Thursday, 02 October, 2008

Fear and frustration were palpable this week as the country watched Washington grapple with a plan to rescue the Wall Street's big investment banks that have been crippled by bad loans made by the sub-prime mortgage industry.

On Monday, the Dow Jones industrial average sank 777 points only to scramble back 485 points on Tuesday as Congress continued to tweak a $700 billion rescue package that politicians on both sides of the aisle agree is needed to keep credit flowing to businesses and individual borrowers throughout the country. On Monday the House turned down a economic recovery package; on Wednesday the Senate passed its own version of the bill and the House was expected to vote again today.

And while none of the news was good, the financial outlook in Merrimack Valley was not quite as grim, thanks to the local banking industry which stayed above the sub-prime fray.

"Small businesses in the Valley are feeling the same uncertainty that businesses are feeling everywhere else," says David Tibbetts, general counsel for the Merrimack Valley Economic Development Council. "The good news is we have three very strong local banks, The Provident in Amesbury, the Institution for Savings in Newburyport and the Newburyport Five Cents Saving Bank. All three are home-based community banks that are solid, secure and in strong health."

Although that's reassuring news for local businesses that might need a loan or qualified homebuyers looking for a mortgage, it doesn't do much to ease the pain of investors who sold off big on Monday and took home a huge loss. Tibbetts says there wasn't a lot of logic behind the stock market's wild ride this week.

"What we saw was a lot of emotional reaction and people guessing about what would happen next," he says. What was also there to be seen was the fury of the public's anger at the notion of taxpayers' dollars - 700 billion of them - being used to bail out Wall Street.

House Republicans, many of whom are campaigning furiously to keep their seats, got credit for voting down the aid package on Monday but resistance to the plan was actually broad based. U.S. Rep. John Tierney was one of three members of the Massachusetts delegation to vote against the Emergency Economic Stabilization Act, otherwise known as the bailout.

"There were compromises made in this version of the bill. Unfortunately, such compromises were made at the expense of key priorities - investment in helping homeowners, protections to ensure that the taxpayer will not have to absorb the full cost, and incentives to get the economy back on track," said Tierney in a statement released shortly after Monday's vote. "This bill can be improved, and a different approach can be taken. We expect to continue reviewing this matter as the week progresses."

Tibbetts says part of that different approach should include a better and clearer explanation to the public about what's happening.

"I attribute the public anger to a remarkable lack of explanation by the White House and Congress," says Tibbetts. "Why are we calling this a Wall Street bailout? Why not call it a financial recovery package?"

Financial consultant Thomas Ambrosi of Ambrosi Donahue Congdon of Newburyport agrees politics and bad PR have muddied the debate.

"This isn't really a bail out of Wall Street," he says. "We are talking about mortgages. You are going to get a good portion of those loan paid."

Ambrosi says this is a rescue bill, similar to other types of loans that have been made by governments in other countries, and the object is to get 100 percent of the cash back and make a small profit for taxpayers.

And while that part of the debate has been drowned out by the hue and cry of an angry public and some shrill rhetoric and finger pointing by both Democrats and Republicans in Washington, Ambrosi was confident on Tuesday that a bill would pass.

"By the end of the week, they will pass a rescue and everyone will complain about it," he says. "But it will pass because the country needs it."

Local lending

Meanwhile, closer to home, Ambrosi agrees with Tibbetts that local borrowers still have options, thanks to those three solid local banks that he calls some of the best in the country.

Two months ago, when the credit problem was still a crunch rather than a crisis, Richard Eaton president and CEO of Newburyport Five Cents Savings Bank, said business on Main Street was good.

"We haven't had too many problems, and we haven't had many rejections for loans," said Eaton. "We still have plenty of money available for customers who meet the requirements."

And Eaton added that the those requirements haven't changed and put loans out of reach for people who might have previously qualified but not longer meet the criteria.

"We pretty much have the same requirements now that we've had for the past couple years," he said.

Car loans, the other type of direct lending that heavily affects local families, also seem to be available, though it depends a little bit on whom you happen to ask.

Tim Pendergast, the business manager for Amesbury Chevrolet and Volkswagen, says the Wall Street mess really isn't affecting local people who are out shopping for cars at his dealership.

"If people have good credit they are fine," he says. "I don't anticipate any slowdown in loans."

Pendergast says his customers are concerned about the stock market and the nation's economy but from his vantage point, business still looks good.

"This really isn't affecting everyday people who come here," he says.

Chris Fraser of Fraser Pontiac Buick of Newburyport says he'd need a crystal ball to say for sure what's going to happen with auto sales and loans over the next year. He does say, however, that for customers with credit that's on the edge of going bad, things are getting tougher.

"For the marginal customer who has less than pristine credit, you could still get a loan a year ago," says Fraser. "That's not so much true today."

Investment strategies

Of course, local residents who have their savings invested in the stock market either directly or through mutual funds and retirement plans are having a horrible week.

Both Tibbitts and Ambrosi say the key to survival is staying calm and looking at the long-term picture.

"If you didn't panic, if you didn't need to cash out of the market this week, that's good," says Tibbetts. "In the stock market you should be there for a long term investment."

Tibbetts says it took years for the market to bounce back after the turmoil that followed Sept. 11.

"But it did come back, it always come back," he says. "People need to sit tight and be calm"

Ambrosi says one of the first things he does with a new clients is to sit down and try to assess his or her "risk tolerance." Like Tibbetts, he says good investing in definitely a long-term commitment and it's helpful to know up front what types of ongoing financial needs people have, and whether they are able to sit back and watch when the market begins a rollercoaster ride like it took this week.

And, as Ambrosi points out, stocks dove on Monday but recouped much of that loss on Tuesday.

"It always comes back," says Ambrosi. "Sometimes it takes a while but it always comes back. We need to have a little faith in the U.S. economy. It's the best there is."

Source: http://www.wickedlocal.com/