I thought this was a great comparison for today’s financial market, where “Company A” is not willing to lend to “Company B” because there is no way to be sure which Company is holding the “spoiled meat,” or in this case the bad investment. Here is also a good time to state that although Mid-Atlantic Corporate is not in the restaurant business, we do offer a full menu of investment options, for which the important ingredients are safety, liquidity, and yield.
The housing crisis that we have read and heard so much about has morphed into a credit crisis. Confidence is missing, but the amount of effort being exerted by Washington is unprecedented. We are very fortunate to have Secretary of Treasury Paulson and Chairman Bernanke on the job. Chairman Bernanke is one of the United States premier authorities on the Great Depression and therefore is willing to remain engaged at every level in order to prevent a recurrence of that horrible event. Remember that during the Great Depression, President Hoover and Secretary of Treasury Mellon felt it wasn’t the government’s place to interfere with the economy, even as it sank deeper and deeper into a depression. These are much different times, and I believe, Paulson and Bernanke will succeed, however, the success will not come without a great deal of effort. The key ingredients that are required to get us out of this mess are “time” and patience.
While it may be a little early to look ahead, I believe we will see a completely different financial landscape. The level of capital required will be much greater. Governmental supervision will undoubtedly be more intrusive. The use of leverage will be reduced. The idea that the Federal Reserve should not try and prevent “bubbles,” will be reconsidered. Over the past few decades “bubbles” have appeared in many different commodities, and it was believed, by past Chairmen of the Federal Reserve, that they should be allowed to work themselves out without interference. Perhaps that was a little too much “free market” thinking, or maybe not. But either way, our current situation argues that at least some supervision is a good thing.
In recent slowdowns, the consumer hasn’t been as involved as they are today. Because this slowdown began with housing, a great number of consumers are involved. I point this out because consumers have not only purchased homes, but some who were already homeowners, have used the equity in their homes as collateral for a home equity loan. It was the appreciation or their untapped savings account that became, to many, an ATM. The majority of credit unions avoided the sub-prime housing crisis. However, because we do offer Home Equity Loans (HELs), and credit cards, and since the consumers are involved in this current crisis, it is wise to review your policies and procedures for these types of loans.
We have, as an industry, done a fine job of avoiding this mess, and it would be a shame if we dropped our guard now. Our members/consumers need us now more than ever, and I know we will continue to be there for them.
