Personal Finance Advice

The banking system is going through some rough times right now.  Large losses from the sub prime lending disaster has seen some of the world’s largest financial institutions brought to their knees.

Pillars of the financial community, Merrill Lynch and Citigroup have seen their stock price plummet, losing basically half their market value over the course of a month as frightened investors run for the hills.  And they’re not the only ones, the entire financial sector is feeling the pain, the possible lone exception is the insurance segment which by it’s very nature is risk averse.

The troubles in the banking system has also had a large effect on the rest of the stock market as well.  Even with the housing slump, it was shaping up to be a pretty good year for the market up until the point banks started reporting their huge losses.  The month of November has seen all of those positive gains go up in smoke.

And it’s not going to get better anytime soon.  No matter how much the Federal Reserve lowers interest rates, things aren’t going back to what they used to be.  Let’s say for instance that the Fed lowers rates to 1% again like it was a few years ago, which by the way has almost no chance in hell of happening, banks aren’t going to lend like they did when this whole mess started.  At least one would hope not.

Money is going to be tight for awhile, plain and simple.  The days of free and easy lending are over.  It’ll be like it was after the Junk Bonds and Savings & Loans scandals of the 1980’s.  Although I’m not so sure the government will be able to bail out the banking system this time.

The financial sector is the grease that keeps the economy moving and with all the trouble it’s having right now I honestly don’t see how we can avoid the recession that many Americans feel is just around the corner.  Hopefully banks will learn something from all this and we end up with a stronger and more stable banking system, that is until the next scandal.