all universities by far. University's $37 billion endowment a year ago has shrunk to an estimated $26 billion today.
What got Harvard into so much trouble?
Harvard did what many Americans did: It overspent. In this decade, it's added 6.2 million square feet. That's roughly equal to the space occupied by the Pentagon. These land acquisitions have cost Harvard more than $4 billion. It has had huge expenses built up while the number of students stayed constant.
"It's rather like someone who has taken on a mortgage, bought a house that far exceeds what it can afford, and they're now facing really what is the worst, most dangerous financial crisis in their 373-year history," according to Nina Munk, contributing editor at Vanity Fair, told NPR's Linda Wertheimer. To read the article, goto npr.org
Should big Companies allowed to fail?
Thats a very hard question even to Bernake. Being a big shark in a ocean is not an easy task. Playing a big role in the economy doesn't protect against economy downfall. I see it as a double edge sword. A company has to take chances and risk by investing their money in order to make more money. If it avoids taking risk or chances, consumers won't see new products and services at the same time company cannot grow and make money.
On other hand, if economy is falling because of companies fault and bad practicies, it does needs to be regulated and corrected. At the same time, If these companies are penalized by allowing to fail for taking risk to grow is not the right way. But I agree a company should act and forecast before stepping into risky modes of operation.
So if these companies are always left to fail, there is a bigger chance of snowball or avalanche effect which is actually averted by Fed last year. Taking last years episode, if every big banks which faced problems are let to fail without bail out, just imagine the impact it would have created. It would have devastating effect twice worse than great depression. It is not prudent to always struggling company to fail. Everybody needs a lending hand sometimes and more so during bad times.
Obviously, it is really hard to say which companies should be allowed fail and not others. It all depends on the time and position. I hope that also answers the question, Why financial institution gets billions to when big GM and Chyrsler are allowed to fail. Check out these articles related to this story from SeekingAlpha and npr.org.
Lesson Learned
I am fully convinced that no company is too big to fail and government won't always come for help. So if you are investing in securities and bonds, please be cautions and invest in right company analysing their porfolio and performance. Don't by stocks just because the company is too big and it will never will fail. As we all know now, NO COMPANY IS TOO BIG TO FAIL.
NOTHING IS TOO BIG TO FAIL - PART I
Last year, I posted a blog titled CITIBANK, TOO BIG TO FAIL and it has been almost 9 months now. During this interim period, we have seen lot more companies face tough battles, some went under and some survived. Even Citibank came very close to be taken over by FDIC. With the help of US government and many other investors, it still stands as big financial company.
These past experiences changed a lot and made many analyst to rethink, "Is there anything TOO BIG TO FAIL?". After seeing many big banks, financial institution, auto companies crumble like pack of cards, the statement doesn't hold value anymore. 
During a town hall meeting on Jul 27th, Fed chairman Bernake said, "The problem we have is that in a financial crisis if you let the big firms collapse in a disorderly way, they'll bring down the whole system. When the elephant falls down, all the grass gets crushed as well," Bernanke added. He said he had to "hold his nose" to rescue such institutions during this crisis. As a result, Bernanke said it was his "top priority" to fix the issue of too-big-to-fail. As per him, there is nothing like a company is too big to fail. It just needs to fail graciously without affecting others. To read the full article, go to marketwatch.com
Citibank - Status quo?
Currently Citibank has it's hands tied with U.S. government holding 40% stake(common stocks) after recieving giving $45 billion in bailout money. Vikram Pandit, CEO who took over his job at tough times is still hanging in there when many big companies vanished from the scenes. He is surviving with big hope to bring the company to his pride. Meanwhile he is named as one of the worst CEO by analyst and government is closely watching every one of his actions.
In an interview, Vikram pandit was chocked by questions which he struggled to answer. For a question, When will this crisis be over? Do you see any signs, at this point, of a recovery?
VP: What you have to understand is that, this is a significant shock to the world economy. Just think about it, when you look at the last 5, 10 years there were two engines of growth. There was the U.S. consumer and credit creation. None of those are likely to be the engines of growth going forward. The world's looking for a new business model. It's about new engines of growth and it's not only about creating stability and saying that we're out of the crisis mode. But we all have work to do as we search for what the new business model is for the world. I am optimistic about the signs that we're seeing, suggesting that stability is arriving.
He seems to be optimistic, that is what he can do right! Click to check out the full interview. It is hard to say, the worst is over for Citibank. Citibank is under close scrutinty and they cannot make any drastic moves without their Fed's approval. Even today(Aug 8/13/2009), they need goverment approval to pay bonuses and rasies for their energy trader who clinched millions for the company. It is going to take lot of work and patience to get out of the mess. We have to wait and watch.
Big CIT Story
This summer another big financial failure caught everybody attention without much shocking. CIT, a commercial lending institution struggling to get out trouble even after getting $2B bail out money from the government. I am sure many never heard of this company. I only heard when it showed up in the news. CIT serves as short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation. Analysts say 60 percent of the apparel industry depends on CIT for financing, so other lenders taking up all the slack would pose a big financial strain.
CIT has been scrambling to raise $2 billion to $4 billion after the federal government refused to bail out the company. On Jul 19th, major bondholders to keep the company out of bankruptcy with a $3 billion rescue loan, the New York Times reported. Under the deal, CIT's main bondholders would give the company $3 billion at an initial rate of 10.5 percent, the Times reported.
A bankruptcy filing would have threatened funding for scores of small businesses across the country. It also would have wiped out $2.3 billion in federal bailout money injected into the company in December.
Right now, CIT seems to be working on many restructuring plans. The Federal Reserve put the company through its "stress test" last week and found it faced a $4 billion capital shortfall. It also suspended the dividends. Suspending the dividends on four series of preferred stock will improve liquidity and preserve capital during its restructuring, CIT said. The company also reaffirmed that it has received enough offers to complete a debt repurchase program.
There is more to come in the next week blog with final analysis and conclusion on a controversial question, "Should big companies be allowed to fail?" and Lesson learned from this crisis. Watch out...
Content sources - marketwatch.com and npr.org
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Job loss - Survive & Succeed
These are tough times to many families and individuals. Millions of jobs have been lost in the past year or so leaving many people depend just on their unemployement insurance to support their families. I know how hard it is without a job if only one person brings home the bread. I have experienced myself. It gets even tougher for self employed who can't even claim the unemployment insurance. 
Some what of a good news is , it has slowed down quite a bit in the past month or so. Obviously, it has to slow down because companies can't throw out every body otherwise they cannot survive. Also slowing of layoff's doesn't means jobs are getting created. It just companies reached a saturation point stripping down so much and they cannot do anymore job cuts.
Many youngsters who never faced this kinda recession is facing tough times handling this current situation. First off, it is really hard to take it in when you get laid off after working your butt off(excuse my language) for the company.
You tend to think, they will call you back again. No, they are not going atleast for a year. They just moved on without you so you should consider moving on too. It sucks practicaly but you shouldn't loose hope and lose heart. Things change and you should change as well and continue your path to persue your dreams.
This blog might seem bit late but it is not. I intentionally want to wait and weigh in on the options so I can give some useful pointers from my experience. It is easy to just make a blog copying from other websites but I don't want to do that(I never do that) because Jobloss is a tough one and I want to share the same feelings when I talk about it.
So here go my 5 good Survival tips which might help you.
1. Unemployement Insurance - If you previous employed (not self employed), you are eligible for unemployment insurance from your state. If you havn't claimed it, go ahead and do it. You are wasting the money you are eligible to get since your employer paid for it. Sorry self employed folks, we don't have this liberty and I know it sucks.
2. Cut all your unwanted expenses. Whether you used to go to movies every week or restaurant for family dinner, just think about cutting it for a while. It will help to survive with your funds for longer time until you find a good job.
3. Just say to yourself "I can't afford at this time" if you and impulse buyer. These strong words will help you stay away from things which you really don't need to survive at this moment.
4. Don't dip into your credit card and make things worse. Use your emergency funds which is especially meant to tackle this situation. Especially self employed like me, you should have atleast 6 months of built up funds to take care of this jobless period.
5. Exercise and Hobbies - Try not to keep thinking about the lost job. It will let you down and you won't be able to attend interviews propertly. Add a positive attitude and go to Gym to catch up on your work out schedule. Try to spend time on your hobbies or passion to invent yourself and reenergize your thoughts. It will sure come handy during interviews.
Here is my 5 Success Tips which might help you to get out of the loss.
1. Leave no stone unturned. Always open to meet people. Attend Job Fairs, call your recruiter and friends to check on the job openings and opportunities.
2. Don't hesitate to follow up and stay on top of your contacts. Everybody got their own priorities. For you, getting a job is the first priority but it might not be the case of your recruiter or contact. So try to call them up for any updates or latest job openings. Don't feel embraced to keep calling. Perseverance pays off over time.
3. Always Stay connnected - Use LinkedIn, Facebook or Myspace to stay in touch with your previous coworkers, friends, college mates, chruck groups or religious groups. A lead can come from anywhere. By staying connected with as many as possible helps you get as many leads as possible. In this bad job market, Staying connected with many people is very important.
4. Take a temporary contract job or consultant position if you are not getting permanent job offers. I know many don't like to go this route but it helps to pay bills and at same time you are not sitting idle. It might even turn out to be a good project you never know. No harm in trying.
5. Revaluate yourself - This might be a better time to revaluate yourself and do something different if you are forced in this career. I have seen real examples from people who got laid changed their career from IT consultant to Entreprenuer or small business owner. If its too late and want to stick with same career. Try to Brush up your skills and take up some petty projects during the downtime from sites like getFreelancer.com, 99design.com. It helps to keep your skills shining instead of getting rusty.
These are some of my own practical tips. I also came across an interesting and optimistic writeup by a job loser. It's a "Thank you for layoff" note to the employer by the laid off employee. Check it out. It might add a different perspective to your thoughts.
Never ever give up and Keep trying!!
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Subprime Virus, Credit Crunch Epidemic and Financial Outlook of 2009
Late 2007, a virus broke out from nowhere. Everybody knows where it came from but nobody expected its sudden appearance. It wasn't really a big scare until its effects started creep in different areas of economy to take the real tool. That virus was Subprime Mortgage virus as I like to call. It slowly turned as a credit crunch epidemic affecting the US economy first, bringing it down the wall street from its shining gloom days. DOW fall from 14,000 points to almost close to 7000 points in just a year's time
(Image courtesy from lifeandinsurancenews.com)
Epidemic spreaded all over the world now. The first half of 2008, big banks like WAMU, Indymac, Wachovia, decades old financial institution like Bear Sterns, Lehmann Brothers all fall as victims followed by Insurance companies, Manufacturing industries, auto industry and many more struggling to make their living in US. Mergers, take overs, job loss and lay offs are effects of this epidemic. It is
US government has struggled and still struggling in many ways by offering bail out money to help affect people and banks, cutting interest rates, loans to banks and much more. But they couldn't able to stop the effects till now.
Later half 2008, we started hearing news from Europe with their banks falling short of their business then now its Asia.Economic condition of many developing countries are now in a downhill state. The damage is so severe it is going to take years for the countries to get back in shape.
Stock market fall and down economy is a cyclic effect like many financial analyst call but the way it fell this time totally different and bad compared to previous depression and falls. But the Subprime virus in a way did some good like the real virus which always brings out good medicine and inventions.
This subprime mess and credit crunch tested the limits of many companies bringing some of their wrong doing's and giving them punishment by eliminating them as their weak to withstand. By doing so, it is slowly creating a safest environment filtering, survival of the fittest.
On the other side, it is also working for the good to show the culprits by bringing them to the surface, some example including Bernie Madoff Ponzi scheme and the recent episode of India Satyam Companies Accounting fraud. Satyam company was the 4th largest IT company in India having ties to many international companies as their outsourcing hub last his share value in just 2 days and black listed from all the markets. It is the first ever biggest scam in India's corporate history. It is named as Indian's Enron and its CEO who brought this mess is now called as India's Madoff.
I didn't share anything new except expressing them in a way we all can understand. As per many, this credit crunch epidemic is not over yet. Europe and Asia are just starting to see the effects of this virus. So we are yet to see some worse conditions until it starts to show some positive signs as many analysts concur.
Today's stock market financial sectors fall is yet another indication for more bad days ahead for finance institutions. Watch out and play safe in your investments as the field is really getting bad out there. As I told in my previous blog, Think Positive. There are always opportunities open up during these tough crisis times. Warren Buffet made money by buying during these kinda of tough times. So look out and make use of it. Opportunities can only knock your door, it you who want to check and grab if it’s suitable for you.
Try to continue on your financial goals like Emergency funds, Kids savings or Retirement Planning and Investing. Financials Stocks are way down but are they good to buy. I am buy good ones by dollar cost average using Sharebuilder.com. You can also do your analysis and choose the right stocks. In few years(5 or 7), you are sure to reap the rewards.
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You, Your Money and Current Financial Crisis - Part 2 - Q & A
The financial crisis sweeping Wall Street and global banking and financial institutions has understandably raised alarms among consumers on the risks to their savings, retirement and brokerage accounts. Here are some pointers on navigating the financial minefields.
How does this crisis affect you?
Many individuals who close to retirement have all their eggs in retirement baskets comprising mutual funds and stocks, which have seen their values drained one-third of their capital. It is a big blow for them and many will suffer consequences for years to come as the withdrawals can’t meet their needs.
People who are saving up for their kids college education also have sustained major losses, but many of them still have time on their side as market conditions improve. Families who put their money in savings accounts and CD’s, are weighted by the dismally low interesting earnings on these accounts.
Products and services from distressed companies will also likely suffer and employees in these companies are at risk of losing their jobs. Cumulatively, this economic meltdown is likely to have a huge impact and it will likely stay for long time to come.
What you can do to avoid losing your money?
There is no silver bullet solution. But there are a number of things you can do to secure your savings. If you are already invested in the financial market directly as a stock investor or indirectly through your mutual fund portfolios, just stay put and don’t do anything. This turmoil will eventually end and your portfolio might emerge better in few years. If you cash out now, you might take a bit hit. You can’t withdraw your funds from your retirement and 529 accounts anyways, although you can alter the distribution of your portfolio. For that you should seed advice from your financial advisor or fund counselor. Don’t follow the herd. You need someone to analyze your particular portfolio. If you have more than $100,000 in a one or more accounts in one bank, try to split it up and put it in different banks or financial institution.
You are only covered by FDIC (Federal Deposit Insurance Corporation, an independent federal agency) insurance or NCUA (National Credit Union Administration, another federal agency) insurance as one person for all your accounts in one bank. If you have a joint account, you are covered up to $200,000 in that particular bank or credit union. Many people lost their money during the IndyMac bank failure as they had more than $100,000 in that bank. Don’t make that mistake.
With the recent legislation changes, $100,000 amount for each individual has been increased to $250,000 till Dec 2009. Don't know whether it will be made permanent.
What bank to open an account?
No one really knows which bank is safe or at risk at this time. Even the CEO’s of the financial institutions are unsure. But you don’t have to worry about the institution. Whether it’s a local bank or a national brand bank or a credit union, so long as it is FDIC or NCUA insured, you are covered up to $100,000 in that bank in the past. Right now, you are covered $250,000 till Dec 2009 according to the new bill passed 2 weeks ago.
What is the guarantee for my funds in bank and brokerage accounts from the government?
Let’s split these questions. Your bank or financial bank accounts, like savings, checking and CD’s are covered under FDIC or NCUA. Even your money market account is covered under these insurances only up to $100,000 per person. It is a common misconception that each account is covered for $100,000. In fact, the total amount in all your accounts in a single bank is covered up to $100,000. The $100,000 is been increased to $250,000 recently to help tackle the situation and losing consumer confidence. It is only till Dec 2009 and may be made as permanent measure. Also President announced Oct 15, 2008, there will be a full insurance coverage for money in non-interest bearning accounts for business accounts. No formal announcements about it yet.
Retirement accounts like IRA or Roth IRA in banks or credit unions are covered separately. After recent legislative changes, insurance coverage on certain retirement accounts, such as IRAs and Keoghs, is extended for up to $250,000 in both banks and credit unions covered by FDIC and NCUA. No Change made in his policy.
Next let’s get to your regular investments in a brokerage account or 401k. What happens if your brokerage firm fails? Hold onto your stocks and bonds; they are most likely safe. SIPC, the Securities Investor Protection Corporation, a nonprofit, membership corporation, funded by its member securities broker-dealers, seeks to restore funds to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms.
Of course, there is no insurance against market losses. However, as long as your securities are registered in your name, or are in the process of being registered, you own them, no matter what happens to the brokerage. You just need your statements to prove ownership of the securities to receive your refund. The SIPC covers customer up to a maximum of $500,000, including a maximum of $100,000 on claims for cash.
Conclusion
We are under a deep economic downturn. Eventually, however, the clouds will dissipate. We are already started seeing some signs, like slowing down in the decline in home sales, which is an indication that housing market could pick up. It is important because when the housing market stabilizes the economic conditions will improve. Be hopeful, be patient. That may be hard to do, but there is little else you can do but sit back and watch the market roller caster play out.
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