Turbulent Times, Then and Now
by Byron Thompson
Albeit to a lesser degree, there have been anumber of financial crises I readily recall the past 35 years. Most recently a headline reading “Job losses are worst since 1974” [more than 500,000 lost in November 2008] led me to notice that when Ingram’s started in the mid 1970s, the U.S. was experiencing a 16-month recession which is still the longest in the past 60 years. It is refreshing to note that with a bruise here and there, we came through everything in grand style.
The business cycle shifted and a few years later[1980] marked one of the most memorable chal-lenges of my banking career. Inflation was soaring and the volatilityof interest rates was staggering. The double-digit inflation contributed to the prime borrowing rate bounding from a high of 20 percent in April down to 11 percent in August, then rocketing back up to 21.5 percent in December—all in less than a year’s time.
People were coming to the bank and cashing in their single-digit rate CDs, paying the penalty for early withdrawal, and then reinvesting in a new CD at a significantly higher double-digit rate. It only took third grade arithmetic to see it as most advantageous for the customer but much hurt to the banks. Some banks were actually refusing to allow the customers to make the swap.
In that same year, the Hunt brothers tried to corner the silver market and drove the price to $50 a share[presently it’s about $11.50 a share]. The ramifications of the brothers’ silver bust fiasco were wide spread and severe. Bond traders vacated their desks in order to avoid making required bids and jewelry stores avoided pricing even their wedding/bridal-gift silver.
The past 35 years have seen other crises. Certainly a major scare in the late 1990s was when Long Term Capital Management, a hedge fund with leadership including two Economic Nobel Prize winners, went bad and the Fed engineered a corporate “takeover,” thereby a “near miss” of a Fed bail out. We had interactive business with firms affected and it was a “tight walk.”
Overall, the changes in the banking/financial industry throughout Ingram’s 35-year history are enormous. The removal of the Glass Steagall Act of the 1930s, and the entrance of the Graham Bliley legislation a few years back are two of the most prominent. We have come to a time when the “global connection” is so ominous it can’t be avoided. The product lines of our business are so plentiful and so powerful in their use, that it has caused the regulatory supervision environment to be exceedingly difficult and costly.
The sophistication at both the banking level and at the regulator level requires talent and training sur-passing earlier years. Frankly, it’s my opinion that the current devastating economic pictureis in large part due to problems in these two areas, and the mishandling of some sophisticated products has been instrumental in the financial puzzle. Thepain of a global hangover likely will be considerable both in time and degree.
Currently we do know:
•We are clearly in uncharted waters.
•The powers exceed the talent in too many instances.
•We have plenty of bright people but judgmentis in question.
•Confidence has waned and fear is rampant [a survey showed that only 32 percent of people polled were “totally confident” that their FDIC insured bank wouldn’t fail].
•The vast majority of small and mid-sized banks are healthy.
•We now have partial Nationalization in the banking industry. While designed to be limited and temporary, it is a “wait and see” matter. How it will work out with government ownership in companies that it also regulates will be interesting and challenging; and does it signal a move from the capitalistic society where we have prospered?
It seems the new American business model is “the weak will survive,” and we will sustain their weakness with tax payer money to err again. Optimism is vital and prudent leadership is essential. In these stressful times Ralph Waldo Emerson said it best. “What lies behind us and what lies before us are small matters compared to what lies within us.” 
Return to Ingram's January 2009
Byron Thompson is
Chairman of the Board,Country Club Bank
P | 816.931.4060
E | bthompson@countryclubbank.com