Anywhere you turn, you will see a story about banks and savings-and-loan giants failing. I do not know how many more banks have to fail until we see the chaos on Wall Street that the 1929 crash brought about, but people are panicking.
So, how does this all affect the average American? Sure, if you’re completely invested in one of the failing companies it is easy to see, but for someone who isn’t in the market but perhaps has a 401 (k) they may be worried about their financial future.
Because banks are playing defensively, they are doing whatever they can to protect their assets. This causes them to not want to produce any new loans, creating subprime loans and mortgages is what got most of these banks into this dire situation to begin with. Even student loans will be harder to receive, which could in itself become a disaster, because college tuition will not be going down any time soon (or ever). If a potential borrower does not have great or perfect credit, loans are and will be very hard to acquire.
When the crunch is over, though, many banks will be able to lend again to those with good credit, and those with great and perfect credit will be able to get their loans at better rates. The hardest part is waiting. It is hard to wait for a loan when you need a mode of transportation and can’t get a car loan though, as not everyone lives where there is a method of public transportation or a place close enough to anything to ride a bike.
If you’ve been working and deducting some of your paycheck into a 401 (k) for any length of time, the financial crisis is something to take a serious look at. According to financial adviser Jill Schlesinger in a CBS interview, you should not stop payroll deductions into your 401 (k) just because of a sudden drop in the market, rather now is the time to be putting more money into the fund. Russell Pearlman from SmartMoney magazine also says that investors shouldn’t pull all of their money out of the market and to not panic. She states, “As bad as things look today, they are just going to be a blip on the radar 10, 20 years from now.” As hard as it is to watch the stocks fall more every day, advisers and market analysts are saying to stick with it and that what is happening now could be the worst of it.
Not all news is doom and gloom however. Some of the brighter side of it is oil has fallen from $147 a barrel to under $70 in 3 months. When things start to shake up Wall Street, it appears that investors will begin looking for something more stable than what they are currently invested in (which probably lead to yesterday’s record jump in the price of an ounce of gold). The fall in oil definitely eases some of the financial burden facing the average consumer in the U.S. The lower oil prices will help ease inflation on all the goods that we buy.
Hopefully Russell Pearlman is right and we will all look back on what is going on now and say it is a blip. We can also hope that the worst of it is over. However you look at what is happening on Wall Street, the biggest thing to do is wait.