Rick Holmes: When Wall Street drags down Main Street
On Main Street, the talk was of Wall Street.
The cliche, in this case, was true. The meeting, put together by the Chamber of Commerce, was held in a church hall on East Main Street in Hopkinton, Mass., and the congressman was getting an earful.
Why not let capitalism work, asked a real estate agent who says people with good credit are still getting mortgages. Why bail out people who made bad decisions?
An architect with an office on Main Street wanted to know if bailing out Wall Street will really help people falling behind on their mortgage payments. Another Main Street business owner said he hasn't seen a credit squeeze and demanded to know why the taxpayers had to pay for Wall Street's mistakes.
Rep. James McGovern, who had reluctantly voted for the bailout bill two days before, gamely tried to defend and explain a proposal he doesn't like.
The taxpayers should be protected under the current bill, he said. The $700 billion is a line of credit, not a gift. Some portion of it will be used to buy problem mortgages, probably at a deep discount. The government can sell those mortgages later, maybe at a profit. If there's a shortfall after five years, Congress is required to bill the financial services industry for the difference.
McGovern, whose district includes hardscrabble Massachusetts neighborhoods of Worcester as well as pricey suburbs like Hopkinton, said he's seen the fallout from Wall Street's implosion. There are streets where most of the houses are empty because of foreclosures, he said, and the homes that are left, bought by people who were fully qualified and never missed a mortgage payment, have lost so much value that their owners are now under water.
"If it all crashes, the billionaires will be OK," McGovern said. "They will still be hundred-millionaires." It's the people closer to the edge that will fall into the abyss.
But is the crisis really hitting Main Street? In Hopkinton, it's not so clear. Home prices have fallen 23 percent since the peak in May 2005, real estate broker Chuck Joseph told me later, but the town has seen peaks and valleys before, and may be nearing the bottom of the trough.
On West Main Street, Joseph has just cleared an eight-acre site in a prime location already approved for a retail/office development. But he's had no takers yet, so the site will sit empty for awhile. "A lot of people are on hold right now," he said.
A few miles west on Main Street, in neighboring Upton, a huge mixed-use development process fell apart last summer. By the time the developers got their permits, they couldn't find financing. A few miles east, in Ashland, an even bigger residential project is stalled for the same reason. The cheap money isn't there anymore.
There's always some churn in the housing market, but a lot of buyers are waiting for prices to hit bottom and sellers who aren't desperate are waiting for a better market. Joseph said people with good credit can get mortgages, but they aren't getting the 100 percent financing they got three years ago.
If you aren't trying to borrow money, maybe you won't feel it. But the economy runs on credit. Retailers need to borrow to stock their shelves for the holidays. Contractors with contracts in hand need bridge loans to buy their supplies. Start-ups need years of borrowed capital to develop their businesses.
Even those who don't borrow may feel the pinch. The credit crunch hit the state government earlier in the week, when the treasurer went to borrow $100 million and came up $68 million short. State Sen. Karen Spilka warned the Hopkinton group that not only will borrowing cost more, but the economic slide will force serious cuts in spending. Schools, roads, police and fire could all suffer, she said.
McGovern acknowledged the skepticism and anger among voters. "I'm angry too," he said. "I want some people to go to jail for this. But while that might be good therapy, it's not good for the economy."
The bailout bill is just step one, McGovern said. It must be followed by better oversight of financial institutions and new regulations so this doesn't happen again. Then he wants a stimulus package, with new federal spending on water and sewer plants and road projects - both pretty high on Hopkinton's list - and direct aid to cash-starved state governments. The House passed a stimulus bill, he said, but the president threatened to veto it, so we'll have to wait for a new president.
Congress finally passed the bailout bill Friday, but no one is predicting a quick economic rebound. We were headed into a recession anyway, and the fear was that a massive credit freeze would make it far deeper and longer. There was also hushed concern that another shoe might drop: the flight of foreign capital that has been keeping the economy above water. After the meeting, McGovern told me there had been serious talk among Democrats about signs Japan and China might start dumping U.S. assets instead of buying them.
Capital flows more rapidly around the world than ever, and panic can spread even faster. The bailout bill may be more about changing the psychology of investors than anything else. In any case, let's hope it works - for Main Street as well as Wall Street.
"This too shall pass," McGovern reassured Main Street, quoting his old boss, the late Joe Moakley. "Like a kidney stone, but it will pass."
Rick Holmes, opinion editor of the MetroWest Daily News, blogs at Holmes & Co. (http://blogs.townonline.com/holmesandco). He can be reached at firstname.lastname@example.org.