Economists: ‘Sky is not falling’

The following article by Becky Malkovich appeared in “The Southern” (Carbondale, IL) on September 16, 2008. David is quoted in this article.

The aftershocks caused by the collapse of U.S. investment bank Lehman Brothers are causing local residents to question the stability of their finances.

“People are getting nervous, somewhat with good cause and somewhat because of media hype,” certified financial counselor Joe Plemon of Anna said. “When a major institution fails, it’s an eye-opener. It makes us stop and think about our own finances.”

However, Plemon said, investors should remain calm.

“I don’t know that we need to start panicking and pulling our money out of banks. We are not technically in a recession and we’ve been through bad times, but our economy always rebounds,” he said.

“We’ve had some major economic happenings here in the past 24 or 48 hours, but the sky is not falling. Sometimes the companies that fail probably need to fail. That’s part of the free market system. So nervousness, yes, panic, no.”

Plemon, who also writes a financial column for The Southern Illinoisan, said people should be cautious with debt and conservative with finances.

“Those who take chances are the first to pay the piper,” he said. “Try to stay out of debt and don’t spend money you don’t have.”

While he said he is not an expert in the stock market, in general he would advise those “with money in good, conservative, sound investments that have historically done well” to ride it out.

John A. Logan College Associate Professor David England said he believes the market is primed for “a correction before starting to go up again. A perfect storm is developing for a major sell-off.”

He said investors should use the economic environment now to learn how the market works and to learn how to make the market work for them.

“If you use a broker, you need downside protection to protect yourself in a downturn,” he said.

Downside protection limits the potential loss caused by a decline in a security or market.

England also advises staying away from individual stocks.

“They are just too risky. Look at exchange traded funds instead. Right now, a lot of people are doing well. It’s not all negative,” he said.

“People need to have respect for their financial decisions, and they need to do that through education.”