A Crisis of Liquidity
November 06, 2009
In 2008 the United States experienced a liquidity crisis, said Shundrawn Thomas, ’99, president and chief executive officer of Northern Trust Securities, Inc. “It’s very important that people understand that, because whether you consider the micro level of individual homes or the macro level of government and business, the liquidity crisis we experienced has led to significant repercussions for the broad economy,” Thomas said.
Thomas was among panelists at the third annual Chicago Black Business & Economic Forecast Luncheon. Sponsored by the Chicago Booth Black Alumni Association at the Union League Club of Chicago on November 6, the event drew an audience of about 100 people. The panel was moderated by Art Norman, newscaster for NBC-TV in Chicago for 27 years, who retired in April 2009.
Individuals and companies simply did not have the cash to service their debts, Thomas said. “Five decades ago, total consumer debt, including mortgages, was covered one and a half times by demand deposits,” he said. “This meant that people literally had cash in the bank to cover their debts. If you look at that statistic today, the typical household has less than 50 cents in demand deposits for every dollar of debt. When creditors asked for their money back, which they have the right to, individuals and companies did not have the means to repay them.”
Successfully navigating the future economy will require moving away from typical jobs in traditional industries and exploring such emerging markets as green technology, Thomas said. “For example, in the financial services industry, there will continue to be lots of opportunities, but we went through structural changes that will permanently alter the industry,” he said. “Much of the return on equity in the financial services industry was created through leverage, so when regulatory changes result in increased capital requirements and lower leverage, the industry will likely shrink.”
Although great potential exists for new economic players to enter the market on a now-level playing field as a result of the crisis, not enough support exists for entrepreneurs and small businesses, said Cheryle Jackson, CEO of the Chicago Urban League. “Entrepreneurs and small businesses are and always will be the way out of this type of economic morass we are in,” Jackson said. “The longer we take as a country, both government and private sector, to figure out better ways to support and help small businesses weather the storm, the more prolonged are recovery will be.”
Given the state of education and U.S. public schools, finding the human capital needed to fuel innovation and economic growth will be a challenge, she said. Possible ways to improve the training and preparation of the country’s work force, Jackson said, include:
• The federal government, as suggested by President Obama, improving education and creating incentives for better schools and higher standards. “We really haven’t seen that kind of leadership in a long while,” she said. “But much of the drive to improve education is really at the state level.”
• Voters can stand up and demand more in upcoming elections. “You might wish there was an easier panacea, but the solution rests right here with you and others who share our common interest and look like us,” said Jackson, who is running for Illinois’s U.S. Senate seat.
• Community colleges should be retooled so their curriculums are connected directly to emerging markets. “They ought to be providing training for careers and jobs,” she said.
• Make college more affordable. “There have been so many cuts in state and federal funding,” Jackson said. “The grants I went to school on are hard to tap and to find today.”