The grim reality facing our financial markets has finally hit a low that even President Bush—who has a “let the market police itself” ideology—has decided it’s time to intervene. The cost to taxpayers is going to be enormous, possibly $500 billion. But for those hung up on this concept need to take a step back and look at the big picture. Our financial markets are facing its biggest crisis since the great depression and having our Government stay on the sidelines could put us into a deep recession. The cost to taxpayers without any Government intervention would most likely be substantially greater and would hit each citizen directly, mostly to their portfolios.
While the details of the plan will be determined by Congress in the coming week, the proposed bailout mostly is developed around the Government purchasing mortgage backed securities from troubled financial institutions in an attempt to keep them afloat. But there is one proposed provision that I find extremely beneficial to the everyday consumer and that is insurance on money-market funds.
Money-market funds basically serve as savings accounts (which are federal insured) but are actually comprised of investments, hence the word “funds.” In wake of the complete dry up of the auction rate securities market, many investors are left wondering if money-market funds will be the next failed investment product. These worries may be overblown, but are well warranted. Our markets have seen a substantial amount of money being pulled out of money-market funds during the past week because investors were acting on their fears. If money-market funds were to dry up, the effect on our economy and to individuals, is hard to fathom. I’m very pleased to see the proposed bailout to include Federal insurance for money-market funds; this action will protect individual consumers in addition to restoring confidence in the markets.
We will continue to eye the bailout as it works its way through Congress next week and will report any specifics that will directly affect everyday consumers. $
