With pronounced volatility ruling the markets over the past week and a half, ordinary people as well as investors have become a bit jumpy with regard to their assets. In response to financial angst felt around Santa Barbara’s relatively wealthy community, Montecito Bank & Trust offered a seminar on banks, and what, if anything, there is to worry about. In point of fact, the seminar-with Bill Watkins of UCSB’s Economic Forecast Project as its featured speaker-was planned in advance, but as Watkins observed, it was timely. “The crystal ball is really cloudy right now. This is outside what we’ve ever experienced before,” he said, noting that financial markets have been a mess for about a year now.
Watkins said that because the South Coast’s economic growth has not been given to rampant expansion at a time when other economies were, it has been able to progress slowly through tough financial times, although he intoned that credit availability will be a problem for businesses and individuals in the future. “Most of the institutions in trouble are unregulated-outside the traditional banking structure,” he said. Those institutions most affected by the current financial turmoil are subject to the controversial legislation-the Troubled Asset Relief Program (TARP)-proposed to Congress this week by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. TARP hopes to use $700 billion of federal funds to bail out failing financial institutions. “I don’t yet have enough information about [TARP], and defer to Bernanke’s judgment. In the long term, though, it creates a moral hazard problem and encourages irresponsible spending,” said Watkins.