By JAN FALSTAD
Of The Gazette Staff

Crawford's losing portfolio makes up to 20 percent of his retirement plan. He did diversify his investment risks, so the loss won't wipe him out. Yet after selling insurance for Farmers Insurance Co. for 34 years, Crawford said people like him, between the ages of 55 and 65, face a classic dilemma.

"We don't have enough time in our lives to recover. Twenty- to 25-year-olds have the rest of their lives to watch their investments grow," Crawford said. "Yet I can't afford to pull out of my investments."

People investing heavily in insurance annuities or whole-life insurance will have to get used to lower returns, close to the legal minimum of 3 percent, Crawford said, a rate that may not keep pace with inflation.

Local bankers have long said they didn't get involved in risky subprime lending, where mortgages were granted to people who wouldn't qualify under more stringent standards. Yet the financial quicksand now is spreading beyond home mortgages and into commercial lending, and that may make loans in Montana and Wyoming harder to get.

"If anything will affect the individual, it's the availability of credit," Billings developer Steve Corning said. "Credit drives the whole system, and the availability of credit will be impaired for the next 12 to 18 months."

Bill Coffee, executive vice president of Stockman Bank in Billings, said his bank never dabbled in the more risky loans, such as those offering 100 percent financing with no personal guarantees. Most Montana borrowers with a tax return and a strong balance sheet should be only marginally affected by the national banking crisis, he said.

"Credit certainly is going to be available, but banks and other financial institutions might not be fighting over customers as they were before," Coffee said.

Calls to the Merrill Lynch branch manager in Billings were referred to corporate headquarters in New York. Company spokeswoman Selena Morris said Merrill has 65 employees in Montana, but for competitive reasons she wouldn't break employment down by city. In May, Merrill, the nation's largest brokerage firm, closed its Great Falls office.

During a news conference Monday morning, Bank of America's chief executive, Kenneth Lewis, said the 17,000 financial advisers at Merrill were "the crown jewel of the company," and he pledged to keep the Merrill name and organization intact. Lewis also said he now thinks U.S. economic recovery won't start until 2010, not next year as he previously stated.

Bank of America reportedly offered to pay $29 a share for Merrill stock. That's far better than Friday's closing price of $17.05, but it's less than a third of the nearly $100 a share seen in early 2007.

Words like "crisis" and "seismic shocks" were used to describe this latest economic downturn, and by late Sunday, 10 of the world's largest banks set up a $70 billion pool to help troubled financial companies to prevent a worldwide panic.

Volatile bond markets also are affecting local companies.

Last spring, sour markets made Billings Clinic wait before issuing about $100 million in bonds to pay for expanding its downtown campus. Now Billings Clinic Foundation President Jim Duncan said the borrowing will proceed despite the upheaval, which has made the borrowing more difficult and modestly more expensive.

"The Billings Clinic continues to be on track for the issuance of our bonds over the next few weeks, mainly for our new surgery center and partly for our cancer center and the fourth floor of the trauma center," Duncan said.

The city of Billings' finance director, Pat Weber, said he wrote a memo Monday to the City Council temporarily postponing the sale of about $4 million in bonds to pay for widening King Avenue East and other infrastructure improvements at the Cabela's site off South Billings Boulevard. For the first time, the city must get the bonds rated or graded by national rating agency Standard & Poor's before they can be sold, a decision that is expected by Friday.

Workers started laying bricks on the Cabela's building Monday, and Weber said he's confident that the special improvement district bonds will sell.

Dick Spalding of Billings, a retired Merrill Lynch vice president, blamed the latest meltdown on lax regulation, saying that trust and confidence are essential to a sound financial system.

"Banks have taken on a tremendous amount of risk in the last few years after Sen. Phil Gramm started destructing the whole system by repealing the Glass-Steagall Act," Spalding said. "How do you tell the difference now between Merrill Lynch and a bank?"

Gramm, a former Republican senator from Texas, spearheaded the effort to kill the Glass-Steagall Act, a measure passed during the Great Depression that forbids mega-mergers among investment banks, commercial banks and insurance companies.

Larry Swanson, director of the O'Connor Center for the Rocky Mountain West, an economic think tank in Missoula, called the current situation "pretty extreme" and also said the next president and Congress must reinstate effective regulation because markets do not automatically self-correct.

"You have to manage the American economy with pragmatic, common-sense political leadership, not an ideological leadership," Swanson said. "Sometimes, you have to intervene aggressively and intelligently."

Swanson predicted that the U.S. Treasury soon will have to intervene in the markets again to rescue another troubled company, American International Group, which is the world's largest insurance company. AIG stock lost nearly half of its value recently, and the company is seeking a bailout.

One local investment company, D.A. Davidson & Co. of Great Falls, which employs 1,000 people in 17 states, said Monday was business as usual.

"Not that many people called, just the regulars," spokeswoman Jacquie Burchard said. "It seems investors know they have to hang in there."

Contact Jan Falstad at jfalstad@billingsgazette.com or 657-1306.

Published on Tuesday, September 16, 2008.
Last modified on 9/16/2008 at 12:30 am