Small banks ignored, professor says

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November 19, 2009

Jamie Jones

The government was right to bail out several struggling financial companies earlier this year, but federal officials ignored small banks in hopes of repairing “The Great Recession,” a Kennesaw State University professor said here Thursday.

Instead of giving all of the $700 billion bailout to heavy hitters such as AIG and Bear Stearns, the government should have helped smaller banks that could in turn loan money to small businesses, Donald Sabbarese said at the Carpet and Rug Institute’s annual business meeting.

“Businesses don’t have access to credit now, it’s very tight,” Sabbarese said. “I was talking to a building supply company, which is a very good company, and they said ‘two years ago banks were screaming for our business. Now we’ve gone to them and they’re asking for so much to put up.’”

Sabbarese, the director of KSU’s Econometric Center, specializes in macroeconomics and financial institutions. He spoke to a crowd of carpet executives about the economy and gave his view on the scenarios for recovery.

The title of his talk was “The recession ended in the third quarter of 2009. The economic recovery that follows will be either V, U or W-shaped. So what will this recovery look like?” The answer: U-shaped. Sabbarese believes recovery will be slow — like the swooping “U” — rather than quick like the “V.” The “W” shape is a “double-dip” recovery where the economy sours, improves, sours again then improves.

The floorcovering industry has suffered a downturn along with the national economy. Many companies have shuttered plants and cut jobs to offset declining sales. The slumping real estate industry has also affected the floorcovering industry. Fewer homes being built and sold translates into less carpet, hardwood, laminate and tile being bought.

Since December 2007, the U.S. has lost 7.3 million jobs. Of that number, about 3.6 million are from the manufacturing and construction industries. That’s led to a high national unemployment rate of 10.2 percent. However, Sabbarese believes that number is actually close to 17 percent because of the underemployed, part-time workers, discouraged job seekers and seasonal hiring.

Despite the grim news, Sabbarese looks for economic improvement next year.

“2010 isn’t going to be a great year, but it will certainly be better than what we experienced in 2009,” Sabbarese said.

Also during the meeting, the CRI presented the Dr. Joseph J. Smrekar Memorial Award to Gary Asbury of Professional Testing Laboratory in Dalton. The award was conceived by Milliken & Co. for CRI as a memorial to Smrekar, who passed away in 1998. Smrekar served CRI on numerous technical committees and boards as chairman, representative and member. The award “recognizes individuals who have similarly shown unusual and exemplary service to the carpet and rug industry.”

“Dr. Joe set the standard for service to CRI and the carpet industry,” said Russell Grizzle of Milliken Co.