Information about brokerage accounts

It's hard to believe we are nearing the end of the first quarter--not a fun first part of the year. It always amazes me to watch the market behave in completely irrational fashion. Bear Stearns worth $2 a share? OK so apparently, the firm was 30 times leveraged but c'mon....the building alone is worth way more than that!
Let's focus on what we have learned here, not a new lesson by the way. Shall we consider that once again, lifetimes of earnings and savings have basically disappeared. One third of Bear Stearns' stock is owned by employees. Granted, employees had their hands tied in so far as how much and when they could sell their shares. Please be careful to those of you who own company stock in your 401k, are awarded stock options, and stock grants in your bonuses and also own stock via ESPPs. You are probably quite over weighted in company stock. Where you have the ability to cut back, IE. those vehicles of ownership than are optional, look at paring your exposure.
Another interesting thing that has come up is what happens to client accounts should a brokerage firm go bankrupt? There have been a few articles lately in the WSJ addressing this very issue. Here, one can take solace in the fact that most large brokerage firms are covered by SIPC insurance (similar to FDIC) for up to $500,000. In addition, most firms have additional insurance to increase coverage amounts. However, it is important to know that brokerage firms must keep client accounts separate from the company's assets--as such, the accounts are held in custody. So in the case of bankruptcy, client accounts should be protected. The only real issue with brokerage accounts is if you have an account with a rinky dink little firm and there is embezzlement or other foul play. Even in the case of a criminal act, SIPC would pay, as long as the brokerage firm was covered under SIPC. So, in short, no real need to worry about brokerage accounts at a firm that is in trouble.
On the market, except for commodities, most of the equity market is down anywhere from 10-13% year-t0-date. Actually, Nasdaq is down about 27% from it's high and the S&P is down almost 18% from it's high--which leads me to believe, the worst may be over. This belief certainly doesn't mean we will turn around on a dime and start going straight up--it will take some time to develop a base. However, anyone sitting with a lot of cash should seriously consider putting some of it to work.
Lastly, while I could write at length what has happened in the market these past six months, I will keep it brief and try not to lambaste the media too much. Let's be very clear about one thing: what is going on in the financial markets is not about the weakness in the real estate market. It is about the unwinding of excessive levels of leverage (borrowing) funded by very cheap money and lots of liquidity for years. I believe the Fed is doing everything right to bring normalcy back to the capital markets but it will take time to restore confidence. Whatever the problem is, the answer is always liquidity and accommodation on the part of the Fed, at least that is what history has shown us.
Thanks for reading....