Personal Finance: Don’t Follow Paulson’s Advice to Banks
October 14, 2008 by Miranda Marquit
Filed under Finance
This morning, there was a great deal of excitement surrounding a press conference that involved several officials (including President Bush) telling us all about how they are going to save our financial system from complete and utter ruin. The key is injecting more capital into banks, so that they will feel better about lending to each other, to businesses and to the rest of us. Bloomberg reports on the main thrust of the moves made today:
“We must restore confidence in our financial system,” Paulson said in a statement in Washington. “The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it.”
Should you follow Paulson’s advice to banks?
As you can see, Paulson advised banks to spread the capital around. And, while this might be good advice for banks to follow, now may not be the time for you — in your personal finances — to follow this advice. It remains to be seen whether or not recent efforts by governments around the world to shore up the financial system will translate into positive economic effects for us “oridinary” folks.
So, until the economic benefits of this bank bailout (if there are any) are realized, it is probably in your best interest to disregard Paulson’s advice to the banks and hoard your own cash. Now is a good time to do what you can to build up an emergency fund and to pay down debt. Actually, this is good advice to follow no matter the economic conditions. If you are living solidly within your means, setting money aside, and working to pay off debt, you will find that you have less to fear from a recession.
Actually, this is good advice to follow no matter the economic conditions. If you are living solidly within your means, setting money aside, and working to pay off debt, you will find that you have less to fear from a recession.
This is what I am telling everyone I know. The government advice to people is borrow money. But that is what got everyone in trouble in the first place. The best financial advice is have an emergency fund, no bad debt, save to smartly invest and give to charities or your church.
The government is telling us to do the opposite of good financial advice. They are telling us to borrow and spend to keep the economy stable.
Stable for who! The big shopping companies that wiped out the mom and pop shops, the banks that make money off of the interest they charge us for borrowing, the companies with overpriced stocks, the home builders with overpriced homes.
What about the poor who have no money at all? What about the middle-class who really have nothing because everything they have really belong to the banks and credit card companies thanks to living by the advice of the banks and government?
When are people going to open their eyes and see who are really pulling the strings of our elected government officials?
Um, thanks, Suzy, for reiterating my words…
Emily: Thank you for weighing in. You are very right about the government’s advice throughout this whole economic downtown. From giving us an “economic stimulus” and then telling us to spend it, to trying to ensure that the credit market remains intact so that we can increase our debt-based consumer spending, the government’s advice has been faulty on a personal finance level.