A Money Coach in Canada

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First, here are some cold facts.  Next, we’ll go into the implications.  REMEMBER, I am NOT A FINANCIAL PLANNER.  I’m simply speaking here as your average joe-ette Cdn making sense of things on her own.

The facts:

Lehman Brothers, a pillar investment firm in the US, declared bankruptsy yesterday. The filing is for $639 Billion.  The firm has been in business since 1840.  (Not 1940.   1840.)

Merrill Lynch was also in such dire financial straights that they hastily put together a plan over the weekend, allowing Bank of America to buy them out for $50,000,000,000.00.

And last, AIG (some of you may recognize the name from your mutual funds)  which started the year with a share price of $56.45  has been steadily falling, and took a nose-dive over the weekend to end up in the $5 range. Why did AIG tumble?  Well if I’m understanding this correctly (and I’m open to correction here!), they tumbled because they insured – and may themselves been tangled up in? – companies like the ones above who invested in those nasty mortgages — the ones people are defaulting on.

So.  What does this mean to you fellow Canadians?

Well for one thing, if you have a mutual fund/stock portfolio containing shares in the Big Banks, you may take a hit depending on how much the bank was exposed to this (ie. had invested in the above companies in any way).  Similarly, SunLife Financial is going to be forced to write down $334Million.  (“Write Down” essentially means, declare on the books that their worth has dropped by that much.   Sort of like, if your house price plummeted, your net worth would also go down).

For another thing, interest rates may get cut again (this keeps money moving in the economy) at a time we might be tempted to hunker down.

Beyond that, hard to say. But here’s something interesting:  Royal Bank of Scotland predicted this very thing would happen, pretty much right now.

If ever there were a time to read the financial pages, it’s now.  These are absolutely fascinating days, even for someone who’s a money coach, not an economist or a financial planner.

About the Author

Imagine if Canadians were known for being all over their money. Engaged. Proactive. Getting out of debt. Savvy. Saving. Generous. Nancy wants to help. Nancy started her own journey with money over 15 years ago, and formed her company “Your Money by Design” in 2004 to help others along the same path. It’s not the usual financial advising/investment stuff. It’s about taking control of day-to-day finances –managing monthly cashflow effectively, spending appropriately, getting out of debt, saving. If you're ready to take control over your finances, pop by her business site, YourMoneybyDesign.com


  1. So it’s a good time to invest in banks. 🙂
    How are Canadian credit unions doing these days? I’ve been watching the news and haven’t seen much how credit unions are shouldering the storm.


    Sep 16, 2008
  2. Lior

    Well, Lehman has been on the brinks for a while. In fact many people on Wall Street predicted they would go down around the same time Bear Stearns was sold to JP Morgan. Hence, the collapse of Lehman was seen coming months ago, and fund managers like David Einhorn certainly made that point loud and clear. In fact, some financial publications predicted on Friday that Monday would be the “big day” because Lehman was in talks to be acquired by, or at least sell major units of Lehman, to the British banking giant Barclays. When Barclays learned late Friday that the US government would not be bailing out Lehman with any kind of guarantees like they did with Bear Stearns, they walked away from the deal. The rest is history. And as for the Merrill Lynch deal, it’s one of those things that are pathetic yet absolutely necessary at the same time. The fall of both of these investment banks simultaneously would have sent serious jitters in the financial markets throughout the world. At the same time last year, ML stock was trading close to $90. This past Friday they were down to about $17 a share. Bank of America agreed to pay $29 a share, far better than $17 obviously but a mere fraction of what the stock was worth several months ago. There really is no free lunch on Wall Street.


    Sep 16, 2008
  3. @Lior OK, seriously, it’s time for you to start a blog. You’re obviously well informed, and have stuff to say. Until then, please do keep leaving comments on my blog – I’ll enjoy the ‘halo effect’ 🙂

    @squawkfox Credit Unions, being independent, unique financial institutions would vary significantly one from another in terms of how they fared – or not – I would think. (again: I’m not speaking officially on behalf of anyone here!). I think credit unions would be receptive (they should be!) to phone calls – maybe to their public affairs department, or the general mgr depending on the size – asking for information. Credit unions will have at least 2 aspects of the risk: a. whether they personally had invested in any of the above, and b. the ongoing difficulty of there being fewer f.i’s in the states that they can do business with. That’s totally my layperson’s understanding.


    Sep 16, 2008
  4. Not my area of expertise, certainly, but I don’t think an insurance company can go bankrupt just because it had insured companies that then themselves went under. I think it’s because an insurance company is “just another kind of bank”: Customers give them lots of money, the insurance company invests it, hoping they won’t have to pay all of it back to the customers again. They got in trouble because their investments were bad (just like the investment companies).

    I did read something today (though I can’t say I understood all of it) about how the AIG bailout doesn’t really involve (US) public funds being spent on the company, just loaned to it; and if I were a US tax payer, I would certainly appreciate that.

    I find it nothing short of despicable that financial market players can make huge fortunes but then mommy has to come and help out the losers when the schemes are busted, when too much money has been removed from the assets to pay for for million-dollar bonuses for the middlemen and the profits for the second-to-last set of investors who sold the papers juuuust before the house of cards started falling.

    By the way, I’m currently reading John Kenneth Galbraith’s “The Great Crash”.


    Sep 16, 2008
  5. @JanKarlsbjerg Hear, Hear. I’m going to post on that topic today.


    Sep 17, 2008
  6. As if to prove my point from the other day that this is not my area of expertise, I heard this 4 minute long podcast episode from Slate today (it’s a week old, but I only listened to it today): “Why AIG Needed to be Saved”.

    Turns out AIG sold hundreds of billions of dollars of “credit default swap” = bond insurance = promises to pay if a company bond fails. Without AIG (or a similar player, I guess) on the market, the world markets would freeze up in a lack of liquidity = inactivity = world economy grinds to a halt.


    Sep 24, 2008


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