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YLG_IHB

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<p>I know this topic has been posted on exhaustively, but I am getting really concerned about the banks. I don't know much about finance, but I see story after story of write-down, massive losses at the banks (in the billions) and disaster seems to be pending. Ultimately, the housing bubble was about banks lending their own and investor's money to people who could not afford the loan, based on collateral that was being bid up by other people doing the same thing. So a huge transfer of money took place (god knows where it all ended up), and investors and banks will lose probably half of what they loaned out. When I see this recent crap with the monoline insurers I realise we are in serious trouble as a nation. Insurance companies basically insuring all these bogus transactions, and collecting fees (driving up their own stock prices etc).</p>

<p>I am becoming very certain that a lot of big banks will fold over the next year or so. Citibank, Bear Sterns, Merrill Lynch etc all seem to be destined for the fireplace. These banks made their incomes by borrowing, lending, wheeling and dealing. There is not a lot of high margin in that, like selling software or the like. They can't sustain these billions of losses forever. Foreign investors may buy them out to some extent, but that is a risky proposition (ie hoping that Saudi Arabia considers a debt ridden disaster a good buy). Foreigners, including middle Easterners are not stupid.</p>

<p>I may be a doomsayer, but people were calling me that years ago when I predicted this housing bubble couldn't last, and even before that I knew with certainty that the dot com nonsense would crash. If something doesn't make any sense, then it will end.</p>

<p>My concern, selfishly, is what to do with the housing money I've saved for my downpayment. I use ING at the moment, but I really fear the worst for all banks. They are so intertwined, and whereas one bank might have taken the risk of lending sub-prime, the other bank would lend to the first bank as a low risk (lending money to Merrill Lynch didn't seem too risky a year ago). This is basically what the credit crunch is about now. But how do I stay clear of this? I have no doubt that deposited money and CDs will be gladly used up by these rotten corporations. I see that ING has some whispers of write-downs now, even though they stated that their sub-prime was "good quality" (whatever that means). </p>

<p>I don't care about the interest I will lose and I have no inclination to invest in the stock market or mutual funds (even large corporations were buying up CDOs as a safe bet). I am almost considering buying a safe and keeping cash at home. That sounds crazy, and I probably wouldn't do it, since I can just imagine getting robbed. But what to do? I would hate to have all my years of savings evaporate into thin air. The usual response is FDIC insurance, but I don't even trust that. How much money can the US government get together in a short time to pay off lost savings across the country? Look at the hoo-hah about sending us a lousy $600 check. I'm talking a lot more money than that. I guess FDIC is the best option for now... but I truly wish there were others. Maybe buy a house? </p>
 
I don't think FDIC insurance could absorb the collapse of banks at a large scale. Anybody know how much they can cover? Worst case? Time and time again we see that the insurer ends up crashing and burning as well. What guarantees are there?
 
<p>To me, buying gold is putting your money on the gold at the roulette table (as opposed to red or black). I have no control over the outcome of the spinning wheel. Can anyone say with certainty that the price of gold will not plummet? I don't want to be at the roulette table at all.. </p>
 
<p><em>"To me, buying gold is putting your money on the gold at the roulette table"</em></p>

<p>If this is what you think about buying gold, you should definitely <strong>NOT</strong> buy gold.</p>

<p><em>"Can anyone say with certainty that the price of gold will not plummet?"</em></p>

<p>Not me. I can not say anything with certainty as regards any investment, other than all investments incur risk. And if you think you have put your money into some asset which does not expose your money to risk, you are in denial and that denial will probably cost you.</p>

<p>IMO, the interest on CDs does not overcome the loss from inflation, and there is huge risk in anything insured by FDIC.</p>

<p> </p>
 
<p>YLG, <a target="_blank" href="http://www.treasurydirect.gov/">T-bills</a>?</p>

<p>If the gov't defaults on these, you'll have a lot more to worry about than not being able to buy a house. </p>
 
<p>Okay, safety.</p>

<p>Is it safe to lose asset value? In essence one is paying the government to hold one's assets. Is that safe? Maybe, I dunno.</p>

<p>I think YLG would be safer by doing much more research into asset value, risk, and return, and trusting his own brain rather than a bank or the federal government. That is not a put down, YLG. I truly think you will find safety and confidence in your own wisdom based on research.</p>
 
<p>Yeah, gold can go down, but so can everything else. We have a tiny bit of gold and some silver, as not too much and a bit of cash in the house. this is just so if the banks close for a few days or weeks, like GDI, we will be able to eat and pay water and electric. If the banks close and stay closed, you will shortly be looking at civil war. The chances of that are very very low I think. I rather hope all these delaying actions work, so the shrub wont be prez any more when the $hit hits the fan. </p>

<p>Having eggs in different baskets is good, so why not some gold, some silver or platinum, some cash in the Sealey, and some t-bills.</p>

<p>Actually, you don't want to be paying for a house if the banks fold, because how will you make mtg payments?</p>

<p>I think your concerns are real, because they are the same is mine; but my house is paid off, so the issue of having somewhere to live is not a problem.</p>
 
You know, with the amount of debt that the US owes, I'm pretty sure that there will be some major inflation in the very near future. [Just look at inflated our housing cost.] Inflation is actually good for the US because it lowers the value of our debt. I agree with the buying gold idea. I think cash is about to be devalued within the next few years.
 
Have you considered putting the money in a credit union? Due to their stricter lending requirements, their tendency to sell their credit card portfolios to MBNA instead of issuing the cards themselves, and the strict limitations on investments that they are allowed to make, they have significantly less exposure to the subprime mess and the pending credit card mess. They have the same exact $100,000 insurance coverage, but it is through the NCUSIF which is a separate fund from FDIC insurance. So if a number of banks go belly-up and drain the FDIC insurance fund, that won't affect the NCUSIF insurance pool. I just transferred a chunk of money from ING to a 4.9% CD at Alliant Credit Union. Other credit union deals can also be found athttp://www.bankdeals.blogspot.com/
 
<p>DR - good idea about the credit unions. I will look into it. I don't know much about t-bills, but will research them too.</p>

<p>To respond to some of the other points - </p>

<p>1. Yes, my global purchasing power in dollars will likely plummet. But I would not buy Euros now either. The currency market could turn on a dime. As with investing (incl gold), there are too many factors beyond my control and knowledge. Investing has become second nature to us - look the 401Ks, the ONLY source of retirement planning/gambling most of us have. But we forget it is just a big casino, where the rules are not clear, and some players have more cards than others.</p>

<p>2. Inflation... conventional advice is to invest your money in something that beats inflation. So inflation typically runs at say 3%, and we want to make sure we get a healthy 7% return. Run the numbers, compound blah blah, and get your retirement money all planned out. Nice mathematics, and it makes us feel good. But I say that inflation is not 3%, it is rather -3% to -5%. Housing is falling at 15% per year, and takes up 40% of my income. Food is certainly going up, as are gas and other essentials. But housing is the big one. I don't believe the government's definition of inflation. It is just repeated so often, that it starts to sound like the truth,</p>

<p>3. Diversify... another myth in my opinion. It appeals to our human sense of spreading our seed far and wide (lots of kids in the last centuries = safeguard that my DNA will live on). The financial side of the credit bubble was largely brought about by this myth - spread the risk through CDOs, far and wide, and the risk disappears? Uh, no.</p>

<p>I think there will be a paradigm shift when all is said and done. The house up the road from me is on the market at 30% less than the 2005 price. A little further down the street is a foreclosure. How can the banks possibly keep absorbing these losses? They can't, and a lot of banks will fold and drag even the good banks down (with my savings if I let them). It feels like a certainty.</p>
 
<p>Subprime Markdowns Reach U.S. Central, Credit Unions (Update2) </p>

<p>http://www.bloomberg.com/apps/news?pid=20601103&sid=a6VxzezfX8ew</p>
 
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