My warning June 2008

Seven months ago today, I poured my concerns into an email and sent it on to a number of friends and family. Much has happened since then and we are not through this storm yet.

Sent: Tuesday, June 17, 2008 10:26:16 PM
Subject: Sound and sobering guidance from the Royal Bank of Scotland

The credit strategist for the Royal Bank of Scotland, Mr. Bob Janjuah is quoted in the linked article:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

When you consider how the British are given to understatement, reading the article might just cause you worry for the global financial system. I suspect things will get rather interesting in the next few months. Hundreds of bank failures are anticipated in the U.S. alone. Germany, Spain and England all have their share of woes coming. I guess nobody really knows what the experience will be like as trillions of dollars, euros and pounds of excess leverage are unwound globally.

We are likely entering a period where your focus for investing is not to lose money as is mentioned by Mr.Janjuah. I am past the point where I can offer much advice beyond that given in the linked article. Scrutinize the condition of the bank(s) where you have your money. Consider having accounts with more than one bank, just in case.

If you have a mortgage and your insurance and taxes are paid into escrow each month, consider this - thousands of people over the past year have had their mortgage service company go bankrupt. A few months later, they discover a lien has been placed on their house for non-payment of taxes and their home owners insurance policy is canceled for non-payment because their mortgage company has failed to make payment. You can eliminate this risk by contacting your mortgage company and arranging to take responsibility for payment of taxes and insurance. Do this now.


For those of us not familiar with Hobson's choice: http://www.phrases.org.uk/meanings/183300.html

For a gross check on your bank's condition, you can estimate the "Texas Ratio" fairly easily: http://en.wikipedia.org/wiki/Texas_ratio