Q With seemingly stable companies such as AIG, JPMorgan (Chase), Fannie Mae, Freddie Mac, Lehman Brothers, MF Global and Peregrine having financial problems, how safe are investor monies held/ deposited with national brokers such as Scottrade, (TD) Ameritrade, Vanguard, Schwab and others?
A It's a shame that people feel compelled to ask this question, because it shows how far trust has slipped since we learned in 2008 and afterward that we cannot rely on financial companies, politicians or regulators to protect investors or taxpayers.
Yet trust is a necessity in making the economy function well. Paola Sapienza, a finance professor at Northwestern University, has studied trust and investing and oversees a regular survey on trust. In countries where there is little trust in the people who handle investments, even very wealthy people will not invest in their home stock market, she said.
She has not polled people specifically on the breakdown in trust related to the companies you mentioned. But she says only 15 percent of Americans say they trust the stock market, and trust in banks was the lowest ever in her survey in June.
The survey was done just after JPMorgan revealed the giant banking company suffered a major loss from trading -- nothing illegal or fraudulent, but a breakdown in risk management at the firm.
Only 26 percent of those surveyed said they trust banks. In December 2010, trust in banks was at 43 percent, and in 2008, in the midst of the financial crisis, it was 40 percent.
Regardless of trust, if your money is in a bank and the bank collapses, or there is fraud, your money is protected up to $250,000 in an account. The protection comes from the Federal …