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Economic Scholars Look At New Reality Of Banking

Tuesday, 30 September, 2008

The Worst Case Scenario is a Depression by Christmas

With Wachovia's sale, there are three "Superbanks" left standing.

When a bank disappears, it's customers like Elias Husary who feel surrounded by uncertainty.

"My concern is getting information on how to transition from an old bank to new bank. I've had a difficult transition from one to another in the past," said Husary.

Bank of America bought Merrill Lynch. Citigroup now holds Wachovia's assets. JPMorgan Chase gobbled up WaMu. Community advocate Kimberly Jones with the California Reinvestment Coalition said fewer options means less competition so consumers could see higher interest rates and fees.

"Some of the banks that are on their way out have certificates of deposit with competitive interest rates," said Jones. "The big three haven't felt it as compelling to give competitive interest rates. There is no market force that would bring these fees down and make it better for us." 

She said lenders will also be more selective. Consumers need to boost their credit scores into the mid to high 700s if they want to get loans for big purchases.

"The person with the marginal credit score will find it harder to find a loan. And for those who do find a loan for that car its going to be incredible burdensome interest rate," said Jones.

A panel of economics professors at USF told a crowded classroom things are going to get worse before they get better.

"I think we are headed for a recession that's bad and prolonged, " said Professor Michael Lehmann.

And according to Professor Harmut Fischer, it's not higher prices or inflation that we need to be concerned about. 

"People are holding their money. Since they aren't spending it, prices will fall rather than go up." And while that sounds good, it's not," said Fischer. "The worst thing of the Great Depression was deflation. During the Great Depression there were falling prices." 

He said if nothing is done and money is not freed up for banks, business, and consumers we could be headed for a Depression within 4 months.  It was a comment that silenced the crowd.

Source: http://cbs5.com/