The economy

[dnr1128]

Dave's Thoughts About the Economy

Over the past month, we've witnessed the largest bankruptcy in history, the stock market dropping like a rock, and the talking heads on TV flowering out that the world is coming to an end. I'm here to tell you the truth—we're going to make it. We're going to be fine. Take a chill pill.

This month I've compiled some of the most-asked questions I've gotten recently from you:

Are we okay, Dave?

    Definitely. Remember Enron and WorldCom in the recent years? We survived that. But much worse than all this was the financial crisis of the '80s – S&L collapse and 1,000 bank failures in 2 years. We're nowhere near this type of thing; that was probably 50 to 100 times worse than all of this.

What does all of this come back to?

    Greedy banks financing homes to broke people. It all seemed to work okay in their minds when the economy was booming, but when the economy slowed a little bit broke people quit paying on their subprime mortgages. DUH. No wonder they went out of business. Stupid decisions.

Is there anything we can do to fix this bailout mess?

    YES! Here's a quick summary: Companies that had billions in subprime loans were feeling the effects of their stupid decision to make those loans in the first place, and practically gave them away for pennies on the dollar. But since no one wants these loans, and they've had to mark them down to market value, it has frozen the market. If we temporarily change the rule that forces companies to do that, that will free the market up.

    This is an absolutely huge deal, and it involves everyone getting in touch with their congressperson before we spend hundreds of billions of dollars that we don't need to! Learn more

Will the collapse of businesses and banks going to affect me?

    No, not unless you work there. Thousands of stock brokers on Wall Street have lost their jobs in the past few weeks, but that happens in other industries across the country in good and bad times. This time it just happened in NYC where all the national news media is so they made a big deal of it.

If I have 401(k) money in a Merrill Lynch or AIG trading account, should I move the money elsewhere?

    No. Your money isn't with them; your 401(k) money is in the stocks. These big companies are just managers (unless you directly own stock in their company). The only thing that may be an issue is if they crash later, you may have some customer service issues, but your money is still safe. This is a good reminder to not have all of your money in one stock—that's stupid. Always spread out your money in various growth stock mutual funds.

With these acquisitions, will my 401(k) account and entire portfolio with Merrill Lynch be lost?

    No. They just own the company Merrill Lynch. Look at it this way—if I owned 6 rental properties and hired a management company that eventually failed, I would still own the properties; I just wouldn't have a manager. Your broker doesn't have title to your stuff. Your 401(k) is not a company asset; that's the beauty of it.

Should I sell my US stocks to buy gold and foreign stocks?

    Absolutely not! Why would you think foreign stocks are any better than US stocks? Again, diversify your money in good growth stock mutual funds instead.

What practical lessons should small business owners learn from these bank difficulties?

    When you have no cash, you flowerin' go broke. You must keep some cash on hand, no matter what kind of business you have. Give yourself some wiggle room where you can take a hit and still be standing.

Remain calm, America. We're in a slow time, but just pay your bills and you're going to be fine.

www.daveramsey.com

[jdcord]

What does all of this come back to?

    Greedy banks financing homes to broke people. It all seemed to work okay in their minds when the economy was booming, but when the economy slowed a little bit broke people quit paying on their subprime mortgages. DUH. No wonder they went out of business. Stupid decisions.

        Is this guy supposed to be an economist, or something?  Because if he is, then he is one of the least knowledgeable economists around. 

This in no way comes back to "greedy banks financing homes to broke people".  It does, however, very much come back to federal interference in the banking industry!  The banks always knew better than to issue those loans, but they had no choice in the matter due to federal regulations that were enacted (under the guise of addressing "discrimination") for the explicit purpose of forcing the banks to issue those very loans - along with the accompanying, stifling penalties that would be dropped on the banks if they dared to show any common or financial sense and fail to comply.

So this had nothing to do with the banks being "greedy", and everything to do with the government itself bowing down to the demands of every PAC out there that even remotely claims to represent some kind of "minority group", no matter how utterly ridiculous those demands might actually be:  and in the case of these "dead weight" loans, any person with half a brain could have told you what the end result result was gonna be if you forced the banks to issue them. 


This is a classic example of why the government has absolutely no business involving itself in business.  This entire "crisis" is of the government's own making, which is why there will continue to be a saturation campaign to place all of the blame on the "greedy" banks instead.

*siiiiigh*

[BenJammin]

Ditto, JD.

And all I heard today from Chris Dodd and Harry Reid is that it's the result of too little regulation...

BenJammin