Financial crisis: What you should know

Financial crisis: What you should know
Crisis sparks confusion, questions about personal finance
By Allison Linn
Senior writer
MSNBC
updated 3:28 p.m. ET, Mon., Sept. 29, 2008


Allison Linn
Senior writer

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The financial crisis that has gripped the country for the past two weeks has already created widespread confusion about what these problems might mean for ordinary Americans.

Now, news that Congress failed to pass a hotly contested financial bailout package is leaving some people even more uncertain about how their personal finances might be affected

While the bailout is principally aimed at the financial system, the impact of not passing it could be felt throughout the economy.

"Don't expect things to get better in the next while," said Brian Bethune, U.S. economist with Global Insight. "The underlying economic conditions are not good, and this is not going to help."

Here’s what you should know about how the crisis might affect your personal finances.

Checking and savings accounts
News that major banks including Washington Mutual and Wachovia have been pulled down by the crisis has sparked fears about whether Americans should trust their banking institutions to stay solvent.

Most banks are expected to continue functioning normally. Still, it pays to take a few simple steps to protect your assets in the event of a bank failure.

First, make sure that your bank is backed by the Federal Deposit Insurance Corp., better known as the FDIC. If your bank is a member of FDIC, then your individual accounts will be insured for up to $100,000, and your joint accounts should be insured for up to $200,000.

If you bank with a credit union, make sure that it is insured under the National Credit Union Insurance Fund, which provides similar protections for credit union account holders.

Retirement investments
The FDIC also provides coverage of up to $250,000 for certain retirement accounts, such as IRAs that are held in FDIC-insured financial institutions. If you have more than $100,000, it pays to check out the FDIC's online deposit insurance estimator.

Brokerage accounts
While most of us expect to see gains and losses as a result of investing in the stock market, some have raised concerns about what happens if the company that holds your investments runs into trouble.

If you are concerned, check to see whether your firm is a member of the Securities Investor Protection Corp., or SIPC. Created by Congress in 1970, SIPC covers investors for up to $500,000 in the event a brokerage fails or securities are stolen.

It’s important to note that this does NOT protect people whose investment portfolios lose value because of drops in the market or bad investments. That’s because investing in stocks and bonds is considered to be a risky endeavor, with upsides and downsides.

“They’re not guaranteeing the value of the stock,” said Barry Ritholtz, chief executive of the research firm FusionIQ and author of the forthcoming book “Bailout Nation.” “They’re guaranteeing $500,000 against the company going belly up.”

Some brokerage firms also have supplemental insurance for certain investments, should their brokerage fail.

Money markets
Money market funds often have been considered a safe haven for stashing cash that you don’t want in riskier investments, such as stocks. Recent troubles at one large money market fund sparked concerns that even these investments — considered by some to be safe as cash —are not completely secure.

Hoping to quell the anxiety, the Treasury Department recently stepped in to provide guarantees for money market funds, using a Depression-era fund to back them.

Mutual fund firms, also, have taken steps to comfort worried investors, including disclosing money market fund holdings and posting information about their investment decision-making.

Russ Kinnel, director of mutual fund research with Morningstar, said the best way to assure that your money is safe in a money market fund is to choose a relatively large, low-cost fund from a large company. Those steps should make it less likely the fund will make riskier investments, and more likely that the firm itself will make investors whole should the fund “break the buck,” or fall below the target of $1 per share.

Consumer credit
For many Americans, the credit crunch that is a key factor in the current financial crisis has been a relatively abstract idea, affecting mainly large financial institutions. As the crisis unfolds, economists say we could start to see more of an impact on people’s everyday lives.

Consumers who are trying to borrow money for a new car or new home, for example, might find it harder and more expensive to get a loan. Some might find it tougher to get a new credit card, said David Wyss, chief economist with Standard and Poor’s.

People who already have credit cards likely won’t see much change, although Wyss said some credit card companies are starting to reduce credit lines for riskier clients.

“They’re getting tougher on who they lend money to,” he said.

Bethune said those conditions could get even worse now that the bailout is up in the air.

Business credit
Economists are watching closely to see if the credit crunch is going to make it harder for small- and midsized business owners to borrow money.

That, in turn, could crimp their ability to do business, leading to layoffs and affecting related businesses. It also could make it tougher for entrepreneurs to find money for starting new businesses.

Mortgages
The crisis on Wall Street shouldn’t have a direct impact on people who are paying their mortgages on time.

If you are seeking to refinance your mortgage or take out a second mortgage, however, you may find it to be more difficult, if not impossible, because of stricter lending requirements.

Kay Morris - When You Cry

Nelson Mandela

Food For The Poor- Vocals by Glacia Robinson

Haiti after the storms

LIANCOURT, Haiti -- Rice paddies in this northwest village lie submerged in pools of water, some of them the size of lakes. In the south, entire groves of plantain trees have toppled. And in the central plateau, wilted beanfields and cornfields limp in ruin -- remnants of Haiti's battering by four consecutive storms.
In Cuba, trucks loaded with stacks of plantains rumble down storm-wrecked roads. Farmers are in a hurry to salvage what they can in a country that just lost 80,000 acres of bananas and 4,355 tons of food that was stored in warehouses when two hurricanes in as many weeks hit there.
''That's the one thing we will have for days and days and days,'' said Rosa Arrencibia, 47, of Camagüey. ``Plantains.''
A busy hurricane season has hit Cuba and Haiti where it hurts most: in the heart of agriculture. This hurricane season hasn't just brought death, but also destruction to those two countries as well as to the Dominican Republic and Jamaica, washing away months of food staples at a time when nations face rising global food and fuel prices.
For Haiti, the toughest loss was in the Artibonite Valley, the heart of the country's already paltry breadbasket. Cuba suffered agricultural losses on both coasts, where storms wiped out not just the bananas that farmers scrambled to recover, but the entire sugar cane crop, 135,000 tons of citrus and a staggering 700,000 tons of food.
''That's devastating,'' said Bill Messina, an agricultural economist at the University of Florida, who monitors Cuba's farming industry. ``For agriculture, this is a tremendous blow.''
Cuba was already struggling to increase food production and had recently begun a quest to give unused state land to farmers. But with huge losses to coffee, tobacco, sugar and most other crops, experts say it will take more than extra incentives for farmers to recover.
CUBA'S FOOD CHAIN
''The big unanswered question in this story is the food supply,'' said Cuba expert Phil Peters, vice president of the Lexington Institute think tank in Arlington, Va. ``They lost food in the warehouses, crops in the fields, and the crops that earn the foreign exchange they use to earn revenue to import food. That's three problems that add up.''
Feeling an equal blow is Haiti, where widespread hunger triggered deadly riots earlier this year, and where the storms ruined more than 50,000 acres of crops and dashed any hope of reviving this nation's agriculture to replace expensive, imported rice and other food products.
Government officials estimate the loss at $180 million -- and counting.
''This couldn't have happened at a worse time for us,'' said Joanas Gué, the country's new agriculture minister.
``The four storms that arrived came during a period of harvest. We've lost all of the beans in the mountains. We've lost all of the plantain fields, especially in Belle-Anse and Marigot in the southeast, the plantain bed. We've lost a good portion of the corn harvest.''
There is little promise of a quick recovery for Haiti, where farmers say all they can do is pray for no more rain.
''Things are not good, but what can we do?'' said Selonger Pierre, 50 and a father of five, who was feverishly plowing and plucking away in his flooded rice paddy just hours before Hurricane Ike flooded the valley once more. Wading in thigh-high muck, he reflected on his situation: The rains didn't just flood his fields -- they washed away livestock.
''We are nearing starvation,'' he said.
Just before the storms, Haiti had poured more than $30 million in to this season's rice crop and invested $13 million in more than 26,600,000 pounds of fertilizer, selling it at 80 percent below market value to already-struggling farmers.
Haitian farmers and consumers were close to reaping the rewards -- 120,000 metric tons of rice, 30,000 more than than last year -- of those investments when the storms came barreling through, sending mud and rocks rolling from the hillside, rivers overflowing their banks and irrigation canals into disarray.
''We will have a huge food deficit,'' said Gué.
Mostly used for domestic consumption, the crop is a lifeline for most Haitians, who often can't afford much else.
''We lost all of our trees,'' said Jean-Mario Pierre, 24, looking at his backyard in Vialet, a rural community in southern Petit-Goave, where not one plantain grove survived Hanna's destruction.
Pierre said the grove, which has been in the family since 1982, feeds and clothes 17 family members, all of whom live in the yard. When the family grows tired of eating plantain, they barter.
''Sometimes you sell the plantain, and you can't even buy three cups of rice because the rice is so expensive,'' he said. ``We have no other choice but to suffer.''
Less than a quarter-mile down the road, Clermont Beaubrun, 60, waded through his grove of toppled trees with a machete, looking for the last of his plantains.
''The grove is destroyed,'' he said, his voice laden with frustration. ``We are now at the mercy of God, and the government.''
Even before the storms, Haiti's government was struggling to feed the country's nearly nine million people. The riots toppled the prime minister and sparked a worldwide appeal by the United Nations and others for aid. The United States shipped $45 million worth of food, which was supposed to last until the end of the year, but is running out because of the storm crisis.
RECIPE FOR DISASTER
''We have a good recipe for a disaster that's worse than a humanitarian crisis,'' said Joel Boutroue, the United Nations Development Program resident representative in Haiti.
Boutroue, like others in the international community, is concerned about how long Haitians, resilient in the face of misery, will battle hunger this time around before a repeat of April's deadly riots.
''The security situation is even more fragile than what it was,'' says U.N. Special Envoy Hédi Annabi. ``Prices will go up, the scarcity of food, all of that could make the security situation more fragile.''
That impending reality worries Haiti's international donors.
''It used to be a question of affordability,'' U.S. Ambassador Janet Sanderson said about Haiti's food crisis. ``Now it's a question of availability as well. That's a double whammy.''
Miami Herald staff writers Jennifer Lebovich, Trenton Daniel, Patricia Mazzei, correspondents in Cuba and El Nuevo Herald contributed to this report. By FRANCES ROBLES AND JACQUELINE CHARLES
jcharles@MiamiHerald.com

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