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Providence Financial












MONTHLY NEWSLETTER:  OCTOBER 2008 ISSUE

IT IS FAR MORE THAN A FLESH WOUND
BY BRENT VAN ALFEN
PROVIDENCE FINANCIAL CO., LLC



I’m not really a Monty Python junkie, but I do remember a scene in the movie Monty Python and the Holy Grail where a medieval knight was guarding a road or bridge or something and during a number of sword fights, both of his arms and legs were cut off. He (what was left of him) still sat in the center of the road bravely saying, “It is only a flesh wound”!

I suspect that all of us have been watching the news this past month and wondered what these events in the financial markets mean to our country and what the ramifications may mean to our businesses and personal lives. Even though the administration and congress will likely find a way to work through this crisis, it is far more than a “flesh wound” to our economy. DO NOT BE DECEIVED, THE EVENTS OF THIS MONTH IN THE FINANCIAL MARKETS ARE NOTHING SHORT OF CATASTROPHIC! The crisis began last summer when the markets began to lose liquidity, and nobody is sure if we are at a culmination of the crisis yet or if there are more surprises to come. People in the financial markets whom I have spoken with are saying this is the worst crisis in anyone’s memory and without precedent. It may even be a greater crisis than the great depression in its scope and long-term consequences.

There are no independent investment banks left on Wall Street. The last two survivors just converted to bank holding companies. The others are either in liquidation or have been acquired by other financial institutions. Even Merrill Lynch, an icon in this country for decades was acquired on an emergency basis. The commercial banking system is stretched to the limits with bad loans, bad real estate portfolios, and the resulting lack of liquidity. The Washington Mutual closure is the largest bank failure in history, and it has been reported that as many as 100 more banks will fail within the next twelve months.

In addition to the several major financial institutions that are requesting a bail out, the government is proposing to purchase the bad loans and foreclosed residential housing inventories now held in the banking system nationally. There is one major problem with the scenarios that I am aware of---and that is nobody really knows how much this is going to cost the taxpayers. It seems to be open- ended, but estimates that we are getting in the news are from $700B to $1Trillion.

Hard economic times will also bring tighter budgets at the state and local levels.


When you add this Federal debt to the already reckless deficit spending by our government and of course the Iraq war that has added to the deficits, you get the picture of a federal government that is fiscally out of control. The net result, among many other things, is an over-leveraged economy from top to bottom. The government is way too deep in debt, businesses are too leveraged, and the vast majority of American families are too deeply in debt. The government has been running on borrowed money for too long and continues to print more money to cover the deficits. Interest rates have been kept artificially low so the economy can continue to grow by building an oversupply of housing, among other things. Billions of dollars of credit have been extended for bad loans on fraudulent applications, and now the taxpayers suffer the consequences.

The economy is a fiscal house of cards that will no doubt collapse sooner or later unless decisive measures are taken by the spineless politicians in both parties who caused the problem in the first place. When the entitlement programs such as Social Security and Medicare start to accelerate and hit the Government budget, nobody now knows how to pay for them.... no idea. The government is already leveraged to the limit.

One result of this type of fiscal behavior is inflation. My guess is that we will have escalating inflation and higher interest rates coming within the next year.

Hard economic times will also bring tighter budgets at the state and local levels. One of the areas that will usually get scrutiny is education, so charter schools could see their funding reduced.

What can we do? A few suggestions follow.

Demand more from your senators and representatives. Get involved in politics and use whatever influence you can to get more responsible representation in Washington

Reduce your business debt and personal debt as low as you can

Accumulate a savings account for rainy days

For both your business and personal affairs, live within your means

“Well, other than that, Mrs. Lincoln, how did you enjoy the play?”


For information contact Brent Van Alfen, Providence Financial Co., Inc.
Phone: 801-299-8555
Email: brent @ providencefinancialco . com