Local Bankers Delve Into Financial Crisis
On Wednesday, October 8, George Gull introduced Stephen S. Romaine, President and CEO of Tompkins Financial Corp. and Gregory J. Hartz, President and CEO of Tompkins Trust Company, who came to speak about the current economic situation.
Greg Hartz spoke first, giving a brief update on Tompkins Trust Company specifically, but also explaining the difference between community banks and large national and international banks. He spoke about the Trust Company's affiliated banks, the state of the Company's financial position (it is showing continued improvement and growth of investments to share holders) and the mission of the bank. At the core of this mission is the close associations and relationships the bank has in this community, Hartz said.
Stephen
Romaine then took the podium and explained that so called sub-prime
loans are a big reason for today's financial problems. Sub-prime loans were given to people with a questionable credit history or not enough income to pay back the loan.
lso,
other types of loans were offered, such as interest-only loans, or
loans with very low initial rates that would increase drastically
within a few years. Larger institutions gave out or bought these loans in the hundreds of billions of dollars. In time, more and more loans were defaulted upon, causing many financial institutions to lose money.
That is what caused brand-name firms like Fannie Mae, Freddie Mac, and Lehman Brothers to go under and in some cases get bailouts.
Most community banks did not and do not want to purchase these investments or loans. The money would be going outside the community and this is not a risk most community banks are willing to take, Stephen said.
The financial institutions in trouble now cannot sell the sub-prime loans or the sophisticated financial instruments into which they were packaged because their value has diminished greatly. Since so many financial institutions own these poor investments, banks will not lend money to each other or other businesses because they no longer trust they will be repaid. The Federal Government is attempting to step in to help stimulate the market by guaranteeing inter-bank loans. Credit availability is crucial since companies need to borrow to expand their business, purchase inventory, or make payrolls.
Stephen also noted that the "bailout" passage hasn't stopped the market from falling yet for a couple reasons, one of which is the "blame game". Mortgage brokers, banks, and consumers all share blame, as does the government Consumers are at fault for buying more house than they could afford or gambling that by the time the payment went up they would be able to sell the house for more than they paid for it.