Last night, President Bush addressed the American public in a primetime TV speech.  Bush warned that without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold. 

He emphasized that the government must remove “the risk posed by the troubled assets, including mortgage-backed securities, now clogging the financial system.”

If not addressed, community banks could fail, the stock market could decline further, retirement accounts would drop, as would home prices.  Bush also noted that businesses could close, loans would be more difficult to obtain and a long, painful recession could occur.

What do Arkansas bankers, mortgage lenders, financial experts, investment advisors and economists think?  We asked a few and share their comments below:

Bob Birch, Twin City Bank President

“Mortgage-backed securities are basically packages or combinations of home loans.  Many different types of investors have purchased these securities, including community banks, different types of retirement plans as well as individuals and businesses.  Any curtailment in the long term value of these bonds would have a detrimental impact on all holders, and the ripple effect would be widespread, ultimately impacting individuals’ ability to buy and finance a home.  Support from the federal government is critical at this juncture to the fundamental economic structure of our financial system.  Hopefully, Congress and the President will quickly agree on the key areas that need protection and leave the market to decide the fate of those who took exceptional risks outside of time-proven, accepted practices.”

Kathy Deck, UA Center for Business & Economic Research Director

“For many years, the U.S. economy has been the beneficiary of extremely easy credit conditions.  Fundamentally, the reason that many businesses and consumers have been able to borrow to take entrepreneurial risks and to enjoy an increase in quality of life was because of global trust in the U.S. market system.  The events of the past year have eroded that essential trust despite dramatic government steps like the rescue of Bear Stearns, the takeover of Fannie Mae and Freddie Mac, and the huge loan to AIG.  Capital is not flowing freely, which endangers the ability of companies and individuals to manage their long run cash flows efficiently.  The wholesale purchase of mortgage-backed securities and other risky assets by the government is designed to allow the market the breathing space to return to normal functioning.  There is no doubt that a recession, with accompanying high levels of unemployment and income stagnation is a significant possibility if money continues to be unavailable to good and bad risks alike.”

Bob Williams, Delta Trust Investments Managing Director

“I believe that the failure to support these mortgage-backed securities will contribute further to the market slide.  A continued drop will result in greater financial pressure on banks and investment banks resulting in further write-downs and requiring the raising of additional capital which has become quite costly.  The underlying issue is the illiquidity of the securities, not necessarily the true value of the investments.  It is reasonable to assume that over time that the markets for these securities will stabilize and offer an opportunity to the government to conduct an orderly liquidation and potentially realize a recovery of some of the funding utilized for the bailout.”

G.G. Millard, Fairway Independent Mortgage

“If nothing is done, we will never find a true bottom in the market.  We have an urgent need to establish a worst case price for mortgage-backed securities.  Once that base is set, we will then be able to price risk accordingly.  No bottom equals no further lending - creating one huge financial grid lock. This is not a check to pay a past due bill, but rather an investment at the bottom of the market to help create a market we all need.  This investment will ultimately provide huge benefit to the entire economy as well as the Treasury in the future.”

Scott McElmurry, Bank of Little Rock Mortgage COO

“While things are not dire at this time, if continued disruption of the credit markets continues and credit becomes less and less available, the President’s assessment could be correct to varying degrees… As it relates to the overall economy, credit squeezes would not just affect the mortgage industry, but all lending.  This includes loans to businesses of all sizes needed to finance current operations.  This was illustrated just recently by Caterpillar’s recent financing that went from around 200 basis points to over 320 basis points in financing costs.  Additional costs lead to potential layoffs.  Further layoffs lead to additional foreclosures, leading to further declines in home prices.  We are an economy that relies on the availability of credit.  Disruptions in that availability affect operations of companies across our economy, as well as the jobs created by those companies even down to the consumer’s ability to finance purchases.”