Today the VIX is up by 8 million. The VIX shows trading
volume, how many shares are changing hands, and is
called by some “the fear index”. The rise from yesterday’s
already high numbers shows that Wall Street investors
are very concerned about economic issues in the spotlight
right now. Yesterday’s losses of over 500 points on the
DOW alone meant that yesterday was the worst day in
trading since 9/11/01.

The Feds did not cut Federal Funds rates today. This is in
opposition to market expectations and may trigger another
sizable sell off today. As always, the Fed’s primary concern
is mitigating the effects of inflation, so for me this is not a
surprise.

As I write this the DOW’s initial reaction to the Fed’s decision
is a sell off and the Dow dropped by 70 points within
minutes of the news of the Fed’s decision. The market
wanted the cut, which helps businesses, but in my opinion
the Fed made the right call in holding for now. Other major
indexes are also falling. The falling S&P index, where most
financial stocks tracked, is being hit by the Fed’s decision
and concern about AIG, the largest insurer in the US. AIG
insures many bank owned assets, so its failure would
leave financial firms exposed to increased risks.

Bank of America is now the proud owner of Merrill Lynch
and $154 billion in toxic mortgage debt originated through
sub-prime loans. Merrill had purchased First Franklin, a
major sub prime lender, when it failed last year. This debt
amount equals 15% of the nation’s total sub prime debt.
Way to go B of A! Time will reveal whether this was a
very stupid move, or a brilliant one. And I’ll be watching
closely.

How does this affect you? Well now that Fannie and Freddie
are owned by the US Treasury rates for loans they can
handle (up to $729,750) are essentially unchanged from
yesterday. Fixed rate loans with no interest only feature
are by far the best deals in loan rates today and I suspect
this trend will continue as lenders shy from anything they
perceive as risk. The DOW has lost 25% of its value in the
past year making Marin real estate a better investment
comparatively. With most real estate locally (in Marin) still
holding strong value, it’s a good time to buy a home!