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From Wall Street to Main Street: Time will tell

The Wall Street debacle hasn't yet reached Main Street, but it could in coming months, says Economics faculty member Ashok Chowdhury.

2008-10-02
By Tim Krohn, Free Press Staff Writer [published in The Free Press, Mankato, MN, 10/2/2008]

The warnings seem dire: The financial instability on Wall Street is creating a credit crisis that will hammer businesses, employees and just about everyone else across the nation.

Several financial and business experts say the Minnesota River Valley area is largely unaffected, but eventually could be if Congress does nothing.

But one business owner said the problems are already tighten­ing credit.

“I’m not that con­cerned that it’s going to trickle down to the point where we have trouble getting deposits or have trou­ble with credit,” said Steve Olson, president of MinnStar Bank.

Olson and others say area banks aren’t saddled with risky loans, and the booming agriculture economy is keeping their balance sheets strong.

“There is a big dif­ference between the investment banks and the Main Street banks that weren’t involved in these subprime risky mortgages,” Olson said.

Mark Steele, an entrepreneur who has helped start three area companies, said he’s very concerned about the ability to borrow money in the future and about the overall impact of the economic problems.

“No one I’ve talked to has had any direct hits yet, but the fear is what’s coming. The aftershock that might affect us,” said Steele, who owns TechniPac near Le Sueur and who is partner with his brother in a food packaging and a marketing business.

The companies, all started since 2001, provide more than 100 full-time jobs. Steele said scraping together the money was always tough and worries about continu­ing to get loans to grow.

“We got a loan for an addi­tion to our building in St. Peter right before this hit. Right now I don’t think we’d get that loan,” Steele said.

“But if we build the addi­tion and then can’t get the loan to expand and hire more people, that’s just as bad, or probably worse.”

Steele said he sensed that banks already were getting more conservative in their loans after the housing col­lapse and fears they will only get more reluctant to lend.

He said the soft economy already has hurt their busi­ness that does marketing work for other companies.

“When things got bad, they just stop marketing. That just came to a halt.”

Steele said he’s not sure if a bailout of Wall Street is the best route and wonders if anyone has a handle on the problem.

“You want to hope the leaders know what they’re doing. But they obviously haven’t done too well to get us to this point. I keep hop­ing it gets better, but I think there’s more to come.”

Larry Haugen, president of the St. Peter Area Chamber of Commerce, said that trepidation is common. “Right now there’s just a lot of apprehension up and down Main Street and in the community,” he said.

“Obviously the housing market is down and business people and individuals are wondering what’s going to happen to their 401(k) and retirements.

“But as far as a direct effect, we’re just not seeing much. We have new business and industry coming in, so things are looking pretty good.”

Russ Wille, St. Peter’s community development director, said the local econo­my appears strong. But he does have some concerns as he works to attract and expand commercial, industri­al and retail businesses.

“I think the credit crunch has the ability to affect busi­ness and industry. I think it may restrict expansions.”

Ashok Chowdhury, profes­sor and director of the Center for Economic Education at Minnesota State University, said if there is wider fallout, it will take a while to hit. “It won’t happen quickly, it takes time.”

He said if banks began feeling cautious, it will hurt. “It could eventually hit small business, student loans, cred­it cards, home loans. Banks will not be willing to take any more risk, and it will be harder to get money.”

If that happens, Chowdhury said, businesses won’t be able to expand and hire workers, and small busi­nesses could reduce staff or fail because they can’t get short-term loans.

Chowdhury said it’s important Congress pass some type of rescue plan to head off a widespread crisis.

“A lot of this boils down to confidence. If the banks are confident there will be some kind of support ( from Congress), they’ll lend money.”

Olson said a bailout my not sit well, but it seems nec­essary. “I think (Congress) will get things figured out. Whether you think it’s right or not, something probably needs to be done.”

Olson said MinnStar is having a “pretty good year” making loans. “ They talk about a credit crunch and credit crisis, but we really aren’t doing anything differ­ent than in the past.”

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