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I have received many questions about the financial safety net in the wake of Tuesday's front page articles on the market woes, struggles of financial institutions,and possibility of bank and insurance company failures.
I will post responses to all those questions below.

However, let me make a few things clear:
1. There is a link directly to the FDIC rules on the home page at www.TerrySavage.com (right column, halfway down the page).
2. INSURANCE contracts, such as annuities, are not covered by Federal insurance. They are covered by "state guarantee funds" that are basically a "call" on other insurance companies doing busiiness in the state.
Many of you own AIG annuity contracts through companies like VALIC. My answer is
"I believe that even if AIG files for bankruptcy, these profitable subsidiaries like Valic will be sold to other, stronger insurance companies -- and tht your annuity contracts will remain safe." That is my firm belief -- though there is no guarantee!

I would not try to "break' these contracts, possibly incur penalties or taxes now. It would take a while to roll over any contract --and then you'd be caught up in the paperwork of a transfer --just when another insurer is likely trying to buy the entire portfolio.

I'll update this thought as news breaks!

As you can read in my column of Monday, March 24th, there is a strong conviction on the part of many experts that, in spite of all the liquidity the Fed is creating, there is still a great possibility of DEflation. What IS deflation? Something that few Americans have lived through -- a decline in the value of assets. That kind of decline makes the burden of debt even greater. And it creates an economic slowdown that challenges our ability to grow our way out of our troubles.

The best example is Japan. Their real estate bubble burst in 1990, and has not yet come anywhere near its previous levels. Their stock market is measured by the Nikkei 225, currently trading at 12,500. That's far below its peak at 40,000 in 1990. So the question is a very real one: Can the Fed do a balancing act between creating liquidity to prevent deflation -- or sparking inflation down the road? What do you think?

The Fed has put their money where their mouth is! They've been saying they wouldn't let the financial system fail, even if they had to reduce interest rates and flood the system with liquidity.
That's what they did over the weekend, and will continue to do tomorrow.

Media commentators are calling it a "bailout." It was, sort of. But not a bailout for Bear Stearns. Their employees and shareholders took a huge bath, equity wiped out. Most were required to take some compensation and all bonuses in stock. They used their "wealth" to buy expensive houses in Manhattan and Westchester. Now the mortgage mess will come home to them! What's the monthly payment on a $6 million mortgage?!

But make no mistake. This wasn't a bailout for Bear -- those it definitely WAS a bailout for the system!

Interesting discussion setting up on this blog --
a) Forget a bailout -- these people, and financial institutions, got themselves in trouble because of their own greed, so don't bail them out, let the free markets work it out, and
b) This mortgage mess threatens our entire financial system and economy, so the government MUST do something!

I must say . . .

The stock market was overjoyed -- the Fed is making an extra $200B available to banks and financial institutiosn, hoping that liquidity will make them more likely to invest in mortgage backed securities. The idea is that with more investors for the paper, the institutions will be more likely to make mortgages in the first place, and at lower rates.

BUT . . . what about homeowners who are facing foreclosure? It will take months for this new liquidity package to float through the economy. And during those months, the foreclosures will continue to mount! And the headlines will continue to remind other consumers that the economy is in precarious shape. That worry destroys confidence, and consumer spending!

The stock market liked the move, for sure! But stocks don't question why the liquidity is there to buy stocks; stocks just move higher because buyers are willing to be aggressive, pushing prices higher. In fact, for a time stocks should definitely benefit from the liquidity that creates inflation -- because while the value of the dollar declines in inflationary times, stock prices can rise -- thus becoming a hedge against inflation.

But just look at interest rates, gold, and oil!

Mortgage rates on 30 year fixed rate mortgages have risen from 5.5% in January to 6.03% last week -- because the banks weren't lending. Now banks will start lending again. But mortgage rates are set by long term Treasury rates, which are set at auction. And there will be a lot of worry about committing to buying long-term treasuries in the face of potential inflation.

The old mantra of the successful investor has always been: "Don't Fight the Fed!"

Now the Fed is doing everything possible to drive interest rates down and flood the market with liquidity. They'll likely cut short term rates at least 50 basis points, or more, next week.

But the U.S. is deeply in debt -- $9 TRILLION -- which we need to borrow to keep our government afloat. Who in the world will lend us that kind of money, at lower interest rates, in the face of massive Fed intervention to create "liquidity" (inflation)?

The gold market, and oil -- which is priced in dollars -- are telling you the world isn't so happy about the Fed's actions, even though the U.S. Stock market rallied.

And worried homeowners, who find themselves without equity to refinance as home prices drop, might not own those homes long enough to benefit from the inflation that will ultimately push prices of assets higher. That's the Savage Truth!