Ask the Fool Your Questions

By Motley Fool Staff

October 14, 2008

12 Recommendations

Bear Stearns. Lehman Brothers. Fannie Mae (NYSE: FNM). Freddie Mac (NYSE: FRE). AIG (NYSE: AIG). Merrill Lynch (NYSE: MER).

These companies have contributed to a financial system chaos like the United States hasn't seen in years. Last week, world markets plunged. The Dow and S&P 500 followed suit. Trillions of dollars of paper losses wreaked havoc upon retail investors.

And now the prospect of increased governmental intervention has calmed collective nerves -- the Dow gained 11% yesterday, its biggest one-day gain since 1933. Overnight, Japan's Nikkei posted its single-biggest gain ever.

Today we have news that the U.S. government will take direct stakes in major banks, including Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC).

What's going on? What are the long-term ramifications? What does all of this activity mean for your portfolio?

The Motley Fool would like your questions. What issues would you like to see addressed? Simply type your question in the comments field below, or email us at AskTheFool@fool.com. Over the next few days, our editors will pick a few of the best questions and have them answered by advisors and analysts from our Motley Fool premium newsletter services.

Bank of America is a Motley Fool Income Investor selection. The Motley Fool is investors writing for investors.

Comment (32)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

On October 14, 2008, at 1:20 PM, carjjc wrote: Report this Comment

How does the $25B purchaase of BAC special stock at 5% dilute the shares I own? And if it dilutes a lot why did BAC go up in value? Does this help BAC make more money? How?
On October 14, 2008, at 1:26 PM, serchpodol wrote: Report this Comment

Whats the projection of food service companies over the next 5 to 10 years? will it be a wise moment to invest in franchises of major food companies, and if so, what market segment could this investment be better target on? (low cost widespread food suppliers or wealthy rich markets)
On October 14, 2008, at 1:30 PM, jujm wrote: Report this Comment

I would like to listen your opinion about LEHMQ.PK present and future for this stock symbol . The future quote will be 0.000001?
On October 14, 2008, at 1:38 PM, squiggley64 wrote: Report this Comment

If our current world financial crisis began due to housing financing, why do we attempt to solve it by working on the "back end" (credit swaps, e.t.c.)? As I understand, everyone except the homeowner took a cut along the way. Now the homeowner takes the devaluation of his largest asset and pays off the layers who profited from him already.
On October 14, 2008, at 1:51 PM, jimdago wrote: Report this Comment

With most mergers or company purchases, the deals are consummated in stock with very little cash involved.
When AIG sells their various entities, will they not need all cash deals to be able to repay the Fed loan(s)?
How many companies have $5 or $10 billion in cash just lying around?
On October 14, 2008, at 1:59 PM, kwill10 wrote: Report this Comment

In various media outlets, people have been commenting about whether or not our economy is heading for a depression; however, no one ever seems to define what they mean by a depression. What is the official definition of a "depression"? Are there particular metrics that define a depression, and if so, how is our economy doing today by comparison?
On October 14, 2008, at 2:38 PM, charliebrowns wrote: Report this Comment

I read your newsletters all the time, you guys are great. I wanted your long term outlook on Fannie Mae as a stock and Sirius radio as a stock, it would be greatly appreciated. Thanks,Brad
On October 14, 2008, at 2:56 PM, fe3lixallen wrote: Report this Comment

Slower worldwide growth, and a recession, usually means that earnings estimates will be revised downward (by companies as well as analysts). This will most likely happen for months.
Have the market averages ever increased during a period when most earnings estimates continue to be revised downward? If so, how often has this happened?
On October 14, 2008, at 3:06 PM, MrSucrose wrote: Report this Comment

What is some of the fools opinions on choosing stocks to double down on in this enviroment?
On October 14, 2008, at 4:49 PM, Titan007 wrote: Report this Comment

Why haven't they restored the dividend payments on Freddie and Fanny preferreds (which were rated AA+)? Two weeks before the "takeover" they told us both companies were well capitalized. Why should investors take on risk in this market when they do not honor AA+ rated preferreds. Also alot of banks still have the shares on there books so spending 1 billion a quater to restore 36 billion and restore investor confidence in a 300 billion preferred shares is a good deal.
On October 14, 2008, at 4:54 PM, 2ULord wrote: Report this Comment

if we pulled money out and haven't reinvested yet, are we too late? The money was pulled out only to move to another brokerage and the process is taking too long.
What is the advantage of the Motley Pro versus the Retirement Tools you offer?
On October 14, 2008, at 6:00 PM, ljmohler wrote: Report this Comment

I have a SIMPLE IRA through work with Fidelity. Do you have any suggestion of what funds would be best for the long term as I am only 23 years old? I wasn't really sure which ones were the best so I picked a couple of random ones.
On October 14, 2008, at 6:06 PM, 95trapper wrote: Report this Comment

With the DOW30 being pummeled for the most part I have been wrestling with steering away from Gems and Advisor suggestions in favor of proven strength and durability during Bull and Bear markets.
This led me to revisit your 1996 book, The Motley Fool Investor Guide. Specifically, I want to know if now is the right time to employ theFoolish Four methodology?
On October 14, 2008, at 7:18 PM, rdotson310 wrote: Report this Comment

What are the defaults on mortgages? Historically speaking arnt they still lower than average? What time makes this different when we have had even higher defaults and did not have a crises like this? Its difficult for me to believe that a relitivly small amount of defaults is the cause of all of this.
On October 14, 2008, at 7:34 PM, mizzensheet wrote: Report this Comment

This is not really a comment, I'd like to call it a question; I understand the 'rescue' buying into banks by the dozen pumping up money on hand. What I don't understand is what does that do about a bunch of debt that can't be written of because the $500,000.00 property that is being foreclosed is only worth $275,000.00 now? This looks like a $225,000.00 lose to me, it got payed to someone that's not likly to give a refund. So how does this money get replaced?
On October 14, 2008, at 8:19 PM, schmekel wrote: Report this Comment

How bad do people suspect the recession will be. I suspect a long and shallow Japanese style recession but I'm curious as to projections. Also what businesses will be better placed to survive a recession
On October 15, 2008, at 12:56 AM, bklyn11235 wrote: Report this Comment

I held a principal protected Globel Index Basket, sponsored by Lehman Brothers. Any idea what may happen to my lost principal in light of the bankruptcy court proceedings?
On October 15, 2008, at 2:15 AM, point9 wrote: Report this Comment

Is now a good time to buy? Is it a great time to buy? I'm so unsure of myself that I just have frozen up....Do you think that stock prices will fall even more? The DOW has really taken a big hit....Is this likely to continue, or will it stop?
On October 15, 2008, at 6:43 AM, SulaimanG wrote: Report this Comment

In regards of Long-Term investors , What do you predict to happen in the up coming 5 years ? are we going to see a total meltdown ? or strong economy ?
On October 15, 2008, at 10:53 AM, r2i308 wrote: Report this Comment

I always thought private mortgage insurance would pay the bank when someone defaulted, but haven't heard a word about it since the crisis began. Did the PMI companies all go bankrupt quickly, so in essence they can't pay either? Where does PMI fit or not fit into this crisis?
On October 15, 2008, at 11:18 AM, megalon81 wrote: Report this Comment

I would like to see something on the regulations in place regarding capitalization of invetment banks, insurance companies, and "exotic" equity derivatives. What regulations should be in place for all or these?
On October 15, 2008, at 12:37 PM, redvegas4 wrote: Report this Comment

My deceased father owned 70 shares of Sensormatic that I believe now is part of Tyco International Inc. Should I contact a broker (heaven forbid) or what should I do to change over to my name and figure out what is what?? I plan to keep the stock.
Thanks in advance!!
On October 15, 2008, at 12:45 PM, redvegas4 wrote: Report this Comment

I have an AIG Variable Annuity invested in Small/Mid Caps that is past the penalty phase (7 years) for redeeming. I really don't want the tax burden of "pulling it all out" right now as I will be in a lower tax bracket next year (April) at 65. This was not one of my "stellar" investment selections as the original $36K investment is now worth under $32K aftrer 7+ years!! What should I do!!!
Thanks in advance!!
On October 15, 2008, at 5:49 PM, huggybunny wrote: Report this Comment

Isn't there a better way? This game seems rigged against the individual investor. Baby Boomers are on the verge of retirement, and this is what they get for decades of hard work - a portfolio that's cut nearly in half from a year ago.
On October 16, 2008, at 11:37 AM, earthsphere wrote: Report this Comment

I don't understand why they keep selling a lot when the stock market go down bad. They will not make profit this way, is it? You make profit when you buy low and sell high, right? This don't make sense! Please, help me to understand.
On October 16, 2008, at 8:00 PM, jerryguru69 wrote: Report this Comment

Stocks like FNM, FRE, WM, AIG are still trading. Why? Is not the real value of these things $0.00? Who would buy WM for $0.08? Is there some notional value of a defunct stock, or what?
On October 16, 2008, at 8:15 PM, jerryguru69 wrote: Report this Comment

About ^VIX. How exactly is the value of this calculated? The only thing I could find is that it is a "complicated mathematical formula". OK: I had my Wheaties this morning: what exactly is this "formula"? I have never traded an option or commodity in my life and I only discovered this beastie today, but now I am deathly curious. Can you buy puts and calls on it, and sell it short? And why on earth would you want to?
On October 16, 2008, at 8:25 PM, DionIronhand wrote: Report this Comment

I'm 34 years old, have a stable (I hope) job with good benefits. I contribute to my 401k (with a mix of bonds, international, small cap, S&P 500, etc.), buy shares of GE monthly in a DRIP, and have a small Roth IRA. My question is...
Thirty years from now, when I retire, what do you believe will have paid off better for me in my Roth IRA? My 401k will do fine, and GE will as well, so I'm not worried about them. The Roth IRA is the wildcard that I have the most control over.
I see lots of bargains in blue chip stocks with good dividends, & half of me wants to buy and hold them (even though I read somewhere recently that buy-and-hold is dead).
The other half of me wants to take chances on smaller companies, especially solar stocks, buying 20 shares of this one and 20 shares of that one, hoping that a few of them will turn into the powerful blue chips of the 21st century.
The third half of me (I really am torn about this) says that I should do both...but I worry that by doing this I will miss out on fantastic returns if I miss the big up-and-coming stocks.
Any thoughts would be appreciated.
On October 16, 2008, at 8:29 PM, DionIronhand wrote: Report this Comment

Oh, and one more thing (cue Columbo)...
I thought the whole purpose of the bailout package was to buy mortgage-backed securities that were bringing the banks and housing market to their knees. I don't recall anyone saying that they would use the money to buy shares of banks. I mean, what's the deal with that? (cue Seinfeld)
On October 18, 2008, at 6:38 PM, sidehiller wrote: Report this Comment

OK, so it turns out I was wrong to hang onto my Washington Mutual stock...and buy moer of it... [especially since the Feds tore all the *assets* out of the company and sold 'em to JP Morgan for 5ct on the dollar, leaving us shareholders with the dreck]. Is it worth hanging onto my 400 shares of "WAMUQ" (rhymes with...)?
BTW, a lesson learned from a prior (bad) investment is that any ticker symbol ending in a "Q" means that the company is in bankrupcy.
On October 19, 2008, at 1:24 AM, Marnic235 wrote: Report this Comment

There is one thing (among many, I suppose) that I have trouble understanding. It is this: if a stock price is plummeting because everyone wants to offload it, for whatever reason, it stands to reason that someone out there is buying it. My question is, who?
On October 19, 2008, at 11:05 AM, kamuirei wrote: Report this Comment

Are international stocks in a tax advantaged account still taxed at the going rate according to IRS publication 901? Do you receive a foreign tax credit?

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