From Wall Street to Honolulu's Bishop Street, questions abound over the financial bail-out proposal. Here's a list of frequently-asked-questions on the topic.
Q: How did all this happen?
A: During years of the government’s deregulation of the financial industry, housing lenders developed a menu of ‘creative’ mortgages to get more people to buy homes: no down payment; interest only; no interest for the first year; and a variety of adjustable rate mortgages (ARMs). These gimmicks led many people to take on more debt than they could really afford, and millions of mortgages have gone into foreclosure. Now, all that bad debt is dragging down the entire financial sector and threatens an economic meltdown.
Q: Why does this affect Wall Street?
A: Local real estate lenders put together packages of mortgage loans to sell them to investment banks and large financial companies in what’s called the secondary market. The money they make selling these mortgages allows them to make more loans in their communities. But, with all the foreclosures, the secondary market can’t keep investing in packages of home loans, and ultimately, local lenders will run out of money to loan their customers, even small business and commercial loans, and automobile, college and other personal loans to creditworthy customers.
Q: Are bank checking and savings accounts and certificates of deposit (CDs) at risk?
A: No. The Federal Deposit Insurance Corporation (FDIC) insures all deposits at insured banks, including checking, NOW and savings accounts, money market deposit accounts, and certificates of deposit (CDs), up to the insurance limit of $100,000 per person. If two people are on a joint account, the coverage is $200,000. That means that if the bank closes down for any reason, your deposits are insured by the U.S. Government. IRAs, Roth IRAs and KEOGH plans purchased through the bank may be insured up to $250,000. Certain revocable trusts and trusts payable on death are also covered up to $100,000.
Q: What financial products or accounts are not insured?
A: The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank. 401k plans 403b plans are also not covered.
Q: What about Credit Union accounts?
A: The National Credit Union Administration insures its accounts through the National Credit Union Share Insurance Fund, backed by the U.S. Government for up to $100,000. IRAs, Roth IRAs and KEOGH plans purchased through the credit union may be insured up to $250,000. Certain revocable trusts and trusts payable on death are also covered up to $100,000.
