Russ Ramsey Says Stick to Your Investment Plan

I first bumped into Russ Ramsey, a co-founder of investment banking firm Friedman, Billings, Ramsey Group, at the FBR Open golf tournament in Phoenix about five years ago. Russ has been an investor in Washington and its technology scene for two decades, starting with some early home runs with Mark Warner, who went on to become governor of Virginia.

One day at lunch in Tysons Corner we learned that each of us was a big fan of Warren Buffett. We launched into an hour-long exchange on Buffett's investing philosophy, his company Berkshire Hathaway (which owns a part of The Washington Post) and Buffett's plain-spoken annual letters to shareholders.

Russ has left FBR and now runs his own investment company in Northern Virginia called Ramsey Asset Management. A few months ago he sketched out what was happening to the financial markets on the back of a napkin (literally), and told me how there was about $1 trillion or so in bad debt that had to be flushed out of the system.

With the Wall Street meltdown picking up speed over the last two weeks, I wondered if this had something to do with the $1 trillion and the napkin. I phoned Ramsey to ask him what he thinks about all of this, from an investment point of view, and whether I should be buying gold and shoving my cash into a mattress.

First he gave a primer on the current crisis.

"How did we get here? One, we went on a massive credit binge, the biggest ever."

He pointed out how the United States has $10 trillion in loans within its banking system, another $25 trillion in loans outside of the banking system and yet another $68 trillion in "credit swaps" -- basically insurance policies for owners of corporate bonds -- which Buffett has referred to as "financial weapons of mass destruction" because of the way they have spread risk among institutions.

Ramsey said the world's financial plumbing needs a good flushing, which Treasury Secretary Hank Paulson tried to do with his $700 billion bailout plan.

"The water has stopped and the water has to get rolling again, with governments standing behind the underpinnings," Ramsey said.

So what should I do?

"Average people should turn off CNBC. They should stick with their financial plan, pay their mortgage, work hard at their jobs, look after their families and have faith in elected officials," he said.

Ramsey called the meltdown "a short-term crisis of confidence in the credit markets."