Money Men Say It's Time To Pay Piper

by George Waldon  on Monday, Sep. 29, 2008 12:00 am  

A toxic cocktail of fear, uncertainty and confusion has replaced the heady blend of confidence and assured profits once in favor on Wall Street. Now the financial markets are reeling from a serious case of credit buzzkill.

"The worse the binge, the worse the hangover, and this was a pretty bad binge," said Alex Lieblong, president of Lieblong & Associates, a Little Rock money management firm. "The lending crap that had been going on the past four years was just insanity, and we're paying for it."

More and more loose credit secured by ever-appreciating real estate is transforming into bad loans often backed by undervalued real estate. The resulting turmoil on the national scene pushed Lehman Brothers Holdings Inc. into bankruptcy and drove cash-strapped Merrill Lynch & Co. into the arms of Bank of America in a $50 billion distress sale.

"We've hit the top with bad lending, bad borrowing and the government wanting everyone to own a house, even people who really couldn't afford to or know how to manage money," Lieblong said.

The chaos on Wall Street prompted an unusual public response from Arkansas investment bankers. Stephens Inc. and Crews & Associates issued statements during a recent four-day span to reassure clientele and staffers that their financial houses are in order.

"We are under no illusion that anyone would ride to our rescue, so you cannot ever take a risk that could jeopardize the ability of the firm to survive," said Warren Stephens, CEO of Stephens Inc.

"At the root of our nation's current financial problems are leverage and excess," said Rush Harding, CEO of Crews & Associates.

In Arkansas, the effects of too much leveraging, risk and easy credit are expected to be minimal compared with states such as California, where astronomical property values now are orbiting closer to earth.

The overarching concern is to stabilize the credit market and keep the wheels of commerce moving so the economy doesn't drift into a recession or worse. For the short run that will mean continued low interest rates as the federal government wrangles over how deep it will go into the financial chasm.

"We need to take steps to make sure this doesn't spiral into something worse," said Heath Abshure, Arkansas Securities Department commissioner. "If they are acting to prevent our current economy from getting worse, that's great.

"I'm just worried we're going to draft some short-sighted, poorly crafted legislation. I'm really, really scared of that.

"I worry that, in this interest to get something done quickly, we're going to find ourselves with something that isn't the best fix. We're at the stop-the-bleeding point and not fix-the-problem."

And the government is still grappling with what it will take to stop the bleeding after facilitating the March sale of Bear Stearns Cos. to JPMorgan Chase & Co. and taking over Freddie Mac and Fannie Mae, which hold or guarantee half the nation's mortgage debt.



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