Is your Bank safe ??

With three banks going down and are taken over by the FDIC (Federal Deposit Insurance Corporation) in the last month, check whether investments in your bank are safe.

What is the FDIC

FDIC or the Federal Deposit Insurance Corporation is a US government entity that insures deposits in saving, checking and retirement accounts in member banks. Individual accounts are insured up to an amount of $100,000. There are different rules for different kinds of accounts. Some Retiree accounts may be insured up to $250,000 under the Federal Deposit Insurance Reform act of 2005. More information can be found at the official FDIC site.

Find out whether your savings are safe

Find the list of Banks insured by the FDIC at the following location.

http://www4.fdic.gov/IDASP/main_bankfind.asp

Also, if you are one of those whose Bank is already failed, you can check if you deposits are safe or not at the following location.

http://www4.fdic.gov/dip/index.asp

Precautionary steps to take

1. Do not have all your money in one Bank account, if you have say $100,000 in one account and another $100,000 in another account of another Bank, and both Banks are insured by FDIC, then you don't lose any money.

2.

Technorati Tags: US,FDIC,Failed Banks

Look at the quarterly report published by FDIC on Banks. Member Banks insured by FDIC have to adhere to regulations set by the FDIC, still they can fail. FDIC publishes a quarterly report of member banks depending on various parameters to look at Banks and rates them accordingly.

Google wins in the Yahoo - Microsoft battle ...

Microsoft over the weekend withdrew its offer to buy Yahoo. Yahoo reportedly wanted $37 per share and Microsoft was ready to offer $33 per share. In the end both sides did not budge and the deal fell apart.

Microsoft was given credit by analysts for not paying too much for Yahoo. Yahoo board on the other hand is sure to face shareholder lawsuits for not accepting Microsoft's offer. Yahoo stocks have not fallen to the pre deal price because a lot of analysts feel that Microsoft will come back and make another offer for the Internet giant.

Microsoft needs Yahoo to make its Internet division profitable. Windows live search was supposed to do that, but Microsoft's share in the search market increased for a while Microsoft offered goodies to use its search, but has since been losing ground to Google.

With both Yahoo and Microsoft distracted for this long, this just plays into the hands of Google, which has steadily gained in the Internet Search market and holds a strong position in the $25 billion online advertising market. After the Yahoo-Microsoft deal fell apart, Yahoo shares stumbled more than 15 percent, Microsoft and Google both surged around 5 percent. With Yahoo agreeing to allow Google to display Ads on its search results, the going simply gets better for Google.

What if the Government doesn't intervene now...

There seems to be a debate whether the government should intervene and rescue the homeowners and lenders alike. What happens incase the government or the Federal Reserve doesn't intervene. Many think that if the Government doesn't do anything now, home prices will find a equilibrium based on fundamentals rather than what has pushed up prices over the last few years. Home prices might very well fall below the whatever the fundamental price needs to be, same way the prices did over shoot on their way up. When no one knows what the bottom is going to be, lenders wont be ready to lend at what they think are over priced houses. Buyers even if they want to will not be able to buy if there is no money to borrow. This in turn will push the prices down. Falling prices will deter new home buyers from buying since they would be waiting for the prices to fall still further.

Even if there are moral issues in helping the homeowners and the lenders who got us into this mess, Government and the Federal Reserve need to act to stop the financial industry from collapsing.

US Home Loans vs. Indian Home Loans

Swaminathan S Anklesaria Aiyar in The Sunday Times has written a great article by reasoning why a Subprime mess is not likely to take place in India. Is this definitely an eye opener.

Read the article here.

Also, I feel he’s a great writer and some of his earlier articles are also gems. So please find the list of other articles here.

Here’s a small excerpt.

A housing boom-and-bust has engulfed the US financial sector in crisis. India, too, has experienced a runaway real estate boom, which in a few areas is going bust. The share prices of real estate companies have crashed. Yet, India has no mortgage crisis or financial sector crisis.

Why not? Mainly because of the huge amount of black money in Indian real estate. This has saved the Indian financial sector in unexpected ways. Traditionally, US mortgage lenders checked the creditworthiness of borrowers, and then made the borrower pay at least 20% of the house value, loaning the remaining 80%. So, even if the price of the house dipped, it would still be higher than the bank's loan, and the borrower had an incentive to repay it.

Also if I may add, buying a house in India involves a lot of sentimental factors associated with it. The strong family ties, concept of a joint family or living with your parents also serve as a deterrent to just switching houses or walking away from one. While the amount of black (illegal) money in circulation in India is certainly not advocated it’s an interesting outlook into how the home loan market in India works.

Is Google recession proof ?

The question is what effect recession is going to have on earnings of Google. Recently in a interview Eric Schmidt (CEO Google) tried to convince that Recession is not going to have an negative effect on Google. Lets take a look at the various arguments in favor and against Google.

Google earns most of its revenue from text based Ads displayed on various web pages. Advertisers pay Google depending on the number of clicks they had on their advertisements. In event of an recession the first thing that businesses cut down is the advertising budget.With Consumer spending weakening and showing the weakest numbers since September 2006, if the number of clicks goes down, Google revenue will go down along with it.

OR

In case of an recession and increasing inflation, people will tend to look for cheaper goods on the Internet.This might very well cause the number of clicks to increase and an increase in the Google revenue.

If you are someone who in these days of soaring gas prices are looking for deals on the Internet, also look for buying the Google stock as an investment. With the stock down to $430 from its peak of $750 this might a be good time to buy.

Is Merrill Lynch safe ??

The fall of Bear Sterns, the fifth largest Investment bank on Wall street, raises a few doubts in my mind about the safety of others in the same Business. Bear Sterns was bought by JP Morgan for $2  a share i.e something like $236 million for the bank. The Bear Sterns building is estimated to be worth a billion dollars, still it was sold for $236 million that puts into perspective the liabilities the bank currently had. It was sitting on a lot a mortgage backed securities which was turned useless in the current market situation. The leverage obtained from such securities allowed Bear Sterns to post profitable quarter after quarter.

Merrill Lynch is currently sitting on an Investment of $1 trillion dollars with a base equity of $30 billion dollars. Leverage is a great thing to make profits, but when the markets take a turn for the worse, a small in the asset values can wipe the shareholders value. I do not believe in the statements made by the Bank about the liquidity they have currently, after all the Bear Sterns CEO on tuesday made a statement that they had enough liquidity to see this bad phase through and on Friday the Bank was sold to JP Morgan.

Luckily the Federal Reserve has taken active measures to pump liquidity into the Financial System. The Fed chairman Ben Bernake (A scholar on the 1930 depression ) has taken some innovative steps to stop the Financial System from collapsing. Both Lehman Brothers and Goldman Sachs reported better than expected earnings for this quarter. The Bernake solution seems to be working, it should help the Investment banks to stay solvent and do what they are supposed to do help foster economic growth.

Time to Cheer and Buy?

The US stock markets are pleased with better than expected earnings from Lehman Brothers. This is despite the fact that it has taken a hit of $1.8 billion. It has also assured investors that its not facing a crisis like Bear Stearns and is not insolvent.

The crisis at Bear Stearns also didn’t seem huge when it reported a loss of $854 million on January 8. The Fed for sure is taking steps to ease liquidity with UBS advocating a 100bps rate cut for things to smoothen out. But it should really be also taking care to prevent such liquidity crisis from happening again.

Our Indian stock markets will surely rally tomorrow based on positive cues from the US. Even though this is a thin ray of hope. So do we go out and buy the fundamentally attractive looking stocks? Yes wise men have always said - Buy on dips. But I guess the trend is negative and there is more to come. The subprime mess in the US is going to take some untangling. So we better be vigilant with all the data coming out of the US and not get foolhardy.

Feds new tool TSLF

Traditionally the US Federal Reserve(Fed) had three ways to run the monetary policy namely cutting interest rates, cutting reserve requirements and cutting the discount rate. The Fed today came up with an innovative way of dealing with the credit crunch in the financial markets. The financial markets were expecting more than mere rate cuts from the Fed, some way the Fed could buy the mortgage linked securities and bring some confidence back into the Financial markets. The financial media Wall Street Journal, Bloomberg,  CNN Money had articles(linked here) with expectations and predictions about what the Fed might do.

Step in TSLF

TSLF is Term Security Lending facility, This is the Fed's new way of increasing liquidity into the System. What the Fed says is that the Banks can exchange the their mortgage backed securities for treasury bonds on a temporary basis. This should take off the pressure of the mortgage backed securities from the balance sheets of the banks and allow them to lend and borrow in a much more free way. Banks can exchange up to $200 billion dollars of mortgage securities at this moment. With this announcement, Fed probably closed the door on the 75 basis point cut in the increase rates. Stock markets have taken the Fed move in a very positive way with the Dow gaining more than 3.5 percent, even though there was a fall in the Healthcare stocks(More about that in my next post). Indian markets have also continued their recovery, the BSE sensex is 400 points up at this point. The only problem with the TSLF is incase the mortgage securities start defaulting in a big way, the Fed could be holding on to something worthless. Right now the Fed has said that they are going to buy only top rated securities. (BusinessWeek has a nice article on TSLF )

Where does this end .....

We have all heard that the Banks are having problems with their exposure to the subprime mortgages and their financial troubles have caused a massive credit crunch in the financial markets all around the world. The absence of liquidity has caused a blood bath in the financial markets all around the world. All the big investment banks have declared multi billion dollar write off due to this. This has also led to the collapse of many of the hedge funds that were giving spectacular results till now. Read here about the anatomy of a hedge fund collapse. Where does all this stop, stocks around the world have lost more than thirty percent from their peaks or more, US might already be in a recession; According to me the next important thing is the results of the big investment banks. If they have accounted for all the sub prime write offs then we should be good, if there is more to be lost to that, the uncertainty will cause more harm. The US consumer will have the checks from the economics stimulus package (Details Here ) sometime in May, that should help the flagging economy. All in all another three four months before we see some kind of consistent recovery across the stock markets.

On why, if the US sneezes

… India can catch a cold. The phrase that if US sneezes India will catch a cold is very popular in the Indian media these days. It’s very true in the present global economy where businesses are no longer isolated from each other or from other parts of the world. This being evident by the hit taken by ICICI Bank. Especially true in the case of our services sector where now it has become one of the major contributors to India’s GDP.

The Oracle of Omaha, Mr. Warren Buffet has spoken. He says the US with a $9.5 trillion economy is in recession, even though technically it may not be, since it has not recorded two straight quarters of negative growth. This has to be taken seriously coming from a man whose organization’s per share book value has compounded 21% annually and who recently overtook Bill Gates to become the richest man in the World.

US GDP growth in the last quarter (Oct ’07 – Dec ‘07) has risen by just 0.6% and the IMF forecasts US GDP to grow by 1.9% in 2008. China on the other hand is looking at cosmetic ways of cooling down GDP growth. One of the biggest trading partners of the US is China and while in 2007 US exported goods worth $65.2 billion it imported goods worth a staggering $321.5 billion from China. That accounts for 40% of the exports from China. China has recorded double-digit growth in exports in almost every major sector to the US. If US growth is indeed slow; trade from both the countries India and China with the US will slow down. China would not get affected much as it’s anyway looking to cool down it’s booming economy but if it decides and grabs this opportunity to provide more value than India to the US it’s a cause for worry. China can very well force its muscle to get a bigger pie and India better watch its step.

One of the star performing sectors for India is the services sector, read IT and IteS, which is a big chunk. Already the local players in China are giving a tough competition for Indian players who want to establish a presence in China. Not that the Chinese aren’t experts at fields other than the core sectors. China’s search engine giant Baidu is giving tough competition to even the Internet behemoth Google.

While the Chinese growth has largely been government led, Indian organizations will have to find their own feet and keep going without the government’s help while they are busy playing their bureaucratic games.

As the Chinese say - “May you live in interesting times”.