A.I.G. Rises, and Many Ask Why (via Marginal Revolution)
It may have been written off as a hopeless case less than a year ago, but the stock of the American International Group shot up to $50 on Thursday, capping a fourfold gain in the last two months.
For all the optimism taking hold in the markets these days, it is hard to find a tangible explanation…Mr. Fitzpatrick said he thought the likelier explanation for the increased share price was that speculators looking to profit from a distressed stock had pounced on A.I.G.
“The risk appetite has returned to the marketplace,” he said. “People don’t want to get 5 percent back. They want to get the money back that they lost over the last year.” They look at a cratered stock like A.I.G. and think, “This is the place to do it,” he said.
Banks ‘Too Big to Fail’ Have Grown Even Bigger
The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.
…A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.
“It is at the top of the list of things that need to be fixed,” said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. “It fed the crisis, and it has gotten worse because of the crisis.”
Regulators’ concerns are twofold: that consumers will wind up with fewer choices for services and that big banks will assume they always have the government’s backing if things go wrong. That presumed guarantee means large companies could return to the risky behavior that led to the crisis if they figure federal officials will clean up their mess.
Compound Interest: One Percent Can Make All the Difference
As I’ve mentioned in the past, I’m not a rate-chaser. Not yet. But sometimes I wonder if I shouldn’t be. Especially as I begin to build wealth, even one percent annually can make a huge difference in my nest egg. (Right now, it doesn’t really make sense to chase the highest bank rates, either. Everyone’s rates are low. But in a few years, as interest rates rise, I expect to see greater differentiation between various banks.)
This is also something I consider as I begin to invest more of my money. I understand that the historic returns of the stock market are about 10% annually. But I also know that average is not normal. Like everyone, I want the maximum possible investment return with the minimum possible risk. I know that if I can get 12% annually, I’ll reach my goals more quickly than if I get 8% returns.
But I look at how many people were burned during the recent stock market crash, and it makes me think that the risk of reaching for 12% might not be worth it. With proper diversification, and by being conservative with my money, maybe I can obtain decent growth without risking my savings.
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