Local lenders' conservatism is working in their favor

The stock markets performance this past week is a mystery. The $700 billion bailout package the highly-touted cure-all for the financial crisis was signed by both the U.S. Congress and Senate and President Bush, but soon after on Friday, stock prices plummeted. My initial reaction was hope that it was a matter of buy on the rumor, sell on the news, and not anything more serious. For stocks, the week was the worst since the 9/11 attacks. Also late Friday, another warning flag went up as credit spreads increased, and a trusted indicator of bank-to-bank lending rates reached an all-time high. But the ugly carnage on the stock market wasnt over. Monday, stocks took another historic fall as investors worried about banks collapsing globally. Stock prices plunged to record lows, but rebounded. Its my prediction this whipsawing is an indication of what market analysts call capitulation, or investors desperately giving up. This capitulation in previous market slides has indicated the market bottom, and gives the sign of an impending turnaround. We need it. Sharply falling stock prices of bank stocks indicate to institutional investors that banks are in trouble even when they may be financially sound. These big investors, hedge funds and mutual fund managers assume large depositors are yanking their money out, like they did in the Great Depression, so theyre prompted to move soon. Such action took Washington Mutual down in a matter of days, even though it had fairly strong balance sheets. Were also watching news reports how large national chains and robust companies cant get the short-term loans they normally use for routine functions like making payroll, or inventory restocking and theyre in trouble. Apparently, if these reports arent overblown, there is a credit crunch that has deteriorated this last week. Locally, however, it looks like the situation is far better. We have yet to hear of local firms not getting the money they need to operate smoothly. Our survey this week of lenders offered good news. Banks and mortgage companies are continuing to loan money while they are strengthening their credit standards to reasonable, traditional levels. The days of zero down; bad credit no problem are gone. We can take heart that our local economy is far more resilient than most metropolitan or rural areas, and our banks have followed more prudent lending practices. While they werent willing to share specific information for print, we have secondary sources that tell us the situation isnt dire here. We appreciate the fact our local lending institutions have been prudent and conservative in their practices. Thom Randall is editor of The Adirondack Journal. He can be reached Thom@denpubs.com.

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