Oct 1, 2008

Dave Ramsey on the Financial Crisis

I'm a big fan of Dave Ramsey. "Debt is dumb, cash is king, and the paid-off home mortgage has replaced the BMW as the status symbol of choice." His financial principles have root in Scripture, and they work. "The borrower is slave to the lender." Proverbs 22:7 "Owe nothing to anyone except to love one another." Romans 13:8b.

Below is what he has been talking about on the radio and on TV over the last week or so. He makes sense!

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 freaking 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 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 freakin’ 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.

Contact your congressperson
More from Dave about the economy
Discuss this and more with other Dave Ramsey fans


Paula (SweetPea) said...

So, true. When all this crisis talk started, I thought oh hear we go. I love Bush but when he made the speech about the crisis and economy I thought that was a mistake because it just sent everyone in a tisy. I'm glad people are making statements about remaining calm and not freaking out. I know that my financial advisor at work ALWAYS stresses do NOT move your stuff around when the economy goes down. It has to come back up; it always does.

I'm not stressing over it. I just hope my house still sells. I've had four showings in the last ten days. People still need housing and the financially smart ones will still buy smart...unless they work for a company that is closing.

John said...

Dave Ramsey, as usual, is a voice of steadiness and consistency.

DidiLyn said...

Thanks for posting this. We adhere(mostly) to the Dave Ramsey school of thought, too. Randy Alcorn also speaks about finanaces in his book, "Money, Possessions and Eternity." Pretty straight shooting.

Andi said...

I got here after reading your happy things list. My mother has 3 dogs-Samson, Shiloh, & Suri! We live about 3 hours west of DFW.

I am in total agreement with Mr Ramsey, and you too, on this financial deal. Am mad @ the senate & house, too.

Happiness to you and yours!

Tracy @ our Journey said...

Oh boy....I'm a Ramsey fan too! Saw your blog over at Suzannes & thot I'd say hi!

Donna Boucher said...

Thank you for sharing this! I feel much better now :o)

katemcdonald said...

thanks for posting this...a good read in the current climate.

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