Main Street spared?

By Deborah L. Cohen

CHICAGO (Reuters.com) - William Dunkelberg, chief economist for the National Federation of Independent Business, tells us the crisis on Wall Street hasn't hit Main Street.

"I would just point out that after the 22 percent (stock market) decline we had in 1987, it didn't. The economy just kept right on growing," he said.

We also asked when and how the credit distress among the big banks might begin to trickle down. The NFIB is the country's leading small business association; its typical member employs about 5 people and reports sales of roughly $350,000 a year. Dunkelberg is also a professor of economics at Temple University and serves as chairman of Liberty Bell Bank, a small commercial bank serving southern New Jersey.

Q: Is there a Main Street credit crunch right now? A: We don't have any evidence that's that happening either.

A credit crunch is when qualified people get a no' answer. If you're crashing and burning, of course the bank isn't going to lend you money. Obviously when the economy slows, your firm's P&L changes. Your firm may look good last year but this year it may not, so the bank would have said yes last year. The bank is not being mean and raising credit standards; you fell away from the standards. There are thousands of commercial banks out there - if Bank A can't lend to you go talk to Bank B.

Q: NFIB has held fast to that position over the last year, right?

A: When the Fed announced a year ago that there was a credit crunch and credit markets had seized up I said, "What?" In 2003, 3% of our firms said credit was tight. The average of the last 3 quarterly surveys is about 9%, so it's gone from 3% to 9%. But in 1983, the beginning of that (economic) expansion, 2% said credit was harder to get, at the end of that expansion in 1990 or 91, it was up to 12%. That's what happens in an expansion; as the expansion peters out fewer people become credit worthy. When you're not getting that sales growth, it is harder to get credit, but there's no credit crunch where you see these numbers spiking up. We have followed the normal pattern during an expansion.

Q: What's your position on the Fed's decision on Thursday to increase the amount of dollars central banks around the world can auction?

A: That's okay. We're swapping. When the Chinese buy from the Russians, they don't use yuan, they use dollars. A lot of people need currency right now. These swaps are just helping to make the market work more easily. That's perfectly fine.

Q: What about the decision by the Fed earlier in the week not to touch interest rates?

A: I don't think that really made much difference. Just lowering the interest rate is not going to really change liquidity. You can borrow all you want at 2%, so why should we make it 1.5%. My argument would be that we should charge really high rates. Because the mega bank needs cheap money - because they screwed up - I have to cut the rate on your savings account. It's really sad that we're having to (hurt) ordinary savers on Main Street so that we can have cheap money on Wall Street.

Q: Do you think the regulatory environment will get tighter?

A: I think that depends on who is elected in November. I'm sure we'll do what we did (in passing) Sarbanes - Oxley. Every time Congress tries to cure problems, the cure is always more expensive than the problem. Yeah, we had a few firms that weren't doing well, didn't report honestly, but we always have that. Sarbanes - Oxley just resulted in a huge tax on everybody. It was a great windfall for the law firms and the accounting firms. We're going to get a bunch more of that, and the fear we should have is that it should be damaging to the functioning of the banking systems and capital markets.

Q: Is it likely that Congress will institute changes to economic policy before the end of this year's legislative session?

A: No, that's going to happen. Nobody really knows what to do and it's too close to the election.