Experts say national financial crisis could hurt state’s economy

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(Host) Experts say Vermont’s economy has so far escaped the turmoil that’s forcing Congress to bail out some of the largest firms on Wall Street.

But they acknowledge that the problems in the financial industry could damage the national economy, and that would hurt Vermont.

VPR’s Ross Sneyd reports.

(Sneyd) By most measures, Vermont has not been dragged down by the bad financial news.

Nationally, it all got started with the subprime mortgages, but there weren’t many of those loans made in Vermont.

Housing prices have stopped rising, but they haven’t fallen here as they have elsewhere around the country.

Chris D’Elia is president of the Vermont Bankers Association.

(D’Elia) “Now it doesn’t mean that at some point along the way we might not be affected. What starts to become of concern now is if there is a credit crunch, if there’s a tightening of access to capital, that’s often how we rely on making loans, is we go out into the market, we sell our paper and we recapitalize our loan portfolios in order to make new loans to Vermonters. If that’s tightened in anyway, then that can become problematic for some of our banks.”

(Sneyd) University of Vermont economics professor Marc Law shares that concern.

He agrees that Vermont banks have been conservative about their lending policies. So they don’t have big portfolios of nearly worthless loans.

But the financial system depends on access to credit and that continues to tighten nationally.

(Law) "To the extent that this spills into the real economy in terms of economic slowdown, that of course is also a concern. But at this point it’s hard to say how this is going to affect the real economy. Probably it’s going to slow down things but it’s not clear how much and for how long.”

(Sneyd) Law knows that a lot of people are comparing the current crisis to the Great Depression.

He understands why people would worry about a repeat, but he says a lot more safeguards are in place today than there were in the 1930s.

Law says the bailout under discussion in Washington may work, at least for now.

(Law) "Of course, all of these large bailouts are going to come at the enormous price of higher future taxes. What’s happened to Freddie Mae, Fannie Mac, AIG and so on and so forth, all of these bridge loans, basically means that future tax liabilities are going to have to rise. Government has issue more debt, essentially, to mop up all of this stuff.”

(Sneyd) Law says those higher tax bills could stress the economy and make the financial situation even worse.

For VPR News, I’m Ross Sneyd.

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