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How Bailout May Affect YOU

Now that the financial rescue plan has been signed into law by President Bush, the immediate concern of most of us is, "What does this mean for my own bottom line?"

And Early Show financial contributor Vera Gibbons painted a mixed picture Saturday, basically saying credit will still be tight, but the lifeline from Washington to Wall Street should help on some fronts on Main Street.

In Gibbons' view:


This won't put an end to foreclosures, or send values back up (we need to work off some of the excess inventory of houses on the market before prices start rising again), but there should now be more liquidity and stability in the market, since this shores up banks' ability to lend, and makes more money available for loans. In general, it should loosen things up a bit in the credit market, and that's a good thing.


Here, the landscape has definitely changed: No more risky loans will be given out. There will be a return to "normal" lending standards. It will be back to basics. Nobody wants to assume any risk anymore in this environment. To get a loan, you'll need a stable job, cash, good credit, etc. If you're lacking in one area, you'll have to make it up in another. For instance, if you have a low credit score, you'll need a higher down payment.

Before applying, get that credit score up, ideally to the mid-700s: Pay bills on time, pay down balances on credit cards, etc. Lenders also take a serious look at your debt-to-income ratio and how much money you have left over after your down payment on the house and after your standard bills are paid each month. Go over your reserves, and try to stay as liquid as possible.


Credit card companies are in the same boat as all other lenders. They've been stung with rising delinquencies and don't want to assume too much risk. As a result, they're clamping down on customers: tightening standards, reducing credit limits, increasing fees and rates, and pursuing collections more diligently. It's a whole new landscape...


Companies are in the same boat as consumers. The credit crunch has made it tough for them to get the funding they need to bring in new hires, or even make existing payrolls. There are particularly trying times for small businesses, which are the nation's primary jobs generators.

But the job market's woes aren't just about the credit crunch. They also are the result of the slowing economy. As a result, the jobs market is expected to take additional hits in coming months. More layoffs are expected, with the unemployment rate possibly making its way up to the seven or seven-and-a-half percent range sometime mid-to-late next year.


There's going to be greater oversight, greater scrutiny of executive compensation, and final deals at publicly-traded companies will be more transparent, so that may restore some confidence, but it's going to be long road back, financially. No one knows how long or deep the recession is going to be. We're not out of the woods.

Lower your expectations. People have been spoiled by double-digit gains in the stock market.

Continue to save, keep investing, take advantage of any match your company offers to your 401(k) contributions (it is, after all, free money!), make sure your investments are properly allocated and, if you're willing to assume some risk, think about doing some bottom-fishing for beaten-down stocks that look downright cheap right now.


In general, the economy is going to be much less leveraged. It will be an environment in which cash will rule. So, we'll see households reigning in spending, not purchasing as many big ticket items, and forced to stop overindulging. They'll have to start living within their means, which is something we'd gotten away from, because money was so cheap. Now, it's going to be a much less-leveraged economy, with smaller rewards as a consequence of less risk-taking.