September 15, 2008

Wall Street's latest shake-up and the average investor: What happens next?

"I own Merrill and Lehman stock. Should I panic?" - the Washington Post reports Wall Street's latest shake-up involving the collapse of Lehman Brothers, the weakening cash position of AIG and the purchase of Merrill Lynch is forcing average investors to question where to go from here.

Securities and Exchange Commission spokesman John Nester tells the Post there is no need to worry about money market accounts or holdings invested through Merrill Lynch or Lehman Brothers.

"Nothing that happens on the holding company level can imperil or threaten a customer account," Nester said. "The firms are never allowed to and don't reach into customers' money."

As for home prices, the availability of mortgages should also not be affected, says Peter Morici, an economist and professor at the Robert H. Smith School of Business at the University of Maryland.

"We're not going to hit the bottom of the stock market yet because the economy hasn't bottomed out," Morici said. "The economy is slowing and even without Lehman, the economy is headed for a bottom around the beginning of the new year."

For home prices to be affected, Morici, continues, there would need to be a "significant and sustained" drop in stock prices. "But I don't see that happening," he said. "I see an initial shock just like we saw euphoria after the Fannie Mae and Freddie Mac rescue."

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