Federal Reserve and The Treasury Department took major
steps to support commercial paper markets. Many investors stayed
away from purchasing commercial paper, which was a cause of economic
slowdown, but central bank was creating a special facility to help
the $1.7 trillion commercial paper market. This includes also credit
cards and auto loans to move economy forward.
Market did not respond in positive way just yet, today
it was announced how Fed will lay out loans for banks. All bank
loans will be available through action with loans available for 28
days or 84 days. Fed also announced that it will provide up to $900
Billion in loans to help banks ease credit crises.
With market going down this start to effect 401K or
any other portfolio. According to AARP study, because of the
economic downturn, one in five workers 45 and older has stopped
putting money into a 401(k), IRA or other retirement savings.
And retirement pans have lost as much as $2 trillion in the past 15
months. In most cases this will delay retirement for many people and
some of them cannot retire and would have to keep working.
Financial meltdown is starting to create problems
everywhere.
According the Fed, consumer borrowing fell an annual
rate of 3.7 percent. Consumer borrowing is defined by Fed as all
loans not secured by real estate. Economy has shown slowdown in
housing market, layoffs and the credit problems as banks have slow
down on borrowing due to consumer defaulting on their loans, credit
cards and mortgages.
So far steps by Federal Reserve to calm things down
did not work. Federal Reserve Chairman Ben Bernanke warned in speech
that the financial crises could prolong. Even financial companies
such as Bank of America slashed its dividend and reported loss on
their third quarter profit of 68 percent.
Many investors, companies are defending their
portfolio. Selling everything they have and just sit on cash until
market calms down. Even Fed will be forced to slash its Fed Funds
rate by at least 0.50 basis points to boost some strength in the
market.
Key point currently is to help banks unfreeze their
credit lines; allow banks to borrow more money in which banks can
create loans. However, even banks are afraid if customers will repay
their loans.
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