For all the screaming headlines about the collapse of Wall Street titans, the average New Havener might not feel too big an impact.
That’s the word from William N. Goetzmann (pictured), an SOM professor who’s considered a national expert on stock, mutual funds and real estate.
Goetzmann spoke to the Independent about how the latest crisis on Wall Street will affect life on Elm Street.
“Do I care whether Merill Lynch has a Bank of America logo next to the Merrill Lynch logo? No,” Goetzmann said. He cares more about people trying to obtain mortgages or holding onto jobs; he’s not sure that the latest wave of collapses will wash onto New Haven’s shores.
(For a different take, check out these two Courant stories about the impact on state businesses, government pension funds and consumer lending.)
Following are highlights from the conversation with SOM’s Goetzmann:
What does the Wall Street meltdown mean to the average person in New Haven? Should he or she care that Lehman Brothers, AIG & Merrill Lynch are tanking?
It’s not something that’s going shock us like a big tidal wave. It’s just going to make the local housing market a little bit less liquid…
A lot of people who may want to buy homes or refinance homes, who might have been able to do with subprime mortgages were available, now may have a hard time doing so. Even people who are not foreclosed on, even people that can pay their mortgages, their credit scores [may be] relatively low. They’re going to have a hard time when they want to refinance, when they want to sell their homes.
Might that be a good thing? Maybe credit was too easy for people buying houses?
This is an important social issue. I think that owning a home is not the best investment for a lot of people, because you could lose the home through foreclosure. You have to have the salary to go along with it to keep it up — repairs and painting and so on. It’s an investment that requires continual investment.
That said, I don’t think we should be in the business of telling people they’re not allowed to own a home because they have low salaries. The good thing about subprime was that it gave access to the housing market to people who didn’t have it before.
How about the spin-off effects of this week’s failures? Thousands of stockbrokers may lose jobs on Wall Street. Will people lose jobs here?
Our employment hasn’t depended on the financial sector that much. I don’t think that there’s going to be a major direct impact on local employment. I think that’s gonna be felt first in New York City and the bedroom communities from New York.
Does anybody have to worry about money they have in a bank?
I think everybody should be careful to make sure that money they have in their bank accounts doesn’t exceed that FDIC [Federal Deposit Insurance Corporation] amount that’s insured. I think that’s $100,000.
How about people’s other investments? What will be the impact on the mutual funds and other investments that middle-class families have poured their savings into? How are they being affected?
Obviously mutual funds that invest in the stock market, the prices have already dropped.
What about bonds?
Some bond funds have done well. Some have done poorly. U,S, government treasury bonds, those prices have gone up because of a flight to quality — people have been selling risky investments and buying safe investments.
Would you suggest that?
No. It’s very hard to forecast the market. You’re just as likely to get whipsawed by price changes as you are to be prescient about forecasting what the next move is going to be. If you’re selling stocks to buy bonds, that means often you’ll have to pay capital gains taxes. A diversified portfolio has always been a pretty good thing to be in.
What about consumer prices? Are they going to be impacted by Wall Street’s problems?
I don’t think so…
If the Wall Street crash presages a recession, then that could obviously have long-term effects like it did in the 1930s. Let’s say for example that banking continues to deteriorate. Right now bankers may be reluctant to lend a lot of money. If that just continues, what we’ll see is less investment in enterprise in general. The local economy could shrink. We could have people losing their jobs. That’s a long-term map of what we’ve learned from past recessions that also come with financial crises.
Are we in a recession?
I haven’t checked what the National Bureau of Research actually decided. They’re the arbiters of that… Things could get a lot worse. What the mission number one of the government now should be is how to think about preventing from preventing the real economy from going in that direction.
Is Wall Street not the real economy?
Wall Street is a marketplace for capital. Most of us do not participate in that market in a big way. Major businesses do. Economic effects trickle down from that marketplace. We shouldn’t regard it as a thing apart from the real economy. But nevertheless, we don’t have property in Manhattan right now. We don’t have a lot of stock brokers in town that are worried about losing their jobs.
Is there an upside — say, in better government regulation of the financial industry?
We had a whole flurry of regulation following Enron and the bursting of the tech bubble. There was a lot of questioning at the government level about what could we do to improve the capital markets and prevent fraud and prevent excessive speculation. What came out of that was nothing really that helpful…
I’m in favor of good regulation.
Might the government takeover of Freddie Mac and Fannie Mae have more of an impact on the average New Havener than the latest wave of institutional failures?
Yeah. I think that’s really important. That takeover means that they’ll still be able to operate. So we don’t have a complete disappearance of the mortgage market. That’s a really good thing to have happened. This is all about what’s good or bad for the housing market — it is unambiguously good.
What about the taxpayer’s role in bailing them out?
We’re going to have to wait and see how much the taxpayer is going to bail them out… It could be that eventually the bailout will not be too costly if we over the next three to five years get back to some normalcy in the market. But nevertheless it certainly is true the government has assumed some risks and costs. When it comes to housing, maybe that’s a natural role for the government to take.
You sound a lot calmer than the people on TV and in the newspapers.
That’s because I’m a professor and I’m not on the front line.
It’s not because you’re less worried?
I get worried to see people in such distress. I worry both about people who are at places like AIG as well as the foreclosure [crisis} … In places like Ohio, it’s like a spreading disease. All throughout Ohio…
Do I care whether Merill Lynch has a Bank of America logo next to the Merrill Lynch logo? No. Do I feel bad that a 158-year-old financial institution collapsed? Well, I feel sorry for the people who had their life savings in that institution, people that worked for them who are losing not just their livelihood but their savings. But I think it’s a natural process of change in Wall Street’s institutions. We’ve seen big institutions get into terrible trouble before. That’s not the end of the world.
With AIG, we haven’t yet seen an insurance company faced with this stress. So it’s not quite clear what’s going to happen there. Institutional change doesn’t bother me as much as the broader social effects that we rely on the institutions to maintain.
Previous Independent coverage of New Haven’s foreclosure crisis:
• A 2nd Chance on Lewis Street
• Little Garage Draws Big Bids
‚Ä¢ Foreclosure Attracts New Breed of “Specialist”
‚Ä¢ In Foreclosures, Judge’s Hands Tied
• Home Saved From Foreclosure. Cycle, Too
• A House For Precious?
• Deutsche Bank Grabs Dixwell Condo
• Reluctant Bidder Snags F. Haven Bargain
‚Ä¢ Well, There’s Always Powerball
• Neighbors Retrieve Home From Bank
• Somebody Has Plans For Bassett Street
• Foreclosed, the Khennavongs Leave the Santanas
• Foreclosure Steal May Be Too Good
• 2nd Foreclosure in 3 Months Dims Bright St.
‚Ä¢ After Foreclosure, W’ville Owner Still Hopes To Sell
‚Ä¢ He’s Not Buying, Yet
• Quiet Foreclosure on Porter Street
• 3 Minutes Too Late
• Historic Gambardella Property Foreclosed
•2 Homes Lost, 1 Gained
‚Ä¢ “Everybody’s Got To Eat”
• More Foreclosures, More Signs
‚Ä¢ Foreclosure Sale Benefits Archie Moore’s
• Rescue Squad Swings Into Action
• A Bidder Shows Up
‚Ä¢ Bank Beats Tanya’s Bid
• Westville Auction Draws A Crowd
• DeStefano: Foreclosure Plan Ready
• Can They Help?
‚Ä¢ “We Should Over-Regulate These Bastards”
• Rosa Hears of Rescues
• WPCA Grilled on Foreclosures
‚Ä¢ WPCA’s Targets Struggle To Dig Out
• Sue The Subprimers?
• WPCA Hearing Delayed
‚Ä¢ Megna’s “Blood Boils” at WPCA Tactics
• Goldfield Wants WPCA Answers
• 2 Days, 8 Foreclosure Suits
• WPCA Goes On Foreclosure Binge
• A Guru Weighs In
• WPCA Targets Church
• Subprime Mess Targeted
‚Ä¢ Renters Caught In Foreclosure King’s Fall
‚Ä¢ She’s One Of 1,150 In The Foreclosure Mill
‚Ä¢ Foreclosures Threaten Perrotti’s Empire
‚Ä¢“I’m Not Going To Lay Down And Let Them Take My House”
‚Ä¢ Struggling Couple Sues Over “Scam”
The following links are to various materials and brochures designed to help homeowners avoid foreclosure.
How to prepare a complaint to the Department of Banking; Department of Banking Online Assistance Form; Connecticut Department of Banking, Avoiding Foreclosure; FDIC Consumer News; Statewide Legal Services of Connecticut, Inc; Connecticut Bar Association Lawyer Referral Service.
For lawyer referral services in New Haven, call 562-5750 or visit this website. For the Department of Social Services (DSS) Eviction Foreclosure Prevention Program (EFPP), call 211 to see which community-based organization in the state serves your town.
Click here for information on foreclosure prevention efforts from Empower New Haven.