How Worried Should You Be?

With much of Wall Street and Washington in panic mode, investors and consumers might feel like they should be on the move, too. But what to do: Buy? Sell? Stuff the mattress? Head for the hills?

Maybe just digest. There's a lot to swallow, coming off a weekend that saw the nation's housing-mortgage-credit crunch roll over some of the nation's biggest financial firms. Lehman Brothers filed for bankruptcy, Merrill Lynch agreed to sell itself (at fire-sale prices) to Bank of America and insurance monolith American International Group (AIG) scrambled to find enough cash to stay in business. Why? The short answer is that any company that got itself involved in buying, packaging, trading and selling bad mortgage loans and their spinoffs is now paying the price.

To shore up the nation's financial system and their own prospects, 10 of the remaining big banks, including Goldman Sachs, Citigroup and Morgan Stanley, agreed to pitch in $7 billion each to create an emergency fund that could bolster the next troubled institution. The Federal Reserve expanded its loan program, eased its own collateral requirements to give banks greater liquidity and left hints that it might lower interest rates when it meets Tuesday.

The stock market's initial reaction was measured. But by the end of the trading day, the Dow had plunged more than 500 points, its biggest single-day percentage drop since July 19, 2002. "So far we've seen AIG, Bear Stearns, Countrywide, Fannie, Freddie, Lehman and Merrill," says Sam Stovall of Standard & Poor's. "That's just the first half of the alphabet." Stovall says he expects to see stock prices to "cascade down" even more in the days and weeks ahead.

Those stock prices are just one of the worries facing savers and investors now. More immediate are questions like "Is my money still in the bank?" And "Can I have it now? What about my brokerage account? And what about my insurance policies?" For the most part, the answers to those questions remain calming. Regulators have spent a lot of time reassuring consumers that come hell and high water on Wall Street, the Feds still have our backs. "The securities and cash will be right there where they need it to be," said SEC Chairman Christopher Cox in a televised interview. "Investors can just continue dealing with Lehman and ... Merrill as they always have."

Still, consumers can take measures to protect themselves now from the weaknesses that most expect will be around for a while. Maybe you don't have to run to the bank, take out cash and hide it under your pillow, but here's what you need to know now.