A reader asks: What can be done to save the financial system? How seriously should the individual take the national economic crisis?
There are some obvious steps we can take. Many economists agree on these:
-- Banks must lend to individuals or organizations that are good bets to pay back the loan in full.
-- Reasonable collateral must underwrite transactions on derivatives.
-- Underwriting standards should be strenghtened and enforced.
-- Allocate additional funds to FDIC (Federal Deposit Insurance Company) to strengthen confidence in savings accounts.
-- Clarify accounting rules applicable in all states.
-- Reduce the number of foreclosures by restructuring mortgage debt, adopting "rent-to-own" options or whatever it takes.
Our man on the Street has these tips for individuals:
"This is not a good time to quit your job. If you are steadily employed and are eligible for a tax-deferred investment plan for a portion of your salary, maximize it; you get the full benefit of dollar-cost-averaging and you limit your risk, with obvious tax advantages. There are bargains out there right now.
"Sell neither your house nor any blue-chip securities unless you absolutely have no choice.
"If you have credit card debt, pay it off right away. Make that your number one priority. Put yourself on a budget. Treat the while business the way an alcoholic treats the twelve steps: soberly and seriously.
"It is only sensible to proceed cautiously at a time like this, but I would disregard alarmists who tend to extrapolate from current conditions and discount the possibility of change.
"In the short term, be patient. Have confidence. We've been through bad crises before and, if necessity is the mother of invention, we're about due to have some invention.
"Read poetry. It has the best cost-benefit ratio of anything in the culture."