Common sense unveiled at St. Pete Yacht Club
I'd never heard of John B. Jung Jr. but I am a lot smarter for having listened to him Thursday morning when the senior managing director of BB&T Capital Markets spoke on the economy, the patchwork financial bailout and where we're heading. BB&T, the North Carolina banking company that owns BB&T Capital Markets, has remained -- if not bulletproof -- relatively untouched (and is happy to remind us) by the stock market and balance-sheet tsunami that's laid waste to so many financial institutions in the country and Florida.
BB&T's Ken Coppedge, Tampa Bay regional executive, reminded invitees that the bank is open for business and lending. Even if credit standards have inevitably tightened. But he acknowledged a lot of business seemed to grind to a halt around here last month.
Jung told his audience that the U.S. economy came closer last month to the brink of meltdown than many people realize. So he appreciates the extraordinary efforts by the federal government to step in, add liquidity, bolster sagging bank capital, guarantee money market funds and try to reduce widespread panic.
However, Jung also raised some intriguing questions about the ongoing bailout:
1. Was the cheap sale of Wall Street's Bear Stearns just a $50-billion gift to buyer JPMorgan Chase?
2. Was the sale of Washington Mutual (again, sold to JPMorgan Chase) just another way to prevent the FDIC from getting stuck with the failure of an institution too big to handle?
3. Was the decision to let Lehman Brothers fail an arbitrary experiment to see what would happen if a Wall Street firm was not bailed out?
4. Will the nationalization of Fannie Mae and Freddie Mac turn out to be a gold mine for the federal government?
5. Was the original federal transaction to sell North Carolina-based Wachovia to Citigroup a way to placate the giant bank after its New York competitor, JPMorgan Chase, was getting so many subsidized deals from the feds? And did Citigroup, by threatening huge lawsuits claiming it was wronged, lack the class to hand Wachovia over to the better deal offered by Wells Fargo?
Jung was refreshing because he posed questions most people still are not willing to ask. "Should we let GM and Chrysler fail and restructure, or go ahead and bail them out? Why not?" If we're going to offer government aid to everyone in trouble, where will we get the money to pay for it all? Darn good question, Mr. Jung.
The BB&T Capital executive also criticized the country and its political leaders for lacking the nerve and discipline to focus on longer-term challenges. Just because gas prices have dipped, is that reason to stop the critical national debate about energy? Will American business models work in a deflationary world -- meaning can businesses make money if they simply continue to assume the value of assets (like housing) will only rise over time?
The hidden message in much of Jung's remarks? Prepare for a great deleveraging. Prices on many things may fall from their recent heights, he warned, and that needs to be accompanied by cuts in costs, including wages. That's not necessarily bad, he said. If you make $20 and your pay is cut to $15, and you purchase something priced at $5 that once was $10, who comes out ahead?
Next year will be tough, he predicted, a theme echoed at our St. Pete Yacht Club breakfast table by BB&T's Coppedge and Lincoln Financial Advisor CFP Gene Stern. "The people who adjust their cost structures (meaning cut costs) will come out of this the fastest," Jung said.
Skip all the extra stimulus packages in the works by Congress, Jung counseled. Use that money to do something real. "How about a bullet train from Boston to Miami?" That will produce a lot of jobs and a lasting benefit 20 or 30 years from now.
Somebody ought to send this guy to Washington to crack some heads.
-- Robert Trigaux, Times Business Columnist
[Photo: John Jung of BB&T Capital Markets]