Business execs predict economic recovery in '09

The immediate future will continue to be rough, but the recession should shift to economic recovery sometime next year, the chief executives of three of Charlotte's largest employers and a top Federal Reserve Bank official said Wednesday.

The panel of business titans warned of short-term obstacles but shared long-term optimism at the Charlotte Chamber's seventh annual Economic Outlook Conference, which drew more than 650 people to the Westin Charlotte hotel uptown.

Joining the three CEOs - Ken Lewis of Bank of America, Bob Steel of Wachovia and Jim Rogers of Duke Energy - was Jeffrey Lacker, president of the Fed district that includes the Carolinas.

While economic indicators have deteriorated this year, Lacker said he expected the U.S. economy "to regain positive momentum sometime in 2009."

Lewis agreed: "I do see a ray of sunshine out there in about six months or so." Until then, Lewis said, households and companies should hoard cash and capital, and those who are optimistic can look for good investments - perhaps at a discount in the downturn.

Steel echoed that strategy, saying investors must walk a tightrope between being "prudent and cautious" and pouncing on great opportunities.

Lacker said his optimism for a 2009 upturn came from lower interest rates, lower energy and commodity prices, and a bottoming out of the housing market. Lacker noted, however, that he also predicted a next-year bottoming-out in housing the past two years.

"So my outlook," he said, "is tempered by more than the usual amount of humility." Still, Lacker said, "there is no sign that the fundamental creative process that drives innovation and improves well-being over time has been mortally wounded."

Subhed Rogers recalled attending last year's conference and predicting that the U.S. would avoid a recession, which economic researchers recently said began in December 2007.

"I blew it," he said. "It probably started while I was standing here." Now, Rogers said, "this may be the greatest economic challenge that our country has ever faced." Although the current economy has "got all the unattractive signs," Steel said the recession wasn't obvious in the first half of this year, when some industries continued to see gains.

With Wall Street now in turmoil and banks, insurance companies and automakers asking for government assistance, Steel cautioned against rushing to more regulation.

"The issue isn't more or less," he said, but rather regulation that is appropriate. Lewis said two financial policies have contributed to the banking crisis. Mark-to-market accounting rules require banks to value their assets based on a price they could immediately fetch, rather than their long-term value. That's resulted in absurd short-term valuations, Lewis said.

Another problem is capital provisioning policies. "This idea of building reserves in the bad times and reducing reserves in the good times ... I don't know how big a squirrel's brain is, but a squirrel knows better than that," he said.

Lewis also said the government's Community Reinvestment Act shouldn't be blamed for the current crisis. The 1977 act requires banks to make loans and investments in underserved and low-income areas, but Lewis said "the great majority" of problem loans were outside CRA lending.

Subprime mortgages also have been derided during the meltdown, but Lacker and Steel warned against eliminating them altogether, saying such loans have been vital for people with challenged credit to own homes.

"That worked for a long time," Steel said, and boosted homeownership in cities and among minorities. "I think we have to be careful not to slam the brakes on credit for people who are not in the most pristine conditions."