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How to Choose the Best Financial Adviser
By Peter McDougall - August 22, 2008
Market volatility during the past year was almost twice what it was for the same period in each of the three previous years as measured by the variability index developed by the Chicago Board Options Exchange. Home values, meanwhile, are dropping, and prices for consumer goods from bread to gasoline are rising.
Now, therefore, is as good a time as any to consult a financial adviser. He or she can provide a clear road map to reach your financial goals and help set your priorities. And later, the adviser can help you keep track of your progress, as well as reassess your direction as circumstances change in your life.
But trusting a stranger with your personal finances can be a leap of faith. It's wise then to do your homework when choosing an adviser.
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Fannie, Freddie capital raising options uncertain
By STEPHEN BERNARD – August 20, 2008
NEW YORK (AP) — As mortgage financiers Fannie Mae and Freddie Mac struggle with continuing credit losses, their ability to raise needed capital is uncertain and, analysts say, is complicated by the possibility of a government bailout of the two companies.
"We're in uncharted water with this," Bert Ely, an Alexandria, Va.-based banking industry consultant and longtime critic of Fannie and Freddie, said Tuesday.
Published reports about a possible bailout, continued quarterly losses at Fannie and Freddie and further deterioration in the credit markets have investors concerned about the mortgage companies' solvency. Those worries have sent the companies' prices tumbling, with Fannie falling another 4.49 percent and Freddie sliding 5.01 percent on Tuesday.
A government bailout is widely considered the least attractive alternative to help the mortgage financiers shore up their balance sheets because investors are worried that federal intervention will wipe out the holdings for any non-governmental investors, said Brian Gardner, a senior vice president with Keefe, Bruyette & Woods Inc.
Last month, the Treasury Department agreed to provide support to Fannie and Freddie, which collectively own or back about $5.3 trillion in mortgages, about half the nation's mortgage debt. The support could come in the way of loans or an equity investment by the government to help support the mortgage companies. It is widely assumed any equity investment by the government would take a senior position above all other investors — in other words, should the companies become insolvent, the government would recover money before others who have invested in Fannie and Freddie.
Over the past year, homeowners have increasingly defaulted on mortgages, which has led to billions of dollars in losses for the pair of government-sponsored enterprises. That trend has also been one of the leading culprits in the deterioration in credit markets that has made it more difficult for companies in general to raise new capital.
Freddie has said it is committed to raising $5.5 billion to help shore up its troubled balance sheet — that is nearly twice the size of Freddie's current market capitalization of about $2.84 billion.
Fannie's market capitalization is about $6.58 billion. Friedman, Billings & Ramsey Co. analyst Paul Miller estimates Fannie needs to raise between $5 billion and $10 billion in new capital.
But the prospect of government help has been one of the greatest hang-ups in efforts to raise capital from other investors.
Fannie and Freddie could raise those funds through non-governmental investors, but the cost would likely be severe in terms of interest or dividend payouts depending on the structure of the capital raise and in terms of dilution to current shareholders, analysts said.
"The cost of capital of this nature is just staggering," said Ladenburg Thalmann Inc. analyst Richard Bove. Fannie and Freddie could likely raise capital, but it would cost them so much during the current downturn in the credit market that it is unattractive, Bove said.
At a certain price, though, analysts said the companies would find investors. It is just a matter of what costs and stock dilution investors are willing to incur.
Any non-governmental investor is going to want a senior position, said Walter O'Haire, a senior analyst with consulting firm Celent.
Potential investors might also approach the government to provide some financial guarantees to help protect against losses, O'Haire added. "They will want as much assurance as they can possibly get," O'Haire said.
If Fannie and Freddie cannot find outside investors, the government's offer of support will likely come into play. Ely said that if the government gets involved, the first option would be to provide the mortgage companies with loans, likely through the Federal Reserve or possibly the Treasury Department.
That option would help the Treasury Department avoid an outright takeover of the company, Ely said.
Fannie or Freddie would likely pledge mortgages and securities from their portfolios as collateral in return for the loans. That would help avoid a complete government takeover.
The Federal Reserve opened up a similar lending option for investment banks in March shortly after the collapse of Bear Stearns. Previously only retail banks were able to borrow money from the Fed, using loans as collateral.
The only way to fix Social Security
McCain and Obama have said how they would attack problems in the retirement safety net. But as president, neither will be able to do it his way entirely.
By Jeanne Sahadi, CNNMoney.com senior writer
August 20, 2008
NEW YORK (CNNMoney.com) -- John McCain and Barack Obama both talk about how they would put Social Security on sound financial footing.
The program will face the first signs of a financial crunch within a decade and have to rely on Uncle Sam - who's in hock already - to make up for the shortfall.
But no matter the next president's preferred fixes, he'll have to do a lot of compromising with Congress.
Sure, any solution is likely to have elements the president favors. He will have veto power, after all. John McCain favors slow growth in benefits over raising taxes. Obama prefers just the opposite. But any voter who can fog a mirror shouldn't be surprised to see both types of changes coming down the pike.
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Confronting retirement worries
By David Dykes, The Greenville News - August 19, 2008
Reflecting growing concern over health-care costs and economic issues, American workers' confidence in being able to afford a comfortable retirement has declined by a rate unmatched in 18 years, according to a private, nonprofit research institute.
The Employee Benefit Research Institute, based in Washington, said its retirement confidence survey showed that the percentage of workers who are very confident about having enough money for a comfortable retirement decreased sharply, from 27 percent in 2007 to 18 percent this year.
That was the largest one-year drop in the 18-year history of the survey, institute officials said.
Retiree confidence in having a financially secure retirement also declined, from 41 percent to 29 percent, a drop of 12 percentage points.
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