|
|
Thursday, September 18, 2008
|
|
Meltdown: The view from lakes area financiers
Staff Writers Shaken financial markets have caused national concern, but what does it mean for Brainerd area residents?
A sampling of local financial experts provided several opinions. The national news paints a bleak picture: The Federal Reserve gave a two-year, $85 billion loan to insurer American International Group Inc. in exchange for a nearly 80 percent stake in the company after it lost billions in the risky business of insuring against bond defaults; investment bank Lehman Brothers Holdings Inc. filed bankruptcy and sold its North American investment banking and trading operations to Barclays; and Merrill Lynch, the world's largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.
John Forrest, president of Brainerd Savings & Loan, said aside from customers asking about the issue, his bank has not felt any effects from the national financial issues.
Though he said it's too early to tell what the overall effect will be, Forrest doesn't believe small, rural banks will be affected.
"It's an investment bank problem and a Wall Street problem, not a commercial bank problem and not a Main Street problem," Forrest said. "Brainerd has got some very good banks, very strong banks, so I doubt we'll see any fallout as far as Brainerd banks are concerned."
Bart Taylor, RiverWood Bank president in Crosslake, said the U.S. government's $85 billion loan to AIG will be characterized as a bailout, but that isn't the right term. Taylor said with the loan the government took nearly 80 percent of the company's stock and gave AIG two years to get its house in order. The move, Taylor said, was made to avoid a domino effect where AIG couldn't pay its debt, potentially setting off a chain reaction with another set of companies unable to pay their bills.
"I think we are kind of entering uncharted waters so I don't think panic does anybody any good but I would say it does appear to be a pretty serious situation," Taylor said. "If anyone tells you they know what it all means in the long term, I think they are fooling you because it is kind of uncharted territory when the government steps in and takes these kind of actions."
Taylor likened it to a homeowner having the mortgage called in with a day's notice to come up with the cash or collateral for the home loan. The decision to loan AIG the money would appear to be the right decision at this point in time or at least the most prudent one with the information available, Taylor said.
One of the best pieces of advice for people in terms of money may be attributed to the adage don't keep all your eggs in one basket. Taylor said don't keep too many assets in any one bank, diversify investments in good companies and don't have more than $100,000 in any one single kind of account.
The Federal Deposit Insurance Corp., an independent agency of the federal government, insures deposits in banks and thrift institutions for $100,000 per depositor per bank. The FDIC was created in 1933 in response to the bank failures of the 1920s and early 1930s.
Taylor said he doesn't see local banks toppling over. With tightness on commercial deals, Taylor said people may not be as aggressive on business startups now but banks, including RiverWood, are still doing commercial lending.
If people keep hearing things are bad, Taylor said it can be a self-fulfilling prophesy as people stop spending. The best thing for the average working person is to keep working and continue with everyday living and not to be paralyzed in the headlights of what's going to occur next, Taylor said.
"That's what it's going to take to recover that people don't freeze and stop buying vehicles and clothes and homes if there are good opportunities," Taylor said. "If you are in need of a good car, now is probably a good time to buy one."
Pete Odell, assistant vice president at Deerwood Bank, has been watching the national situation closely, but said he doesn't believe that local banks or their customers' money should be effected by national problems.
Odell noted that local banks are not in the practice of working with the risky mortgages that he said led to the financial trouble of other banks, brokerages and insurers. He said local banks work with examiners, auditors and play by the rules.
"In general terms I would say everything is different today than it was two years ago but I think community banks are still strong," Odell said. "Obviously the economy is struggling in certain sectors but the things we're witnessing aren't on a local community bank scale."
Pam Finch, chief financial officer at Mid-Minnesota Federal Credit Union, said people's fears locally about financial markets are more a product of media reporting than actual issues in the Brainerd area.
Finch said it was important for credit union members to know that in addition to federal insurance the institution has purchased additional insurance.
"We're safe, we're sound, we're well taken care of and we're taking good care of everybody's money," Finch said.
She added it would take a lot for national financial problems to find their way to the local level.
"But if it does we're covered," Finch said. "We have enough of a cushion to handle any losses."
More important for local financial institutions, Finch said, was keeping an eye on interest rates, which so far haven't changed.
Sam Foss, Deerwood Bank's vice president of mortgage lending, said it may take some time to determine what impact the national financial downturn will have but he has noticed that the mortgage market has tightened. However, mortgages are available for those who qualify.
He said looking at area foreclosures, most were from larger national lenders. The ones from local banks and lenders probably would have happened regardless of the mortgage crisis.
Foss said a similar housing market crash happened in the housing market in the 1980s, but people had forgotten.
"It definitely may have some kind of long-term effect, but it's hard to say how because it's going to effect people differently," Foss said. "I personally think in the long run it could be good. I think it will educate people purchasing a house that it's not a small purchase, it's the biggest purchase they'll make in a lifetime ... and you can't just walk in and get it because you want it."
Foss advised people worried about the financial market to talk to their bank representatives.
Taylor said mortgages are still available, house prices have dropped and interest rates are as low as they've been in three years. Tightening at local lending has been going on for the last 12-18 months, Taylor said.
While the country has been on an exceptionally good run for 20 years, Taylor pointed out the farm crisis of the 1980s and the oil crisis in the 1970s.
"If you look back historically there has always been a recovery after a storm like this," Taylor said, adding as in previous times of crisis, there are real opportunities to buy in the market. "I don't think there is any reason to believe this time is any different.
"In the darkest hours it's hard to see the light and you hope it's not a freight train coming. I'm not saying I immediately see a light at the end of the tunnel but my guess is there is a light out there somewhere."
John Tanner, president of Tanner Motors, said a week ago he thought things were stabilizing with upturns in the auto market. Then came Hurricane Ike and news of Lehman Brothers' bankruptcy. As a result, Tanner said people don't want to take on large debt right now.
Deep discounts in vehicle prices, some 30 to 40 percent, are aimed at bringing people into dealerships. About two weeks ago, Tanner said people started to realize the bargains were there, but the hurricane raised fresh concerns about gas prices. Now Tanner said people aren't looking because they're not sure what to do and are nervous about the economy. Tanner said interest rates have never been lower and people with reasonably good credit are getting good interest rates.
D.J. Dondelinger, owner of Dondelinger Chevrolet-Cadillac in Little Falls, said the biggest change he's seen is auto companies backing off from leases, lowering residuals and raising interest rates on auto financing.
However, Dondelinger said his dealership hasn't had issues like markets in other parts of the country and people have still been able to finance vehicle purchases.
"In the Midwest we're a little more sheltered than on the coasts," Dondelinger said.
MATT ERICKSON may be reached at matt.erickson@brainerddispatch.com or 855-5857.
RENEE RICHARDSON may be reached at renee.richardson@brainerddispatch.com or 855-5852.
To Subscribe to the Brainerd Dispatch, Click Here.
Note: Comments are not edited and don't represent the views of The Brainerd Dispatch. Please read our posting rules in the terms of service policy. To report a post that may be inappropriate, click the triangle alert icon.
|
|
|
|
|
 Top Commented Articles
Over the last 7 days
Most Recent Comments
|
|
|
|
Thinking about a New Job?
These employers want you!
|
Loading...
|
|
|
Today's Best Classifieds:
|
|
|
|
|
|
