Ok, last weekend you got the "don't take inappropriate risk, and DO use good money management in the markets" speech.

This time I'm going to give you an even more serious sermon - that about your bank and brokerage accounts.

Let's first lay out what those limits are for federal deposit and investment insurance, and what they do and do not cover:

1. For BANK ACCOUNTS, which include CDs, Checking and Savings accounts, the limits are $100,000 per person per institution, with a few exceptions. That is, it is possible to exceed $200,000 per married couple, but you have to be verrrry careful with what asset classes are where and in what. For most people this is not worth farking around with; think of it as $100,000 per person, so if you're a married couple, you have $200,000 worth of FDIC coverage. Note that these limits only apply to traditional banking products such as CDs, Checking and Savings accounts. FDIC insurance DOES NOT apply to ANY structured financial instruments such as annuities, investments, or other "non-traditional" banking products that you may have purchased at a bank!
2. For INVESTMENT ACCOUNTS, if your institution is covered by the SIPC (most are, but check!) you have $500,000 of coverage with no more than $100,000 in cash. Note that this coverage does not cover you against market declines nor against the company you invested in becoming insolvent; it only covers you against the BROKERAGE going under. So if you buy, for example, a bond, and the company defaults - too bad. IF YOU BUY A MUTUAL FUND AND THE FUND COMPANY GOES UNDER YOU MAY OR MAY NOT BE PROTECTED AT ALL!

Ok, so let's talk about what rational steps you should take right now, assuming you have not yet done so (you really should have done this before, but.....)

1. If you have more than $100,000 in any single bank as an individual, or more than $200,000 as a married couple on Joint-Registration accounts, move enough of it to other bank(s) to get under those limits IMMEDIATELY. While you can structure deposits to get larger limits, this is not worth attempting in my view as if you make a mistake you are exposed. The base limits are well-understood and easy to avoid violating; the complex rules are not.
2. If you have more than $500,000 in assets in a single brokerage, or more than $100,000 in cash, move enough of it to other brokerage(s) to get under these limits IMMEDIATELY. If you are carrying a big CASH balance and do not intend to use it immediately give serious consideration to buying short-term T-Bills (30 or 90 day FEDERAL paper) with it so that you are not over the $100,000 free cash limits. DO NOT RELY ON PRIVATE OVERRIDE INSURANCE. Most of this is underwritten either directly or indirectly through LLoyds, which is a totally-private, unregulated operation. While Lloyds has a good record of paying claims in a global ****storm you must assume the "names" behind Lloyds will fail to make good on their insurance obligations.
3. If you have so much in brokerage assets that it is simply unreasonable to get under the $500,000 limits, (e.g. more than $2-3 million total) then I would diversify to no less than three brokerage institutions, all of whom must CLEAR through different primary broker/dealers. Remember here that the risk is NOT localized to your brokerage; it also extends to the primary broker/dealer they clear through as a failure THERE may imperil "street registration" securities! In this case you simply are going to have to accept the risk of a POTENTIAL business failure somewhere.
4. If you have very long term stock holdings you have no intention of selling irrespective of what happens in the markets then I would call your broker MONDAY and demand PHYSICAL delivery of certificates. This removes those stock certificates from their "street name" registration and puts them in your PHYSICAL control. Note that this makes it somewhat of a pain in the ass when you want to sell them AND you're going to get charged a fee on both sides, but it is a very viable option to remove your holdings from the risk of insolvency in a brokerage. Be aware that this also removes them from your margin computation, of course. My father had (maybe still has) a BIG stack of physical certificates in his safe. Why? He grew up during the Depression. Not hard to figure out eh?

You want to know why I am recommending this? Articles like this:

"However, the turmoil could spook depositors at Countrywide Bank, an Alexandria, Va.-based savings and loan that has grown dramatically since Countrywide Financial bought it in 2000. Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."

40% exposed eh? That's gonna suck if something bad happens, and I bet its representative of the other banks and their depositors as well.

People have simply not thought of bank failures as possible. Well, it is possible. So are brokerage failures.

The last few years have seen an incredible "levering up" of risk among all financial markets. This has not been limited to hedge funds; banks, brokerages and others have all taken on more and more risk via derivatives and packaged securities backed by what we now know to be invalid ratings!

As collateral impairment has started to take hold this has resulted in what people are calling a "liquidity crunch."

If that's all it is, then it will be painful for a while, but not catastrophic.

But if the real problem is insolvency, then injecting liquidity will not fix it, and in fact is just adding more explosives to a shack that has a lit fuse running into it, so that when the detonation occurs it will make an even bigger hole.

Don't be inside the blast radius - keep your assets spread out widely enough so that you are covered by Federal Insurance Limits.

Oh, and it wouldn't be a bad idea to keep a small stash of cash (a few thousand?) outside of the system entirely.

This posting is almost certain to kick off comments from people asking about "what if the entire thing blows up and collapses." While that's nice speculation let's simply observe that even during the Depression this did not happen. If it does, however, you will want to be long lead, brass, steel in appropriate forms and soap. I am not going to get into that sort of "doomsday" situational thinking because frankly, I just don't see the path by which it occurs, but if you want to put on your tinfoil hat, then head over to the nearest firearms dealer and grocery store and stock up.