Live Wire Blog

Nobody knows

Posted on Oct. 8, 2008 by Jamie Scheppers

Yes, as surprising/irritating/confusing/(fill-in-the-blank) as that is, “nobody knows” is the current theme running through most discussions involving the economy and anything related to it.

Nobody knows whether or how the $700 billion rescue plan will work.

Nobody knows how it will affect the various banks, both national and local.

Nobody knows how low the stock market will go or when it will rebound.

The list goes on and on…

But a panel of experts assembled in front of a packed auditorium at MU’s Robert J. Trulaske, Sr. College of Business on Oct. 7, 2008, did seem pretty confident that Central Missouri, generally speaking, won’t experience anything as bad many other areas of the nation (and world) might experience.

Those experts were:

• W.D. Allen — visiting assistant professor of finance, Trulaske College of Business
• Andrew Beverley — chairman and CEO, First National Bank and Trust, Columbia
• John Howe — Missouri Bankers chair, Trulaske College of Business
• Bill Little — president, Quam-Nichols Co., Chicago
• Karen Schnatterly — assistant professor of management, Trulaske College of Business
• Judy Starr — chief financial officer, Boone County National Bank, Columbia
• Bruce Walker (moderator) — Lansford Professor of Leadership and Dean of the Trulaske College of Business

So why do they think we’ll be relatively OK even as things go south elsewhere in the nation?

Andrew Beverley named two reasons we could expect less fallout:

1. Columbia has a stable employment base. The area’s largest employers (the University and the various insurance companies) are stable and have made wise business decisions over the past several years, while other industries have run amok with business practices that have come back to haunt them.
2. Central Missouri doesn’t have much of a housing bubble. Yes, home sales have slowed down significantly, but housing prices have remained relatively stable. When you compare the area’s median salary with the median home sale price, mid-Missouri is an affordable area. All this is great news for buyers, who will have a large inventory to choose from (as long as they can get a mortgage), and so-so news for sellers, who may have to wait longer to snag a buyer but who might not have to come down too much on price since the homes in this area do seem to be valued fairly.

Judy Starr had some additional insight and reassurance to add: Our local banks didn’t get carried away with sub-prime loans the way many of the national banks making headlines did.

Sub-prime lending is the practice of securing loans for borrowers who don’t meet all the criteria for a conventional loan. In other words, these borrowers don’t have a high enough credit score, they might be too leveraged (that means they have too much debt in relation to the amount of capital they possess), and they might be taking out loans much larger than traditionally permitted. To make a long story short, these are extremely risky borrowers who are very likely to default on their loans. Understanding that is the key to understanding a lot of where the credit crisis is coming from.

The good news, according to Starr, is that many of our local banks didn’t sell the problem-causing sub-prime loans. Or at least, not enough of them that we’re in significant trouble.

Now, will we, in Central Missouri, feel the effects of the worldwide crisis? Sure, to some extent.

How bad will it be? Nobody knows…

Listen to the lecture online (mp3).