The state’s construction industry, pummeled by frozen lending markets and skittish investors, is uncertain that Wall Street reform will trickle down to Wisconsin.
But Vice President Joe Biden on Tuesday assured the industry, and others listening at the University of Wisconsin-Milwaukee, that proposed federal regulations on financial institutions will encourage investments in companies and, by extension, the construction industry.
“The free market is a pretty cool machine when it’s working properly,” Biden said. “There’s been nothing like it. But the free market is not working properly.”
Builders in southeast Wisconsin see the symptoms of a hurting financial market, with banks either not lending money or making it more difficult to get money, said Mike Fabishak, chief executive officer of the Associated General Contractors of Greater Milwaukee. Lenders are demanding developers of condo projects pre-sell more units and that companies invest more of their own money before receiving a loan, he said.
“A lot of it is based on the skittish nature of these financial institutions based on what happened,” Fabishak said.
If the new financial rules create a more stable banking system, they will help builders by making it easier to get loans, said Ken Simonson, chief economist for the Associated General Contractors of America.
“The intent is to put in place a regulatory system that increases transparency and decreases the likelihood of major bank failure,” he said.
Biden on Tuesday said a new regulatory package would prevent the return of the fallout in the lending market that occurred after people were unable to pay loans and mortgages. He said the reform also would lead to banks investing in companies for expansion and job creation.
“In this way, the investment system helps build factories,” he said.
The U.S. Senate was to consider the new bill, dubbed the Restoring American Financial Stability Act of 2010, on Monday, but supporters were unable to muster the 60 votes needed to open a debate over the bill on the Senate floor.
The bill includes provisions that let the federal government take over large, failing financial companies and split and sell their assets. It also requires lenders keep more money on hand as security against money that is loaned out.
The requirement that lenders keep more money on hand could make it more difficult for developers to get loans after the market recovers, said Mike Ruzicka, president of the Greater Milwaukee Association of Realtors.
“One of the requirements is probably going to be increased capital requirements for lenders, which could cut into the available money they have to lend out,” he said, “and result in higher interest rates.”
Ruzicka said the National Association of Realtors has not staked out a position on the reform. He said he does not know what it might mean to breaking the lending impasse.
Fabishak said he is in the same boat. Builders are looking for a way to warm up the lending market, but it is hard to say whether the financial package is the key, he said.
“Is that necessarily going to help our markets?” Fabishak said. “I don’t know.”