Confidence Restored in Our Financial Outlook?

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The insurance amount was raised to $250, 000 and will be in effect till December 31, 2009 unless renewed by the FDIC. A lot of people now have a little bit of confidence restored as they are sure that for the moment their bank deposits have been guaranteed by the Federal government as a result of the new bill that President Bush just signed. Not everyone is happy with the bill though. Some banks feel that this guarantee will make their customers unsure of their own banks finances and will force them to withdraw their deposits and put there in money market mutual funds.

Since the age of the Depression, Americans have never been worried about their investments unlike now. Financial planners say that it is not up to the Federal Government alone to do something about it. It is time investors made a move too. The stock market has triggered different reactions from investors and if joining them at a time like this makes more sense, what is a better time to invest than during the recession?

With banks at the center of all the crisis madness, Americans are anxiously waiting for the bank bailout plan to work. Naturally, the impulse of most investors is to pack up and run, they have to do something so that they don’t lose their whole financial portfolio at the bottom of the market. Since the crisis, adding onto the already unemployed list of people, more people are out of work. Though most investors have sold their stock hoping not to take a huge loss, others are looking for good bargains and some stocks were clearly undervalued, so look up, the investors wil be back in no time at all.

This crisis has resulted in a blame game around the markets and the government. There is need for proper national debt management and proper national budget planning playing a bigger role. Therefore this crisis needs to be understood from a deeper and systemic level. Financial crises happen frequently and are attributed to the moral defects in a few of the culprits.

This crisis poses major challenges including insulating the real economy from chaos in the financial markets, getting the bad assets off the banks’ balance sheets, recapitalizing the banks and rekindling the investors’ spirits in risk-taking.

One obvious question is, “Is this about what we know or what we learn? From the fascism of the great Depression to the Stalinism of the World War II, what have we really learned in all the crises? Capitalism is a global system and no one is immune to its downside despite of the regulatory environment.

Can investors trust again? A broken heart needs time to heal and despite the consequences of the financial losses everyone is facing, the scars are not visible and only time will win the hearts of investors and spur the much needed healthy and prudent risk-taking. The government is the only agent that has the luxury and the cost of capital to allow it to warehouse the distressed assets to be held till maturity.

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