Huge stocks losses in the past week eclipsed former records
as a sell off on Monday pushed the DOW index down
by over 777 points. This is the largest drop in one day for
the DOW in its entire history. The S&P and Nasdaq also lost
more than 7% of their values during Monday’s tumultuous
session. The trigger for this sell off was the House’s failure
to pass a bailout package for the struggling US financial
system. The global economy is certainly suffering as a
result and several more banks fell this week.

Washington Mutual was bought by JP Morgan and Wachovia
was absorbed by Citi Group this week. Both WAMU and
Wachovia were prominent promoters of negative amortization
loans… so their portfolios were susceptible to huge
losses. You can expect more bank failures unless sweeping
legislation passes the house in the near future.

The senate passed the “bailout” plan, (which some call
the “rescue” plan) last night by a large margin. In spite of
this the DOW is down today as I write this by more than
260 points. The house will still need to pass this bill for it to
be made law. Calls for updated regulation of the banking
and investment sectors are increasing as politicians point
fingers and search for ways to ensure this crisis does not
repeat itself. With the conversion last week of major investment
firms like Merrill Lynch to banks, the era of investment
banking on Wall Street ended with a whimper.

How does this affect you? Well, the most pressing challenge
is that the credit markets are essentially frozen right
now. This makes it harder to get loans for any reason.
Although our Fed and the European equivalents are pouring
billions into the banking industry in attempts to get
banks to lend again, it is still uncertain that banks will
begin lending again at reasonable rates. The premiums to
get loans right now are steep, which translates to higher
interest rates for all types of credit, including auto, real
estate and college lending. The LIBOR indexes, upon which
many ARM loans are based, jumped this week… another
unsettling bit of news. The House will most likely pass the
Senate bill. One piece of the bill increases FDIC coverage
to $250,000 to safeguard people’s savings, and other sections
offer ways to ensure that CEOs and banks needing aid
eventually pay back tax payers. These welcome changes
should help to ease the current crisis.