17 October 2008

Describing the Financial Crisis

I'm a curious critter. "Why?" is my favorite question, which will come as no surprise to anyone who knows me. You see, I have an insatiable desire to understand not only the gravity of each situation, but how we got there. What were the causes? Who was involved? What were the motives? What were the causes of the causes?

That makes the current international financial situation both extremely interesting, and annoyingly baffling. The causes are many. The solutions are blurry. The public understanding of these complexities is dubious.

Thankfully, though, organizations have grasped the general failure of news organizations to fully (and truthfully) help consumers understand, and come up with their own solutions. My Alma Mater, The College of William & Mary, hosted a town-hall type meeting to do just that on Wednesday (see it here). I enjoyed the honest, unbiased discussion, but the main thing I took from this session was comfort that, while things are bad, the doom and gloom that many chicken littles are exclaiming are overblown at best.

That same day, I launched the "Ask Jack" blog at my credit union. This site allows members to ask our president direct questions about what they see, read, or hear in the news. My feeling was that if people are seeking honest answers to their pressing questions, who better to answer than the CEO of a not-for-profit financial cooperative who has always exhibited conservative, member-first business practices?

This morning, I got to hear John Allison (BB&T's CEO) give his take on the current financial crisis at a breakfast forum hosted by the Winston-Salem Chamber of Commerce (they plan on making video of this session available online). This was another re-assuring look at our current situation. Though he admits things are certainly rough right now, Allison asserted that failed banks should have failed - that it was actually a good thing long-term.

He also suggested the best plan (policy wise) I've heard thus far to deal with the mess: a 10% housing purchase tax credit. This would only be good for existing homes (used?). Essentially, he made the argument that house prices are still about 10% too high. To help battle off the sudden deflation of home values, this plan would allow purchasers to get houses at a "discount," while preventing sellers from suffering any further (well, at least that 10%). In essence, his plan would allow the housing market to lick its wounds and get back to its feet. Still a lot of money, but a far cry from $700 billion.

Allison did, however, just like the William & Mary professors from earlier in the week, caution against knee-jerk policy reactions. You see, the solutions will not be political. The solution will come in the form of Americans starting to save more and spend less. The solution will come in the form of American ingenuity. The solution will come in the form of returning to consumers, investers, and businesses alike a sense of responsibility for their actions. The solution will come in the form of credit unions taking a bigger share of the personal finance market.

Next week, I am offering the first of three presentations for our credit union's SEGs about the financial news of our time. I'm confident that, though I will not be able to replace lost wealth in their 401(K)'s, lower home value, or lost trust they have in many for profit financial institutions, I can continue to cement in their minds that credit unions are safe, sound, and determined to be part of the solution.


Anonymous said...

Curiosity is one of the best traits you can have. Please let us know what sources you find that do a good (and hopefully unbiased) job at explaining how we arrived at the current situation. We need to understand how this happened so that we can prevent it in the future. And let us know if/when that John Allison video goes live.

Matt, the Credit Union Warrior said...

Here are the best resources I have found in the past several months:

NPR's This American Life: The Giant Pool of Money

The Subprime Primer

Anatomy of a Trainwreck

Understanding the Current Financial Crisis: College of William & Mary

Unfortunately, the Winston-Salem Chamber of Commerce still hasn't posted the John Allison speech. When they do, it should appear here.

james w said...

It's kinda hard to see where we are going. Trying to actually comprehend exactly how big this situation is absolutely boggles the mind.

Re-invigorating the housing market will probably be counter productive in the long run. Demands on credit are already tight.

People should save rather than spend, and that means limiting spending on housing, too. What that means for the balance sheets of Financial Institutions, I do not know.

It's a messy situation, and I do not think anyone will be able to fix it... we have to ride it out.

Denise Wymore said...

@CUWarrior - another great resource from one of the greatest minds in our credit union land.