What To Do With Your Money?
Readers suggested a topic on investing today. “How about a conversation on what to do with your money? I have a fairly significant amount of cash at a couple of different banks. I have worked hard my entire life and I have been extremely conservative with my money. I am one of those folks who only owns one television and that was given to me by parents back in 2001. When I open my wallet people joke that George Washington has to rub his eyes. I left a bubble in New York city in 2004 only to find the same bubble in Florida!”
“Anyway, I am terrified that my cash is ultimately going to be worthless and all my hard work and frugality will be all for naught. I guess my larger concern is that a major bank will go under and the FDIC wont have enough cash to insure the funds. I have actually given some thought to taking like $100k out and buying a safe and keeping it in my rented townhouse. Is that insanity? I don’t want to buy a house. Half the people in the ‘upscale’ hood that I live in haven’t made a mortgage payment in a year.. Gold? Think there is a bubble there. Stock market? Legalized gambling. I am not even worried about getting a return. I am just talking preservation…if the SHTF….I want to be prepared.”
A reply, “My advice:
1) Forget about your ‘larger concern.’ The FDIC is not going to go under, at least in a way that will wipe out your federally-insured bank accounts, at least up to the amount of the guarantee. In case you have amounts in excess of the guarantee in any one federally-insured account, you will have to open another account to make sure all your savings are protected.
In a worst-case scenario, whose importance is diminishing as the FDIC ‘problem bank list’ shrinks, the Fed/Treasury would provide whatever support was necessary to make good on guarantees. I know this for a couple of reasons:
a) Did you notice how the GSEs supposedly collapsed in Fall 2008? Yet they continue to operate, funding a large share of new mortgage origination’s. They seem to be miraculously immortal, don’t they?
b) I had a CD in an FSLIC-guaranteed Savings & Loan institution in the late 1980s, which went out of business before my CD matured. The ‘failed’ FSLIC somehow made good on not only the principle on my CD, but full interest through the scheduled maturity date, which was paid to me well after the S&L went broke.
c) The Bernanke Fed has shown a willingness to withstand the political flack that came their way as a result of funding bailouts with a balance sheet expansion. There is no reason to not expect them to do this again on a discretionary basis, and a collapse of the FDIC would certainly qualify.
2) Inflation risk is a larger concern, given the appearance of unrepayable debt at so many levels, from households to governments to international obligations. You should consider possible ways to shield your savings against collateral damage which may eventually be inflicted on cash savings by the dilution of the currency base to enable repayment of otherwise-insurmountable debt burdens.”
Another said, “I’d take 10% of my money and blow it on stuff I liked and stuff I wanted to do. Take some great vacations. See places. Buy an nice TV and a really nice couch. Eat like a king. You’ve been frugal your whole life and yes, your money and/or health could disappear in the blink of an eye.”
From Reuters. “The National Association of Realtors reported that ten real estate markets are ‘leading the nation toward a general recovery and stability of the housing sector,’ but myriad problems are going to weigh down the housing market for months to come. The lingering malaise in the economy has triggered a new wave of defaults and foreclosures. After five straight quarterly drops, foreclosures nationwide shot up 14 percent from the second to third quarter this year, according to Realtytrac, in October.”
“It’s estimated that some 3.4 million foreclosed homes will be on the books of banks and mortgage companies by the end of this year.”
“Adam Holm has been looking to sell his three-bedroom Victorian house in San Francisco’s Potrero Hill neighborhood all year, but he needs one thing to happen first: gaming-company Zynga’s initial public offering. His place is within walking distance of Zynga’s headquarters, and he expects prices in the neighborhood to rise significantly in the wake of the IPO. ‘It seems foolish to put it on the market before when there are a thousand people down the street who are about to make a million dollars,’ said Holm.”
“Stephen Rossi wanted to move out of his SOMA condo and was planning to rent it out, thinking he couldn’t sell if for the roughly $760,000 he paid back in 2009. But when a neighbor with an identical unit across the hall got multiple offers on his place and sold it in October for $800,000 to an employee at a cloud-based software company, Rossi had second thoughts. Rossi sold his condo two weeks ago to a bidder who had lost out on his neighbor’s home, also for $800,000, and had backup bids of his own.’
“‘The market was stronger than I thought,’ said Rossi.”
The Deseret News. “Since 2000, five million people living in the suburbs have fallen into poverty, according to the Brookings Institute. The Midwest led the ranks, with poverty increasing in both cities and suburbs. In Illinois’ Cook County the median household income has dropped more than $8,500 since 1999. The foreclosure rate in Hanover Park Township, where Deborah Smith lives, is one of the worst in the county, surpassing even some of Chicago’s most distressed inner-city neighborhoods.”
“Aside from the signs — ‘Bank Owned,’ ‘Price Reduced,’ ‘Short sale’ — the neighborhood looks much the same as it always has, Smith said. A white rambler with a wrap-around porch, a two story with fresh paint and smart, green shutters, a six-bedroom brick house with shade trees and a two car garage — this is foreclosure in Hanover Park. But behind closed doors, things couldn’t be more different. Mixing with neighbors while her two boys participate in Boy Scout activities, she used to chat about vacation plans, sports and the latest toys her kids were begging for.”
“‘Now we exchange information about where the best food banks are located,’ she said.”
“France and Germany agreed on Thursday to stop arguing in public over whether the European Central Bank should do more to rescue the euro zone from a deepening sovereign debt crisis. President Nicolas Sarkozy and Chancellor Angela Merkel also demonstrated their backing for Italian Prime Minister Mario Monti, an unelected technocrat, to surmount Italy’s daunting economic challenges.”
“Finance Minister Jan Kees de Jager said he would prefer that the European Financial Stability Facility, the euro zone bailout fund, should be strengthened. But if the EFSF did not succeed, other measures would have to be considered. ‘In a crisis one should never exclude anything beforehand. In the end, something has to happen,’ he said.”
From 8 News Now. “Thousands of distressed properties go into foreclosure every single month in Nevada. But a non-profit is trying to connect homeowners to resources that could save them before it’s too late. Claudia Castillo and her husband wait their turn in line. The Castillo’s and their four children are in danger of losing their second home in this foreclosure crisis. Housing for Nevada organizers say they are not alone.”
“‘It’s caused a lot of headaches, stress, including depression, because we weren’t expecting to lose the home we actually wanted to save,’ said Claudia Castillo.”
“Evidence of borrowers who took on too much debt to finance housing purchases, and many other non-housing expenses in some cases, can be seen in the number of residential foreclosures. It is estimated there are in excess of 14 million vacant homes in the U.S. right now out of a total of 130 million homes. Almost half of the vacant homes, or 7 million, are not yet on the market.”
“While enabling borrowers to purchase homes is needed to ease the excessive inventory of available homes, doing so on terms that put the borrowers and lending institutions at unnecessary risk will likely lead to additional default challenges as the economy stumbles along. Increased defaults will put severe downward pressure on housing prices which in turn will inevitably lead to additional defaults and foreclosures.”
“When home loans are made on terms that barely enable the borrowers to meet the payments, any material change in their financial situation can lead to payment defaults and likely foreclosures. Positioning borrowers too near the financial precipice ultimately is a disservice to all parties involved in the lending transaction.”
