U.S. Treasury Secretary, Henry Paulson, made headlines yesterday with some of his remarks about the U.S. economy while on a press tour in the U.K. These remarks were somewhat taken in stride with all of the panic lately on Wall Street, but if you look a little deeper, his messaging is somewhat alarming. Let’s take a look at some of his comments:

In my view, looking beyond the immediate market challenges of today, we need to create a resolution process that ensures the financial system can withstand the failure of a large, complex financial firm.

We already know that one of the largest investment banks, Bear Stearns, made a very quick collapse earlier this year and was sold for pennies on the dollar to what it had been valued at just months earlier. I don’t think Paulson is looking backwards here. It sounds like more of a warning about what is to come in the near future.

Paulson later goes on to say that the Fed should have emergency authority to intervene to limit undue market disruptions caused by the failure of non-depository financial institutions. Don’t forget, Paulson use to run one of the largest financial firms in the world, Goldman Sachs. He knows exactly what is going on within this industry and has warnings from industry insiders that more failures are coming in the near future.

Essentially, what Paulson is saying here is that the Fed should be able to financially support failing institutions by throwing money in their direction. Where is this money going to come from with the U.S. being trillions of dollars in debt and the dollar already weak against almost all other foreign currencies? He doesn’t get specific on these details, but when our government keeps printing money that it doesn’t have financial backing for, everyone suffers.

What’s also troubling with Paulson’s remarks is that this a major role in this man’s job is to help instill confidence in the U.S. economy. At this point, he’s basically saying all bets are off and we’re in for even more hurt and we need to act quickly or some very rich people are going to be out of a lot of money.

What can you do about it? Take a close look at the financial institutions where your money is sitting at right now. Look at the financial ratings of these institutions and their recent quarterly reports. Are they in good standing? Is there a possibility that they could fail? Banks and financial institutions only keep a small portion of their assets as actual cash. If they were to fail, the odds of you getting your money back are not good, despite any FDIC insurance. It’s better to be safe than sorry. Bank runs haven’t happened in the U.S. since the Great Depression, but that doesn’t mean history can’t repeat itself.

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