Bankers tend to be conservative.
And that has some local bank executives guarded about the Obama administration’s stimulus plan. There’s little doubt the economy needs stimulating, they say. But some wonder whether the plan will come at too high of a price in terms of debt and possible inflation. Others say the problem could have been better addressed by targeting troubled mortgages.
“The government will spend an estimated $2 trillion to fix the problem started by an estimated $1.4 trillion in bad loans,” said Ray Dellerba, chief executive of Costa Mesa’s Pacific Mercantile Inc.
As for the economy, bankers see a leveling off of the recession this year with the prospect of a rebound in 2010.
“I believe we might see some daylight in 2010 but not this year,” said David Blanken-horn, chief executive of American Security Bank in Newport Beach.
Below are comments from local bankers about the stimulus plan and the economy.
Kim Burdick
Orange County market
president, premier banking division executive,
West region, Bank of America Corp.
Newport Beach
What do you think of the federal economic stimulus plan?
I have to refer to comments made by our Chief Executive Kenneth Lewis on CNBC earlier this month.
“I’m not an economist, so I don’t know all of the things that have immediate effect. But whatever,how much ever they have in there for immediate effect, put some more in. Because you saw today, with 7.6% unemployment, the economy’s not getting better.”
When do you see a recovery taking place?
Our economists anticipate the economy should bottom out in the first half of the year and begin to show signs of stabilizing/recovering in the third and fourth quarters. The recovery will be tepid,housing will act as a drag on the economy over the balance of this year; rising unemployment will keep consumer spending in check; and exports will continue to weaken.
The combination of a massive fiscal stimulus, a thawing in the credit markets and past reductions in interest rates will create the necessary backdrop for a recovery. We still expect the S & P; to post gains for the year, in the range of 8% to 12%, with most of the gains achieved in the latter stages of the year. The U.S. is expected to be the first one out of the global recession. Europe and Japan will follow, along with emerging markets.
Ray Dellerba
Chief executive
Pacific Mercantile Bancorp
Costa Mesa
What do you think of the federal economic stimulus plan?
We need to add jobs. If we can get the unemployment rate back below 5%, it will go a long way in restoring consumer confidence, which accounts for about 67% of gross domestic product. And spending is the only thing that will allow this. I think lowering the Social Security tax would also have an immediate effect on getting people to spend more.
We’re behind the curve at this point. The government will spend an estimated $2 trillion to fix the problem started by an estimated $1.4 trillion in bad loans. The key to fixing the problem was in August 2007. That’s when all of the liquidity from large financial institutions became stopped up. If the six major government backers, which include Freddie Mac and Fannie Mae, had guaranteed all loans, we wouldn’t have had the foreclosure problems. The guarantees would have helped prop up home values. Half of the people went into foreclosure because they didn’t want to see the value fall, not because they couldn’t afford it. It would have made a big difference.
When do you see a recovery taking place?
We’re not going to recover this year, or at least it doesn’t appear that way. At best we might hope for a leveling out this year. As long as unemployment keeps rising, recovery is on hold. Unemployment has a delayed effect on the economy. So things couldn’t get better until the trend changes there.
Steven Gardner
Chief executive
Pacific Premier Bancorp Inc.
Costa Mesa
What do you think of the federal economic stimulus plan?
The economy clearly needs some level of stimulus. But adding to the national deficit by spending so much money will cost us. There’s some question as to how the market will be able to absorb all the bonds the government is selling and how long China will serve as a larger buyer of our debt. Budget cuts will need to take place at some point.
When do you see a recovery taking place?
It’s very difficult to predict when things might get better. In all likelihood it’s not until 2010. Maybe we’ll see some stabilization then. Indications of things getting better will come when the rate of job declines and foreclosures slows. We also want to see a reduction in the housing inventory.
David Blankenhorn
Chief executive
American Security Bank
Newport Beach
What do you think of the federal economic stimulus plan?
The bill seems more of an entitlement package than one designed to immediately stimulate the economy with any meaningful dollars. The housing issues and the stabilization of the banking system should be addressed. The country has shackled future generations with enormous debt and we shall once again see soaring inflation. Our country’s credit rating is likely to be downgraded, which will obviously raise the rates on the debt instruments and further exacerbate the inflationary spiral.
The failure of the president and congressional leadership to slow the process down and allow a full discussion about this record setting spending bill bothers me greatly. Hasty decisions on something this complex can only lead to poor results.
When do you see a recovery taking place?
I believe we might see some daylight in 2010 but not this year. The problems with the economy are not going to be short-lived. Nothing changes overnight. We might not see recovery until the second half of 2010 or into 2011. There’s deleveraging happening everywhere, not just with banks. Early signs of a recovery would be from stabilization of property values with housing sales picking up, an increase in retail sales figures, signs of hiring and a stock market that is less volatile and more consistently on the upside.
Tom Meyer
President, chief operating officer,
Fullerton Community Bank
Fullerton
What do you think of the federal economic stimulus plan?
I, like many good people in Orange County, am very concerned with a large and permanent increase in the size of government due to the enormity of the president’s economic stimulus plan. In my opinion, the federal government does not enjoy a good track record of efficiently or productively spending taxpayer money.
I heartily agree, however, with several economists who have proposed passing along Fannie Mae and Freddie Mac’s low cost funding (since they have both been essentially nationalized) directly to homeowners.
What I propose is offering qualified homeowners a 30-year fixed rate mortgage at 3.99%. This low interest rate would be available to those who can show proof of income, and therefore, in all likelihood, would actually repay the debt obligation.
On a $300,000 mortgage the monthly savings for homeowners, compared with the more typical 6% mortgage, is $365 per month. A 3.99% long-term mortgage rate could not only spur additional real estate activity, but it might give strapped consumers sorely needed spending money. And doesn’t it seem right that stimulus money could assist consumers who were prudent and who managed their finances conservatively?
Finally, if President Obama can instill any confidence in the marketplace through the stimulus package, then that by itself would be a dramatic improvement to the current environment.
When do you see a recovery taking place?
Most local economists, particularly our friends at Chapman University, are forecasting that the recession will “bottom out” during the fourth quarter or early next year. This does seem reasonable as long as the nationally unemployment rate does not exceed 10%.
