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Area financial experts weigh in with wariness
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By Kris Hilgedick khil@newstribune.com
Opinions regarding a proposed $700 billion aid bill for Wall Street ranged from supportive to skeptical among four Mid-Missouri bankers, economists and regulators.
While the two bankers were the most supportive of the aid, both shared a level of discomfort with the solution being debated by Congress.
Should Congress do it?
“I don't know,” said Ken Littlefield, Central Bank president. “It's a good question.”
He added: “You have to, at some point in time, have confidence in the people making the calls. In this case, Chairman Ben Bernanke and Treasury Secretary Henry Paulson say this is required. They are well-meaning people with opinions that should be respected and listened to.”
Littlefield feels the hearings are necessary, but Congress must act in the end.
“We have to do something,” he added. “You've got to bail Wall Street to keep the economy functioning.”
Littlefield fears if the safety net isn't extended: “It will spread to every part of our economy ... it will affect Main Street in a way we don't want it to be affected.”
Although he conceded the $700 billion solution presents a turnaround in capitalist philosophy - which says that free markets reward good ideas and hard work and punish the opposite - he feels it may be necessary for the “greater good.”
Both Littlefield and Max Cook, president and CEO of the Missouri Bankers Association, feel the term, “bailout,” misrepresents the situation.
“The stockholders were not bailed out,” said Littlefield. “They lost everything.”
Cook noted it's conceivable the securities - essentially $100 million bundles of questionable mortgages - could turn out to have at least partial value in the long run. Thus they do not necessarily pose a $700 billion loss for the U.S. government.
Cook generally agreed with Littlefield's remarks.
He sees Congress's scrutiny this week as a check and balance to the presidential advisors' proposal.
“We built the system to do just that ... the governmental system is working,” argued Cook.
But Cook's support for more governmental backing of Wall Street is limited. “I don't want Main Street or the community banks to be lost or forgotten in the process of fixing these big problems,” he said. “There may be unintentional consequences for the small businessman or woman trying to make a living.”
And he doesn't think the U.S. government should run to the rescue of every borrower, noting investing is a matter of risk and reward, personal duty and corporate responsibility.
“If there are no consequences, then we've created an environment of dependency and chaos,” said Cook.
But when asked if Congress should provide the safety net or bailout - depending on one's view - Cook's mind was still open.
Is he loathe to do this?
“I'm not,” he contended.
“Is the economy going to collapse if we don't?” he asked. “If allowing a particular company to fail causes the entire economy to collapse ...”
But he conceded the numbers Congress is considering constitute “a lot of money” and he wondered if it would grow to $1 trillion in reality.
University of Missouri Economist Joe Haslag is less sanguine.
“I'm trying to wrap my head around this,” said Haslag.
To Haslag, it seems the market already “has priced those assets” - but the price is not much.
“And it's odd the government thinks they have value,” he said.
Like many Americans, Haslag is hesitant.
“I don't see a lot of benefit in the long run,” he said. “It confuses the rules ... I'm dubious it will have the intended effect.”
He's worried such a large bailout will send the wrong message about “moral hazards” to the investment world. (A moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.)
“They will take on riskier behavior,” he warned.
Haslag agrees both Bernanke and Paulson are “smart,” but he doesn't completely concur with their dire assessment of what might happen if government doesn't act. He's not convinced we're on the brink of another Great Depression.
“It's easy to concoct a story about economic unraveling,” he said. “But people behave in ways that are in their own best interest.”
And he noted - in the midst of a prominent election - there is political pressure to help people and show leadership.
He agreed while Paulson and Bernanke's proposal was initially greeted as a workable solution, an unease is growing among the American people, and hence, among Congress.
“People should be skeptical,” he said. “I would hope Washington D.C., and New York understand this is a lot of money on the table.”
Eric McClure, a commissioner with the state Division of Finance (which regulates commercial banks in Missouri), shared his point of view succinctly: “I'm a taxpayer and I'm not excited about using my money to bail out the investment banks and fat cats in New York.”
See also:
A big difference in types of banks
While the two bankers were the most supportive of the aid, both shared a level of discomfort with the solution being debated by Congress.
Should Congress do it?
“I don't know,” said Ken Littlefield, Central Bank president. “It's a good question.”
He added: “You have to, at some point in time, have confidence in the people making the calls. In this case, Chairman Ben Bernanke and Treasury Secretary Henry Paulson say this is required. They are well-meaning people with opinions that should be respected and listened to.”
Littlefield feels the hearings are necessary, but Congress must act in the end.
“We have to do something,” he added. “You've got to bail Wall Street to keep the economy functioning.”
Littlefield fears if the safety net isn't extended: “It will spread to every part of our economy ... it will affect Main Street in a way we don't want it to be affected.”
Although he conceded the $700 billion solution presents a turnaround in capitalist philosophy - which says that free markets reward good ideas and hard work and punish the opposite - he feels it may be necessary for the “greater good.”
Both Littlefield and Max Cook, president and CEO of the Missouri Bankers Association, feel the term, “bailout,” misrepresents the situation.
“The stockholders were not bailed out,” said Littlefield. “They lost everything.”
Cook noted it's conceivable the securities - essentially $100 million bundles of questionable mortgages - could turn out to have at least partial value in the long run. Thus they do not necessarily pose a $700 billion loss for the U.S. government.
Cook generally agreed with Littlefield's remarks.
He sees Congress's scrutiny this week as a check and balance to the presidential advisors' proposal.
“We built the system to do just that ... the governmental system is working,” argued Cook.
But Cook's support for more governmental backing of Wall Street is limited. “I don't want Main Street or the community banks to be lost or forgotten in the process of fixing these big problems,” he said. “There may be unintentional consequences for the small businessman or woman trying to make a living.”
And he doesn't think the U.S. government should run to the rescue of every borrower, noting investing is a matter of risk and reward, personal duty and corporate responsibility.
“If there are no consequences, then we've created an environment of dependency and chaos,” said Cook.
But when asked if Congress should provide the safety net or bailout - depending on one's view - Cook's mind was still open.
Is he loathe to do this?
“I'm not,” he contended.
“Is the economy going to collapse if we don't?” he asked. “If allowing a particular company to fail causes the entire economy to collapse ...”
But he conceded the numbers Congress is considering constitute “a lot of money” and he wondered if it would grow to $1 trillion in reality.
University of Missouri Economist Joe Haslag is less sanguine.
“I'm trying to wrap my head around this,” said Haslag.
To Haslag, it seems the market already “has priced those assets” - but the price is not much.
“And it's odd the government thinks they have value,” he said.
Like many Americans, Haslag is hesitant.
“I don't see a lot of benefit in the long run,” he said. “It confuses the rules ... I'm dubious it will have the intended effect.”
He's worried such a large bailout will send the wrong message about “moral hazards” to the investment world. (A moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.)
“They will take on riskier behavior,” he warned.
Haslag agrees both Bernanke and Paulson are “smart,” but he doesn't completely concur with their dire assessment of what might happen if government doesn't act. He's not convinced we're on the brink of another Great Depression.
“It's easy to concoct a story about economic unraveling,” he said. “But people behave in ways that are in their own best interest.”
And he noted - in the midst of a prominent election - there is political pressure to help people and show leadership.
He agreed while Paulson and Bernanke's proposal was initially greeted as a workable solution, an unease is growing among the American people, and hence, among Congress.
“People should be skeptical,” he said. “I would hope Washington D.C., and New York understand this is a lot of money on the table.”
Eric McClure, a commissioner with the state Division of Finance (which regulates commercial banks in Missouri), shared his point of view succinctly: “I'm a taxpayer and I'm not excited about using my money to bail out the investment banks and fat cats in New York.”
See also:
A big difference in types of banks
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| Holts Summit clerk quits, levels accusations at mayor and alderwoman | A big difference in types of banks |
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ODF wrote on Oct 2, 2008 12:17 PM: " Rick (online editor) posted a link about something regarding bank regulations & inner city developement down in the "Lawmakers receive calls..." story. Haven't read it all, but looks interesting... " Byron W. wrote on Oct 2, 2008 11:55 AM: " When I posted that link to fox it wouldn't let me post it without modification. Now it is a direct link. Has somebody been tinkering with the format? " naturally wrote on Oct 2, 2008 10:52 AM: " Byron - thank you for that like, what I read looks interesting and will read the rest later. This is an example of the Democratic process not reflecting mass sentiment. " Byron W. wrote on Oct 2, 2008 10:10 AM: " ODF wrote "Not necessarily....they earn interest (plus what little principle) and then if they can resell the property rather than letting it sell at auction they get to start the process all over again." Unless the sell the mortgage soon after agreement, a bank will lose money on a default, especially in a weak market as it is now and unless it is an old loan, because they paid the purchase price to the seller up front. The few payments they get won't come close to what they paid out. " Byron W. wrote on Oct 2, 2008 10:06 AM: " here is an interesting article related to the topic: www.foxnews.com/story/0,2933,431645,00.html " ODF wrote on Oct 2, 2008 9:37 AM: " Not necessarily....they earn interest (plus what little principle) and then if they can resell the property rather than letting it sell at auction they get to start the process all over again. " Byron W. wrote on Oct 1, 2008 7:38 PM: " ODF wrote "But bottom line, banks don't want that because then they make much less money. How much more interest are they making on a $200,000+ house vs. a $50,000 - $75,000 house?" The bootom line is they make virtually nothing if there is a default. Then someone is stuck with a house they don't want and they forked over a lot to get that mortgage. " Byron W. wrote on Oct 1, 2008 7:35 PM: " jclocal wrote "Im just waiting on Byron to chime in and tell us our economy is in great shape, but I doubt we will seeing him in this thread or any other thread backing up what he has been saying about the state of our economy and how good it is!" I am here and I am telling you that unemployment isn't that high. Interest rates are not high. There is a credit market issue. which was caused by the government. The problems we have at this moment aren't that bad. Maybe they'll get there. But isn't it intriguing that democarts that hate Bush and say he is stupid is jumping on his bailout plan. Democrats have been lying for years " ODF wrote on Oct 1, 2008 10:44 AM: " We all learn as grow....if I knew then half of what I know now I might not even have to work. Oh well...such is life... LOL!!! " ODF wrote on Oct 1, 2008 10:42 AM: " naturally - I have a friend that didn't listen to my advice when the asked for it about buying a house. I told them to do 3 things: 1)Buy a house within (or maybe a little below) your means, don't get the biggest you can afford; 2)Get a fixed rate mortgage and 3) escrow taxes and insurance. They did none of that...they are now working 2 part time jobs in addition to their full time job and stuck in a bad relationship because they rely on the additional income to help pay bills. They have finally seen the light..working to refinance to a fixed rate loan and can then get out of the relationship. " naturally wrote on Oct 1, 2008 9:51 AM: " I agree ODF "living within your means" doesn't mean that every dollar you bring home should be obligated. Downsizing our personal budget was the hardest thing we had to do this year, I was thankful we were not already 100% extended or overextended. We made it through 8 months of unemployment and now take home 75% of what we did before. I just wish I'd had this kind of common sense when I was younger. And I hope this next generation can learn from our mistakes. " ODF wrote on Oct 1, 2008 9:29 AM: " Also, a lot of it goes back to changes in society, and not all or even many are for the good. What happened to meeting someone, getting married, settling down and buying a house and THEN having kids. When you have folks that are barely in control of their life as it is, qualifying them to buy a house...especially on a balloon loan...is just setting them up for foreclosure! " ODF wrote on Oct 1, 2008 9:26 AM: " If everyone bought property with that mindset, instead of must have the biggest, best, newest in the ritziest part of town, maybe the economy wouldn't be tanking like it is. But bottom line, banks don't want that because then they make much less money. How much more interest are they making on a $200,000+ house vs. a $50,000 - $75,000 house? " ODF wrote on Oct 1, 2008 9:24 AM: " nospin - Basically, anyone with a mortgage that has a personal crisis (medical bills, job loss, etc.) is/can be at risk for losing their home if they have a down payment loan or no down loan. There are good, hard-working folks out there that have good jobs but not high-paying enough to be able to put the savings together to come up with a down payment or if they can it'll be years down the road. I don't think that no downs are a problem if banks don't overapprove the loan. I bought a house, within my means, on a fixed rate mortgage that I know I can afford on my current salary or even half, if-God-forbid,-something-were-to-happen-and-I'd-find-myself-out-of-my-current-employment. " jclocal wrote on Oct 1, 2008 8:33 AM: " Im just waiting on Byron to chime in and tell us our economy is in great shape, but I doubt we will seeing him in this thread or any other thread backing up what he has been saying about the state of our economy and how good it is! " OldGenX wrote on Sep 29, 2008 8:58 AM: " Boscoe: You might want to check your math. 85 billion divided by 200 million is 425 not 425,000. " Boscoe wrote on Sep 28, 2008 10:18 PM: " Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up. Here's my rationale. We deserve it and AIG doesn't. Sure it's a crazy idea that can 'never work.' But can you imagine the Coast-To-Coast Block Party! How do you spell Economic Boom? I trust my fellow adult Americans to know how to use the $85 Billion. We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC And remember, The Chandler plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam " Boscoe wrote on Sep 28, 2008 10:16 PM: " Invest in the market - capital drives growth. Pay for your parent's medical insurance - health care improves. Enable Deadbeat Dads to come clean - or else. Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces. If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President. If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+! As for AIG - liquidate it. " Boscoe wrote on Sep 28, 2008 10:15 PM: " Give $425,000 to every person 18+ as a We Deserve It Dividend. Of course, it would NOT be tax free. So let's assume a tax rate of 30%. Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam. But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00. What would you do with $297,500.00 to $595,000.00 in your family? Pay off your mortgage - housing crisis solved. Repay college loans - what a great boost to new grads. Put away money for college - it'll be there. Save in a bank - create money to loan to entrepreneurs. Buy a new car - create jobs. " Boscoe wrote on Sep 28, 2008 10:12 PM: " I'm against the $85,000,000,000.00 bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a We-Deserve-It-Dividend. To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+. Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up. So divide 200 million adults 18+ into $85 billion that equals $425,000.00. " naturally wrote on Sep 27, 2008 4:27 PM: " Truth is if this way of reasoning doesn't scare the beejeebies out of you then you're not paying attantion. " naturally wrote on Sep 27, 2008 4:26 PM: " They tried to sugar coat it by saying its not a bail out, trying to make it sound like an investment. HELLO it is an extremely risky investment that I'm not interested in. That's what got us into this situation in the first place. I'll pass, no thanks! Generally when the risk goes up the return does as well, we will get NOTHIING back except to be able to say we still have the same people on a payroll and nothing produced. " naturally wrote on Sep 27, 2008 4:22 PM: " I'll say the same thing my grandparents said about the depression, if you don't have much then you don't have much to lose. I'm worried that I'll lose the equity in my home and the investments that I have made but I've started from the bottom before. What I don't want to see is another "new deal" in which my children inheret the price for the risks our generation have taken. That is EXACTLY what will haappen if they have to raise taxes to provide this cushion. I'm saying don't do it! " |
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online_editor wrote on Oct 2, 2008 5:15 PM: