If it weren't all so terrifying, Dr. Antonio Callari might have been thrilled by the events of the past few weeks.
Callari is a professor of economics and director of the Local Economy Center at Franklin & Marshall College. In his professional lifetime, he's never seen anything like the meltdown that's been taking place on Wall Street, the collapse of the big investment banks, the Congressional battle that erupted after the Bush administration pitched its emergency bailout plan. For someone who studies and teaches this stuff, it's fascinating — sort of like a paleontologist actually discovering Bigfoot.
But it's sobering as well, because Callari appreciates the implications. This crisis, indeed historic, isn't going to be confined to the big banks on Wall Street and the halls of Washington.
It's going to affect you, too.
"There is no way we will escape the pain that is likely to come to the economy in general," said Callari.
Banks here are unlikely to fail, like Washington Mutual did last week. Lancaster County's economy remains relatively strong and diversified. Typically, we have weathered financial storms better than most, and local economists say that will probably be the case this time around as well.
But they absolutely expect the Wall Street to trickle down to Main Street. Industry-wide, banks are tightening their lending, meaning local consumers might have a harder time getting home or auto loans. Businesses might have more trouble expanding and creating jobs. Some may lay off workers or close down, boosting the unemployment rate.
"It's like the old [Ronald] Reagan theory of trickle-down economics," said Pat McCaskey, director of the Small Business Institute at Millersville University and a former bank officer. "When something good is coming your way, you'll get some of it.
"When something bad is coming your way, you're definitely going to see it."
As of Saturday, Congress continued battling over a bailout bill. Late last week, House Republicans torpedoed a plan proposed by President Bush and favored by Congressional Democrats which involved the government buying "distressed" mortgage-backed securities from ailing financial firms, in effect injecting capital into the banks so they can keep lending.
House Republicans countered with their own proposal, which included tax cuts and would require financial institutions to pay the U.S. Treasury to "insure" the troubled assets.
Officials still hope to come to some sort of agreement by Monday.
Locally, U.S. Rep. Joseph Pitts told the Intelligencer Journal last week that he favored tax cuts as a solution to the problem.
But local experts say that while a bailout plan is necessary to top the bleeding, the fiscal wounds won't magically heal once it's passed.
Local businesses in particular remain wary, said Tom Baldrige, president of the Lancaster Chamber of Commerce & Industry. With the possible exception of the immediate aftermath of 9/11, he said, he's never seen "the amount of uncertainty, anxiety and caution that is now evident in the local business community."
Lots of firms are delaying major decisions to see what happens next. Others, he said, are cutting back "as a defensive strategy for what may lie ahead."
Charlie Crystle is a founder of software firm Mission Research in Lancaster, and a former Democratic candidate for the U.S. Senate. Mission Research markets its products primarily to nonprofits and socially responsible organizations; Crystle said that in the current economic environment, "we do fear a decline of donor generosity and subsequent nonprofit spending. ... Spending is contracting."
In part, that may be because lending is contracting.
CNN reported Friday that "market gauges of lending showed higher prices for loans between banks. When lending tightens in this way, businesses and consumers have to pay more for loans, such as mortgages, or can't get them at all."
A bailout deal could loosen up the tight credit markets, but local economists say they expect it will remain tougher for both consumers and businesses to get credit than it was just last year. That, they say, will definitely have an impact on the local economy.
"Even if financial conditions improve and banks become flush with liquidity, they will resume lending to households, firm and individuals only if they believe these to be profitable loans and the borrowers to be able to repay," said Dr. Pavlina R. Tcherneva, an assistant professor of economics at Franklin & Marshall. But with personal and household debt at record levels and businesses struggling to cover rising costs, even run-of-the-mill loans for homes, cars or college are going to be harder to get for consumers whose credit falls somewhere between "good" and "not the best."
That could affect car sales here; it could affect home sales and ultimately housing prices.
"It is easy to hear [that] housing prices in Lancaster County didn't rise as much during the boom and didn't fall as much during the bust, so, basically, don't worry," said Dr. Tom Scheiding, an assistant professor of economics at Elizabethtown College. "But the problem with this financial crisis is that it has created a credit crisis ... and this lack of credit in the market is where I believe as an economist that individuals within Lancaster are likely to be affected, beyond the losing of a job and loss of pension savings."
Local banks are thought to be in better shape than bigger regional or national banks. "We've got to get [the crisis] fixed, but this is primarily a problem affecting the largest institutions in the country," said R. Scott Smith, chief executive officer of Fulton Financial Corp. Local banks — Fulton Bank falls under the Fulton Financial umbrella — were simply too conservative to engage in much risky subprime lending, he said. And they often have a closer relationship with customers, and have a better handle on who is credit-worthy and who isn't.
Still, said Smith, credit charge-offs — when financial institutions write off debts as essentially uncollectible — "are a rising problem for the industry, and that's affected earnings. ... When you get in this part of the business cycle, the natural tendency is to tighten up [lending standards] a little bit."
Still, said Dr. Mike Gumpper, professor of economics and director of the Center for Economic Education at Millersville University, "I don't feel that average savers and investors should be worried. The main and most damaging short-run aspect of the financial crisis and the proposed bailout is the added anxiety and uncertainty it has created for consumers and corporate leaders." Spooked by the crisis, consumers spend less, and that leads to further contraction.
Or, said chamber president Baldrige, to paraphrase Franklin D. Roosevelt: The only thing we have to fear is uncertainty itself.
"At least if the government acts, or even if it doesn't, people would be able to make decisions about their future accordingly," said Baldrige. "While a 'done deal' out of Washington won't mean all is fine, it will at least [mean] that a plan is in place for recovery.
"And that is when Lancaster County businesses do their best, when they can optimistically plan for their future."
Gil Smart is associate editor of the Sunday News. E-mail him at gsmart@lnpnews.com, or phone 291-8817. 