Personal Finance Blog By MoneyRates - February 2009

Gold investors have bid up the price of gold to over $1,000 an ounce after country-after-country around the world have lowered their benchmark interest rates, passed sweeping stimulus packages, and nationalized banks in an orchestrated effort to combat the global economic recession. Gold, the fallback position for investors for centuries in times of turmoil, has suddenly become perceived as a safe-haven investment drawing in new buyers globally. The gold bullion industry which is quick to self-promote and issue dire warnings about economic chaos will likely continue to prosper as many market analysts are forecasting that gold could continue to rise in price as demand increases. What was once the domain of late-night infomercials is now becoming mainstream advertising in print, online, and over the radio airwaves as gold promoters attempt to find new customers.

American facing 30%, 40%, or even 50% losses in 401K retirements plans, profit-sharing plans, and college savings plans may be justifiably tempted by the gold bug. But just like any commodity, gold is subject to wild price swings. Just last year (in March) the price of gold skyrocketed to over $1,000 an ounce - only to fall back again in the summer to $650 an ounce. So while many gold promoters may call buying gold coins a "hedge" or a "safe haven", in actuality it is not that much different than buying a volatile stock which is very sensitive to the global economy. Selling gold is a huge industry that feeds off of paranoia and fear, two emotions which are easily invoked today.

We sometimes picture gold as this super-safe commodity destined to survive the ages and guarded carefully by our military....

However, the reality is that gold is a highly volatile investment that may be appropriate as a hedge in some portfolios, but should not be considered as an alternative to bank deposits like money market accounts, savings accounts, checking accounts, or certificates of deposit (CDs) which are backed by the FDIC to up to $250,000 per depositor. So despite those savings rates at 2% or 3% or those lousy returns from the stock market, consult with your financial advisor before catching the gold bug.

Is there a way that banks and Wall Street firms could be more profitable? Say profitable enough to pay more interest on certificates of deposit, increase stock values and not require federal assistance?

Here's a clue: Between 2004 and 2008 financial firms headquartered in New York City paid out bonuses worth $129.7 billion.

Mind you, this money was paid out for the short-term thinking and results which are now costing the federal government -- meaning you and me -- billions and trillions of dollars. No kidding, our potential costs under various bailout programs could amount to $9.7 trillion according to Bloomberg News.

What have the billions paid out on Wall Street bought us? For instance, imagine if we awarded $1 billion to the first medical researchers who found a cure for diabetes. While $1 billion is a lot of money, the reduced costs to our healthcare system would be many times larger. More importantly, a lot of people would lead far better lives.

The new national debate is going to concern value and what things are worth. How much should we pay for money placed in money market account or a CD, what's the right yield and rate? It's time that shareholders, depositors and investors reaped the rewards which flow from their assets and hard work -- and not disproportionately the folks who manage those assets.

For more information, see:

New York City Securities Industry Bonuses, Jan 28, 2009

U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs, Bloomberg News, February 9, 2009

I was reading the words of a nationally-syndicated columnist recently who was recommending several stocks. This was interesting stuff, I thought, including the suggestion that now is the time to buy shares in long established companies that pay good dividends.

But, actually, as I looked at the author's list I saw several companies that are indeed well-established and surely pay good dividends. They are also companies that have received money from the federal government in recent months, and there-in lies the rub.

I'm not a stockbroker or financial adviser, I have no idea what anyone should buy or not buy in terms of stocks and bonds. But I can read. And when I read the newly-minted "Financial Stability Plan" being offered by Treasury Secretary Geithner I saw something which should concern potential investors: The idea of relying on past dividends is no longer so sure, not only for economic reasons but also because the government wants to limit dividends in those cases where it has loaned money to banks and companies.

According to the Treasury's fact sheet: "Banks that receive exceptional assistance can only pay $0.01 quarterly. That presumption will be the same for firms that receive generally available capital unless the Treasury Department and their primary regulator approve more based on their assessment that it is consistent with reaching their capital planning objectives."

So if you're thinking that now is the time to buy stock because dividends and yields look good relative to prices -- and relative to CDs, IRAs and money market accounts -- then ask your stockbroker for more information, especially about the impact of any federal bailout loans.

Resource:

Financial Stability Plan, Feb 10, 2009

It has now been over a year since the Credit Cardholders' Bill of Rights Act was proposed by Carolyn Maloney, a Democrat Representative from New York. Although the bill had over 150 co-sponsors and was passed by the House of Representatives on September 23, 2008, the bill was never debated by the Senate and it is unclear if the Obama administration will make it a top priority. With the U.S. government spending billions of dollars daily in bailouts, reform, and tax relief, the Credit Cardholders' Bill of Rights is actually legislation that would be very cheap and effective reform for the U.S. taxpayer if passed. President Obama, who is faced with guiding an economy stuck in recession, could provide a non-stimulus boost to Americans by passing legislation to reform the credit card industry and prevent more Americans from being sucked into the credit card debt vortex.

The Credit Cardholders Bill of Rights is designed to greatly expand the rights of credit card customers under the Truth and Lending Act by preventing the predatory practices of many credit companies and their unfair fees and increases in interest rates. The amended version of the bill that the House passed in the fall prescribed the following rules regarding interest rate increases:

The bill would effectively end the abrupt increases in financing charges that credit companies have used to ambush cardholders who were not paying attention to their statement or happened to mail their monthly payments just a few days late.

House Resolution 5244 As Originally Proposed:

-Protects cardholders against arbitrary interest rate increases

-Prevents cardholders who pay on time from being unfairly penalized

-Protects cardholders from due date gimmicks

-Shields cardholders from misleading terms

-Empowers cardholders to set limits on their credit

-Requires card companies to fairly credit and allocate payments

-Prohibits card companies from imposing excessive fees on cardholders

-Prevents card companies from giving subprime credit cards to people who can’t afford them

-Requires Congress to provide better oversight of the credit card industry

-Contains NO rate caps, fee setting, or price controls

Read the complete resolution here or contact your Congressman with questions and comments.

Since last summer's high-profile bank failures of multi-billion dollar, IndyMac Bank and Washington Mutual Bank, most of the banks which have closed have been smaller in size and generally banks serving local markets. The FDIC has closed four more smaller-sized banks last week as the pace of bank failures in the United States has begun to accelerate. The FDIC was able to enter into purchase and assumption agreements with four new banks to assume the deposits and reopen the branches on Tuesday of the bank that were closed. Customers of the clsoed banks will have immediate access to their funds according to the FDIC. The banks which have joined the list of failed institutions are:

Pinnacle Bank, Beaverton, OR which will have their deposits assumed by Washington Trust Bank of Spokane, Washington

Corn Belt Bank and Trust Company Pittsfield, IL which will have their deposits assumed by The Carlinville National Bank of Carlinville, Illinois

Riverside Bank of the Gulf Coast, Cape Coral, FL which will have their deposits assumed by TIB Bank of Naples, Florida

Sherman County Bank, Loup City, NE which will have their deposits assumed by Heritage Bank of Wood River, Nebraska

For bank customers with questions regarding FDIC insurance and the temporary insurance limit increase to $250,000, a public service announcement from the FDIC is available.

Suzy Orman on FDIC EDIE Tool

The EDIE (Electronic Deposit Insurance Estimator) tool that financial expert Suzy Orman and FDIC Chairman Sheila Bair have been promoting is available at the FDIC website.