Business

BOSTON (WBZ) ― Financial experts David Caruso and Michael Carter and political analyst Jon Keller joined us for a live chat on wbztv.com, answering viewers' questions about their personal finances, the struggling economy and the political role in the bailout.

Cathy: Does any of our lawmakers realize that there are families out there trying to decide between food and paying a bill? Do they know that more people are homeless now because they can't pay their bills? Do they realize that people like me who only have one income are living paycheck to paycheck?
Jon_Keller: Cathy...to varying degrees, yes, they realize it, but too many of them on both sides of the aisle have let ideology and partisanship and personal ambition deter them from thinking through and doing the right thing for the common good.

Lou_Ann: If your bank fails how long will it take to get your money and how do you get it? Is it covered by FDIC or the government?
David_Caruso: It's usually pretty quick as the FDIC tends to make the announcements on Friday and open the bank again on Saturday or MOnday with a new sign on the door.
David_Caruso: So it tends to be business as usual with many times the same people working there until things are straightened out.
David_Caruso: If there is major fraud and it's a surprise then that can take longer.

Jonathan: It seems every time the government gets involved in politics it makes things worse. Wouldn't the best option be to simply do nothing and let the Invisible Hand do its thing and correct the market on its own?
Jon_Keller: There are certain things that government does that can't be realistically duplicated by the private sector; running the military, for instance. Both parties in Washington felt that government-subsidized entities like Freddie Mac and Fannie Mae could subsidize mortgages that the private sector couldn't - or wouldn't - take on, and that may be true. Sadly for all of us, politics and greed overwhelmed common sense and sound economic policy, and here we are.

Donna: I have $32,000.00 at a Credit Union in an IRA. I am 48 y/o and disabled. Do you feel that my money is safe or should I take it out?
David_Caruso: Yes it's safe. Sometimes it feels like the movie Marathon Man when Dustin Hoffman is being drilled by Sir Laurence Olivier. It's not safe then.
David_Caruso: If you have over $100,000 then spread it around but with the number you gave me it's save to go to the bank & credit union dentist.

Jack: What's more important??? Restoring the nations' economic mess or the concern of our congressional leaders that they need more time to return home to campaign for their own 'jobs'? I get the impression our country's best interest was not the major issue.
Jon_Keller: No argument here. In fact, the way they voted yesterday on the bailout bill was clearly tied in many cases to their own political hides. Check out this line for the gory details.

Thomas: In view of the devastating turn of events today, I am wondering why the chairman of the Financial Services Committee (Barney Frank) has not been put on the carpet and questioned as to what steps had been taken to mitigate the effects of these banks collapsing. It is well known that he and his cohorts have pressured banks into accepting these questionable mortgage loans.
Jon_Keller: Catch my report at 11pm tonight on this very subject...we're putting Cong. Frank through the Spin-O-Meter.

Michael: A lot of people seem to blame the Republicans for bank de-regulation. I'm curious to know exactly who voted for de-regulation in the 90s. Someone told me that a large number of democratic legislators also voted in favor of de-regulating the banking industry. Is this true?
Jon_Keller: Yes, but there's no question the GOP has championed deregulation for many years. Look, this was a bi-partisan failure of vision, integrity and competence. Anyone who tells you differently is blowing smoke.

Kim: What is the advantage of bailing out Wall Street instead of Main Street? Wouldn't it be cheaper to send Americans $$ to spend on the things they need, like heat and food?
Michael_Carter: Giving the money to citizens only helps increase spending, but this is the worst financial crisis since the 1930s. We need stronger policy medicine to solve the problem.

Cheryl: I heard Nancy Pelosi on the news telling Wall Street 'The party is over!' So I'm curious? WHERE has Nancy been all these years the PARTY has been going on?
David_Caruso: Shuttling between her fancy DC office, her fancy San Francisco office, her multi-million-dollar homes, the lavish high-roller spa she and her husband own in Napa Valley, and the lounge of her taxpayer-funded jet.

Tricia: I am getting married this November 1st. My fiance and I were going to save some money up over the next year and look to buy a new home. We are expecting to save about $15000. Will that be enough and is there any hope for us getting a mortgage?
David_Caruso: $15,000 isn't what it used to be but it should and could get you started. There are still special deals with less than 20% down which means you don't have to pay for extra insurance. If you can find one with 5-10% down as a first time buyer then that means you might be able to buy a little more home if your current income and job status qualify.
David_Caruso: So don't give up and keep that money in the bank or a short term bond fund as you don't want to lose that precious down payment on the American Dream.
David_Caruso: The rule of thumb for how much you can afford is when your monthly payment is 26-36% of your current income with some credit checks along the way. Get pre-qualified to find out where you stand and you can do that with most banks and mortgage companies.

Patricia: Why should the taxpayers bail out Wall Street when the taxpayers are getting deeper and deeper in debt? I am also sorry but people who bought homes they had no right buying at such high prices made stupid investments. So why should other people who can not afford their own bills pay for their stupidity?
Michael_Carter: We're not bailing out Wall Street. The gov't is attempting to overcome the worst crisis of confidence in major financial institutions since the 1930s.
Michael_Carter: The money that the Treasury is spending is going to be borrowed. Your taxes will not go up immediately. The Treasury will be acquiring assets that in this climate of fear are undervalued - and can reasonably be expected to rise in value over the next couple years.
Claudia: Why should we trust that the FDIC will be able to insure our deposits?
David_Caruso: Fortunately there is no one in history who had less than the bank limits (currently 100K per account)that ever lost money. So the government may not be good at a lot of things but having it's full faith and credit is why investors around the world buy all our bonds.
David_Caruso: You're covered!

Tim: I tried to re-finance my car loan to decrease my payment and they told me I can't afford it. This doesn't make any sense? (I am affording the higher payment currently)
Michael_Carter: Tim - the banks have tightened their lending standards since you got your original loan. They've tightened them a lot. In this crisis of confidence they are having trouble raising money to expand their loan portfolio and they are becoming increasingly selective.

Ralph: If the problem for the large investment houses is bad loans should we not be directing the government's resources directly at solving the foreclosure problem? Everyone needs a place to live and even people losing their home will eventually pay rent. Should we not focus on recasting their loans by lowering their principle, lengthen their terms, lowering their interest rates and perhaps sharing their equity in the future when they sell?
Michael_Carter: Part of the bailout plan involves the Treasury in restructuring some of the loans they'll be purchasing from financial institutions.

253CapeCod: To all: How and Why did the government let this happen? don't they have "professionals" who tell the risks? I have never been late on any payment (house/car/personal loan) and now I have lost ALL trust.
Jon_Keller: I don't blame you. Yes, they have access to professional advice, but they tend to filer it through their own personal political prism.

Carol: I have an IRA with about 50k with Charles Schwab and I am putting 100.00\month into a Roth IRA with Vanguard that has only about 3k. Do I need to withdraw? Do I need to do anything?
David_Caruso: Don't even think about it!
David_Caruso: This is for retirement and leaving things alone until you reach that retirement date and golden watch is the name of the game. Like life, time heals all and keep putting that money in and hold your nose & eyes as you hear the bad news. Remember, the markets are down and the objective is to buy low and sell high and that's what you'll be doing, in particular if you have a 20+ year time frame.
David_Caruso: Keep up the good work and check your allocation though to make sure you're covering all the bases.

Caudia: Why isn't the government consulting with economic experts who have no stake in politics? Maybe there's a better way!
Jon_Keller: I hear you, but you could get 100 economists in a room and get 100 different analysis. That's why we have political "leaders," to get the best advice they can and then make a decision. Too bad Washington didn't do that sooner

Kris: How stable are stable value funds in your 401 K if you're close to retirement?
David_Caruso: Be careful because save means lower returns. Stable funds have averaged about 6% over the years they have been around but stocks have averaged almost twice that at around 12%. So if you want a lower standard of living in retirement then stable will get you there. I think a better approach would be to take what you think you'll need in this account over the next 5 years and put that in the stable account and you'll be covered over the next 5 years without concern. That will give you a chance to ride a 5 year wave in the markets that makes the ride a little easier than the last year has been. So find the right mix and know the downside of being too safe. If you can, ask your company or your mutual fund company to give you some asset allocation suggestions by filling in a risk questionnaire.
David_Caruso: Remember again the price of safe can sometimes not keep pace with inflation.

Phil_1: I think that there is too much fear mongering. I could not believe that legislators said that companies borrow to meet payroll. I've worked for more than 30 years in accounting. I never saw that. A company who borrows for payroll is a company who is not going to be here in the long run. Shouldn't we be more critical about the things that legislators say? Is this fear mongering?
Jon_Keller: A very good question. This whole mess is complicated by its closeness to the election. Everybody is pandering like crazy. Frankly,I feel as if we in the media need to also be very careful not to just repeat everything they say uncritically.

Chris: Why aren't the politicians held accountable to the ineptness in Washington? The bailout vote is the latest, great example. Their games/egos are costing the US billions, impacting our economy, and security.
Michael_Carter: The stock market sent a very clear message to the politicians yesterday. Reports from Washington today suggest a lot of them heard that message and realized the importance of a plan to remove illiquid, hard-to-value assets from financial institution balance sheets in order to restore investor confidence in those institutions.

Phil_1: Everyone suspected that the markets would rebound today. Why isn't it a good idea to wait to see what happens? Yesterday may have seen the largest point drop but it wasn't the largest percentage drop. It wasn't exactly the end of the world as we know it. The drop was bad but it will rebound. I think that rather than believing the president, the secretary of treasury and the chairman of the federal reserve, we should look at this situation with more independence. These are the people who watched on the sidelines as we went into this mess. These are the people who say that the economy is fundamentally sound. I don't necessarily trust them. I'd like to see other proposals. I'd like to take more time. Why not?
Michael_Carter: Phil - a large part of the rebound today was due to signs from Washington that progress on a rescue package was being made. This rally was more than just buying on a dip.
Honey: If you have money in a troubled bank, as Sovereign, would it be best to withdraw it?
Michael_Carter: Sovereign announced a new CEO today and their stock jumped 85%. More generally, if you have less than $100,000 in a bank - whether checking, savings or CDs - the FDIC completely insures your money.
Michael_Carter: Additionally the FDIC applied today for authorization to raise that limit to $250,000.

deja_1: with this high volatility sometimes I get the feeling I'm being played for a sucker by wall street. Do you think it is possible there is major manipulation going on
David_Caruso: It sure does feel that way sometimes but I don't think so here. In the stock market, for every buyer there is a seller and that means a contrary opinion is the norm and that leads to volatility.
David_Caruso: Certainly there are Hedge Funds and Commodity traders that seem to push prices in certain direction but the market usually is corrected when other smart folks say "the Emperor has no clothes" and down goes the price.
David_Caruso: There are people who have certainly done bad things but when the rest of Wall Street sees it, they are not reluctant to tell the principal of the stock school (the SEC).
David_Caruso: Wall Street doesn't like a rigged gave any more than you or I!

Cynthia: Why should my money be used to help the people who got us in this mess in the first place?
Michael_Carter: Because we'll be in an even worse mess if we can't restore faith in the soundness of our financial institutions.
Michael_Carter: The economy runs on credit and if even credit-worthy firms and households can't obtain it, because financial institutions can't raise funds themselves, we could easily find ourselves with double-digit unemployment.

bs: Aren't we jeopardizing our country by borrowing from China to finance some of our debt?
David_Caruso: That is sometimes the perception but not the fact. We need Foreign money to buy our stocks and bonds. Particulary as we have seen Sovereign Nations like Saudi Arabia & China helping finance our problems. We are in a new worldwide economic system and recently we have been exporting some of our financial problems overseas.
David_Caruso: I believe the new financial order is inter-dependence not independence. I think we're less likely to go to war with each other if we own the assets of each others country.

Phil_1: I find that Barack Obama really understands the root problem. Borrowing has become so important because our incomes are falling and our lifestyles haven't adjusted accordingly. I think that it is time to wring borrowing out of the economy. It will be painful but it has to happen. How can normal people afford Boston area housing. It is time for values to fall? Is it time for us to change the paradigm that we have lived with for so long? Is this the time to go through the pain so that our lifestyles meet our means?
Jon_Keller: Interesting point Phil. What is Obama saying that makes you think he's trying to lead us in that direction?
Michael_Carter: However, if the adjustment to higher savings rates can be made gradually rather than chaotically, we'll all be better off. This rescue package is an attempt to reduce the possibility of chaos.
Phil_1: I find that Barack Obama really understands the root problem. Borrowing has become so important because our incomes are falling and our lifestyles haven't adjusted accordingly. I think that it is time to wring borrowing out of the economy. It will be painful but it has to happen. How can normal people afford Boston area housing. It is time for values to fall? Is it time for us to change the paradigm that we have lived with for so long? Is this the time to go through the pain so that our lifestyles meet our means
Michael_Carter: Phil I don't disagree with your main point that many American households became over-leveraged and housing prices rose to unsustainable levels in recent years. Our persistent large trade deficits are a signal of inadequate saving nationwide.
Michael_Carter: However, if the adjustment to higher savings rates can be made gradually rather than chaotically, we'll all be better off. This rescue package is an attempt to reduce the possibility of chaos.
Steve: Who are we going to borrow the $700 Billion from, and what will the interest rate be?
Michael_Carter: We're going to be borrowing the $700 million by issuing U.S. Treasury notes and bonds. Based on buyers at recent auctions of Treasury securities, many of them will be bought by the Chinese government and investors in the Middle East. If they have confidence in the stability of the dollar, interest rates on these securities should not rise substantially above their average levels over the last ten years.

jakob: I do think that it should be pointed out that most of the "financial experts" base their advice of "just sit tight" on analysis of stock trends in the last 50-70 years, not based on what would have happened if someone had owned stocks during the great depression. WHAT IF .... it might not be the same as the last many decades have been. The market took MANY years to come back in the early 30's.
David_Caruso: You're right, the stock market isn't a picnic and there are many times that over long periods of time you didn't make money. That's why you have to diversify to all asset classes like the safer cash & bonds as well as real estate and commodities. Very rarely is everything falling at once so finding a mix you can live with is hard but necessary.
David_Caruso: There's an old saying that advisors tell there customers to buy, hold and shut up. That's not fun to be treated that way so find someone who explains this to you, gives you a long term performance history and tries to match your tolerance for risk. There are good folks and not so good folks so seek someone you connect with as there are a lot more good people out there than bad. They want your business, especially in tough times, which is when the money is made.
David_Caruso: In the last 6 bear markets we've had since I've been covering the markets since 1980, the point is made that this time it's different. Well it is different but the music certainly tends to rhyme. I certainly don't think we're in the same financial shape as the 30"s with 25% unemployment and a lot more safeguards including a Social security system.
David_Caruso: Time does heal and a good mix of assets gets you through the tough times despite the anxiety that you may feel There are literally no twenty year time frames where you would have not made money in stocks, including the 30's.
David_Caruso: Hope this helps as we have already just gone through "the lost decade" where the S&P 500 is not even where it was ten years ago. But if you have a solid mix then the odds are you made money in the last 10 years.

bs: Where does the money invested in Treasury bills go? Is this a good investment now?
Michael_Carter: The money raised in Treasury bill auctions covers the federal government's budget deficit. The alternative would be to raise taxes or to cut back on entitlements and other government spending programs.

DanW: Will homeowners have to ask for help? Will investors be eligible for bailouts too?
David_Caruso: With the new plan that flopped yesterday it had provisions for both the homeowner and those buying the mortgage bonds to seek relief. It's still got to be worked out and passed hopefully but a real key issue is to who is going to run the program and what is the oversight going to be. There will be a new guy in the Oval Office in January so I guess it's a "Good Luck with that" as it stands right now.
Poor_and_Tired_of_It: If the National debt is nearly $13 trillion, how will the bail out affect it?
Michael_Carter: Temporarily it will increase the national debt by the $700 billion the Treasury proposes to spend buying securities from our financial institutions. However, those securities have cash flows and may well rise in value if the rescue package works, which would help to bring the debt back down.

Dan_1: Hello... I was originally for the "Bailout" until I realized that as soon as interest rates go up again, those with adjustable rate mortgages that are just making it now will again begin to default on loans. Isn't the answer to include eliminating ARM's as part of the bailout so that we are not back in this position again?
Michael_Carter: If investor confidence in financial institutions is restored and if inflation pressures generally in the U.S. economy moderate, interest rates on ARMs should not increase.

Steve: I thought it was $700 Billion, not $700 million...
Moderator: Yes billion - typo

MsJB: regarding foreclosures. Why do banks do them since they end up being stuck with properties they can't sell. Those properties become vandalized and abused. Wouldn't it make more sense for banks to let the owners tay in the homes and begin to "rent" them until the situations improve? The homes would be taken care of heated in the winter and mowed etc in the summer. then when times improve the banks and the owners can revisit the situation.
David_Caruso: I agree with you. The banks usually do this because they haven't been able to work with the owners either because the bank doesn't want to or they don't care.
David_Caruso: The problem here is that you have a motivated owner. Sometimes the will to strive to pay the mortgage goes away when people find out the house now owes $200,000 more than it's worth. The inclination is to say I'll never make it up so I'm walking!
David_Caruso: So if you're having trouble making the payments, the best thing to do is to be in communication with the bank as long as you can in advance to open up the line of communication pronto and not be the last man standing when they say why didn't you tell us.

Caudia: Michael, so is what you're saying is that China & Middle East will "own" us? If so isn't that just a little frightening?
Michael_Carter: Given our consistent trade deficits for the last 25+ years we necessarily have had to import foreign financial capital year after year, which means that foreigners have been acquiring claims on our earning assets. To the extent that our borrowing has not been used to increase our productivity, those claims will reduce the future incomes of U.S. citizens.

bs: Thank you for your thoughts, I hope you'll do this again.

Phil_1: I was shocked that the news media does not remain more neutral in this issue. I believe that the media should report the facts but not weigh in on either side. That is not happening. This is a chance to educate. Have at it. Isn't that the role of the press?
Jon_Keller: Examples?

DanW: HI - instead of the taxpayers paying for this, why can't there be a 1% stock transaction or transfer fee - wouldn't that raise BILLIONS?
Michael_Carter: The more likely effect would be to drive the exchanges to offshore tax havens. In general, policies which increase transactions' costs reduce the efficiency of markets.

Phil_1: Who will actually administer this package? The Department of the Treasury doesn't have the staff. I fear that the Department of the Treasury will hire the wolves who are feeding at the hen house to evaluate these worthless securities. We'll buy them and they will never regain value. Let's think about the mechanics. It's so easy to think at a helicopter level. Who will the ground soldiers be?
Michael_Carter: Oversight will be provided by the FDIC, the fed and the SEC, however management of the Treasury's portfolio of purchased securities will be in the hands largely of those with experience trading these securities. This makes me uneasy, but there really is no other choice.

Patchie: What is the ultimate root cause to all this? it seems like the housing market is just the latest symptom. To me it seems like the honor system in our capital market regulatory process failed us as greed took over. It was not just Wall Street greed either, it was Congressional greed as they thrived on Wall Street contributions. How do we turn this around?
Jon_Keller: I'm afraid we may have to wait for a new generation to take over. In general, the baby boom generation of political and financial leaders have proven much too arrogant, narcissistic, and ideological for the country's good.

david: Should I change my 104 from aggressive to a conservative or leave it alone I am 20 yrs from retirement
David_Caruso: The first question is where are you now? If you have over 80% of your money in stocks or stock mutual funds then it may be time to become more conservative as your asset allocation may be off. Yet the time to put more money in stocks is when it's down and yesterday's freefall could qualify for that!
David_Caruso: So get an asset allocation analysis and have your mutual fund company or HR person explain things. 20 years is plenty of time. Even after you retire you probably have another 20 years so don't stop investing in stocks when you do retire. 40 + years is a long time to keep investing so don't bail out now.

lori: i am retired already and have a small rollover ira. it is shrinking fast , what should I do with the little I have left. should I just sit tight and wait it out or move it to something else ? I am in a fidelity freedom 2005 with a little over 100,000
David_Caruso: That fund is a very conservative fund as it was designed for someone who has already retired and needs income. I would leave it alone as my guess is that we're a lot closer to the bottom than to the next top of the market.
David_Caruso: But do yourself a favor and call up Fidelity and get some feedback from a person whose job it is to help you make these decisions. Maybe throwing in a few more bond funds might help you sleep better at night.

marip: Is there any chance that if the DOW continues to go up they will simply dismiss this ill-conceived effort at economic socialism?
Michael_Carter: In the last banking crisis the government established the Resolution Trust Corporation which managed the asset portfolios of failed banks and other assets which the government removed from the balance sheets of weak banks, to facilitate their merger with stronger banks.
Michael_Carter: At the time this helped restore confidence in financial institutions and as housing markets gradually recovered the cost of the rescue effort was substantially reduced. The RTC managed its assets wisely and sold many at a profit.
Michael_Carter: I don't see how this is socialism.

dickle222: i have a money market account is it safe in my local bank ,is it safe?
David_Caruso: It's been my most asked question over the last 2 weeks and the answer is yes as long as it's less than $100,000. If it's more then maybe spreading it around could be a more prudent choice. To my knowledge there has never been an investor who lost money as long as they were not above the current $100,000 coverage limits.
David_Caruso: It's safe!

livermore: Professor Carter, do you think that the package will influx a wave of optimism that will lead to long-term positive effects? Or, do you think this will only spark short term relief?
Michael_Carter: Nobody can answer that question with certainty. Even in the near term the real economy is on track to weaken further, even if this rescue package is implemented smoothly. However, if we do nothing and allow financial markets to freeze and the debt deflation to snowball further, I feel a very serious full-blown depression will result.

joeich: We will be concluding our live chat at 6:30 p.m.

pats2006: Recently retired in April and deposited money from my 401k into a money market for a monthly distribution. My financial advisor advised that the money market is frozen indefinitely. Since I chose a lump sum, instead of an annuity, this is my only source of income. What do I tell my creditors since I'm not receiving income?
David_Caruso: Oh wow, that's awful!
David_Caruso: First thing you can do is tell the people who you won't be able to pay your situation. My sense is that they will be sympathetic to your situation and give you some wiggle room.
David_Caruso: Also you may want to contact the consumer affairs office or the state securities office to see if they could offer you some help.
David_Caruso: My hope is that this money market fund will be resolved shortly and all will be back to normal as they settle the money market fund issue.
David_Caruso: Sorry to hear again! Good luck.

Sandy: Why doesn't the government give the taxpayer's the money? I'd pay off my mortgage and pumped the money back into the economy.
Michael_Carter: The amount of outstanding mortgage debt in the economy is enormously larger than $700 billion, so the government couldn't possibly give away enough for everybody to pay off their mortgages. And if it did, such a program would be highly inflationary.
Michael_Carter: More generally, a program of tax rebates might boost spending in the short run, however we need to stop the contagious panic in financial markets. A tax rebate program won't do that.

Phil_1: This was a great chat. This should happen more with issues of the day.

Honey: Thank you. I understand the FDIC. But if the Bank fails, I have three automatic deposits there. What would happen to those?
David_Caruso: If they are in some type of account they should certainly be covered under the $100,000 minimum but I'm not sure what happens with the automatic withdrawal. I would call them to find out. Obviously you don't want to have money coming or going to a bank account that's frozen.

SoundBuck_1: What steps will be taken to head off the mortgage crisis from starting all over again? Will lenders still be urged by gov't. to offer loans to those who don't have the income to pay the loans?
Michael_Carter: The major investment banks have all been merged into commercial bank holding companies and will be subject to more oversight and higher minimum capital requirements which should help to reduce the possibility of another era of catastrophic under-estimation of risk.

Debra: Will this effect social security benefits ? Will we have to take a cut in how much we get each month ? Do I have to worry about that I wont be able to make the rent each month
David_Caruso: No, there are no provisions in this bill that will effect your Social Security payments. Keep spending, just stay within your means!

WBZ_Moderator: Thank you all for participating. We hope this has been a very informative 90 minutes.

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