TOPICS > Economy

Wall Street Woes Ripple Through Local Economies

September 24, 2008 at 6:25 PM EST
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The collapse of financial institutions on Wall Street has sent ripples of fear through local economies across the U.S. Four business journalists from across the nation assess the regional impacts of the financial upheaval.
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RAY SUAREZ: And now the view beyond Washington and Wall Street, and to Jeffrey Brown.

JEFFREY BROWN: And for that, we’re joined by four business journalists from around the nation.

Kathy Kristof is a syndicated personal finance columnist in Los Angeles. Her column appears in the L.A. Times and elsewhere. Keith Reed is a reporter for the Cincinnati Enquirer. Shirley Leung is business editor for the Boston Globe. And Doug Smith is a reporter for the Charlotte Observer.

Well, I want to ask each of you first to talk about what’s happening in your region’s economy.

Kathy Kristof, in what ways is the financial crisis spreading outward?

KATHY KRISTOF, Personal Finance Columnist: Well, we have a higher-than-average unemployment rate. We have difficulty, like everywhere else, in getting money to finance both business and real estate.

We have an extremely — or we’ve had a very active real estate industry that is moribund right now. Again, the people who are really working hard are bankruptcy lawyers.

JEFFREY BROWN: Real estate, what other kinds of businesses or sectors are being affected?

KATHY KRISTOF: Well, almost everything. I mean, we have a very big small-business community, and they need capital to survive. So when capital dries up, you have no growth.

We have a big entertainment industry that also needs capital. And we’ve actually had A-list people being denied loans. These are fairly unheard-of frames of events. I mean, this is an unusual period.

Sectors hit in Ohio, New England

JEFFREY BROWN: All right, Keith Reed in Cincinnati, how do you see this spreading out to where you are?

KEITH REED, Cincinnati Enquirer: Well, here in Ohio, you sort of have a tale of almost three separate states. If you're here in the southern, near the southwest part of the state, you've got many corporate headquarters, and it all depends on the sector that those companies are in.

If you have Proctor & Gamble, which, of course, is an international company, that gets a little bit more insulated and sells products that everybody has to use, that company isn't feeling the strain of the U.S. economy to the extent that many other firms are.

But here on Main Street, in southern Ohio, many people are worried about their jobs and their investments, their 401(k)s. If you go to the northern part of the state here, where you have a lot of businesses, companies and towns that are closer to Detroit, closer to the auto industry, they are hurting, obviously, because the auto industry is hurting.

And they need a lot more help. And people, I think, are feeling a lot more desperate right now.

Then you have the middle of the state, the middle of Ohio, which is very rural, a lot of farmland, a lot of people who make their money from agriculture and those sorts of things.

And, of course, they're going to be affected a little bit more in their business in terms of their personal incomes by things like fuel costs, input costs, because they are actually running operations, in many instances. Sometimes family or large agribusinesses that are going to be affected by these input costs.

And you have to remember that this Wall Street storm is still coming on the heels of a hurricane that not only did damage in the gulf and drove up oil and commodity prices, but also blew through a significant part of the Midwest and did some damage up here, as well.

JEFFREY BROWN: Shirley Leung in Boston and New England, harder to get credit, more foreclosures, what are you seeing?

SHIRLEY LEUNG, Boston Globe: All of the above. First of all, you know, we have a big tech presence here. And the tech companies are really worried about companies cutting spending.

You know, a lot of them relied on investment firms, like the Lehman Brothers of the world and the Merrill Lynches of the world, to fuel -- to buy, you know, software programs. But, clearly, that's going to be drastically cut back.

Also, the start-ups here are going to suffer. A lot of them already delayed IPOs. Zipcar is delaying its IPO, and it is probably the leader in car-sharing.

Also, venture capital is going to dry up and be -- and they're going to take -- they're going to have more -- scrutinize more of the start-ups, in terms of when they give out money.

Another sector here is commercial real estate. I would say that probably at the beginning of the year that was probably the one bright spot in our economy here.

It takes a little bit longer to build buildings here, so we're kind of catching up with the rest of the country. We have billions of dollars of commercial real estate projects kind of either in the ground or in the pipeline.

But a lot of that is probably going to grind to a halt, because it's really hard to get a commercial loan these days. I mean, that's probably one of the hardest-hit sectors in this current credit crunch.

Lastly, we have a really big financial services firm or industry here, mutual fund firms, from Putnam to MFS to Fidelity.

Now, they'll probably take a hit in the short term. People will be pulling money out of their funds and probably sticking them in their mattresses the way things are going now.

But, oddly enough, ironically, with the realignment of Wall Street, Boston may benefit. Maybe New York won't be the epicenter of Wall Street anymore. Maybe centers will pop up in Boston and maybe in Charlotte, where Bank of America is.

JEFFREY BROWN: All right. And Doug Smith in Charlotte, you've got some big banks there, don't you, and some of them have been very involved in the news lately?

DOUG SMITH, Charlotte Observer: That's true, with the Bank of America and Wachovia, we certainly would feel anything that happens in the financial industry. People here are very concerned about their jobs.

Bank of America is acquiring Merrill Lynch, but in that acquisition they expect to lay off thousands of people. Wachovia has already laid off thousands, mostly in its mortgage operations.

Both banks -- they're not the only game in town, but together they employ about 30,000 people and wield a lot of weight, especially in the Center City, which has seen a condo, high-rise boom over the past couple of years.

Well, now, you know, the main buyers of those condos are bank employees, and they're so nervous now about their jobs, those sales are almost dried up.

Consumers in general are feeling it. The employment rate is up. Food prices are up, and salaries are down, as companies cut back on jobs and lay off people. And recently, gasoline has been in short supply. Gas lines have come back to Charlotte.

Concerns, resentment on Main Street

JEFFREY BROWN: Kathy Kristof, let's turn to attitudes. I mean, one part of a financial crisis is about a crisis of confidence. And you certainly heard in those hearings earlier, the anger out there, some resentment.

What are you hearing from people you interview, neighbors, your fellows at work? What are you hearing about their attitudes about this?

KATHY KRISTOF: Well, they're livid. The idea that this huge financial crisis is going to be thrown onto the back of taxpayers when, you know, all that most people know about Wall Street is that these guys walk away with $25 million on a regular basis, you know, as annual compensation.

So those guys are going to walk away free and clear, no additional checks and balances on what they can do. They've lost this absolutely astounding amount of money. And now taxpayers are saying, "Well, OK -- well, what we want you to do is give them some more."

People are flabbergasted, absolutely flabbergasted and horrified. They don't really know what needs to be done, but they know that, if something is done, there needs to be a lot of regulation of how this money is actually used and spent, because it's their money.

JEFFREY BROWN: Keith Reed, what are you hearing?

KEITH REED: Two words: fear and resentment. Fear -- Shirley said something a little bit earlier, my former colleague said something earlier about people stashing money under the mattress.

And I did hear a little bit of that sentiment in a package that I worked on over the weekend for our Sunday edition, where many investment advisers are talking to their clients right now and trying to reassure them that one of the worst things that you could do at a time like this is actually pull completely out, because you might end up taking some longer-term losses than you would if you stayed in the market right now, especially in terms of people who are younger and who have 401(k)s and need to be worried about their retirement accounts.

But people simply don't know what to do at this point. They are hearing things like -- and this is a phrase I heard repeated many times over the past week -- that this is the worst financial crisis that this country has seen since the Great Depression. And when you are an average Main Street worker or consumer and you hear those types of things, you get nervous.

The second thing is the resentment. They want to know how in the world the U.S. government can bail out Wall Street to the tune of $700 billion when the country is already in debt, people are losing their jobs, and many people don't know, in some instances, where their next meal is going to come from?

Now, that may sound a little bit drastic, but you have to consider, again, the auto worker, the person who works in agriculture, the person who was just laid off from their job who maybe even worked on Wall Street, who doesn't know where that next paycheck is going to come from, and they hear the U.S. government saying that they're going to take tax money, the money that they've earned, that we've earned as taxpayers, and give it to someone who makes millions on Wall Street.

Definitely fear and resentment are the two greatest sentiments that I've heard over the past week.

Response from CEOs, Congress

JEFFREY BROWN: Let me ask Shirley Leung, I understand your reporters or your paper was working on a story in which you talked to some CEOs in the region for their reaction. What was that group saying?

SHIRLEY LEUNG: It was very surprising. You know, CEOs are eternal optimists. They always see the silver lining in everything, and everything is always upbeat.

But these -- the CEOs we interviewed, from tech to banking to manufacturing, they were overwhelmingly deeply troubled by the turmoil on Wall Street, and they were really concerned that it would affect a broad swath -- hurt a broad swath of industries here, I mean, to the point where, you know, you have politicians debating, you know, whether or not to do the $700 billion plan.

These CEOs flat out said, "We absolutely need this plan to stabilize the financial system."

Moreover, a lot of these CEOs were saying, "You know what? We are first in line when it comes to supporting free market principles. But given what we've seen, given what we're going through, given that we can't get a loan right now, we absolutely need government intervention to save the financial system."

JEFFREY BROWN: Well, Doug Smith, that goes to this question that's out there, is the sense -- the question of urgency. Should Congress act real quickly, or should they take their time and get it right? What are you hearing from people?

DOUG SMITH: Well, I think people here would favor the "take your time" option. They've seen too many cases where the government has rushed into things and made the mess worse.

And so what I'm hearing is, let's do take the time, let's get it right, and let's make sure that the companies that caused the crisis don't make windfall profits out of a bailout, especially the corporate execs.

They don't want to see golden parachutes. They want to see those executive salaries held in check.

Expectations of President Bush

JEFFREY BROWN: Do you have -- staying with you, as we heard, the president is going to speak tonight. Do you have a sense of what he needs to say or what people might be wanting to hear from him?

DOUG SMITH: Well, I think this may be kind of like wishing on Aladdin's lamp, but I think they would like to hear that their taxes are not going to go up, that their savings and retirement accounts will be safe, and that these executives won't end up making windfall profits out of the bailout.

JEFFREY BROWN: Kathy Kristof, what do you want to hear from the president tonight?

KATHY KRISTOF: What I want to hear I don't think is possible. I think what people need to hear is, what are the long-term repercussions of this bailout?

When you add the better part of a trillion dollars to your national debt, you create the likelihood of one of two things: much higher taxes in the future, or inflation that allows the government to pay back that debt with cheaper dollars.

Either one of those has a very direct impact on every citizen in the country. I think people need to know whether this is absolutely necessary, if there's a cheaper way to do it, if there's a way to make sure that it never happens again, and exactly how they're going to pay for this in the long run.

JEFFREY BROWN: And, Keith Reed, we just have about 30 seconds. What do you want to hear? What do you think you'll hear?

KEITH REED: What I'd like to hear and what people I've interviewed would like to hear is accountability. Who is going to pay for this? And when I say "Who is going to pay for this?" I mean financially.

Who's going to wind up footing the bill, other than the taxpayer? How are we going to see some return on the investments that we're making on Wall Street? And who's going to pay for this punitively?

Will this FBI investigation that we've been hearing about actually lead to any indictments? Will anyone be held responsible for putting the taxpayers in this position? Do I think I'm going to hear it? Not likely.

JEFFREY BROWN: OK. And, Shirley Leung, we have time for a response from you on that.

SHIRLEY LEUNG: Very simply, people want to know if this will work. That's it.

JEFFREY BROWN: That's it?

SHIRLEY LEUNG: Yes.

JEFFREY BROWN: Simple as that, but not quite so simple, huh?

SHIRLEY LEUNG: Exactly.