Area business leaders agree that aid package not ideal but needed

By Bernard Baker

Published: October 4, 2008

Local businessmen agree the federal government is right to institute some form of financial aid package to reignite the stalled economy.

But those businessmen who shared their opinions the same day Congress and the president approved a $700 billion bailout weren’t willing to give leaders everything they were asking for to pass the deal.

Torrey Blackwell, of Blackwell Automotive, said Friday that the bailout was necessary as long as it wasn’t loaded with earmarks.

“In my opinion, it’s necessary whether we like it or not,” Blackwell said.

Borrowing would become a problem if Congress didn’t act, he said.

Right now, Blackwell’s car dealership is selling cars and getting credit for customers, but he said that would get more difficult if nothing was done.

Ben Rippe, president of Rippe’s on Main Street, said the key is to convince people who don’t agree with the bailout that it is a financial stimulus package intent on shoring up the credit market.

“Unfortunately, it’s necessary,” Rippe said. “It will put a strain on what a future president or Congress can do by not acting.”

Rippe said he is not pessimistic about the future.

The U.S. has the greatest economy in the world, but legislative action is needed to keep the environment going from bad to worse, Rippe said.

“We will come back,” he said. “We need to stick to what we’re doing and don’t panic with 401(k).”

Barry Koplen, of Abe Koplen Clothing Co., praised House Republicans for shooting down the first plan.

Koplen thinks it is wrong to buy bad debt with taxpayer’s money. He thinks a reverse mortgage plan for younger people would stall foreclosures and help pump cash into the economy.

The government would back the interest on these loans and could help reduce rates to 3 percent, Koplen said.

“Banks would not be holding bad paper and people not being foreclosed on,” he said.

Koplen also is using a free market approach to boost business. He is offering customers a deal. Bring in a good used suit that’s dry-cleaned and get $100 off on a new suit.

An Averett University business administration professor said leaders did a bad job of selling the bailout to the public.

Lyle Cady, an associate professor, said calling the package a Wall Street bailout made people think that only the very rich would get money so they could acquire more wealth.

“Call it a Wall Street rescue package,” Cady said. “If you are in trouble, we’ll rescue you even if it’s their own fault.”

Lawmakers could have let the market handle the financial disaster, but Cady said the casualties would have been worse. More banks would have folded and more people would be out of work as the economy slowed down, he said.

“It’s not about bailing out rich people, it’s about keeping our economy a float,” Cady said.

What the government will do is inject billions into the economy by recapitalizing bank, he added.

Imagine having a reverse auction where banks sell the government the debts, Cady said. At some point in the future, the government will sell them back to recoup the $700 billion.

He said the problem now is estimating the value of these securities is next to impossible.

Someone goes to a bank and gets a home mortgage, Cady said, then that bank might sell it to Fannie Mae or Freddie Mac. These two giants in turn sell it as a security to Wall Street, the general public, China or the Middle East.

“The security is valued based on cash flow,” Cady said.

When the homeowner pays the monthly premium, that money goes to the security holder, he added. As long as the money flows through the system, that’s how analysts value that asset.

“Nobody can estimate what that cash flow is anymore,” Cady said.

The professor said he is optimistic that the U.S. economy will recover, but said a huge risk remains because the government is holding so much debt. The government will need to sell these securities for some level of profit and the government can’t default on notes to China or other countries because they stop investing.

Cady believes banks will take a harder look at who gets loans in the future and won’t loan money to people who might not be able to pay it back.

“Banks are taking a hard look at risk,” Cady said.

Contact Bernard Baker at or (434) 791-7986.