August 18, 2008 Rotogram

MSU ON THE MOVE

Dr. Vance Watson, Mississippi State University’s interim president, brings our annual “state of the University” report today. Watson has worn many administrative hats at State during his 42 year tenure.

NEXT WEEK: BULLDOG FOOTBALL ’08

MSU Football Coach Sylvester Croom, the 2007 SEC Coach of the Year will brief us on this year’s team and his expectations for the Bulldogs’ season, which opens in less than 2 weeks.

LAST WEEK

Invocation and Pledge: Larry Box

Attendance: There were 130 members (38 exempt, 1 honorary) present, and 67 (19 exempt, 6 honorary) absent.

Guests and visitors: Members’ guests included Britt Bookout of Judy Webb, Daniel Browning of Ned Browning, Dennis Bock of P.C. McLaurin, Gabby Raborn, of Linda Karen Smith and John Fraiser of Frank Chiles. Bill Overstreet of West Point was our visiting Rotarian. Club guests were Nia Romero and Taka Sato, Youth Exchange Students; Jessica Thomas, Mentor Scholarship winner and her guest Jonathan Hughes, and Paul Sims of the Starkville Daily News.

Club notes: President Chip reminded committee chairs to complete and report their plans for the year so we can have our report for District Governor Joel Clements’ official visit next month.

The 2008-2009 Club Directory containing committee assignments is available with one copy per member.

Nellah Taylor, treasurer, reports that members who incur expenses for Club work can now download a reimbursement form from the Club Website by selecting the “Guide for Members” button.

MENTOR SCHOLARSHIPS

Each year, the Club awards $1,000 MSU scholarships to three graduating Oktibbeha County seniors. Larry Box, chair of the Mentor Scholarship Committee, announced that we have students representing a county school, Starkville High School and Starkville Academy.

Jessica Thomas, a 2008 honors graduate of East Oktibbeha County High School, was presented the first scholarship last week. A computer engineering freshman, she also is part of the Day One Leadership Community.

NEW MEMBER INDUCTION

Saying the volunteer spirit is alive and well in the Starkville Rotary Club, Frank Chiles, new member induction chair, welcomed four of our newest members. Inductees and their sponsors who were recognized included Brian Portera and Tammy Tyndall, proposed by George Sherman; Scott Dodd, proposed by Stuart Vance; and, Mike McGrevey, proposed by Chip  Templeton.

LOCAL PERSPECTIVE ON A TOUGH NATIONAL ECONOMY

America’s banking industry, in the aggregate, is sound, but it will be 2 to 4 years before the industry regains maximum earning power. Meanwhile, the financial system faces a “perfect storm” of economic factors.

Fellow Rotarian Lewis Mallory, Cadence Bank CEO and member of the Federal Reserve Board’s Advisory Council, gave a sober, but hopeful assessment of the nation’s economy last week.

Addressing the question “How did we get in the mess we’re in?” Mallory said one has to look back over 15 to 18 years of relatively low interest rates. The result was a climate for a tremendous supply of money. When legitimate demands were met, the extra money was directed to often unsound investments.

In particular, it drove an oversupply of housing that will take years to absorb. As an example, Mallory noted that the Memphis real estate market has an 11.5-year supply of housing units.

The other big piece of the mess is insufficiently reviewed sub-prime lending to less than credit worthy customers. These loans were put into $1.3 trillion of securities that were sold as bonds all over the world. Hedge funds that bought a lot of the sub-prime instruments began to have to redeem the securities at a loss. In fact, some funds were leveraged as much as 38 times their actual value.

That situation snowballed and resulted in the notorious failure of Bear-Stearns with the probability of more such collapses. The effect is a climate of low confidence in the financial markets in which the “credit river iced up 4 or 5 months ago.” Mallory’s judgment is that the flow is at about 50 percent of capacity today.

Big banks have had to write down more than $300 billion of losses relative to the sub-prime problem. The majority of commercial banks have been more affected by mortgages and repossessed real estate. Over half of the 3500 publicly-traded banks had dividend drops last year with about 700 completely cancelling dividends.

Saying that a free market will find its own self-regulation, he added, “When there are such huge excesses, there is an appropriate role for regulators, but many times we come to that conclusion too late.”

Of significant concern is the increasingly limited ability of the federal government to deal with the credit crisis.

“The industry needs calm and less traumatic headlines, said Mallory. “And, the Federal Reserve Bank must have an effective and efficient money market to do its job.”

Locally, the situation is better due to the pickup in business from a new MSU school year, a solid real estate market with a bit of softness, and the ongoing Golden Triangle area industrial development.

Mallory offered three scenarios for resolving the economic challenges:

  1. Sixty percent probability of very slow growth over the next 1 to 2 years with a recession.
  2. Ten percent probability that we are rapidly approaching the bottom and recovery will begin in the next 6 to 12 months.
  3. Thirty percent chance of worldwide recession and business failures when the “perfect storm” when energy, housing and consumer spending stall in the face of the credit crunch.

“I’ve been doing this stuff for a long time, and this is the toughest market I’ve ever seen” said Mallory. “It is more complex and its scope dwarfs anything thing else we’ve seen before.”

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