[no dialogue]. I would like to welcome you
to this evening’s event, “Wall Street Bailout,
Main Street Fallout”. I’m Dr. Cheryl Noll, I’m the
chair of the School of Business at Eastern Illinois University. Welcome to Roberson
Auditorium in Lumpkin Hall. We are very fortunate to
have such a lovely facility here for our students and
our faculty and staff. I would like to recognize the
president of Eastern Illinois University, Dr. Bill Perry. [audience applause]. Thank you for coming. I would also like to recognize
Dean Diane Hoadley, Dean of the Lumpkin College of Business
and Applied Sciences. [audience applause]. And I would like to express
my appreciation to our panel presenters
and our moderators for their participation, thank you. [audience applause]. This event is co-sponsored
by the School of Business, the Business Solutions
Center Partnership, and Score and without
this collaboration, this event would not
have been possible. It is important that our
students and our faculty have opportunities to connect with
the regional business community and I look forward to hosting
more events like this in collaboration with the Business
Solutions Partnership. I would like to introduce Jeanne
Dau, director of the Business Solutions Center Partnership. This event was made possible
because of her hard work and I think it’s funny because
I went to her and I said “Jeanne, I’ve got a
proposition for you. I’ve got an idea.” I didn’t know what to do with
it, but Jeanne certainly did and so without her hard work in
getting this thing pulled together and getting
our panel selected, we wouldn’t be sitting here
tonight, so thank you Jeanne. [audience applause]. Students, I have an
announcement for you. Sign-up sheets will be passed
from the back of the room to the front and so if you are in the
Business 1000 class, you are supposed to sign a separate
sign-up sheet, all other students will be signing a
different sheet. So we’re trying to keep the
noise to minimum, so if you see pass-up sheets coming along,
sign them if you are getting credit for class, if not, just
please pass them forward. Okay, thank you. Jeanne will now introduce the
panel and the moderators, and I think that we are in for a
real treat this evening and I’m really looking
forward to it. Thank you for coming. [audience applause]. (Ms. Jeanne Dau).
Thank you, Cheryl. On behalf of the Business
Solutions Center, welcome to the
panel discussion. Our mission of the Business
Solutions Center is to provide support services such
as this event tonight. Free education, free
one-on-one counseling to businesses, and entrepreneurial
education to spur economic growth in the region. We’re located upstairs at 3011
Lumpkin Hall and we also have offices at Crossroads Work Force
Investment Board in Mattoon; at Paris City Hall in Paris,
Illinois; we have one at Effingham at the Chamber
of Commerce and at Charleston at the
Chamber of Commerce. So we try to get this help and
assistance close so it’s close to the businesses and close
to the students here. I’d like to thank all of our
panel for agreeing at such short notice to come and give your
words of wisdom, we really appreciate it, and I also want
to thank WEIU and all the departments at the university. We had somebody specifically for
the sound, somebody from WEIU to help, plus the School of
Business, plus the Business Solution Center, so
it took a lot of effort. And for the people that came
in late, we have about 17 Foreigner tickets, they
are playing tonight at The Rosebud Theatre
in Effingham. If you are interested, come see
the moderators after the panel discussion because we’d love to
fill them up tonight too. All right, now we’ll go
with the introductions. First, we have Dr. Richard
Whitaker, and he is an associate professor of finance
and the assistant chair of the finance
discipline unit. He is published in the
areas of financial distress and agency costs. He teaches courses on management
of financial institutions and long-term financial management. He was previously employed
in credit administration of major Texas banks. He was a loan review manager of
one of only two major Texas banks, which did not fail
during the 1980s. As a loan review manager, he was
responsible for assessing credit quality, determining loan
losses, reporting to the board of directors, and dealing with
regulatory agencies. Next, we have Brian Titus,
and he’s the partner and general manager for
Lorenz Supply Company. He was raised on a farm south of
Mattoon and graduated from the EIU School of Business with
a marketing degree. Right now he’s the
president-elect of the Mattoon Chamber of Commerce
and is on the board of directors for the Mattoon
Area Community Foundation and the Mattoon Rotary Club. Lorenz Supply Company has been
in business for 62 years and is a business-to-business
supplier of maintenance products and
janitorial supplies. He also has retail
walk-in business as well as Internet sales. And he is a Score account client
of ours, we have worked with this company and we’re really
proud to have him as a client. Next, in the center, we have
Chuck LeFebvre, he’s the executive vice president of the
trust and wealth management department at First Mid-Illinois
Bank and Trust. Chuck manages 25 employees,
which includes several investment professionals, MBA’s,
and licensed security brokers. He also sits on the senior
management committee, asset liability committee,
and disclosure committee for the bank. Previously, Chuck was a partner
in a Champaign law firm and is recognized statewide as an
expert in the issues, which impact individuals during pre-
and post-retirement years. All right, we have Jack
Schultz and he is the CEO of Agracel, which is
an industrial development firm based in Effingham. The focus is on rural
America and has completed projects in 14 states. He’s also the CEO of Boomtown
Institute where he has toured and talked to more than 350
towns in 44 states. “Boomtown USA” is a book that
was written by Jack in 2004 and is now in its seventh
printing and was recently translated
into Chinese. Last month the word “agurbs” was
chosen as a new millennium word in “Webster’s Millennium
Dictionary”, and that’s one that was coined by Jack
and is in his book. And then we have Dan Downs. He’s the Charleston community
bank president of First Neighbor Bank. In his role, he leads a team
providing all aspects of banking including loans, deposits, and
other financial services. He holds an MBA and an
undergraduate degree in finance from Eastern Illinois
University and is also a graduate of the Graduate
School of Banking at the University of
Wisconsin-Madison. He brings to the panel over 20
years of banking experience in various administrative and
advisory positions along with his tenure in lending, dealing
with business consumers and mortgage consumers. Alright now, for the
moderators for this evening, we’ve chosen two
EIU MBA students. And first we’ll
introduce Jake Byrne. He’s an EIU graduate with
a finance degree who is presently working
on his MBA. Jake also played basketball for
the Panthers for four years and interned on Wall Street
this past summer. Next year he’ll be heading back
to New York City to work with Merrill-Lynch, or now
Bank of America, as a derivative sales trader. Jessica Surma is
from Tuscola, Illinois. She’s a University of Illinois
graduate in consumer and textile marketing with a minor in
international studies. She will finish her MBA at EIU
in general management in December and hopes to find a
career that will build upon her international experience
and interests. So, panelists, there’s
Jessica, ready for a job. Jessica also has helped the
Business Solutions Center when we had Camp E3 this summer,
which was a business-pitch competition with high school
students down in Effingham, so I became familiar with
Jessica with that. Alright, very quickly I’ll go
over the guidelines on how it’s going to work tonight. The panel discussion is being
taped by WEIU and portions of the discussion will be video
streamed on the Business Solutions Center and the
School of Business’s website in the future. Therefore, we respectfully
request that you keep any noise or side conversation to a
minimum, like Dr. Noll said and, if possible, stay seated until
the presentation is over. The panel will be asked an
opening question in which they have five minutes to respond,
then the moderators, Jessica and Jake, will ask some set
questions in which they have an option
to respond or not. If you have a question to the
panel, please write them down on the index cards that we filled
out and we will have people in the aisles that will bring them
up to Jessica and Jake. We’ll close the discussion at
6:15 and have closing statements, which will be three
minutes each, by the panelists. And some of the panelists
that aren’t going to the Foreigner concert will be
available maybe to talk individually after the panel. And, you’ve already heard,
students if you came in late, please sign up on
the sign-up sheet. With no further adieu,
we’ll pass it over to Jake and to Jessica. [no dialogue]. (Mr. Jake Byrne).
Okay, thank you. This first question, like she
said, is to all five of you. I’ll start with
Dr. Whitaker first. The question is, how has the
Wall Street bailout affected your Main Street business in
central Illinois and what are you now doing differently in
your business to counteract the change in the economy? (Dr. Richard Whitaker).
Well, I’m the one panelist who doesn’t have a
Main Street business, so I’m going to kind of
provide a little bit of an introduction more from a
national standpoint on kind of what the problem is
and how we got here. The problem started in kind of
the middle of the 2000’s, from about 2002 to 2005
when we had a very low interest rate environment. A low interest rate
environment resulted in increases in home prices. What happened after that is
people saw home prices go up and it brought in speculators, it
brought in first-time buyers who said buying a house is a good
way to make money. This worked for a while, this
worked for a number of years because as housing prices
went up you really couldn’t make a bad loan. Even if they defaulted,
the house price increased so you wouldn’t lose money. As a result, the mortgage
lenders lowered their loan standards, started making
sub-prime loans and all day loans to weaker and
weaker borrowers. What this resulted in
was a housing bubble. And so we had a housing
bubble for a number of years. A year ago, the bubble burst. Housing prices
started to decline. We started seeing loan defaults,
and that happened a year ago. That by itself would be a
manageable problem. There would be loan losses,
there would be foreclosures, but it would be a
manageable problem. What happened next, though, was
that many of these loans, or most of these loans had been
packaged together into mortgage-backed securities and
collateralized debt obligations and sold all over the world. Most of these were rated as high
quality by the various rating agencies, so from the
standpoint of the buyers, they were supposed to be good. Well the problem is, some of
those were backed by good-quality mortgages, some of
them were backed by poor-quality mortgages, and nobody
knew which one was which. And so a lot of these were on
the balance sheets of investment banks, commercial banks, and you
didn’t know how good they were. So as a result the market for
these mortgage-backed securities dried up, you couldn’t sell
them since you didn’t know the true credit
quality of them. Next comes mark-to-market
accounting, which is an accounting and SEC rule that
says marketable securities have to be written down
to their market value. Well there was no
market, so should they be written down to zero? Well that would be well below
the economic value of these assets, even if there’s high
defaults and declining housing prices, they’re still worth
something, a fairly good amount relative to book. But many of the investment banks
and some commercial banks were forced to write these down, put
them in instantly impaired capital positions, caused some
of them to fail, and the result was then the financial
panic that we’ve seen over the last two months. And it was difficult to
invest in banks because you didn’t know how good
their credit quality was. The result of this was that it
froze the credit markets to where banks were afraid to lend
to other banks and eventually afraid to lend to even good
quality businesses. This is where the financial
panic intersects Main Street. And this is a major problem,
because if the good quality customers can’t get loans, they
can’t operate their businesses. So the reason for this $700
billion bailout package is to try to unfreeze
the credit markets. That’s what
they’re trying to do. And the package was originally
to buy these mortgage-backed securities and establish a
market for them. It’s now kind of morphed into a
plan where they buy preferred stock from the
banks and directly increase their
capital positions. So we’re at the stage now, that
started just this week, so we’re at the stage now where we’re
going to see to what extent this works in unfreezing the
credit markets. So that’s kind of what’s going
on nationally, and now our other panelists can talk
about what they’re seeing in their businesses. (Mr. Byrne).
Mr. Titus. (Brian Titus).
Thank you. My role today is from a
small business perspective. As Jeanne mentioned, we’ve been
in business 62 years, we currently have 23 employees. From a small-business
perspective, I guess how the fallout is affecting us, I’ll
start with our employees. As everyone knows, if you
currently have a 401K or are about to start
one, there’s been a dramatic reduction,
to put it mildly. The gentlemen up here are
probably going to highlight some of those items as they discuss
future things also. But our employees have seen a
dramatic decrease in their funds, and we have a lot of
older employees that have already retired from one job and
fortunately have joined us in a role as second career or
part-time employment. As you can imagine, they
received in their quarterly statements a shock, I guess
would be an improvement. They’re looking for why and how
do I fix what’s going on. We’re trying to console them by
saying, listen you know, it is on paper and understand
we’re doing the best we can to manage those situations
to protect your money. As far as from a customer
standpoint from our business, we’ve seen credit tighten
dramatically with our customers, which is very difficult for us
because we do business with a variety of customer
types, to the small businesses, restaurants,
up to large industrial and commercial type businesses. When the credit tightens on
their end, we’re seeing the terms, as far as their payment
to us, greatly extended. As you can imagine
it’s a catch-22. With credit being tight for
them, we’re extending our terms which we’re having to increase
our operating money which again is increasing our expenses
in regards to what’s going on in the overall
economic environment. Also, budgets are
another thing that a lot of pressure
is on right now. Our customers are coming
to us saying that we have X amount of dollars
to work with. We’re trying to operate
within those budgets. We are a value added supplier. We try to do everything we can
to support the businesses that we do business with and provide
them valuable products but at times they want a low
price at high quality. You can imagine how difficult it
is in certain situations to provide those and
service those needs. As far as the credit as a whole,
with us being in business 62 years, we’ve been fortunate to
have relatively strong standing with the financial institutions
that have aided us to grow our business throughout
the last 62 years. Without that relationship, as
it’s going to be mentioned I’m sure, it’s very difficult at
this time to grow the business, let alone sustain it, so we
continue to build on those relationships as well as
continue to add value with the current customers in the
marketplace. (Mr. Byrne).
Mr. LeFebvre. (Chuck LeFebvre).
Thank you, and I appreciate being invited on this panel. My role, I think what I add to
this panel is to represent a business that really kind of
sits at the interface between individuals and some businesses
and the investment markets that Dr. Whitaker talked
about in his comments. We are, even though I’m part of
a bank, we’re really just the investment function of the bank. And really we can break
down what we do into two or maybe three
different categories. One is trust administration. One is investments on
sort of a retail level. And the third is retirement
planning administration. What we’ve noticed is, first of
all, we’re kind of having pressure from both sides, both
from the customer/plan participant side, people having
a lot of fear, a lot of anxiety about what’s happening to
their individual investments, or to their retirement
plan investments. And so we’re fielding a lot of
calls from those people and trying to give them good advice,
which quite often just means trying to calm them down a
bit about what is happening in the investment markets. And second, we’re trying to
make very sound decisions on behalf of our clients with
respect to the investments that we are making. When we’re operating as the
administrator of a trust, it’s really our responsibility not to
turn to our client and ask them to decide what we
should be investing in. We have to go make those
decisions ourselves. And what we’ve noticed happening
with this credit crisis is alot of those investment vehicles
that have traditionally been considered to be very
stable in value and very conservative are the ones
that have been hit very hard in the recent
market turmoil. So we have found ourselves in a
position where many of our very conservative portfolios are
seeing the type of market value fluctuation that
really should not happen in a portfolio of that type. And it’s caused us to put a lot
more time and effort into very, very carefully examining
the methods by which we can become even more
conservative even more defensive in managing
those portfolios. And frankly, given the way the
market has been, there have not really been any truly good
investments out there, and yet we do have to find a safe
place to place these assets and still derive
some kind of return. So that’s been a
very, very significant challenge for our business. And then the other side of that
is that it’s really required us, because the news changes on a
nearly daily basis, to monitor much, much more closely what’s
happening in the political world and in terms of what research
analysts are coming out with and to try to take what begins as a
very difficult strategy and tweak it on a microscopic level
very, very frequently. So we’ve found ourelves meeting
and discussing investment strategies on weekends and
evenings and late at night, times that typically are really
not required because typically in the investment community
you can afford to really take the long view, particularly
with the type of style that we’re shooting for. So it’s really
changed our work flow. It’s changed the amount of time
and attention that’s being paid to what’s happening in
particular areas of the market. And at the same time, we’re
taking a situation that is very, very difficult to explain or to
even comprehend and predict and trying to unravel that into
plain English terms that our clients and our customers can
understand and take some solace from and try to without giving
the impression that we know more than we do, still provide our
customers with the sense that we are managing
their assets properly. So it’s been a very, very
challenging time for this particular business,
challenging intellectually. In terms of the business flow,
if you look at balance sheets and profits and that kind of
thing, that side of the business has been relatively stable, but
customer relations and the business of making investment
decisions has been a very, very difficult thing to do recently. (Mr. Byrne).
Mr. Schultz. (Mr. Jack Schultz).
We build manufacturing plants around the
country and so I get out to a lot of Main Streets
around the country, and I also talk on my book around
the country so again get to a lot of Main Streets. For the most part, we have found
that our customers and a lot of people on Main Street had
some of their best times in the first half of this year. And in fact, we had our best
first half of the year in 2008. The second half of the year has
been much more challenging. During the depths of the credit
crisis when everything was supposedly locked up, because we
were working with local banks–and I would differentiate
those from investment banks. A lot of the media just calls
them all banks, and I want to differentiate between the
investment banks on Wall Street and the commercial
banks in our small towns. We were able to finance some
projects, and our typical projects range from $2 million
to $10 million, but were able to do a couple of $3 million
financings without any problems. Just got back from our
annual meeting of the industrial real estate group. Most of those are from large
towns who are dependent upon Wall Street for their financing,
and they were in a panic. We really think that this
problem is more of a Wall Street problem rather than a
Main Street problem. Even though the politicians and
the pundits would like to say that they’re trying to bail out
Main Street, I see it as a bailout of Wall Street. And Dr. Whitaker talked a
little bit about the history. I’d like to back up just a
little bit to December 5, 1996. And that was the date that Alan
Greenspan used the word, or the words, “irrational exuberance”. And Congress came down on him
like a rock because they liked these high prices that were
happening in the dot com era. And there was a hubris that
existed on Wall Street that they were willing to bid up companies
like Arrow dot com or Pencil dot com to $6 billion that had
no business plan whatsoever but valued an idea of a
pencil at $6 billion. Alan Greenspan backed off,
saw a bubble emerging, and, instead of raising the
margin requirements, let that bubble explode
in early 2000. Congress exasperated by doing
away with Glass-Steagall by increasing and allowing those
investment banks to margin up to allow them to have 40-to-1
ratios of debt-to-equity. Forty-to-one debt to equity. Which meant, 40-to-1
debt-to-equity means, that if you buy a stock for $100 and
that stock goes down to $97.49, you just wiped out
all of your equity. Our commercial banks here in
this area are typically working at 10-to-1, a much less
debt-to-equity ratio, much more solid, and as a result
they were able to loan money during this time. And the bailout that occurred on
Wall Street was exactly that, for Wall Street and
not for Main Street. Some of the things that they put
into the bailout package that Congress saw in their wisdom was
a $2 million subsidy to produce wooden arrows in this country. Another one was to build a
NASCAR race track. Another $500 million went to
Hollywood film producers. Those are the types of–the word
idiotic comes to mind–types of things that are going on
in Congress that do not make any sense and that
I think are detrimental to our country in
the long term. (Mr. Byrne).
Mr. Downs. (Mr. Dan Downs).
Thank you. First of all I want to thank
Jack for clearing up the difference between commercial
bankers and investment bankers. That helps us tremendously. One of the great things about
talking last is the fact that I get to say less, so that works
out really well for all of you. In addition to the comments and
observations that have already been made, the main issues that
the local banks–and I am talking on a more local level. The more pressing issues
we see are we have more questions now on the safety
of depositors’ accounts. And so we are having to
re-educate our customers who have in the past taken for
granted the fact that they can put their money in and
not have to worry about it. They knew it was always
going to be there. But now that they’ve watched the
television, they’ve decided that maybe it’s not as safe
as it once was. So we are having to re-educate
those people to say hey, everything’s alright, you know,
you can’t believe everything you see on TV, so just hang with us
and everything will be fine. We are, as I said, reassuring
them that we have a safe, sound, and secure place
for their money. The other thing that has
happened is we’re dealing with FDIC insurance coverage going up
to $250,000 per account. That, in turn, has caused
us to have to pay additional premiums
for that benefit. We’re willing to do that, we
enjoy doing that, because we can get more money to lend out again
and make more money. There’s not greed in there, it’s
just good business sense. Deposit rates have been reduced
as well as in-house loan rates. The downturn in the home
marketing area has led to reduction in the number
of homes being sold and the amount of mortgage
applications. And when you don’t have a lot of
people that are coming in to borrow money to buy homes,
then that is one of the biggest industries that keeps a
community afloat. Because those people are going
to stay here, they’re going to spend their money here, and they
also will send their kids hopefully to Eastern, so that
helps out Eastern as well… [audience laughter]. Long-term mortgage rates have
increased resulting in reduction of the value of a home a
customer can afford. As interest rates go up–well,
let’s back up a little bit. When rates were down to the 5
percent range, you could afford more of a house because your
payment was going to be less. Now that they’ve jumped up two
points, do you think they can afford that same house? No, therefore some of the bigger
houses that were built during that era or that period of time
are sitting on the market and they’re not being sold. So that has affected our local
economy as well because those people that wanted to move and
go other places can’t get rid of their houses now
in certain cases. Even based on the above items
and what we’ve talked about today, it’s still
business as usual. We’re taking deposits and we’re
making loans and we’re going to be here for a long
time to come. (Ms. Jessica Surma).
Thank you. We’ll move on to the set
questions and the first one is, “How does this recession compare
in severity to other historical U.S. financial
setbacks such as the Great Depression, the 1970s,
and the 1987 crash?” Dr. Whitaker? (Dr. Whitaker).
During the Great Depression, which essentially lasted during the decade of the 1930s, the
unemployment rate hit 25%. Another severe recession that we
had was during the time period from 1979 to 1981–the
unemployment rate hit 11%. Since that time
we’ve had a couple of relatively mild recessions. We had a two-quarter
recession in 1991. Following the dot com
bubble and 9/11, we had another
two-quarter recession. It wasn’t very deep, it
wasn’t very long-lived. As far as the recession that
we’re in now–and we officially entered a recession today. The GNP numbers came out for
the third quarter, it showed a decline of point three percent. This is the first inning of the
recession, so it’s the early stages of the recession. As far as how severe it’s
going to get, it’s something we’re going to have to
see as it plays out. I think that the expectation is,
is that this will be a relatively severe recession. I don’t know that it will be as
severe as what we experienced at the beginning of the 1980’s. I don’t know that it
will get that severe. But some people are predicting
that we’ll hit an 8% unemployment rate,
it’s at 6.1 right now. There’s also expectation that
this recession is going to be more than a two-quarter
recession that it may last three or four quarters before we start
seeing an upturn in the economy. So it’s going to be, the
expectation is it’s going to be more severe than the last couple
of mild recessions that we had. [no dialogue]. (Mr. Byrne).
Okay, the next question. When do you predict the economy
will become more settled and bounce back, and in addition to
that, what key indicators in the economy do local business owners
and investors need to track to help forecast the recovery? (Mr. Schultz).
Well, I think the stock market is generally a
leading indicator of what is going to happen. The unemployment rate is a
lagging indicator, and I think that the basic underlying
economy is really stronger than what has happened. And even the GDP numbers that
came out today was for a decrease of 0.3%, which means
that our economy is operating at about what it was in June of
this year, so it’s not a catastrophe by any means. I would agree with Dr. Whitaker
that this will probably be one of our more severe recessions. I think we will start to see us
come out of it sometime in 2009 and probably by 2010 for sure. At least from our perspective
of seeing what’s happening out in the manufacturing
sector, this economy really has a lot of resiliency to it. And I think a lot of it is due
to all of the entrepreneurs that are starting new
businesses that are happening out in
the country today. And there’s much less of a
dependence upon the big old companies like the
General Motors and the IBMs and those
big companies. That a lot more of our economy
is driven by entrepreneurs, and those entrepreneurs are able to
react and to stop and to start much quicker than one
of the big companies have been able to
do in the past. (Dr. Whitaker).
I think that over the next 12 months,
we’re probably going to get hammered by a succession of
bad news after bad news. We’re going to see declining
operating results for firms, we’re going to see declining
GNP, we’re going to see increased unemployment. So for the next 12 months,
we’re going to see just more bad news one
after the other. The other thing that’s going to
happen is, as the economy contracts tax revenues contract,
so the federal government’s deficit is going to increase
substantially above what it was this year. We’re going to see a similar
thing with state budgets. They’re going to have reduced
revenues, and that’s going to put them in difficulties. What we may see are increased
requests for bailouts. They’re talking about a
bailout of General Motors and Chrysler right now. A couple of weeks ago,
California started talking about a $7 billion bailout
for the state. So I think we’re going to
start–they withdrew that request, but they at least
mentioned it–so I think we’re going to start seeing more and
more things like that come up. As far as when the upturn
starts, one thing I would look for would be an increase
in housing prices. To know that housing prices have
bottomed out and then start to increase is a sign
that the worst is over. I’d look for an increase
in quarter-to-quarter earnings of firms. If that starts increasing,
it’s an indication that the worst of it is over. As was said earlier,
unemployment numbers are a lagging indicator. We’re not going to see the
employment numbers pick up until the recession is
completely over with. So those are some of the
things I think we’ll see over the next year. (Ms. Surma).
What advice would you give to elderly people
who have invested heavily in mutual funds and
don’t have the life span to ride out the stock market recovery? (Chuck LeFebvre).
Well, I think that first of all you hear a question
like this fairly often. And I think that one of the
things that we have to do is step back and look at what’s
implied by suggesting that there’s an elderly person who
does not have the life expectancy to wait
out the recovery. Of course, there’s
really two types of recoveries we’re waiting for. One of them is the recovery
of the financial markets or the investment markets. The other is the recovery
of the general economy. And those are not going to
happen at the same time. It would be very unusual for
them to happen at the same time. As Jack mentioned earlier,
the stock market is a leading indicator. We would expect the
stock market to recover first. And just to put this in
perspective–if there’s an elderly couple talking to me
with this particular question, you really have to look at how
long do we think that the stock market or the investment market
is going to be down. Historically, it
has been down for fairly short periods of time. The longest that we’ve ever had
the markets continuously go down since 1926 was 34
months, and that was in the Great Depression. And then it very quickly
started recovering again. And to put that in perspective
with respect to an elderly person’s life expectancy–a
91-year-old has a five-year life expectancy. So there aren’t a lot of people
out there who are really so old that they’re not going to live
long enough to see the recovery. The challenge, then, for them is
not that they’re not going to live long enough but they’re
probably, just like in normal times, the challenge is are they
going to live too long and in the meantime are their
investments going to decrease so substantially in
value that they start seeing an impact on their lifestyle. And what that couple really
needs to be told is that they can’t really wait for it to be
an emergency basis. They need to be looking right
now at trimming their spending as much as possible to try to
tap into this nest egg as little as they possibly can. Because of course while the
markets are down it’s a very, very bad time to try to be
pulling those investments out and feeding off of them. So I would start by saying
let’s look and make sure that you’re getting all of
the government program money that you possibly can. Do you qualify for things like
Circuit Breaker, do you qualify for other types of assistance? And let’s make sure that you’re
not spending more than you absolutely have to right now and
then let’s tease this money out of your investments as
slowly as we possibly can. Because the recovery will come
and you will be alive to see it and we want as much of this
money still there so that it gets the bounce when the
market comes back. Just like a regular investor, I
think that these people need to be cautioned against panicking
and converting everything into what would be perceived as a
safer investment when in fact by doing that they might
just lock in their losses. And they still might be living
for quite some time and not have enough sufficient
assets in order to sustain them for their lives. (Mr. Schultz).
You know I think it really gets back to an
asset allocation decision. And especially elderly people
probably need to look at where they allocate their assets and
they shouldn’t, when you’re my age, you shouldn’t have 100% in
stocks, you should have some in bonds and in cash
and in other assets. One of my concerns, as I look at
this not just in the immediate term but in the two to three
years, is that with what I’m seeing the U.S.
government is doing of flooding the
currency markets. And this is a graphic that I
wish everybody could see, but it’s a graphic that shows the
monetary supply–and those of you that are in economy
classes can better explain M1 and M2 and M3 to me than I
can–but this is a graphic that shows the monetary supply. And you can see this spike up,
that it went from about a 10% monetary supply up to 90% here. So the fed is flooding the
market with cash and what happens to that is eventually it
becomes very inflationary. And that’s what happened in 2000
and 2001, when we had the crash in the dot com is that then they
flooded the markets with cash, interest rates fell to one
percent on the fed funds rate, and that’s what was one
of the problems with what happened with
housing prices. And I think we’re going to be
looking at another problem with inflation in the next
two to four years. And if I was an elderly person I
would be looking at how do I take part of that allocation and
put it into TIPS–which are treasury inflation protection
securities–that allow you to have some protection
against inflation. Right now those are trading at
about three and a half percent plus inflation, so with an
inflation rate that’s running right now at three to four
percent, you’re getting about a six to seven percent
yield on those. And I think those are a way to
protect you against inflation, because inflation is really the
worst thing that can happen to all of us in this room, and it’s
a way for the government to tax us without us really knowing
we’re being taxed. And the inflation, I’m afraid,
is going to pick up in the next couple years because of all the
money that’s flowing into the financial system at this point. (Dr. Whitaker).
Kind of what he is alluding to is what’s called
life cycle investing. And the idea there is that as
you get closer and closer to retirement age, you move your
investments out of common stocks which are more
volatile and move them more into fixed income securities. And that’s something people
should do as they start approaching retirement age,
not after they get there, but as they approach it. And that’s one of the things
that we teach in the certified financial planner program that
we have here at Eastern, for anybody who’s interested in
applying to that program. I also had a couple more
comments, as far as how fast things will recover. During the Great Depression
were two of the best years ever as far as stock market
increases going from very low levels and going up over 30%. However, during the Depression,
the time period between stock market peaks–that’s when it
set a new all-time record and the next time it set a
new all-time record–was something like 13 to 14 years. During the [unclear audio] of
the 1970’s, the time period between market highs–when we
set one record high and when we broke that record high–was
another 13 to 14 years. When the dot com bubble burst in
2000, we did not break that high until last summer, until the
summer of 2007, so that was a seven-year time period before we
set a new stock market high. In the current recession, it
would not surprise me if it’s not 10 years before we
set a new stock market high. [no dialogue]. (Mr. Byrne).
Next question. Where should a 20-
to 45-year-old be investing money at this time? (Mr. Schultz).
Well in my own case, my own 401K is now
shrunk to a 201K. [laughter]. But the best place for
young people to probably invest is in the stock market. Right now, it’s just like going
into a supermarket where they’re selling you two-for-one, so
you’re getting two pounds of meat for one price or
for a price that you paid six months ago. So you’re able to buy a lot
more stock than what you were able to buy
six months ago. So those of you who are young
enough and have a long enough time horizon, the stock market
is still the place to be. But an even better place to be
for you young people is to become your own entrepreneurs,
to start your own businesses. Your generation, the millennial
generation, is going to be the most entrepreneurial
generation in the history of the United States. And there are going to be
fortunes that are going to be made by young people
such as yourselves. And I can tell you stories of
dozens of them because I collect them, of young people between
the ages of 12 and 27 years of age, which is the millennial
generation that is going to be the most entrepreneurial
generation in the history of the United States. And your generation is already
being compared to the generation of the 1880’s, which was the
generation that transformed this United States from a third-world
country into a world power, something we have
never looked back from. So if you have got any ideas,
start your own business, that’s the best place. Invest in yourself,
and that will be your best place to invest. [no dialogue]. (Ms. Surma).
For the lenders–has your criteria for lending to
businesses and individuals changed, and is it still
possible for small businesses to get loans for
operating and expansion? (Mr. Downs).
Jessica, there was a question right before that–these
go along together–“is this a good time to
start a business?” I’m anxious to hear some
of the other people’s discussion on that, but,
in conjunction with that, our criteria hasn’t changed. We still look at loans the same
way we have for several years. We analyze tax returns. We look at past history, see how
they’re managing their business. We look at pro formas, what are
they expecting for the next year, for the years to come,
three to five years out. What’s their capital position? How much do they actually
have invested in this? What’s their at-risk value
compared to what we’re going to be putting into this? And also, we are doing what we
always do, which is looking at secondary sources of repayment. Are the principles able to, if
for some reason the business can’t make the payments, can the
principles cough up the money from their own private reserves? So there are other things to
take into consideration. But is it a good time to
start a business? I would answer that the same way
I did with a lot of my questions that the professors did
in our classes–that depends on the business. So personally I think that with
lower lending rates there’s more ability for companies like Jack
said, entrepreneurs, to get into it provided they can get the
capital backing. Because they’re still going to
have to have, even the SBA charges at least a 25%
minimum investment before you can get into their program. So if they have the right
backing, yes, this would be a good time to
start a business. (Mr. Titus).
I would agree with Dan and build on what
he said, speaking from someone who in a very short
time and hopefully a very long career–lending
agents, please listen. [audience laughter]. But in all seriousness, I
guess my point would be I’m cautiously optimistic. I’m in what I would call a
mature business currently, but I start a new
business every morning. We have to constantly evolve
and change, I guess, as the market has changed. Every morning I have to
invent or reinvent how we’re going to go to market. We compete with WalMart
on a daily basis, you can imagine
how easy that is. That just goes to show you that
the small business, as Jack has mentioned, it does have a
place in our community, in our environment. I would encourage everyone in
this room, take a chance, take a calculated chance on what you
believe in, believe in yourself. And with the help of others such
as are sitting at this table as well as people at Eastern,
it’s very possible. I say fight on and go forward. [no dialogue]. (Mr. Byrne).
Because east central Illinois has lots of suppliers to the
big auto manufacturers, what’s going to be
the effect on local businesses because of
the turmoil hurting GM, Chrysler, and Ford? (Mr. Schultz).
We deal with a lot of auto suppliers all
over the country, and what we see happening at GM
and Ford and Chrysler is that they are losing massive market
share to companies like Honda and Toyota and other
companies such as that. And there’s a major shift-taking
place of automotive production moving from, centered in
Michigan down to the south, down to Alabama and Tennessee and
Mississippi and South Carolina and places like that. Today, there are more people
working at making automobiles in this country than there
were 20 years ago. Which if all you did
was watch Lou Dobbs, you would never believe. But you can look at the
statistics and there are more people today making automobiles
than there were 20 years ago. But those people are often
living in Mississippi and Tennessee and other states. And unfortunately Michigan and
the big three automotive manufacturers have gotten their
cost structure out of line and they have much higher costs to
produce automobiles that puts them at a dramatic disadvantage. In addition they have not
adapted as quickly as some of the foreign manufacturers
and we are seeing a major shift that’s
taking place. It does not benefit Illinois,
it does benefit the United States as a whole. We are sad to see that
happening in Illinois. Unfortunately, from our
perspective as a site selection consultant of looking all over
the country, Illinois has a reputation of being
business unfriendly. And until we turn around that
reputation, we are going to be challenged to bring new
industry into this state. And you cannot be pro-labor
and be anti-business at the same time. And unfortunately we have some
politicians that do not understand that and until we
learn that, our state is unfortunately going to suffer,
in our opinion as a very small site selection consultant who’s
looking all over the country. [no dialogue]. (Ms. Surma).
Everyone seems to agree that there is greed and
corruption on Wall Street that put
us in this mess. Do you feel that the local
banking industry may also be to blame for offering home
loans to people who cannot afford to pay them back? (Mr. Downs).
Jessica, please pick me. [audience laughter]. This was my favorite question of
all the ones that we got. No, I don’t think that the
local banking industry is the cause of the
mess that we see. We followed the rules, got to
know our customers, and evaluated their ability
to own a home based on prudent guidelines
and risk criteria. We acted as financial
counselors instead of just a mortgage originator. Most of the mortgage issues were
caused by mortgage brokers. Those were incented to provide
loans to a mortgage company–not a bank, a mortgage
company–based on a different set of lending criteria. In fact, I learned a new term
for some of their loans–it’s called a “NINJA” loan. I don’t know if anybody has
heard that term or not, and that stands for “no income, no job”. They were clearly made based on
the value of the property and the borrower’s good credit
score without really determining the accuracy
of the property’s value. You know, if somebody is selling
a house for $60,000 and you’ve got a foreign company coming in
and they ask somebody to do an evaluation or they even do an
evaluation online–which you can do if you want to sell your
house–and it comes back at $80,000, well to
those companies, that’s a pretty good risk. Now you’re right below
80% loan-to-value. However, isn’t it true that if
you’re selling the house for $60,000, that’s what you’re
buying it for, the value of the house should be $60,000? So if you make 100% loan
at $80,000 automatically you’ve got $20,000 at risk. Additionally, with the
availability of credit cards, people can live an awful long
time on getting new credit cards, running them up, getting
a new credit card, using that credit card to make the payments
on the other credit card. So you really have to get to
know your borrower before you make that loan to them, and I
think that’s one thing that all of the local bankers
are very good about. One of the other advantages
to working with a local banker is the ability of
the bank to work with customers who get in trouble. You know, we’re not in the
real estate business. We are in the business of making
loans and collecting payments in order to get paid back for that. We don’t want to
sell people’s houses. Nobody wins when a bank
forecloses on a house. Everybody loses–the bank loses,
the customer loses. And so we don’t want to do that. That’s why you need to make
prudent lending decisions. If delinquencies do exist in our
portfolios, it’s mostly due to the four D’s–death, divorce,
disability, or downsizing. Unfortunately these are hard to
predict and luckily we haven’t had too much of the last one. Thank you for letting me
answer that question. [audience laughter]. I hope I did an accurate job. (Dr. Whitaker).
This is really a loaded question. To put everything on so-called
greed and corruption I think is an inaccurate portrayal of
what’s been going on. And I think in a sense it’s a
dangerous portrayal, because it sets up a very anti-business
attitude in this country. So I think it’s kind of a
potentially dangerous thing. I’ll talk a few minutes
about the government’s role in causing this problem. The initial cause of the
problem, the place it first started, was the federal reserve
keeping interest rates low too long–that’s where
it initially started. Secondly, you’ve got the
government-backed entities, now government-owned entities, of
Fannie Mae and Freddie Mac who were the ones who went out
and essentially bought about half of these
mortgage loans. And that was their
purpose, was to promote these types of
lending activities. The regulation of banks is
tilted toward encouraging residential mortgage loans. That’s a governmental
policy to do that. It shows up in the [unclear
audio] agreement, which is the primary bank regulatory
agreement, that residential mortgage loans are only counted
as 50% of capital, so it’s lower rated than other
commercial loans. They have even
lower requirements on rated debt securities. And all these debt securities
that were sold out there, that are causing the problem, were
rated triple A or investment grade by essentially a
government monopoly of rating agencies–S & P,
Moody’s, and Fitch. If you want to sell your
securities publically, you’ve got to go to
them and get it rated, and they did not do their job. They did not evaluate
these securities and rate them properly. They rated them triple
A and allowed them to be sold all over the world. Does it cost them any
business for that? Not a bit, because you
still have to come back to them to get your
securities rated. So what’s the incentive
to do a good job? That’s where part
of the problem is. You’ve also got the Community
Reinvestment Act, which requires banks to make loans to
low-income communities. So all of these
things were pushing lending in that direction. You add to it the mark-to-market
accounting rule, which is enforced by the SEC, which then
precipitated this crisis. And you need to recognize
that there’s a lot more players involved in this
than just one thing. Now that being said, were
there bad loans made? Absolutely, some of the worst
loans ever, with unbelievable credit standards, were made. But that by itself is
not the whole problem. (Mr. LeFebvre).
Dr. Whitaker and Dan have covered part of
what I wanted to say with respect to this
question, but I do want to add just a couple of things. One is, first of all I agree
completely that it’s a bit of a loaded question to sort
of pin this on greed and corruption on Wall Street. I really think that most of what
happened on Wall Street were players doing pretty much what
we Americans expected them to be doing, which was pursuing
profits in a manner that they thought at least was
prudent at the time. That applies to most of them. What happened here was really a
failure of the people who are modeling the risk profiles on
some of these securities to be able to do that accurately and a
failure of them to appreciate their inability to
accurately model the risk profiles on
these securities. And the one place where I think
Wall Street really did break down in ways that are
embarrassing to look at is with the credit agencies. Or I think these rating
agencies, it does appear that they really did engage in
extremely sub-standard practices with respect to the
type of due diligence that they expected of themselves, and
the marketplace did not place a premium on accuracy
of their product. And so those of us who are out
there making investments found ourselves like Fannie Mae and
Freddie Mac, a perfect example. The preferred stocks on those
were investment grade on Friday, the eighth of September, and on
Monday the eleventh of September they were junk and you could
not find a buyer for those. And these rating agencies
literally over the weekend just dropped the ratings down from
one of the highest ratings available down to one of the
lowest ratings available. So there was a real
breakdown in that particular function of our system. And I also wanted just to go
back to my days of practicing law, tapping into some
of what Dan said. It was clear going back even a
few years ago that there were very, very different practices
on behalf of mortgage brokers versus banks in
originating mortgages. For lawyers who are out there
closing residential real estate transactions, you could see the
difference in the paperwork. There was talk among the
profession that there was a lot of falsification of documents
that was becoming fairly common. We did not see this from banks,
but on a very, very regular basis it became the practice. I learned a new phrase, which
was this phrase called “gift of equity”, which we started being
asked to put on the settlement sheets as a way of basically
bumping up the assessed value of a house and then pushing it back
down by saying that the seller actually made a gift of that
portion of the equity that was falsely put on the
sheet to begin with. This became very common practice
and again we saw that from some mortgage brokers, but not the
more prudent local banks. (Mr. Schultz).
You know, I don’t want to try to pretend
that there wasn’t greed-taking place all
over the place. It was not just on
Wall Street, it was happening on Main Street also. There were people that were out
trying to buy 30 and 40 condos that were under construction
because the price of housing was moving up. But I think that Wall
Street in a way got too smart for themselves. They were the rocket scientists
run loose, if you will, and sometimes you get back away from
the basics and you try to get too smart but you end up
shooting yourself in the foot which is I think what happened
with Wall Street. When you look at what is a
mortgage and how it used to be made, is think of Jimmy Stewart
in “It’s a Wonderful Life”, where the local banker made a
loan to you as a borrower for your house and then he collected
that loan and eventually you paid the house off. Well it changed a couple years
ago when Wall Street got involved and said hey, we can
get involved in this act, there’s a huge mortgage market. We will separate who’s
making the loan from who’s receiving the loan. And so the mortgage brokers and
the local banks got involved in it also, but primarily mortgage
brokers that made loans that they never had to worry
about collecting. Well, if you don’t have to worry
about who you make the loan to because you’re never going
to have to collect it, you’re going to make
loans to anybody. And it’s human nature. You don’t care who you make a
loan to because you’re never going to have to collect it. And that’s what happened, and it
really changed in 2002 when we went from looking at who are we
going to collect the money from to where it became more
important, can I make this loan and can I sell it
to Wall Street. And if you made your payments
for 90 days, those brokers didn’t have to worry about it. And then we got involved in the
regulators that made mistakes, that didn’t do things
right, and we got involved in all these other securities. For example, you’ve
probably heard of credit default obligations. Credit default obligations were
zero, zero ten years ago. Today it’s a $60
trillion business. There’s $60 trillion. I had to write it down, there’s
like 13 zeroes in 60 trillion. Sixty trillion, if you divide
that by 300 million people in the United States, there is a
$200,000 credit default obligation on top of each one of
us in this room, which is just incredible that we went… Ten years ago we were able to
operate without any credit default obligations, and today
we’ve got 60 trillion of them hanging over our head, and it’s
why the government gave $85 billion to an insurance company
by the name of AIG to get them out of those type of
obligations. Doesn’t make sense. (Mr. Byrne).
Thank you, now we’re going to move on. We actually have a few questions
from our securities analysis class and also if any of the
audience members have questions that they wrote down on their
note cards, please raise your hand and we will get them and we
can ask them as well. To start off, what advice would
you give to current business students who are about to
graduate, looking for a job right now in this
tough job market? (Mr. Schultz).
I would find an industry that excites me,
that I have passion for, and I would get a job there
if I had to go and sweep floors because what you want to do is
just learn, and you’re going to learn more from
these first jobs. I went, when I was 25 years old
I went and got a job and I didn’t make any
money for 10 years. I mean, I lost money in my first
10 years of my career, but I learned the things that set the
base for me into the future. And so I would not be so
concerned about what I’m going to make or where I’m
going to go to work. But I would find something that
I have a passion for, whatever it might be, and I would go to
work at a company that’s involved in that field. I would learn as much as I
could, and five years from now I would start my own business in
that field because of that passion and because of what you
learned during that period. [no dialogue]. (Ms. Surma).
How will the $700 billion bailout affect inflation? (Dr. Whitaker).
What, is everybody looking at me? [laughter]. Okay, on the $700
billion bailout itself, the way that this is set
up, if it works the way that it’s supposed to,
presumably the taxpayers aren’t going to lose
any money off of this. So far it’s been loaned out to
banks at a five percent rate with other provisions in there,
so as long as those banks survive, at some point in time
this will be paid back. So if that’s what
happens then by itself it shouldn’t
be inflationary. Now the inflationary risks,
though, are the increase in the money supply, with the fed
policy that we’re seeing, that’s an inflationary risk. The other inflationary risk is
if these bailout programs continue and expand beyond this. (Mr. Schultz).
I think it’s going to be terribly inflationary
and we are going to see some of the worst inflation
in our lifetime in the next two to five years because
of all the money that’s flowing in and because of
all the other bailouts that are taking place. It’s
not just the banks, now the automotive
companies want a bailout. The ethanol, there was an
article yesterday that every ethanol plant is going to
get a $25 million bailout because they’re in trouble. I learned last week that the
buckwheat producers in North Dakota think they
should get a bailout. And the thing just isn’t going
to stop and it’s just going to spread and all of this will
be terribly inflationary and I think it’s going to be… In many ways it reminds
me of the 1970s, which I was just starting
my career back then, but that was a very
inflationary time. And unfortunately when that
inflation stops it can be very painful, which will be probably
eight to ten years down the road when we finally wring that out
of the system if we do. [no dialogue]. (Mr. Byrne).
What opportunities or changes for the good do you see
coming from this situation? (Mr. Titus).
It’s caused us to be better as a small business. We have to, again I mentioned
earlier, we have to reinvent ways to go to market. The doom and gloom
of Wall Street. Fortunately on Main Street, from
our perspective, we’ve seen opportunities in the last 18
months that I have not seen probably personally in
the last 10 years. We’re excited. Everything that we’re doing now
is building on something that’s going to happen probably in the
next 8 to 10 months, and we think it’s going to explode for
us because we’re seeking opportunities hopefully that
others aren’t or others can’t. As I mentioned earlier, the
position of a small business at least from our standpoint, we
cover a relatively small geographic area in the
state, the Internet has been a valuable source for us. I’ll give you an example. I shipped a vacuum to New Jersey
in the last six months. Now I’m assuming there are
vacuums available in New Jersey the last time I knew, but for
some apparent reason–thanks to the guys who invented
Google–we’re now able to have an opportunity to service
anybody in the United States. And I promise my service is just
as good if you’re in Hawaii, New Jersey, or anywhere
else as it is. If you’re at Eastern, I’m
delivering to the college. So we’re excited and the
opportunities I think are going to be abundant even though there
are pressures in regards to the national level, so I’m very
optimistic about the future. (Ms. Surma).
Would closer regulation of the Federal Reserve
Bank help to stabilize monetary policy, and if so what
regulations might you suggest? (Dr. Whitaker).
Well, the federal reserve is the regulatory agency. So they’re the ones
who do the regulating. There is nobody
who regulates them. I guess the argument that’s
going on right now is that if you look at, strictly speaking,
what the fed is supposed to do, it conducts monetary
policy and it’s supposed to stabilize
the price level. However, the fed has conflicting
missions in which they are also trying to stimulate the economic
activity, and those two missions conflict with each other. And that accounts for some of
the problems that we’ve had in recent years where they abandon
price stability for the purpose of stimulating economic growth. [no dialogue]. (Ms. Surma).
How will bailing out companies such as
Chrysler and GM help the general public and individuals? (Mr. Schultz).
Can I take the other side of that? [audience laughter]. I don’t think that it is the
government’s responsibility to bail out companies. I don’t think that it should be
capitalism on the way up and then socialism on the way down. And if we don’t bail out
Chrysler, somebody else will pick up those pieces and will do
a better job and will be able to cut costs out of the process by
picking it up at a bargain. And so Cerberus Capital, which
owns Chrysler, a big LBO outfit, a big hedge fund, shouldn’t be
bailed out of their billions of dollars of investment
that they made. But we should let the market
work because the market is a much more efficient allocator of
capital than what our Congress or the people in
Washington can ever be. (Ms. Surma).
Alright, unfortunately we’re out of time for the
audience questions so now we’d like to ask for
some final comments. Please limit your remarks
to three minutes. [unclear dialogue]. (Mr. Byrne).
As a 30- to 40-year-old with no debt, would you
recommend going into debt and investing in the
stock market today? (Dr. Whitaker).
No. [audience laughter]. I generally don’t recommend
people going into debt. The only time you’d want to do
that is if you’re making a higher return than what you’re
getting off of interest. The other comment is going to
the stock market right now–right now the stock
market is the most volatile that it has ever been. It’s making unbelievable
moves both up and down on almost a daily basis. I would not. I am somewhat skeptical
that we are at the bottom. There’s more news out there. It would not surprise me to see
the stock market have further declines from where
they are today. So I would not be
rushing into major investment decisions at
this point in time. I would let things
stabilize a little bit. [no dialogue]. (Ms. Surma).
Which presidential candidate’s tax and economy plan
do you feel will help get our country back on track? [laughter]. (Mr. Titus).
We appreciate no loaded questions. [laughter]. (Dr. Whitaker).
Is that candidates, living or dead? [laughter]. (Mr. Byrne).
You can say “no comment”. Will well-capitalized investment
brokers hurt small banks? (Mr. Downs).
No, I think that there will always be a need for
small community banks in every location because people
want to deal with people. They don’t want to
be just a number. They don’t want somebody out in
California or New York or some other place to have to call them
up on the phone or even if you can video them on the
computer or whatever. You still can’t get that
straight across from the person and get the feel of okay, if we
get in tough times, are you going to work with me or not? Well if you’re far away and
there’s a computer in between us, it’s real easy to detach
from your borrowers. However, if you’re right
there in front of people, it’s a little bit more
enticing to try to work with them and get them
back on track. So I don’t think that investment
brokers–I think they serve their purpose in the areas that
they operate, but I think that this is going to help
small banks and small community
banks especially. [no dialogue]. (Ms. Surma).
What do you see happening to the strength of the
dollar in the near future? (Mr. Schultz).
I think the dollar is probably going to
strengthen in this worldwide crisis because there’s a
tendency for capital to flow to the location of strength. And so as we saw, for example,
when Iceland essentially imploded–a country of 200,000
or 300,00 people that had deposits in their banking system
of something like $500,000 for every person in the
country–when all of that imploded because they brought in
money from Europe, when that imploded those funds tended to
come into dollars. So I think you’ve seen during
this crisis that the dollar has really strengthened here in
the last several months, and I think will probably
continue to strengthen during this time of crisis. (Mr. LeFebvre).
I would just add to that that we can see
very, very active in the investment world that there’s a
lot of active movement of other countries seeking out
dollars right now. Korea recently, I’m not sure
what the arm of the government was, but South Korea recently
purchased from some of the South Korean investment banks $100
billion worth of loans that those banks have
yet to originate. They’re loans that those
banks are supposed to go out and get in U.S.
dollars because that’s how much they want dollars
to flow into Korea. So I think that that, and you
see things like that going on in various countries all
over the world. So at least the short term,
people are scrambling for dollars and I think that’s
going to really buoy the value of the dollar. (Dr. Whitaker).
The dollar is strengthening at the present time. And some of this reflects kind
of a flight to safety, since this is a worldwide crisis, it’s
not limited to just the United States or central Illinois or
anything of that sort. A larger concern that’s going
on, though, is that over recent months the government’s taken
on, has guaranteed, substantially more liabilities
than what they had in the past. And if that continues then at
some point in time the countries loaning money to us might start
to question that. If you think back a year ago
when the dollar was still declining there was a lot of
talk about oil perhaps being priced in Euros rather than
dollars, about countries moving to Euros or something like that
as their reserve currency. If that ever happened it
would be one of the major economic events
of our lifetime. We get a lot of benefits out of
being the world’s reserve currency, and that’s
something we certainly hope is going to continue. (Ms. Surma).
Okay, thank you. We’ll move on to the
closing remarks, just keep it to three minutes. Do you want to start,
Dr. Whitaker? (Dr. Whitaker).
Ah, sure. We’ve heard a lot of good
comments today. I appreciate the comments of all
the other panelists. They certainly added to my
understanding of the situation. I think I’d summarize that this
is the most significant economic event of the last 75 years. This is major news that’s going
on right now, and the final outcome of this is
not yet resolved. The other thing that I would add
is that the policies that promote economic growth
are lower taxes, lower regulation,
and free trade. Those are the three things
that the government can do to promote
economic growth. During the Great Depression
government did exactly the opposite of those things, and
that’s one of the main reasons that the Great Depression
lasted for a decade. (Mr. Titus).
Again, from a small business perspective,
cautiously optimistic is how I would phrase where
we’re at from a position both within a local perspective
as well as a statewide perspective and on from there. Again, opportunities are around
both for us as a company as well as many of the companies
that we are involved with where there is a supplier,
there’s manufacturers, and on through the chain. Again, I would recommend, you
mentioned earlier about people that are entering the
job market or are currently there what to do. I think take calculated risks. Make sure you use
your resources wisely. Jeanne mentioned the SCORE
chapter and things that we’ve done to try to strengthen our
position as a small business in order to allow us to have the
resources to continue to grow. We’ve been here 62 years, I
fully intend for us to be here another 62 years, willing and
continuing to do things well. We’re going to build on that. Again, I agree with a lot of the
things that have been said today and have learned quite a bit by
being up here, so I do appreciate the opportunity to
speak with you this evening. (Mr. LeFebvre).
We’ve heard some discussion this evening about
the interconnected economies, some of the world
markets versus the United States, and so on. And of course, here locally we
are connected with what’s happening on Wall Street, even
if that connection is tenuous, as some of the
comments have indicated. I think it’s important, sort of
as a way of closing things, to remember that we are in central
Illinois and we’re not in one of the major metropolitan centers,
and that has been a big advantage I think for
those of us who live here. We did not in this local area
experience the real estate bubble that happened in many,
many other parts of the country. And we have not subsequently
experienced the same kind of bursting
of that bubble. And so for those of us who don’t
spend a lot of time traveling to those other areas, some of the
stories you hear are kind of hard to believe because we
really don’t see this stuff happening around us locally. So there’s a good reason to be
fairly optimistic as we move forward and I know our business
has been hiring people in recent times, other
businesses are growing. And we certainly do have some
hard times ahead of us as a nation, and some of that’s
going to effect us locally. But I think we all need to
realize that we are blessed in many ways to be where we are at
this particular time and we have very good business community,
it’s a good place to be. (Mr. Schultz).
I think when you’re in a time of crisis it’s
difficult to see the clear sky out in front. But if you look at past crisis’s
that we have had here in this country and take you back to
1970s when we had the first oil shocks and OPEC was going to
take over the world. And then, in the 1980s, it was
Japan that was going to dominate the United States, and there was
a block in the center of Tokyo that was worth more than the
entire state of California because of their
inflated values. And then in the 1990s the giant
sucking sound to Mexico, that all of our jobs were going to
flow out of Mexico. And during all of this
time our economy continues to grow
and to get better. And then in the late 1990s, is
was the Y2K that was going to paralyze the entire country. And then the bird flu that was
going to kill us all, and we weren’t going to be able
to leave our houses. And each of those crises
passed and now we look back on them with a
little bit of humor. We look back on them and say
well that really wasn’t as bad a crisis as what we thought of. And as I look to the future, I
think that the best days of the United States don’t lie in
the past, as Lou Dobbs would have us believe. But our best days
lie in the future. And it’s because of the young
people in this room and you’re creativity and your
entrepreneurial spirit that are going to make this country much
better than what it is today. And then we’re going to look
back on the crisis of 2008 in 10 or 20 years and go, you know
that was a tough time but we came through it and
we were better for it. We wrung some of the excesses
out of the system and as a result of that we built a better
base and we are today a better country than what
we were in 2008. (Mr. Downs).
First of all, I’d like to say thanks to Jeanne and Dr.
Noll for giving me this opportunity to be part of
this illustrious panel. Secondly, I want to thank Jake
and Jessica for doing such a great job, I think they need a
round of applause. [audience applause]. And third, I’d like to
say, as you’ve heard, we’re in unique times. The local banking community, and
I want to clarify local banking–I’m talking about the
First Neighbors, the First Mids, the First Financials,
Citizens–all those local community banks whether big,
small, whatever, we’re all in this together, and
we do a great job. Very competitive against
each other but we work well together in
times like these. We’ll continue to provide
opportunities to customers to earn a safe return on their
investments and their deposits, and we’ll use those deposits to
provide lending opportunities to our business customers,
consumers, and mortgage borrowers based on prudent
lending practices. In other words, it’s going
to be business as usual. Thank you. [audience applause]. (Dr. Cheryl Noll).
Thank you, didn’t they do a great job? Thanks again. [audience applause]. ♪ [music playing–
no dialogue] ♪♪.