It’s finally obvious to all that many Americans are suffering severe financial distress: record numbers of homes in foreclosure; personal and business bankruptcies on the rise; massive job terminations reported daily; corporate securities values plummeting.  Unless you’re among those fortunate few untouched by current economic conditions, you should be taking action to protect your assets.  Let me offer three suggestions to assist you

1) Protect your home.  Those of you with homes purchased between 2002 and 2006 are at greatest risk.  Values began rising dramatically following the 9/11 terrorist attack, as a combination of low down payments and unrealistic loan standards induced many persons to lever their way into unaffordable homes.  During this period sales prices increased dramatically, topping out in mid-2006.  Thereafter values declined, wiping out equity as if it never existed—which, in fact, it never did.  Today, many houses are worth far less than the mortgage loans encumbering them, referred to as upside down or under water.  Added to the problem is an increase in mortgage loan payments resulting from scheduled rate adjustments provided in those mortgages.

If your home has negative equity or payments you cannot afford, you must take action.  The first thing to do is approach your lender to request a loan modification so the terms are something you can live with.  Responsible lenders will prefer to change the terms of a loan rather than commence foreclosure action which may result in acquiring unwanted property.  As for approach, contacting your lender personally will be far better than hiring one of these “loan modification specialists” now crawling out from under the rocks.  In most cases these outfits merely take an up-front fee from you and do little or nothing to resolve your problems.

2) Protect your securities.  It’s finally clear to the most naïve among us that holding a portfolio of stocks, bonds, or mutual funds is no guarantee of perpetual prosperity.  Those of you who thought corporate securities only went up now better understand the terse reply of financier J. Pierpont Morgan responding to an inquiry as to what the market will do: “It will fluctuate!”  This is why you must take charge; investment decisions cannot be left to your broker or your financial advisor.

Become familiar with the investment world.  Subscribing to the Wall Street Journal and Barron’s Weekly is a good start.  Participate in and conduct your own research in every decision involving your holdings.  Never authorize a brokerage establishment or individual stockbroker to maintain a discretionary account.  Avoid involvement with anyone soliciting your business through telephone or mail.  Steer clear of the manipulated markets: annuities, foreign-currency trading, options, precious metals, penny stocks, and the like.  Finally, consider doing your business with a discount brokerage such as Charles Schwab or Quick & Reilly, or over the Internet.

3) Protect your stash of cash.  Spending money now appears to be fashionable.  On March 10th, Federal Reserve Chairman Ben Benanke informed the Council on Foreign Relations that economic recovery requires the USA and other governments focus on increased lending.  He added that current regulations requiring banks to hold a certain amount of capital in reserve is inhibiting lending, thereby making things worse.  Not to be outdone, the following day Treasury Secretary Timothy Geithner outlined an ambitious program to increase emergency funding to the International Monetary Fund by $500 billion so to help countries in trouble.  Included in his plea for the world to join with us in this endeavor, he outlined an ambitious agenda to increase such expenditures tenfold.

If you’re paying attention to our government’s leaders, and the laws being enacted, it’s your duty to stimulate the economy.  To encourage vehicle purchases, a tax credit equal to both the state and local sales taxes is now available on new car purchases up to $49,500.  To stimulate home sales, a credit up to $7,500 is offered to first-time purchasers.   And as head cheerleader, President Obama exhorts us to get out there and spend . . . spend . . . spend.  It appears the official line is America’s problems can be addressed by unlimited borrowing and spending.  We can end the nation’s economic woes by encumbering our way to prosperity.  Evidently I missed something important along the way; I thought profligate spending is what got us into this mess to begin with.

At the risk of appearing unpatriotic, I’ll offer a different message.  Unless you are flush with excess cash, do not purchase a new auto.  Make do with the one you currently drive.  Do not—I repeat, do not—look upon your credit card as a way to acquire possessions.  A credit card is nothing but a convenience when neither cash nor check is handy.  And when the bill comes due at the end of each month, remit the full balance owed so no interest is charged.   There’s a point I’m attempting to stress: Avoid unnecessary borrowing like the plague.  Cut down on your spending and hang onto your cash.  If things get sticky, you’ll need your dough to see you through the tight spots.  Never forget the universal rule: When the going gets tough, cash is king!

A final thought is in order.  Do not presume our nation’s leaders know what must be done to resolve economic problems.  In most cases, their specialty is getting elected or appointed to political office.  Few possess any understanding of financial matters so, by necessity, must rely upon the advice of others.  Invariably the decisions are recommended by bankers—those who store other peoples’ money, by accountants—those who count other peoples’ money, and by economists—those who philosophize about other peoples’ money.  Rarely are programs developed and administered by persons who actually deal regularly with their own assets and possess some feel for what works and what does not.  As a result, you’d better ignore the grandiose proclamations offered as you hang on tightly to your purse or billfold.