Chairman’s Letter
Our Association’s annual trip to Washington, DC is a fact finding and fact-sharing mission. We had an excellent group of Arkansas bankers on the trip this year. It was an interesting time to visit our nation’s capital. Our days there happened to coincide with the news of a government bailout loan to insurance giant American International Group (AIG) and the announcement of U. S. Treasury Secretary Henry Paulson’s three page, $500 billion plan to resurrect the national economy. As we all know Paulson’s plan morphed into a 450 plus page bill that became the Emergency Economic Stabilization Act establishing a $700 billion Troubled Assets Relief Program to assist with revival of the U. S. financial system. I am confident that not all Arkansas bankers are in agreement on the passage of this economic bailout plan.
The night before the breaking news of Secretary Paulson’s initial plan those of us on the Washington visit joined bankers from Missouri and Oklahoma in the House Financial Services Committee Room for an insightful conversation with Chairman Barney Frank. Over the course of the next two days we attended briefings at the American Bankers Association, the Federal Reserve Bank and the Federal Deposit Insurance Corporation. In addition our group visited the offices of each member of our state’s congressional delegation and hosted a reception for the staff members who serve our senators and representatives. Candid discussions were prevalent at each setting as pertinent issues were addressed. Arkansas State Bank Commissioner Candace Franks and Arkansas State University Chair of Bank Management David Kerns accompanied us on this important visit this year adding a different dimension to our conversations.
In our meeting at the Federal Reserve Bank, Deputy Staff Director Charles “Sandy” Struckmeyer informed us that the Federal Open Market Committee was acting in a “very measured way” and that the central bank was “obviously and admittedly in uncharted territory” making use of provisions in the Federal Reserve Act that have not been used since the Great Depression. He also mentioned that the environment is very “fluid and electric.”
Upon hearing these words two things jumped into my mind. First, “fluid and electric” denote hazards worthy of complete attention. While not particularly well versed in the sciences, I recall learning that the combination of water and electricity is a bit dangerous. Secondly, the opening lyrics of James Taylor’s 1970 song “Fire and Rain” spoke to me……………
Our Association’s annual trip to Washington, DC is a fact finding and fact-sharing mission. We had an excellent group of Arkansas bankers on the trip this year. It was an interesting time to visit our nation’s capital. Our days there happened to coincide with the news of a government bailout loan to insurance giant American International Group (AIG) and the announcement of U. S. Treasury Secretary Henry Paulson’s three page, $500 billion plan to resurrect the national economy. As we all know Paulson’s plan morphed into a 450 plus page bill that became the Emergency Economic Stabilization Act establishing a $700 billion Troubled Assets Relief Program to assist with revival of the U. S. financial system. I am confident that not all Arkansas bankers are in agreement on the passage of this economic bailout plan.
The night before the breaking news of Secretary Paulson’s initial plan those of us on the Washington visit joined bankers from Missouri and Oklahoma in the House Financial Services Committee Room for an insightful conversation with Chairman Barney Frank. Over the course of the next two days we attended briefings at the American Bankers Association, the Federal Reserve Bank and the Federal Deposit Insurance Corporation. In addition our group visited the offices of each member of our state’s congressional delegation and hosted a reception for the staff members who serve our senators and representatives. Candid discussions were prevalent at each setting as pertinent issues were addressed. Arkansas State Bank Commissioner Candace Franks and Arkansas State University Chair of Bank Management David Kerns accompanied us on this important visit this year adding a different dimension to our conversations.
In our meeting at the Federal Reserve Bank, Deputy Staff Director Charles “Sandy” Struckmeyer informed us that the Federal Open Market Committee was acting in a “very measured way” and that the central bank was “obviously and admittedly in uncharted territory” making use of provisions in the Federal Reserve Act that have not been used since the Great Depression. He also mentioned that the environment is very “fluid and electric.”
Upon hearing these words two things jumped into my mind. First, “fluid and electric” denote hazards worthy of complete attention. While not particularly well versed in the sciences, I recall learning that the combination of water and electricity is a bit dangerous. Secondly, the opening lyrics of James Taylor’s 1970 song “Fire and Rain” spoke to me……………
I’ve seen fire and I’ve seen rain,
I’ve seen sunny days that I thought would never end
A bright sun had been shining on the financial landscape for the better part of a decade. The economic policies of the past two presidential administrations set the stage for a booming housing market across the country. Many people were realizing the “American Dream” of owning a home through use of low-doc and no-doc mortgage instruments. Cloudy skies seemed to develop overnight as rising interest rates influenced market conditions and the “sunny days” began to darken. Then the rains came in a downpour of foreclosures and bankruptcies with the sub-prime mortgage market lying at the epicenter of the turbulent activity.
This widespread economic storm has resulted in power outages on Wall Street. In short order the DNA of the nation’s largest investment banking operations has been completely altered. Bear Stearns was put on life support with a government assisted rescue plan by JP Morgan, Lehman Brothers filed bankruptcy, Merrill Lynch was absorbed by Bank of America, Morgan Stanley and Goldman Sachs converted into bank holding companies with Morgan Stanley selling 20% of itself to a Japanese banking concern. The country’s largest thrift institution, Washington Mutual, succumbed after a short illness. At this writing it appears that Wells Fargo has won the tug of war with Citigroup for the right to acquire an ailing Wachovia. Watching the daily economic news is like watching a weatherman describe a tropical storm developing into a hurricane and tracking its direction in anticipation of where on the map it may strike land and to what extent damages will be realized. “When will it get better?” and “how hard will this impact me?” are questions many are asking.
Fear and uncertainty prevail. The stock market plunged sharply and is could be a bit erratic for a while. The FOMC met in special session in early October to reduce the federal funds rate by fifty basis points in effort to steady the market and energize the economy. The economic crisis is the topic of the day, the center of attention. Everyone is talking about its effect on our everyday lives.
Lyrics from “Fire and Rain” dance back into my head as I ponder these news stories.
This widespread economic storm has resulted in power outages on Wall Street. In short order the DNA of the nation’s largest investment banking operations has been completely altered. Bear Stearns was put on life support with a government assisted rescue plan by JP Morgan, Lehman Brothers filed bankruptcy, Merrill Lynch was absorbed by Bank of America, Morgan Stanley and Goldman Sachs converted into bank holding companies with Morgan Stanley selling 20% of itself to a Japanese banking concern. The country’s largest thrift institution, Washington Mutual, succumbed after a short illness. At this writing it appears that Wells Fargo has won the tug of war with Citigroup for the right to acquire an ailing Wachovia. Watching the daily economic news is like watching a weatherman describe a tropical storm developing into a hurricane and tracking its direction in anticipation of where on the map it may strike land and to what extent damages will be realized. “When will it get better?” and “how hard will this impact me?” are questions many are asking.
Fear and uncertainty prevail. The stock market plunged sharply and is could be a bit erratic for a while. The FOMC met in special session in early October to reduce the federal funds rate by fifty basis points in effort to steady the market and energize the economy. The economic crisis is the topic of the day, the center of attention. Everyone is talking about its effect on our everyday lives.
Lyrics from “Fire and Rain” dance back into my head as I ponder these news stories.
Been walking my mind to an easy time my back turned towards the sun
Lord knows when the cold wind blows it'll turn your head around
Well, there's hours of time on the telephone line to talk about things to come
Sweet dreams and flying machines in pieces on the ground
For many the “sweet dreams” of owning a home and prospects of prosperity have been dampened. The once highflying, machine-like investment banking behemoths are sifting through the wreckage.
Arkansas bankers have been watching the weather for a long time. In these parts there is a saying that “If you don’t like the weather in Arkansas just wait a moment and it will change.” We have been fully aware that weather (and economic) conditions are subject to change with little notice. Arkansas bankers are grounded in the fundamentals of sound banking practices. For the most part Arkansas banks are well capitalized and positioned to carry on throughout an economic downturn, even an economic storm. It is that patient, prudent, practical and prepared approach that will serve Arkansas banks well. Our Arkansas community banks are good places to seek shelter from the storm.
Around the state and across the Miles………….there is work to be done. Let’s go have some fun!
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