MidSouth prez: Economy not like ’80s

Even though rising real estate prices have slowed in the Tri-parishes, the local economy still rests on “a solid basis,” said MidSouth Bank President and CEO Rusty Cloutier at a meeting held recently at the bank’s Houma branch.

Economic conditions in south Louisiana are not at all like the bad times of the 1980s, he said.

MidSouth, based in Lafayette, held meetings during February at the bank’s locations in Louisiana and Texas to talk about the nation’s financial crisis with the public.

“We will get through this,” Cloutier said of the nation’s current economic state.

Morgan City during the 1980s, where falling oil prices contributed to 16 percent unemployment, is similar to unemployment levels now in Michigan, Cloutier said.

South Louisianans learned a lesson from that decade, he said.

When oil was selling for $140 a barrel last year, pressure was exerted on producers to explore for more crude. But when the price fell, who was there to bail them out? Cloutier asked.

The estimated 15 billion barrels of Gulf of Mexico crude in the recently-discovered Jack Field 270 miles southwest of New Orleans should help keep demand elevated for oilfield-related businesses in south Louisiana, he said.

“This is not the 1980s,” he said. “You don’t see leverage everywhere. You don’t see real estate going through the roof.”

“Everyday people are cutting back,” he said. “People are not buying new cars, they’re more conservative. People are putting on brakes. There’s low debt, low leverage. Here, there are lots of positive things. There’s money coming in from the hurricanes.”

Recessions usually take plenty of time to end and often need an event to bring them to a halt. Cloutier said that the Louisiana recession beginning in the 1980s was not over until 1992.

According to Cloutier, a terrorist attack could send oil prices through the roof.

The meetings are also allowing MidSouth to discuss the bank’s acceptance of $20 million from the U.S. Treasury Department’s Capital Purchase Program, which began buying stock in banks last year in response to the financial crisis. The bank has indicated it may return the money.

Cloutier said the recent bank failures in the U.S. were caused in part by removing 75-year-old laws that had kept banks from expanding.

When approving mortgages, banks did not ask enough questions. They believed real estate prices would continue to rise, increasing homeowners’ investment.

“Around 2003, ’04 and ’05, they put up junk on the books,” Cloutier said of the banking industry’s accounting. “They can’t even put a figure on what’s out there. It’s a big problem. They need to break up the big banks. Otherwise, we’ll continue to suffer. … People on Wall Street are not so smart as we thought.”

Cloutier named eight events that were significant in the federal government’s response to the banking crisis.

The first two were the Economic Stimulus Act of 2008, sending out $120 billion in checks to individuals, and the Hope For Homeowners Act, which allowed homeowners to refinance high mortgage loans.

The third was the first installment of the $700 billion Troubled Asset Relief Program (TARP) for big banks, and the fourth was the Capital Purchase Program, which bought stock in smaller, healthier banks like MidSouth.

Fifth was the $400 billion bailout of Citigroup and another bank, then came the second installment of TARP.

The final two were Obama’s stimulus package and the current plan to bail out some mortgagees.

Cloutier said MidSouth may return the $20 million the bank received from the Capital Purchase Program because of restrictions placed on how the money could be spent.

“One day, they’re talking about public/private partnerships, and the next they’re calling us crooks,” he said.

Cloutier said he should not be placed in the same pile with former Citigroup CEO Sandy Weil and former Treasury Secretary Robert Rubin.

He said, “The new administration said that banks that took money are bad guys.”

MidSouth Bank President and CEO Rusty Cloutier discusses the TARP program at a town meeting. MidSouth participated in President Obama’s Capital Purchase Program. However, given the treatment banks have received, Cloutier said the bank is considering returning the money. * Photo by MIKE BROSSETTE