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FEATURED SLIDE SHOW
Financial Advice from the
Founding Fathers
Their suggestions and ours might just help you forge your financial independence.
KIPLINGER'S MONEY POLL
Would you buy a GM car now that the company is going through bankruptcy?
Yes. I'm still confident in the company and product.
No. I'm concerned about service and warranty issues.
No. I wouldn't have bought a GM car to begin with.
Not sure.
       View Results!
MY POINT OF VIEW
Don't Call It a Bailout
The government plan is an economic rescue for America, rather than a sweet deal for Wall Street.

It's time to banish the word "bailout" from our financial journalism vocabulary.

The press's overuse and misuse of this pejorative, misleading word accounts for part of Washington's difficulty in crafting a plan to stabilize credit markets.

The word has come to connote a sweet deal for fat-cats, a giveaway to undeserving business owners who are largely responsible for their own problems.

No wonder many Americans are livid about what they perceive to be a gift to greedy and foolish Wall Street risk takers. I'd be livid, too -- if this really were a giveaway.

But this plan, like almost all of the recent so-called bailouts, does not represent a sweet deal for stockholders, or, in most cases, bondholders either. Most of these deals would be more accurately labeled a wipeout -- borrowing a colorful word from California surfer jargon in the '60s.

Bailout as rescue

My Merriam Webster's dictionary traces the word "bailout" back as far as 1951, and it defines it as "a rescue from financial distress."

Rescue? Tell that to the shareholders of Bear Stearns, Lehman, AIG, Wachovia, Fannie and Freddie. Their stock value was virtually wiped out by their bailouts.

In the interests of full disclosure, I should tell you that I am -- or was -- a small shareholder in AIG, Wachovia and Freddie, and I continue to hold some other big banks, such as Citi and JPMorganChase. I had lightened up on my positions over the past year, just for diversification, because I had been a little heavy in financial stocks.

But I didn't sell all my bank stocks -- didn't see any reason to. So my remaining positions in AIG, Wachovia and Freddie are virtually worthless today. I'm not whining because I believe this is a risk of stock ownership -- usually a remote risk, but ever-present. I'm holding on to my other bank stocks, and I might just add more shares of well-capitalized banks that will benefit from better times a few years from now.

It's not just common-stock owners who've taken a big hit. Even preferred shareholders in Fannie and Freddie are getting wiped out. Preferred stock is a hybrid stock/bond that is considered safer than common stock. Ironically, bank regulators were once delighted to see these preferred shares in the capital accounts of banks they examine, considering them almost as good as Treasuries. Now the so-called bailout of the F-kids has made this stock virtually worthless, and some small banks are now failing or seeking forced marriages as a result.

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