Most people thought that the Federal Reserve was being generous when it provided $85 billion to AIG in an equity deal plus $37.8 billion in liquidity lending. As it turns out, that might not be enough to keep the company going. Read the full article

Last month I wrote that the federal government, in its takeover of Fannie Mae and Freddie Mac, had begun effectively guaranteeing the debt of the two agencies.

But it became clear this week that the government is still hedging about the extent of its backing of the agencies' debts. Read the full article

The parties involved in the Lehman credit default swap (CDS) auction are settling up today, and everyone is hoping that none of the participants got too badly burned (even if they're hedge funds). Read the full article

Until now, it hasn’t been entirely clear how much damage will result from the Lehman bankruptcy. An auction taking place today will be an important step in assessing which financial institutions stand to take a hit.

Today’s auction involves a type of security that many people know little about or have only heard of recently: credit default swaps. Read the full article

Saturday’s Boston Globe reported that MA Treasurer Tim Cahill has approached the Treasury about extending credit to the state on terms similar to those that have been offered to Wall Street, and the LA Times says that the “Governator” of California has also written Treasury Secretary Paulson to ask for a short-term loan of $7 Billion. Read the full article

Today's WSJ notes that Fidelity, Vanguard, and T. Rowe Price Group have signed up for the Treasury Dept's guaranty fund for money market funds that were held prior to September 19th. Now all the major mutual fund families with large money market funds appear to be participating in the fund (Charles Schwab is also on the list).

Investors wondering about their accounts should check their fund's web site; participating funds seem to be announcing their participation fairly prominently. You may also want to confirm that the specific fund that you own is covered; for example, Schwab's U.S. Dollar Liquid Assets Fund is not included because it's not a U.S.-based money fund.

The guaranty fund will be in effect for at least three months and the Treasury dept. has the option to extend the coverage for a year. I decided to add this post because the blog is still getting a lot of traffic from people with questions about whether their mutual funds or money market funds are insured, and this information might be helpful to them. People with questions might also want to try the Treasury's FAQ page on the money-market guaranty fund.

See a related post here: How Can I Tell If My Money Market Fund Is Safe? Read the full article

As recently as the end of September, many European commentators were describing the current subprime-ignited financial crisis as evidence of American arrogance. Now, however, the other shoe has dropped, and credit-related sickness is evident in the European banking system too. Read the full article

For the last couple of years, Fidelity Investments has surveyed parents of children under the age of 18 about their plans for future college expenses. The most recent survey of about 3,000 parents, reported in this news release from Fidelity, looks at anticipated college costs and family resources available to pay for college. This year’s survey found that 62 percent are counting on student loans to help cover the cost of their children’s college education. Read the full article

Dimensional Financial Advisors is a passive-investment-oriented investment firm closely associated with Eugene Fama, 2003 Economics Nobel Laureate and father of the efficient market hypothesis. Today they sent me a link to a very nice presentation by their vice president, Weston Wellington.

The presentation, “Is It Different This Time?” runs about 18 minutes long and puts the present stock market gyrations into a historical perspective by reviewing some of the “bear markets” of the last 50 years. It’s not overly jargon-filled and should be pretty accessible.

The present market downturn reflects concerns about the non-availability of credit, the extent and duration of the housing market downturn, and the fact that we are probably in a recession. But in the end, if you’re investing for the long term, the question you must to ask is whether you think the economy is going to completely collapse. If not, you should hang on, assuming you’re holding a diversified portfolio that fits your tolerance for risk.

The presentation is marked for general use, so I don’t think I’m breaking any rules by sharing it. Read the full article

Congress voted down the Troubled Assets Relief Program (“TARP”) legislation, much to the chagrin of the financial markets. At the moment, the markets continue to be in distress, despite a “dead cat bounce” in stocks today. What should you be doing in terms of your household finances? Read the full article

Unless you live in Lake Wobegon, it hasn't been a quiet month:

• Fannie Mae and Freddie Mac are in federal conservatorship
• Merrill Lynch is now part of Bank of America
• Lehman Brothers Holdings filed for Chapter 11; its assets have been purchased by Barclay's PLC
• The two investment banking giants left standing, Goldman Sachs and Morgan Stanley, have been converted to bank holding companies
• AIG has received an infusion $85 billion from the Federal Reserve in return for a 79.9% ownership position
• Washington Mutual became the 13th bank failure of the year (and the largest bank failure in U.S. history); the bank's assets have been sold to J.P. Morgan Chase

The financial markets seem to be taking a breather after last week’s roller-coaster rides. We’re all digesting the latest news of short-selling restrictions and a $700 Billion stabilization plan for mortgage-related debt. But now is also a good time to step back and think more broadly. Read the full article

This Monday, something very unusual happened: a money market fund began trading its shares at 97 cents, instead of a dollar.

Reserve Primary Money Fund (RPFXX) was forced to write down three quarters of a billion dollars of Lehman Brothers debt as a consequence of the Lehman bankruptcy. Even though the debt may eventually be partially paid through the bankruptcy process, as a current obligation the debt has no value. Thus the fund’s share value had to drop, forcing the fund to “break the buck.” On Monday and Tuesday, investors in the fund pulled out $27 billion in response.

FT Alphaville reports that one of Putnam Investments’ institutional money market funds has decided to close and liquidate itself, not because it needs to “break the buck” now, but because of concern that a future run on the fund might force a fire sale of its assets.

Money market funds are normally thought of as stable places to put cash, but even money market funds are not guaranteed not to lose money. How can you judge how safe your money market funds are? Read the full article

As the graph below from BlogPulse.com shows, the announcement of the Fannie-Freddie takeover generated a burst of activity in the blogosphere.



In perusing some of the posts on the topic, it looks as though a lot of people are upset at what appears to them to be a bailout. In fact, it is a bailout, but at this point in the game, I think the U.S. Treasury really had very little choice. Read the full article

Finally, I've gotten around to establishing a blog roll for web logs related to things I write about here. I'm inaugurating it with three selections and I thought I’d let my readers know a bit about each one. Read the full article

The Treasury Department's much-anticipated plan to prop up Fannie Mae and Freddie Mac has finally been (mostly) revealed. The move should help a bit to keep mortgage markets afloat, but if you're not sure what all the fuss is about, this short primer should help. Read the full article

The latest version of the Case Schiller Home Price Index, updated through the end of the second quarter, shows a continued decline in the broad housing market. Prices remain down versus 2007, but for April, May, and June, there were small increases in the Boston housing price data. At the end of last month, after a second month of small increases, the Boston Globe ran an article suggesting that local housing market may have turned the corner. Is three-month uptick enough to be confident that the end of the bust is in sight? Read the full article

The possibility of further bank failures continues to hover in the air. In a June post I explained that under the right circumstances a depositor can have funds in excess of $100,000 insured by the FDIC in a single bank. For cash-holders with serious assets, there is at least one other way to obtain FDIC insurance for really large sums. Read the full article

For the fifth year in a row, Massachusetts will have a “sales tax holiday” on purchases of many items costing less than $2,500 on August 16-17. The Commonwealth joins fifteen other states and the District of Columbia in this attempt to boost in-state retail sales by exempting purchases from the 5% state sales tax. Read the full article

Jobfox.com, a site that helps match professionals with potential employers, generates a monthly list of the 25 professions most in demand. The site recently released an analysis of twenty professions that have remained in high demand despite the recent slowdown in the economy. Read the full article

Yesterday the Labor Department released updated regional figures for inflation from June 2007 to June 2008. Nationally, the CPI-U, which measures inflation for all urban consumers, was up 5%. Read the full article

If you have a longer-term CD that is now coming to maturity, you've probably been disappointed to discover how much interest rates have dropped since you last locked in your CD rate. What are the best options for those with short-to-medium-term cash to invest these days? Read the full article

Well, this is a bit creepy. Earlier today I wrote about American Express' arrangement last year with IndyMac Bankcorp and another lender to let mortgage holders make their monthly payments with credit cards. I made a point of saying that IndyMac was still in business. Oopsie - they were in business yesterday, but not today. Read the full article

It wasn't that long ago that mortgage lenders were eager to extend credit lines to anyone with a pulse and a property title. Alas, the industry's mood has turned with the swooning of housing prices: frugal caution has displaced wild abandon. Many homeowners, unaware that their lines of credit could be curtailed summarily, have been unpleasantly surprised. Read the full article

Wall Street is licking its wounds this weekend, no doubt, after being pretty badly clawed by what is almost certainly a bear market. In the coming days you’ll see all sorts of articles offering you free advice, e.g. identifying “Bear Market Stocks You Should Buy Now,” providing lists of the mutual funds into which you should put all your money, and so forth. What should you do? Read the full article

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