Speaker: Banks should learn from past economic failures

Learning from past failures and relying on small communities across the nation will help the United States get through the economic challenges it’s facing, said Jeff Fair, president of American Planning Corp.
The corporation specializes in financial and strategic planning for community banks.
Fair was the guest speaker at Wednesday’s St. Mary Chamber of Commerce Business Luncheon at the Petroleum Club of Morgan City.
Lessons learned during previous economic turmoil will be key to get through the next few years as the nation “tries to dig out of a pretty meek economy,” Fair said.
“Our economy is in a funk. It’s just not moving like we should be,” Fair said.
Small cities and rural communities are “the bread and butter” of where economic activity occurs, Fair said. Supporting local communities is vitally important to provide for economic success, he said.
The country has always found a way to survive adverse conditions after events such as the Gulf of Mexico being shut down after the 2010 oil spill, “crazy commodity prices,” recessions and real estate bubbles, he said.
“We are still a very strong country for all our failures,” Fair said.
The future is uncertain, particularly locally with the drop in oil prices, he said.
However, banks in the regions have learned lessons from the 1980s that have helped them stay afloat.
Between September 2007 and last Friday, the country had 517 bank failures, but only two of them were in Louisiana, Fair said. In the 1980s, Louisiana lost about half its banks during that economic downturn.
The West Coast, Midwest and Florida and Georgia were the hardest hit by bank failures in the past eight years, he said.
Banks in Louisiana, Mississippi, Arkansas and Texas, which were the hardest hit areas in the 1980s, survived the great recession with “very few blemishes,” Fair said.
Bankers that survived the 80s didn’t repeat those same errors during the past decade, Fair said.
The U.S. needs a fed funds short-term borrowing rate for banks of about 4 percent to have a healthy economy, Fair said. Any five-year period from 1953 to 2007 averaged a more than 4 percent fed funds rate, and the economy was in good shape during much of that time period.
For the last seven years, the fed funds rate has been at a historical low, Fair said.
The labor force participation rate is at a 38-year low, 62.4 percent, and also negatively affecting the nation’s economy. That rate is the percent of able-bodied 18 to 64 year-olds who are actually working, he said.
“One out of three able-bodied Americans isn’t working and doesn’t want to work,” Fair said.
From the latest 1940s through the 1960s, the country experienced a 60 percent labor force participation rate. That rate eventually got up to 68 or 69 percent and has been on a downward trend the past few years, he said.
Women have increased their workforce participation from 33 percent in 1948 to 60 percent in the 1970s.
Eighty-six or 87 percent of able-bodied men used to work, but that number is below 70 percent now and getting worse.
“Our economy is not designed to support a third of able-bodied people not working,” Fair said. The problem is a long-term, systemic problem that won’t be solved overnight.
In the 2008 fourth quarter, the U.S. had a gross domestic product of negative 6.8 percent, which was the worst quarterly report since 1958. The last time the country had over 5 percent quarterly growth was 2003, he said.
From 1948-80, economic growth was extremely volatile, and since that time the economy has calmed down. However, since 2003, the economy has calmed down so much that it is over-sedated, Fair said.
There is hope for the future, though. Three of the top four companies in America, Apple, Microsoft and Google, didn’t exist 40 years ago, he said.
Business owners have the chance to start a business today that could be among the top businesses in the U.S. in their lifetime, Fair said.

This story was written by Zachary Fitzgerald of The Daily Review staff. Reach him at zfitzgerald@daily-review.com.