Sep 15, 2008 8:23 pm US/Eastern
What Lehman Brothers Bankruptcy Means To You
MIAMI (CBS4) ―
The collapse of Lehman Brothers has left people wondering "What does this mean for me?" Stock prices are lower as investors react to the dramatic news of the bankruptcy for Lehman Brothers and the sale of Merrill Lynch to Bank of America.
Lehman Brothers is a huge Wall Street banker, the country's fourth largest financial institution. The Chapter 11 bankruptcy filing will trickle down to the entire investment community. However, it's important to remember that it's not a liquidation, it's a reorganization.
In Washington, the Securities and Exchange Commission said its examiners will remain at the offices of Lehman Brothers to oversee an "orderly transfer" of assets in retail customer accounts to one or more brokerage firms that are insured by the Securities Investor Protection Corp. The SEC also said it is coordinating with overseas regulators to protect Lehman's customers and to maintain orderly markets.
Under new management, it will focus on consolidating its holdings and cutting its losses.
The takeover deal of investment giant Merrill-Lynch, means Bank of America now becomes a new major player in the economics of Wall Street's financial giants.
But what does it all mean to the rest of us, our bank accounts, investments, and our 401K plans?
When discussing investments, whenever Wall Street is down, 401K's typically lose money. In the long run, 401K's as blended investments should normally go up and down in value only moderately during Wall Street's normal cycles.
If you want to invest, consider how much of it you might want to save in the bank in order to shield some of your money from stock market fluctuations.
Is now the time to get out of the stock market? Some financial advisors say personal investments are like a long-term marathon, not a short sprint. If your portfolio has taken a hit because of the Lehman news, it's not time to panic and take your money out of the market.
For the past several months, after the markets dropped, bargain hunters often jumped back into the market betting that the U.S. economy would still make them money.
If you have a brokerage account with Lehman, you will be protected up to $500,000 by the Securities Investors Protection Corp.
Monday the SIPC, which maintains a special reserve fund authorized by Congress to help investors at failed brokerage firms, issued the following statement.
"SIPC has not initiated a liquidation proceeding against the broker-dealer Lehman Brothers Inc. and we do not currently anticipate doing so. As of this morning, it appears that all customer cash, stocks and other securities are accounted for.
It is important to understand that the holdings of broker-dealer Lehman Brothers Inc., would not be directly impacted by a bankruptcy filing at the separate entity Lehman Brothers Holdings, Inc.
Should the situation at Lehman Brothers Inc. change in some material way not now anticipated by SIPC and regulators, we will, of course, intervene as necessary to protect the cash and securities of customers. However, I want to underscore that such an action is considered unlikely at this time.
SIPC is working closely with the U.S. Securities and Exchange Commission (SEC) to monitor the situation at Lehman Brothers Inc. SIPC President Stephen Harbeck
If you're worried in general about the health of your bank, make sure your bank is FDIC-insured. As an individual, your deposits are insured up to $100,000 in an FDIC-insured bank. This includes your savings, your checking, any certificate of deposits (CDs) and money market accounts. Joint accounts can be insured up to $200,000. IRAs and Keoghs, retirement plans for people who are self-employed, can be insured up to $250,000.
The bottom line, it's important to remember not to panic and stay informed.
Seeking to calm frazzled markets, President Bush assured the country his administration is "working to reduce disruptions and minimize the impact of these developments on the broader economy."
In addition, the Federal Reserve could do an about face and once again cut a key interest rate this week or possibly later this year, economists said Monday. Just a few days ago, a rate cut appeared largely off the table. Now it has emerged as a possibility as the Fed prepares to meet Tuesday. A growing number of economists and investors now believe there is a chance the Fed could reduce its rate by one-quarter or even a bolder one-half percentage point on Tuesday.
Were the Fed to slice its key rate, the prime lending rate for millions of consumers and businesses, now at 5 percent, would drop by a corresponding amount. The prime rate applies to certain credit cards, home equity lines of credit and other loans. The Fed's key rate and the prime rate are at four-year lows.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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