Local analysts cite cyclical trends, laud economy’s overall resiliency

LYNN – The collapse of major investment banking firms spurred by the lingering mortgage and credit crisis has many worried about recession, or worse, but local analysts point to the cyclical nature of the markets and resiliency of the overall economy.Christopher Joyce, a Lynn-based financial planner for Ameriprise, said the equity market will eventually rebound, but not until the faulty investments have been cleared.”I’m the type of guy who trusts until I have reason not to,” he said. “What will happen now, I believe, is that lots of the bad investments will be gone. And maybe, in four or six months, or maybe longer, you’ll hopefully see a revitalization of the equity market.”According to Joyce, individuals will likely find it difficult sifting through the downturns in the financial portfolios, especially those with high-risk investments. “Once those high risks have been eliminated, the future from that point on will be a lot brighter financially,” he said. “The hard part will be getting to that point.”Joyce stressed that the financial markets generally adopt a sky-is-falling mentality. “There’s really never a time when there is nothing to be concerned about. Even in the best market, investors will find something of concern,” he said. “But once this is all done, the long term will be good for the market. Long-term investment and a rational approach is the best strategy.”Citing the savings-and-loan scandal of the 1980s and the financial troubles at global financial services company UBS, Joyce said a pattern has evolved in 10-year cycles. “There seems to be a scandal every 10 years or so. Maybe that means once this latest situation is cleared up, we’ll have 10 years of better times,” he said.Barry R. Sloane, co-president and chief executive of the Lynn-based Century Bank, in a keynote address last Thursday to the Greater Lynn Chamber of Commerce, attributed the mortgage and credit crisis to repeal of laws that separated commercial and investment banking.Commercial banks take deposits and earn money from interest on loans they issue. Investment banks, like Lehman and Bear Stearns, make money on fees for underwriting new issues of stock, bonds and other securities.The Glass-Steagall Act of 1933 separated the two types of banks from getting into each others’ line of business. But that law was repealed in 1999, as investment banks successfully lobbied to open up the markets.Whereas commercial banks like Century, Sloane said, closely scrutinize loan applications and every loan issued is approved by a senior officer, he said investment banks for years approved risky loans, with little scrutiny of the applicants, because they profited on the underwriting.”Those bad loans were bundled and sold as bonds to GSEs (government sponsored enterprises),” such as Fannie Mae and Freddie Mac, he said.Speaking after the announced taxpayer bailout of Fannie and Freddie, but days before the Lehman Brothers collapse and Merrill Lynch sale, Sloane said effects of the mortgage and credit crisis will likely be felt for some time. And while he predicts the housing market will rebound, he warned “it will never be the same,” just as the dot.com bust in 2000 has had lasting effect on investment in the high-tech sector.As for the economy overall, Sloane said indicators point to its resiliency. He said “consumer prices are up but inflation is stable and unemployment, while up, is not as high as some might have thought.”The best advice for businesses is to refrain from taking on too much debt, and for individuals, to pay down or pay off credit card debt as soon as possible.And sharing advice he said his father often offered, Sloane said, “Own your house as soon as possible – and that means own it free and clear.”