As the nation waits with bated breath while the United States Congress takes another stab at a $700 billion bank rescue plan some government officials say is aimed at protecting the economy from virtual collapse, communities across the country are wondering how the mistakes made on Wall Street will change their way of life on Main Street in the coming year.
According to Congressman Tim Bishop, if the government sits idly by as credit and loan markets continue to shrink, and banks and investment houses fold, Main Street will undoubtedly feel the effects of the shaky economy in a major way and in some cases Main Street already is.
Last night, on Wednesday, October 1 the United States Senate was scheduled to vote on a new $700 billion economic bailout plan, and early reports showed strong expectations across party lines that the measure would pass. According to Congressman Bishop, the House of Representatives would then consider the bill today, Thursday, or Friday.
The expectations surrounding Wednesday’s vote echoed similar hopes on Capital Hill last weekend, prior to a defeated bailout bill in the House on Monday, 228-205 – a bill Congressman Bishop voted in favor of. On its face, the bill would have provided $350 billion to financial institutions, with another $350 billion available under Congress review. Following the House’s defeat of the bill the Dow Jones Industrial Average fell over 700 points, a historic decrease. Although the markets rallied on Tuesday with the news that Congress would take another stab at the economic recovery bill, Bishop said on Wednesday if something is not done to help stabilize the economy, Wall Street will not be the only ones affected by what follows, but our local Main Streets as well.
“I think the risk to Main Street is enormous if we do not fix this,” said Bishop. “People talk about this plan as a ‘Wall Street bailout,’ and what we are really trying to do is protect Main Street. Whether we like it or not, our economy is rooted in the credit markets.”
Â Bishop said the East End of Long Island was not immune to the downturn in the economy, noting on Wednesday morning he had already received news that he viewed as a possible harbinger of things to come.
“I was just told this morning that one of the largest builders on the East End has laid off 40 workers,” he said. “That is on Main Street, not Wall Street.”
Â “So I do believe we have to move aggressively to fix this and doing so is much less about bailing out a reckless and greedy Wall Street and more about protecting our neighbors,” said Bishop.
According to Greg Ferraris, mayor and resident in Sag Harbor, in his professional opinion as a certified public accountant who represents a number of East End businesses, there very well could be ramifications locally as a result of the fiscal crisis if action is not taken.
“Certain industries have already been affected by the slow down and the housing crisis that has turned into a complete economic crisis,” he said.
Ferraris added he believed under the right circumstances the storm could be weathered, and blamed the media for painting a far gloomier portrait of the economic climate to come, which has in turn affected the market. He did acknowledge without the right plan in place, and without people beginning to take more responsibility for spending practices, things could get worse and easily trickle down to Main Street businesses.
One industry that has seen a downturn is real estate on the East End, an economic bastion for many as prices soared over decades.
On Wednesday, Sag Harbor Chamber of Commerce President and real estate agent with Prudential Douglas Elliman Robert Evjen said one of the biggest challenges facing a slowing real estate market today was tightening loan and credit markets.
According to Evjen, many felt the tightening of the credit, loan, and real estate markets as early as last spring. But regardless, said Evjen, he does not believe the market locally will be impacted as dramatically as the rest of the country.
“I still feel to this day that we are insulated compared to the rest of the country,” said Evjen. “I don’t think any other real estate market is as closely tied to Wall Street as a secondary home market in the Hamptons.”
And while Wall Street may be suffering as of late, Evjen said from a real estate perspective there are two ways to look at the current economy – it can bode badly as Wall Street won’t see the kind of bonuses that led to record breaking sales or it could benefit the housing market as brokers look to invest in, and cash in on, a slowing market.
“I would still look for value in real estate like this before putting my money in the markets, where it is more likely to take a dive,” said Evjen. “Now is the time to buy.”
As for Main Street’s economy, as Chamber president, Evjen said he did believe shoppers would be more cautious in their purchases, avoiding big ticket items, but nonetheless shopping.
“I think Main Street here is insulated in the type of guests we have – visitors that have discretionary incomes, whereas other communities will have a much tougher go of things,” said Evjen. “I think we will be okay.”
What was of particular interest to Evjen was what effect the credit crunch and fiscal crisis would have on local lending institutions, which he said roughly 80 percent of Sag Harbor businesses relied on for revolving loans to cover large, seasonal purchases.
“It’s amazing how we are all tied into this,” he said.
According to Douglas Shaw, senior vice president at Suffolk County National Bank and Kevin O’Connor, President and CEO of Bridgehampton National Bank, businesses should not be worried, as both banks reported their conservative lending practices have protected the institutions from the same catastrophe facing banks that took on risky loans.
Shaw and O’Connor noted what these banks failed to do, and what Suffolk County National and BNB did not overlook, was to assess one’s capacity for paying back a loan in the first place.
Â “We’ve been in business for 118 years and while we have evolved the fundamental requirements we have had have not changed that much,” said Shaw “Running our business this way is good for the bank, good for the borrower, good for the employees of the bank and good for the community.”
“We are still making loans and local business can still come to us,” said O’Connor. “We are open for business …We have been asked if we have tightened our credit standards, and our response is we never loosened them.”
Shaw added he believes a number of community banks have maintained these types of conservative standards, which will help weather the storm ahead.
“There is light at the end of the tunnel,” he said.
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