By MARGIE TRAX PAGE - Staff Writer - mtrax@starbeacon.com
Star Beacon
September 29, 2008 11:00 pm
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The crush of people was desperate in the sharp monochromatic tones of the 1946 film “It’s a Wonderful Life,” as a crowd of investors rushed to withdraw their funds from the failing bank in Bedford Falls.
“This is a pickle, George. This is a pickle.”
The urge to remove funds from bricks-and-mortar banks and stuff mattresses with a lifetime of savings is “emotional and rash,” Financial Network Investment Corp. financial adviser Jim Gourlie said. FNIC is based in Geneva.
“Take a deep breath everybody. This, too, will … pass,” he said.
The government’s financial bailout plan failed in the U.S. House of Representatives Monday, and stocks took their biggest nosedive ever: 777 points on the Dow Jones Industrial Average of 30 “blue chip” stocks. Credit markets, whose turmoil helped feed the stock market’s angst, froze up further amid the growing belief that the country is headed into a ballooning credit and economic crisis.
Gourlie said the fall is a direct, immediate reaction “to the very first draft of a bailout, (which) will come.”
“The bailout will happen, and it will happen soon,” Gourlie said. “The bailout is a necessary remedy in order to free up credit to get banks loaning again.”
Gourlie believes the economic rescue plan will pass by the week’s end.
The Associated Press reports the defeat of the $700 billion package came amid more reminders of how troubled the nation’s financial system is. Before the market opened Monday came word that certain retail banking assets of Wachovia Corp., a major financial institution struggling with huge mortgage losses, are being bought out by Citigroup Inc. The purchase follows the recent forced sale of Merrill Lynch & Co. and the failure of three other huge banking companies: Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc., all of which were stung by mortgage and mortgage-backed-securities defaults. The Federal Deposit Insurance Corp. has a list of 117 banks that were in trouble during the second quarter.
Gourlie said taxpayers can point the blame in three directions: at banks, for lending irresponsibly; the government, for failing to regulate the banks and lenders; and individuals, who overborrowed without considering the consequences of not meeting mortgage commitments or having to declare personal bankruptcy.
“The media is adding fuel to a fire, where flames don’t need fanning,” he said. “People are panicking with up-to-the-minute bad news.”
Gourlie said to take the good with the bad, however.
“In 1987, 861 banks went under; fewer than 110 have failed this year,” he said. “This is a market correction — a unique and dramatic market correction. When we hit market bottoms, history shows six to 12 months later, the market rises substantially; actually, it rockets upward.”
Gourlie said economic recovery could take as little as a year or as long as three years.
But what if you are in an investment “pickle”?
“If you have mutual funds, as opposed to individual stocks, you have a good chance of stability and swift recovery,” Gourlie said. “If your mutual funds have a nice record, you will likely be fine.”
The good news for investors is that common shares of some exceptional companies are available at bargain-basement prices.
“If you are not taking dividends, your investments will reinvest at bargain prices,” Gourlie said. “Investors will be able to afford stocks otherwise beyond the scope of their portfolio.”
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