It’s like any commodity. You hold it and hope the value goes up, which it did in this case. As did silver. In 1999, gold was around $250/troy ounce. It recently topped out at about $1000/oz. If you had bought 10 oz. back then, you would have made $7500 profit in 10 years.
Buying gold for an investment is a really, really bad idea. (Buying it to wear is fine, as long as you understand that this is a form of consumption, and not an investment.) Over the long term, the value of gold has lagged inflation. In other words, this is a commodity that, on average, loses value. Now, there have been times, including recently, when gold has shot up in value, but you have to understand that that is a purchase for speculation, not investment.
rbroome - The simple answer is that it is indicative of a much greater downturn in the overall economy. I mean if investment bankers aren’t making money, who is?
Investment banks are kind of at the top of the economic food chain. If they aren’t financing businesses, those businesses can’t grow or expand. If businesses aren’t growing, that means lower wages and job cuts. Not to mention dropping stock prices.
With the dot-coms, airlines, automotive industries and now investment banks, I’m starting to wonder if anyone in America knows how to run a fucking business anymore.
Apart from the direct consequences (which go further than most people think - the guy who digs up the ore that makes steel that gets made into knives that are used by the guy who makes sandwiches that are sold to bank employees has a small direct interest), it goes to anything that you have in the financial markets.
Any loan or investment you have will be affected by an interest rate adjustment whether because it’s debt (the prices of which are going up as a “flight to quality”), because of the timing (day-to-day debt moves relative to long-term debt) or its quality (your credit card rate will increase more than your home loan rate which will increase more than a government bond).
Debt will become harder to get, which means that people will stop buying as much stuff which means that business will stop making as much stuff which means people who make that stuff will lose jobs. Businesses who want to expand (and hire new people) won’t, because it’s more expensive and the result won’t be as profitable.
And keep in mind that if you wanted to retire today and cashed in your super/401(k)/retirement investment/whatever to buy an annuity, you’d have 5% less money to do so than you would have had yesterday, meaning that you’d be living on a 5% pay cut for the rest of your life.
Which isn’t to say that these people should be bailed out, but it does affect you - just in ways that you’ll probably never be aware of.
ETA: And gold? It’s a saving method of last resort, usually only good for short periods when everything else is tanking. Otherwise it’s usually a bad bet. I’m not licensed to give investment advice and I don’t know your investment needs, so this shouldn’t be interpreted as advice.
I think this describes it best. This and inflation.
However, I am more optimistic. In the 80’s, everyone was saying how Japan would own the US in a few years and how their businesses were so much better we couldn’t compete etc. Didn’t turn out that way. Every economy has excesses and makes mistakes. The US is the largest economy and makes the biggest mistakes. And this is a biggie. But what makes for a successful economy isn’t size or growth as much as one that deals with the mistakes openly and according to some set of relatively fair rules. Time will tell whether that happens here, but when Washington refused to bail out Lehman Brothers, I began to hope we would. Yes, everyone’s savings and investments are tanking-worldwide. But either through inflation or taxes or a drop in share value, they were going down. It isn’t going to be fun. But I think we will weather it. We are going to find out aren’t we?
Related question: What about Insurance companies like AIG? If I have investments held by them, should I be working to get them out as quickly as possible?
100K – the FDIC limit – isn’t what it used to be.
Ok, you probably don’t have that much in your bank account. I don’t have that much in my personal bank account. But I have a business and that business has a bank account. For the first time ever, I have to be careful not to let the balance on that account get too high and I just set up an account at another bank at the suggestion of my accountant. My accountant has been dealing with this issue a lot today…she also suggested that it might not be a good idea to have money in a certain bank (woo-hoo), insurance aside, it’s still a pain in the butt if your bank fails.
But the “everyone gets their money” part of your assement could be way off. Lots of small businesses, especially businesses that buy and sell stuff, have substantially more than 100K in their business banking accounts…even very small businesses that buy and sell expensive stuff can have cash flow of more than 100K a day. and may have 4 or 5 times that in their checking accounts. So a bank failure could take a lot of small businesses down with it and you might be a victim if if your employer had 500K in a bad bank and was only able to recover the insured 20% of that. When this small business loses their 400K because their bank fails, it spreads, they have employees they can’t pay, they have vendors they can’t pay…their vendor companies might go down with them if the open debts are big enough…and then that company has employees and bills they can’t pay…
There are ways for small businesses to increase their FDIC coverage by restructuring the business or breaking up accounts. But their FDIC limits are not something a lot of companies think about and a lot of businesses may be caught.
It’s getting downright horrifying.
From a Financial Times article (discussing why the US govt was unwilling to guarantee any bailout of Lehman):
Since the August rescue of Freddie Mac and Fannie Mae, credit markets have begun to price in the possibility of a default by the US government – the implied probability remains a fraction of 1 per cent but it is an unprecedented development.