FROM WALL STREET TO MAINSTREET...
Monday, September 15th, 2008 -- 1:52 PM
Former Fed Chairman Alan Greenspan said over the weekend we're in a once-every-one-hundred-years fiscal crisis.While most everyone?s pocketbook has been hurting, experts say Wisconsin has it better than most parts of the country.
WHY DO BANKS GO BANKRUPT?
Gary Sipiorski, President and CEO of Citizens State Bank of Loyal, says most Wisconsin-based banks, especially community banks, have been very conservative in their lending practices.
They don?t have the problems that led to the collapse of Lehman Bros. and Merrill Lynch.
They got caught up in the "sub-prime" crisis. Mortgage companies lending money, often to those with poor credit, who couldn't make payments once the rates were adjusted.
"That comes off the banks' balance sheet. That's an asset to the bank. If you multiply that by hundreds of thousands of loans, that wipes out that capital they have," Sipiorski explains.
There were around 100 foreclosures in Clark County last year, almost all were handled by out-of-state mortgage companies, accoring to CSB Chairman Gary Weirauch.
The problems were predictable, as lenders encouraged people to spend beyond their means.
"A lot of us were standing on our soapboxes saying, 'look people, don't look at rates, look at terms and conditions'. Did anyone listen? No," Weirauch laments, "It was adjustable rate mortgages that gave them a 'come on' rate for the first three or four years. People couldn't afford the rate if it went up."
Plus, these lenders didn't require downpayments, didn't offer counseling and didn't care if the borrower couldn't make the payments, he adds.
EVERYONE IMPACTED
Wisconsin lenders are ?more conservative by nature,? and therefore not as affected, but everyone will have to the bear the brunt of the risky behavior in some way.
Foreclosures flood the market, which reduces the value of everyone?s property.
So, if you bought a home a couple years ago that was worth $100,000 and it's now worth $80,000, your loan might be worth more than your home.
"If you bought at the height of the market, you're probably under water today," Weirauch says, "We haven't seen the large plunge in real estate in this area, because we didn't get excessively wild."
"We didn't a lot of funny appraisals--people trying to get deals done."
Then there is the tricky role of the Federal Reserve, who has to measure if interest rates?which have been low for a long time?should start to come back up.
It?s a double-edged sword. In simple terms, low interest rates mean higher inflation, but increased interest rates could lead to recession.
For now, interest rates are still very, very low.
Feel free to contact us with questions and/or comments.