Amid a sea of bank failures, a massive government bailout, a freeze in the credit system, an erratic stock market, and rising unemployment, Americans are facing the most serious financial crisis since the Great Depression. The North Coast is not immune and is experiencing many of the same problems. How did we get to this point? Is this financial crisis different than those of the past? How will all this affect the North Coast?
To answer questions about the financial crisis and its impact, Professors Steve Hackett and Erick Eschker, economists at Humboldt State, and Ken Fisher, a Humboldt State alum and founder and CEO of Fisher Investments, an investment firm managing more than $40 billion in assets, discussed the details and offered their perspective on the crisis.
What’s Going On?
“This is a big issue, this is a big deal,” says Eschker, chair of the Economics Department. “This isn’t just, ‘Well, stocks fell 700 points.’ Everything I’m seeing is saying this is possibly a repeat of 1929.”
Both Eschker and Hackett cite risky mortgages as the primary factor in the economic crisis. The nutshell story goes something like this: lending institutions (like banks) offered loans to people who couldn’t pay them back. Now, with so many loans going into default, lenders are seeing their coffers depleted and the credit market is coming to a halt. The government’s $700 billion bailout plan is designed to be a panacea, but doubts as to its effectiveness and timeliness linger.
“I don’t like the details of the bailout,” Eschker says. “I don’t think buying up bad assets at an illusionary high price is good, but we need to do something to get credit moving.”
Fisher, who endowed Humboldt State’s Kenneth L. Fisher Chair in Redwood Ecology held by Dr. Stephen Sillett, also dislikes the government bailout plan.
“In my mind, I think the bailout plan is unnecessary,” Fisher says. “In terms of where we are right now, it cannot have any immediate impact. It takes a long time to implement it. They have to hire people, create a bureaucracy, engage in a whole lot of transactions and look at small details. It takes a long time to put this together so this is not a short-term fix for anything.”
Considering the housing crash, a bevy of gloomy economic indicators and a bear market in full swing, some pundits are suggesting the current financial crisis is unique in American history. Fisher doesn’t see it that way. He says that one of the “simple rules of life” is that “after every bear market, there’s a bull market.”
“If you look into the future 12 months from now, this is all going to be 80 percent forgotten about and 20 percent remembered and what people are going to remember aren’t particularly the right things,” Fisher says. “At the bottom of every bear market people think the end of the world is coming, that it’s different this time and catastrophic things are going to happen—none of that’s new.”
Among other factors, Eschker says national unemployment rates would need to exceed double digits (the current unemployment rate is just over six percent), before America begins seeing a job market comparable to the Great Depression when unemployment hovered around 25 percent. So, at least for now, Eschker doesn’t anticipate the return of bread lines or Hoovervilles.
The Impact on the North Coast
“About 90 percent of what we’re going to face here on the North Coast is what we’re going to be facing across the nation,” Eschker says. “This is a national event so credit constraints or drops in housing prices or inflation, those are events that affect the national economy and are going to impact us here. If credit dries up it’s going to be harder for businesses on the North Coast to get cash.”
Specific to the North Coast, Eschker says, he worries about the solvency of regional banks. While there are no specific local banks he has concerns for, he fears that regional banks may be holding risky mortgages and could face major challenges in the immediate future.
Eschker predicts the continuation of falling home prices locally and has concerns for government employees in the area. With so many people in Humboldt County employed by state or regional government agencies, he says, cutbacks in government spending could prove significant. Hackett agrees with Eschker that economic hardships experienced by the North Coast will mirror those experienced nationally, and notes that with dramatic drops in consumer confidence there will be drops in spending, and demand for goods and services, which translates into job losses.
“Humboldt County is a little different because we have such a big share of the underground economy that, to some extent, might be recession-proof,” Hackett says. “So, the underground economy might provide us with more of a cushion than other areas.”
Naturally, it’s difficult for anyone—even professional economists like Eschker and Hackett—to predict the country’s financial future, but discussing the possibilities has become very popular in economics courses this semester.
“It’s a fun time to be teaching economics at Humboldt State and the interest of the students is tremendous,” Eschker says. “We’re actually falling a little behind in some of the economics courses because the students want to discuss what’s been happening, which is great because we should be talking about this because it’s so critical.”