Wall Street Whammy
With financial giants Lehman Brothers, Merrill Lynch and AIG in meltdown mode, local investment experts say today marks an historic moment.
"I don't think anything can really compare in recent memory," said Gary H. Sherr, senior vice president at Carl P. Sherr & Co. LLC in Worcester.
Still, Sherr and David Grenier, president of Cutler Capital Management in Worcester, said the current crisis is a logical aftermath of the last few years, in which markets boomed, credit was readily available and people's real incomes couldn't keep pace with their spending.
Grenier said the situation won't be resolved until individuals' balance sheets get balanced.
"Credit won't be available to support people's standard of living," he said.
He added that the pain from that readjustment will be made more difficult by the potential loss of tens of thousands of jobs as a result of the situations at Lehman and Merrill.
Grenier said he can't predict how long it will take for jobs to start growing again, and he said one big question is whether investors will jump back in or sit on the sidelines. In the case of Lehman, he said, many investors may have been hoping that the federal government would step in to offer assistance, as it did for Bear Sterns this spring. When that didn't happen, he said, investors also decided against getting involved, and Lehman ended up having to file for bankruptcy.
Sherr said the government's decision was probably necessary, but was certainly not what the investors wanted to see.
"They had to draw the line at some point, and that's why the market is down 300 and maybe not up 300," he said.
Grenier said now that investors are aware that government bailouts aren't coming, they may be more willing to get in on future crashes at financial institutions, as long as prices come down appropriately.
"We're going to focus a lot on the short term right now," Grenier said, "But if people could imagine what things could look like 10 years from now, 10 years from now everything could be fine. When you get in the business of investing, it's times like these that really underscore having a long-term perspective."
Sherr said investors, especially young people looking to finance their retirement accounts, can find some good opportunities. He noted that almost everything on the stock markets is down this morning, and some of that may be for little reason.
"Should a company like Proctor and Gamble be down?" he said. "Should a company like Colgate be down?"
For Central Massachusetts banks, Sherr and Grenier said the situation is mixed. Sherr noted that many local institutions have exposure to Fannie Mae and Freddy Mac that could put them in danger. But Grenier said community banks are generally less involved in risky markets than larger institutions and may actually be well positioned to take advantage of the demand for lending that isn't being satisfied elsewhere.
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