Congress’ rejection Monday of a proposed Wall Street rescue plan frustrated Spokane investors and advisers, who said some action must be taken to avoid a replay of the 777-point plunge in the Dow Jones industrial average.
Without quick reconsideration of the plan voted down in the U.S. House of Representatives, or a slightly modified version, the pain in the financial markets will hit Americans harder than they suspect, some predicted.
“People are going to start losing jobs like wildfire,” said investment adviser Mike Vickerman Jr., because banks will not extend businesses the credit they need for payroll and other everyday uses.
Vickerman, a principal in Vickerman & Driscoll Financial Advisers Inc., said he would have been astounded a year ago at the suggestion massive government intervention would be necessary to stabilize the credit markets. Now, he said, the plan’s $700 billion price tag is but a “pimple” compared with the damage that will be done if Congress does not reverse itself, and soon.
“This is a crisis,” he said.
In downtown Spokane on Monday, business consultant Lyna Matesi, 41, said concern about her investments has prompted her to become “increasingly frugal,” even spending less money on supplies for an upcoming presentation.
She checks her stocks three or four times a day, “and it’s bad news,” Matesi said.
“I’m actually really worried,” she said. “It’s about globalization and interdependence. The last time we had a depression when our market fell there wasn’t the same scope of impact on the global market; that’s pretty scary to think how interconnected we are.”
Post Falls resident Tom Price said his retirement portfolio is down more than 10 percent. Asked whether he would try to diversify, he said, “Where do you go?”
“I think that they need to pass the bill,” said Price, 78. “We need to get our financial situation straightened around.”
Brett Avner, former executive at clothing retailer Coldwater Creek, said he “lost a lot of money today,” despite moving funds out of the stock market a couple years ago. The 59-year-old thinks his portfolio will rebound eventually, but “I would say that if I had all my assets in the market, I don’t know if I’d be jumping off one of those buildings today, but I might have.”
Avner said he supported the bailout bill, though he felt forced.
“I’m very disappointed in the irresponsibility of the businesses and our government and the way they’ve handled the whole economy, specifically the whole mortgage issue,” he said. “The accountability that hasn’t been there is disgusting.”
Jim Simmons, chief executive officer of ICM Asset Management Inc., said the justifiable fury vented at Wall Street does not solve the problem.
“Far too many people in Congress don’t understand what’s going on in our economy,” he said. “The system has to work.”
Action that rebuilds confidence will help turn sentiment and the markets, said Simmons, who added that U.S. corporations have the financial resources to weather a downturn.
“If things get fixed quickly the economy will get better,” agreed Washington State University professor John Nofsinger.
Nofsinger, who in March predicted Bear Stearns would be just the first investment bank to fail, said U.S. Treasury purchases of bad debt will help establish prices on securities no one can value today because no one will buy them.
Painful as the adjustments may be, he added, the alternative could be the paralysis that struck the Japanese economy in the early 1990s because authorities there would not require banks to acknowledge all the bad debt on their books. The result was more than a decade of economic stagnation, he said.
Nofsinger noted that in recent crises, like that triggered by the failure of the Long Term Capital Management hedge fund in 1998, those who stepped up to clean up the mess, with the help of the Federal Reserve Bank of New York, eventually earned a small profit on the assets.
A repeat is possible with the proposed rescue plan, he said.
Another Spokane investment manager, who did not want to be identified, said the United States will be better for taking its hits today and possibly setting the Treasury up for profits on its investments as they are sold.
“It’s just bad all the way around if they don’t restore liquidity to the system,” he said.
The downturn has caused Eastern Washington University student and restaurant worker Ryan Vick to save more, even though he is not investing.
“I was going to be looking into it probably in the next few years,” said Vick, 21, holding a Gap shopping bag. “If it’s going to be like this, there’s no point in throwing my money away; not now anyways.”