By Lou Baldwin

Special to The CS&T

How serious is the current financial crisis gripping America?

First of all, in terms of “corrections,” as Wall Street euphemistically calls its periodic melt-downs, so far this one is in no way the biggest – at least in terms of the bellwether Dow Jones Industrial Average. In the two days of Oct. 28-29, 1929, the Dow lost 24.5 percent of its value. Although there was a temporary rebound, by July 1932, the index had plummeted a whopping 89 percent.

In a more recent “correction” between 1972 and 1974, the Dow lost 42 percent of its value. Contrast these to the latest crisis. From the all-time high closing of 14,164 on Oct. 9, 2007 until the Sept. 18, 2008 close at 11,019, there was an approximate 22 percent drop. While this was certainly serious (and it could go lower) it was not epic compared to past downturns.

What makes the 2008 crisis unique is the heavy concentration of very serious losses in a single sector of the economy – the financial industry; the banks, insurance companies, brokerage houses and mortgage lenders, triggered by a high rate of mortgage defaults. This caused the financial sector virtually to collapse with resulting bankruptcies, mergers at fire-sale prices and government takeovers and bailouts.

Some local Catholic professionals shared their insights into what ordinary people can or should do, under the circumstances.

“We’re getting a lot of people panicking right now and rightfully so,” observed Brian Allen, a financial consultant and first Vice President at RBC Wealth Management in Conshohocken. “Early in 2003 the market tanked but people saw their investments come back in the last year or so. This is a different animal; it’s more financial and technical. Fixed income securities are being beaten to death.”

Everybody is taking a beating, Allen said, but “we’ll get through it.”

People with stocks, he believes, should look at their portfolio and make sure they are spanersified. Core industries that might be the safest would include energy and agriculture, he suggests.

Shawn Howton, an associate professor of finance and director of the Daniel M. DiLella Center for Real Estate at Villanova University, said the housing market is at the cause of the crisis and those companies in trouble “made bad business choices.” The situation won’t ease, he believes, “until we find the bottom of the housing market.”

If you need your funds in the short term, you should be in equities (bonds), not stock, he advises.

But if you know you won’t need the money for five or 10 years, “you shouldn’t pay attention to this. The best thing to do is nothing.” Also, Howton noted, bank deposits under $100,000 are insured and safe.

The whole housing crisis began, Howton said, because of bad loans. “People forgot about risks,” and after this crisis, “some sanity will come back into the lending market,” he said. The sad part of the situation now is that small businesses and people who have relatively good credit can’t get loans, he said.

Robert Sims, chairman of Sims Financial Services in Wayne, believes the crisis is “mainly a mental crisis.” But he added, “we built too many houses and we built too many cars.”

Mortgages were granted with no documentation when in the past “you brought your tax return with you to prove you could afford the house,” he said.

Another villain, he believes, is the over-aggressive marketing of credit.

“It’s too easy to borrow money,” Sims said. “Review your spending habits. Give your charge cards a break for a month. If you go out to dinner have the drinks at home, the restaurant bill will be half. If your job may be in jeopardy because of the crisis, prepare for it. Open your mind for another way to make a living.”

Also, as people grow older, they often find themselves with more house than they need. “Examine your housing options,” Sims said.

Matthew McCloskey IV, the president of McCloskey Financial Group, said, “Greed got in the way,” and the companies in trouble “are paying for past sins. They were playing with people’s lives.”

He describes himself as “extremely cautious” and thinks the financial problems are deeper than most people realize. “The fact that the government has taken such extreme steps to correct it tells you something,” he said.

People with investments should seek the advice of their financial advisors, he suggests. “Are they adequately protected? What is their risk tolerance? Some people have more risk tolerance than others.” If they can’t afford risk, “they should take the opportunity to get rid of weak stocks, but keep the strong ones.”

Lou Baldwin is a member of St. Leo Parish and a freelance writer.