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Industry waits for helping hand

Vice President Joe Biden speaks Tuesday at the University of Wisconsin-Milwaukee with U.S. Treasury Secretary Timothy Geithner in the background. Biden spoke in support of proposed financial regulatory legislation, dubbed the Restoring American Financial Stability Act of 2010. (Photo by Dustin Safranek)

Vice President Joe Biden speaks Tuesday at the University of Wisconsin-Milwaukee with U.S. Treasury Secretary Timothy Geithner in the background. Biden spoke in support of proposed financial regulatory legislation, dubbed the Restoring American Financial Stability Act of 2010. (Photo by Dustin Safranek)

Sean Ryan
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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.”

One comment

  1. John W. Springer

    I take from the quote above: “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.” That is very laudable and hopefully will be given every consideration to work. It is questionable that the present programs that have been put in place to salve the immediately past “crisis” have done anything but give the financial system some breathing room and avoid a then crisis of greater degree. To that latter end, well done; but, is it sustainable.

    While it is always nice if one can be given more capital to survive; how is that capital truly being used for long term turn-around and value creation? Demanding greater capital requirements presumes someone is willing to step in and assume an already over-levered situation. At what price? Again, while this could make all things better, how realistic is it in working out the present moment. Is it the stool? Or, one leg of the stool.

    The Vice President is also quoted as having “said the reform also would lead to banks investing in companies for expansion and job creation.” Here’s a thought: what if the Banks were allowed to convert a part of their debt to equity (rather than write it down; or, at least consider it being amortized over a reasonable term), retain a sufficient portion that would cash-flow while keeping the responsible borrower involved in the loan and project and putting people back on the forward path of working this process out together. This is not a new idea; just one that might be revisited after some eighty years use in Europe.

    Unfortunately, we (the good and bad credits) and the Banks have all gotten into this together. We should look for the path where we can all come out of this as well- sharing the pain and future gain. Just a thought.

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