Word: cash
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...economists outside government believe that the real problem is that lots and lots of financial institutions are insolvent--their losses, if they actually recognized them, are enough to wipe out their capital reserves. If that's true it would make more sense for taxpayers to give them cash outright, and take a big ownership stake in return (with the idea of selling it off a few years down the road). The Swedish solution, they call it (and longtime readers of this blog know it was being discussed here long before anybody else in the U.S. was talking about...
...Hold More Cash This crazy ride may not be over. So the more cash you have in short-term securities like bank CDs, interest-bearing checking accounts, money-market mutual funds and Treasury bills, the better shape you'll be in to ride out a market slump and invest again when the economy stabilizes. Typically, a decent cash cushion is three to six months' worth of living expenses if you are working and 12 months' worth or more if you are retired. Double the cushion if you can. "Believe me," says William Jordan, president of the Sentinel Group, financial planners...
...even there's nuance even there. The amount you can expect from a top-yielding certificate of deposit has fallen from about 5.5% to 4.25% over the past year, according to Bankrate.com. On the surface that seems to indicate banks aren't that worried - if they really needed cash, wouldn't they up their rates to attract more money? Well, over the same period of time, the federal funds rate has been cut from 5.25% to 2% - a much wider margin. "Banks are hungry for deposits, and that's why yields haven't fallen all that much," says Bankrate...
...Wall Street is still a scary mess, but don't resort to putting your cash under the mattress...
...here too, Spain's regulators have encouraged sensible behavior. For years, banks have been required to put aside cash to cover expected future losses, not actual ones. The Bank of Spain "thought that in the good times it makes sense to build a cushion for the bad times," says Ramirez. So while Spain enters a downturn "a significant portion of the potential deterioration [for banks] will be covered by these provisions." There are no guarantees, of course, for Santander or anyone else, in today's parlous international environment. But for now, at least, Spain offers a lesson in prudence through...