YOU’RE WRONG, WILLIE

There was a notorious American bank robber in the early 1900s named Willie Sutton. And when a reporter asked him why he robbed banks he replied: ‘Because that’s where the money is.’ Not any more. And that is why governments around the world – ours included – have moved in recent days to guarantee people’s bank deposits.

On Friday Prime Minister Rudd announced the government would guarantee deposits of up to $20,000  which was financially naive. That would have protected a large percentage of Mums and Dads and Grandmaw and Grandpaw. If you had more than that (and probably 20% of Australians do) then he was inviting a run on the banks.

And no bank, even in relatively good times, can withstand a sustained attack from depositors all suddenly deciding on a panic-ridden withdrawal.

Say you had $100,000. You’d want to get your hands on the unprotected 80 grand quick smart. You may dribble it back in to different accounts to stay below the uninsured level but you might not. We could quickly become a
‘Stick it under the mattress’ economy and that could turn the big R word into the big D word faster than you can say Kevin Rudd’s middle name – which I’ve just forgotten.

The Government’s weekend move, backed by the Opposition,  to guarantee deposits and to virtually insure Bank loans from other international banks is the best news yet in a bad time and underscores a vital message if we are to get through all this with wounds that can and will heal; Don’t panic.

It’s hard not to as people see the stock market going through the floor –again – and their superannuation nest eggs dwindling. Friday was the biggest drop on the stock market since the crash in 1987. But most people survived that crisis.  The message then as now: Don’t Panic.  Accept that your paper losses on the market (if you’re not a margin dealing cowboy) may have to sit there for four or five years. Don’t sell.

And, instead of trying to push more money into your super, take advantage of the falling interest rates and try to pay more off your mortgage principal. They may be telling you that the housing market is also on the way down and your property may be worth less. But at least it’s yours.  And that means a helluva lot in uncertain, even scary, times.

Monday, October 13, 2008

© Copyright Derryn Hinch 2008