Wall Street can seem a long way from Granby Street, Kempsville Road or Great Bridge Boulevard, but the uncertainty and fear gripping financial markets last week also visited Hampton Roads.
Brokers and financial advisers were deluged by clients inquiring about the safety of their investments. Some sought guidance or asked about investment opportunities. Others had an edge of panic and insisted, "Get me out of everything."
Bankers, meanwhile, sought to assure depositors that their institutions were sound and covered by federal deposit insurance even as they cut back on lending and tightened borrowing standards.
Like their customers, financial executives acknowledged that they were jolted by the upheavals on Wall Street.
"I've seen things in the last two weeks that I thought I'd never see," said Bob Aston, TowneBank's chairman and chief executive officer.
The government took over giant mortgage companies Fannie Mae and Freddie Mac; the investment bank Lehman Brothers collapsed into bankruptcy; and Merrill Lynch hurried into a merger with Bank of America to avoid a similar fate. Stock prices plunged, then rebounded as the federal government began formulating a plan to ease the crisis by taking on the worst debts crippling banks.
The emergency actions taken late last week will calm the fears of some investors, "but the volatile swings that we've seen in the stock market have got to scare people," said Roy Pearson, an economic forecaster and retired College of William and Mary professor. "It's been a week of shock and awe for the average household, as well as for those on Wall Street."
Families' fears about the safety of their savings and investments come in the wake of declines in household net worth during the first half of this year. Even before the recent turmoil, "people were feeling pretty dismal about their prospects," Pearson said.
"People are worried," he said. "First, they saw problems with mortgages and then with investment banks and insurance companies and now with money-market mutual funds.
"The average person sees this as a domino effect and wonders, 'Where will this end?' "
Economic growth in Hampton Roads already had slowed before the upheaval on Wall Street began.
Personal income in the region hasn't kept pace with the increases in household expenses, especially the cost of gasoline, said Vinod Agarwal, an economics professor at Old Dominion University and a member of ODU's Economic Forecasting Project.
Still, the region continues to add jobs, and defense spending, a major source of support for the Hampton Roads economy, continues to grow.
"If home prices do not decline significantly, I think we're OK," he said.
What could hamper economic growth in the region and the country is the psychological pain that investors feel, especially if their homes have lost value. When their net worth is growing, individuals are much more inclined to spend, something known as the "wealth effect."
"We're just beginning to see a reverse 'wealth effect,' " Pearson said. "If your wealth goes down by $100, you will likely adjust your spending by about $5 over time. It's not a big dampener, but it's definitely a dampener."
More significant is the mounting credit crisis. Credit markets logjammed last week as big banks hoarded cash and avoided lending.
The crunch pinches both consumers and businesses. Some households are seeing reduced borrowing limits on credit cards and freezes on their home equity lines of credit. Some may not be able to get new loans for a car, a refrigerator or a home.
That hurts businesses, some of which may also see their credit lines cut, never mind borrowing money for expansion or new investment.
It could become a vicious cycle that leads to wage freezes and job losses, further squeezing households already stressed by rising energy prices and worries about falling home values.
Some institutions, including Charlotte, N.C.-based Wachovia Corp., already had scaled back their lending because of heavy losses related to troubled mortgage-backed securities.
Wachovia, whose bank subsidiary holds the largest share of Hampton Roads' bank deposits, has made no secret of its contraction.
Hurt by crippling mortgage-related losses at its Golden West subsidiary in California, Wachovia expects to shed at least $20 billion of loans and securities by year-end, Robert Steel, its chief executive officer, told securities analysts during a presentation in New York City two weeks ago.
Even banks that haven't suffered losses on troubled mortgages and mortgage-related securities have tightened their credit standards and hold more cash that they normally do.
"We are intentionally staying very liquid because of the unrest in the markets," said TowneBank's Aston.
The turbulence in the national credit markets has prompted giant banks to compete more aggressively for deposits at the local level, pushing up the rates that smaller banks have to pay.
"The No. 1 issue we face is trying to grow our deposits," the raw material for bank loans, Aston said.
At Monarch Bank in Chesapeake, executive vice president and chief financial officer Brad Schwartz said, "We're very selective about who we lend to" because of the slowing regional economy.
Meanwhile, the brokers and financial advisers who spent much of last week addressing clients' fears about market conditions are encouraging them to stick with their long-term plans.
Ron Pearson, head of Beach Financial Advisory Service in Virginia Beach, said he had to remind a few clients that selling stocks in the midst of last week's turmoil "would be the cardinal sin of investing."
"It's natural to be fearful," Pearson said. "The key is to not act on it."
Tom Shean, (757) 446-2379, tom.shean@pilotonline.com
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dharma
As of this morning your facts have been disproved. Perhaps you should not depend on your 3rd eye?
Republicans are destroying America
Rising unemployment, rising gas prices, record foreclosures, record trade deficit, the Big Three on the verge of bankrupcy, $700 billion dollars wasted on Iraq, a $500 billion dollar budget deficit, and a stock market crash. Now they want us to elect a man who voted with George Bush 90% of the time. No way! Go Obama/Biden!
oh yeah?
"People who vote Republican are dumb as a box of rocks."
When your done reading the link I posted, get back to work or your fired!
Why do you and your buddies cower when offered info Chris?
Trivial Pursuit
The Bloomberg opinion piece cited below, which seeks to blame the Democrats for the financial mess, was written by a member of a right wing think tank and one of John McCain’s financial advisors, so obviously his opinion could not be in the least biased. This is the same guy who coauthored the book, Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market, which predicted that the Dow Jones industrials index would rise to 36000 within three to five years, that is by 2002 to 2004.
Oh, and here’s another quick trivia question: Which Senator’s campaign manager was paid more than $1,800,000 over a period of five years as president of an advocacy group set up by Fannie Mae and Freddie Mac to defend them against stricter regulations? Give up? Why it was John McCain’s of course. Kind of makes the $125,000 in campaign contributions from employees and political action committees received by Obama seem rather small by comparison don’t you think?
Both parties are no good
Neither party is any good. Neither party is addressing the real issues. Neither party has the average American's best interest in mind. I doubt anyone from those parties knows what it's like to be an average American. Everything that is happening now was predicted a long time ago. I'm watching things play out, as it was described as it would, on a few blogs. It's so disheartening, but there is nothing you can do about it and really remain a free person. I hear all of this bickering about one part or the other. NEITHER ARE ANY GOOD. They both got us here. Greed got us here. The only person that seemed to have any clue about what would happen was Ron Paul, who had the most vocal supporters early on.
nice tactics
"People who vote Republican are dumb as a box of rocks." As soon as you realize you have no facts on your side, resort to insulting the opposition.
Bush and Phil Gramm destroyed America
It's amazing isn't it? Reagan and Bush were already responsible for 90% of the National Debt, and now Phil Gramm's deregulation of the financial industry collapses the stock market. And yet they continue to spout this BS about being fiscal conservatives. People who vote Republican are dumb as a box of rocks.
Thank you cs
What cs is telling you is true. he has the closest connection to them. I think all of you should read this:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0
It's going to be tough to figure out a way to declare Bloomberg as being an undependable publication.
blaming the victim?
People who take out loans they know they cannot repay bear some responsibility for this mess, too. Why is it my responsibility as a tax payer to bail these people out?
Quick trivia question: Which member of Congress has received the most money from Fannie Mae / Freddie Mac in the last three years?
That would be Senator Barack Obama.
Nonsense?
The only nonsense I see going on is in Washington, where Henry Paulson and his gang are trying to ram an irresponsible Wall Street bailout through Congress, through their normal method.....fear! "Just give me a trillion dollars....don't ask me what I'm going to do with it....trust me! If you don't....the sky's going to fall and everyone's going to go bankrupt and die of starvation. I need it today....not next week!"
"How do you all keep pulling McCain into this?" Simple...he doesn't know what he's talking about. Last week, we had his happy talk that "the fundamentals of our economy are strong." Today, he said that "we are in the most serious crisis since World War II." Well, which is it, genius?
Holding off a few days for serious study and consideration of the bill isn't going to cast us into another Great Depression. If anything, it might help us avoid one. We need controls, oversight, and givebacks, not a blank check.
Blaming the Victim
Instead of taking responsibility for the current economic meltdown due to years of Republican inspired deregulation and crony capitalism, Republican propagandists are seeking to blame the subprime mortgage crisis on the Community Reinvestment Act and the poor. This is nonsense. First of all, the CRA applies only to banks and thrifts that are federally insured. It doesn't apply to independent mortgage companies. About half of the subprime loans came from mortgage companies beyond the reach of CRA. And the record shows that these same mortgage brokers were the conduits for most of the worst of the fraud that has occurred. Neither does it apply to predatory payday lenders, check-cashers, etc. Only about one out of four subprime loans were made by the institutions fully governed by the CRA, and the record shows that these same institutions tended to practice less risky lending, not more. It was simple greed, corruption, and lack of transparency within poorly regulated institutions that is behind the mess we are in today. Remember McCain and the “Keating Five“? No? Then try Google.
Nonsense
"That is why the taxpayers are now on the hook for the follies of Fannie Mae, Freddie Mac, Bear Stearns and now the insurance giant AIG to the tune of $700 billion."
FM and FredM are being bailed out because the were charted by the goverment and guaranteed to provide a political result. AIG did what corner stores do everyday-fail.
"It is foolish to bailout Wall Street and let CEO's off the hook with
million dollar bonuses. Enough!"
Your right. Obama is for it though. McCain is against. How do you all keep pulling McCain into this? For those of you in the past weeks who have held Greenspan so dear, I have some reading for you:
http://www.ft.com/cms/s/0/32b85c72-859b-11dd-a1ac-0000779fd18c.html
http://www.latimes.com/business/la-fi-euromood20-2008sep20,0,7535469.story
USSA?
Am I supposed to feel sorry for the mortgage companies that gave loans to illegals, to people who had a lousy credit score, to people who had filed for bankruptcy within the last seven years, to people whose income could not support high mortgage payments? Am I supposed to help bail out those people who took one of those ARMs? It is not the right of everyone to own a home. It is the right of those who can afford it. Why should my taxes help to bail out bad investments? I pay my bills and my home is modest, one I can afford. The government is not in the business of taking care of those who have not taken care of themselves. That is socialism. If Pelosi and Obama and Biden and Reid would have their way, this country would be The United Socialist States of America. If one opens a business, one takes a risk. If it succeeds, wonderful. If it fails, it is economic Darwinism. Sound cold? Yes, it is. But that is the way of the world. Why don't we stop giving our hard-earned money to illegals in the form of mortgages, free medical care, free education, free college education (PELL grants), free housing. That would save billions. People must begin to take responsibility for
They should have never
They should have never repealled the Glass Stegall Act, which was initiated by Republican and sign by Clinton.
Democrats shouldn't have started the community re-investment act.
Greenspan shouldn't have kept interest rates so low for so long.
Obama shouldn't have Fanny and Freddie Execs on his economic team.
The list continues, there is plenty of blame to pass to both Republican and Democrats. They have been infiltrating the system for years and we are seeing the results and will really suffer from the large deficits in years to come.
Go for real change, take a look at Bob Barr.
Wall Street Crisis
Sorry for the multiple postings. I didn't think the posting had gone through! But you get the message.
Wall Street Crisis
Americans wake up! Poor "Reagan Democrats" Wake Up. Vote for change.
We can't continue down this path with Bush/McCain era of deregulation.
Forget about the color of Obama's skin. He is bright and extremely
intelligent. McCain finished 894 out of a class of 898. If we don't change the country will be bankrupted. Our grandchildren have no future here. Don't vote racism and emotion, look at the candidates and choose which one has more of your interests at heart. Vote your pocketbook.
It is foolish to bailout Wall Street and let CEO's off the hook with
million dollar bonuses. Enough!
Marketeers
Can the “no government inference” free marketeers out there say “socialistic capitalism"?
Wow, silenced by the pilot
Man, the pilot is censoring me. Every time I post now they leave it moderated until late in the day before passing it through.
End of rant on Wall Street
Tom is not being honest. We should act on the current crisis. Wall street has by getting government to buy their debts. Debts that are a direct result of Republican based nonchalence regarding corporate greed.
We are seeing the real result of marketplace capitalism:GREED.
Each of us working people should fend for ourselves because the government will be firmly entrenched in our pockets the next hundred years. You can thank the president and the Republicans for that.
With a McCain-Palin presidency (yes, they will win) expect a return to Hooverism and depression era politics.Maybe, some remember the Hoover mobile.
Republicans talk abouttax cuts but they dont tell you about deficit spending which they do so well. Americans believe the tadx cut rhetoric. All the while Republicans spend us into more and more debt that democrats have to work hard to dispel. Gilmore did it. Reagan did it. Bush ahd done it magnificiently.
7 Years of conservative Republicanism and look where we a re.! Who still wants to be Republican?
Wall street
Here we are bailing out some super rich people again. Wall Street speculators have pushed themselves into a hole and the public must bail them out. The public doesn't get a dime worth of benefit bailing out those greedy rich people Bush and his cronies let run rampant onver the economy. They sent thousands of jobs overseas, borrowed billions without assets, over inflated housing values, thereby sucking untold trillions out of the US through shaky hedge funds and volatile equities.
Now, that these mega-rich people have robbed America they are content to let the economy fall and get to pass their risky investments on to the PEOPLE.
This is a holdup without the gun. Bush has overseen the biggest bank robbery in the history of America.The War on Terror was the front man for this robbery. Like magicians, while we were looking at the right hand the left hand was doing all the work.
A half trillion has been sent to Iraq disappearing into the coffers of Cheny and Friends INC. Our soldiers have substandard armor, low on ammo, lack of adequate mental health and a Republican Congress which cut most of their benefits.
We are going to get a trillion dollars of corporate debt plus billi
It is called market
It is called market volatility. The same people who contributed to this mess by taking out loans they cannot afford are probably the sames one panicked over the market. They have no clue about maintaining a balanced portfolio and do not understand basic economic principles.
I would like to see all of these CEOs help responsible for their criminal decisions.
Lookie What's in the Bailout Bill
Now I see the latest GOP move toward dictatorship is embedded in the bill. I just read the bill. This establishes power in the executive which is unreviewable by either of the other two branches of government (meaning no recourse for any institution aggrieved).
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Well, Comrades, welcome to the GOP's version of the ownership society. They own it, we pay for it.
Gamblers do not deserve bailouts.
This is only the beginning. Don't forget the $2.6 trillion dollar consumer credit tab, which is what Americans owe, not covered by real estate. Consider that recent surveys consistently reflect that 47%...nearly half...of all working Americans, are now living "paycheck to paycheck". Since the average worker doesn't contribute much to our political elite, don't expect another trillion dollar bailout, similar to what Bush's banking and investment buddies are going to enjoy.
The other shoe which I've mentioned before is even more insidious: the credit default swaps time bomb. This is worth around $62 trillion dollars on a worldwide basis, at least $47 trillion just in the United States. Forget Democracy...Paulson and his cronies are turning us into socialists by association. I'm sick of what my own party, along with the Dems, has done to our Country. The banks and investment houses have morphed into reckless gamblers.....and gamblers do not deserve bailouts.
Constitution
Can anyone show me where in the Constitution does the President or the Congress have the right to take tax payer money and give it to any person or business or for that matter, foreign aid?
no kidding
Pearson said "People are worried," he said. "First, they saw problems with mortgages and then with investment banks and insurance companies and now with money-market mutual funds."
Yes people are worried, and they have every right to be. Why in the heck would we vote for another 4 more years of Bush politics for mcCain/Palin or the rubber stamp Thelma Drake?
Don't tax the rich!
They keep this economy going. Tax us middle class more and tax the poor even more than that. Law makers and rich people need our money, so just give to the machine and like it.
Yea, those Republicans
Yea, those evil Republicans that not only are responsible for every negative news story in the US have now show their magical powers to cause every major economy in the world to slow down.
Dumb.
Let's go back earlier..
On the domestic side, Carter gave us inflation of 15%, the highest in 34 years; interest rates of 21%, the highest in 115 years; and a severe energy crisis with lines around the block at gas stations nationwide.
In 1977, Carter, along with a Democrat Congress, created the Community Reinvestment Act. Over strong industry objections, it mandated that all banks meet the credit needs of their entire communities!!
In 1995, President Clinton imposed even stronger regulations and performance tests that coerced banks to substantially increase loans to low-income, poverty-area borrowers or face fines or possible restrictions on expansion. These revisions allowed for securitization of CRA loans containing subprime mortgages.
Stop blaming one particular party for all our countries problems!
Disconnected
What should be scary is if the leaders if places like the banks mentioned didn't see this coming. I've been posting about it for years on here, I a non-college educated computer guy knew it was going to happen. The silly plans the gov't is throwing around right now isn't going to fix things. The choices are hyperinflation (everyones salary doubling) with the USD going down in value and savings value plummeting, or property prices reverting to what incomes can afford -- which wipes out trillions in supposed value from houses. Unfortunately the gov't is pandering to try to save home values, which is a bad move. And no one seems to be going to jail for fraud, of course. Long ways to go, folks.
Federal Deposit Insurance Corporation
It would seem to me that it is very simple for the FDIC to raise their maximum insurance from $100K to $500K; or even to $1M. Nowadays, a much larger percentage of the population,especially retired folks, have more than $100K in their bank accounts. Or, at least make it easier for depositors to sign up for private account insurance such as CDARS.