Congress finally passed the multibillion dollar bailout to provide liquidity for our fragile financial and banking system. While no one is happy that the American taxpayer is being forced to underwrite the excessive mistakes made by corporate executives who themselves raked in millions in incentive pay over the past several years, the alternative would likely have been even more painful. The remaining questions include, “Is the bailout enough?” And, “How well will it work?” First, I believe it will not be enough. This is a trillion dollar-plus problem that will only be exacerbated by poor execution by government officials. Does anyone remember Katrina? Or how about the Iraq war where billions of dollars remain unaccounted for? This program is on a massive scale never before attempted by our government. I expect long lines at the government teller window as corporations rush to unload toxic debt that continues to mount on their balance sheets. The government must decide who gets the money and on what terms. This will quickly erode into an inefficient fiasco.
- Go to cash. Often investors will simply throw in the towel and move all their money into money market accounts. Regular money market mutual funds were given a boost by the federal government last month when Treasury Secretary Henry Paulson agreed to fully back all money market funds deposits through September 19. This means transfers to money market funds after that date are not protected by the federal government. Under new rules this month, FDIC bank money market accounts are fully protected up to $250,000 through December 31 2009.
- Buy Treasuries. Treasury bills have long been considered the safest place to invest your money. As investors have rushed to transfer money to treasuries during this crisis, interest rates on treasuries have plummeted to below 1%, so while your money is safe, it’s not earning much of a return.
- Buy Blue Chip stocks. Investors who do want to remain invested will tend to move their money to the biggest and best companies in America. Names like Johnson & Johnson, Proctor & Gamble, Abbott Labs and Southern Company.