Economy Stuck On Mortgage Crisis

August 29, 2008
| By Pete Daly |
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GRAND RAPIDS — A senior executive at the Edward Jones personal investments firm said the mortgage crisis and resulting drop in home values is still the biggest problem with the U.S. economy.

"I think we're in for a pretty tough year. And next year will be a pretty tough year," said John W. Bachmann, a senior partner of Edward Jones. Bachmann, who lives in the St. Louis area, was in Grand Rapids recently to help local Edward Jones representatives celebrate the company’s recent growth in this region.

Bachmann said he believes the U.S. is in a recession, and the home mortgage crisis is at the root of it.

"Until we find bottom — and we're not there — we can't expect to see a recovery" in the economy, said Bachmann, who was a managing partner at Edward Jones for 24 years.

Individuals who can't make the payments on their homes usually discover they cannot sell their homes without suffering a severe loss. They eventually bite the bullet and walk away in default. Then the banks sell the defaulted properties as quickly as possible, further depressing home prices and leaving more people trying to make payments on properties that are no longer a good investment, he said.

He noted that Michigan's woes are compounded by the decline of the Big Three U.S. automakers, which have to come to grips with the issue of the labor costs that make them unable to compete with foreign companies.

As for trying to decipher exactly which direction the economy is heading, Bachmann said, "We won't even know we've hit bottom until three to six months after we've hit bottom."

But right now is a good time to look at investing in stocks, he said. He mentioned Walgreen as an example of a good corporation with stock that is currently undervalued.

"When markets are low is when you should be buying," he said.

The presidential election this fall probably won't make much difference in the economy, he said. Obama would need "a veto-proof Congress" to implement his ideas, and McCain would have to make some compromises to get anything done since the Democrats are in the majority on Capitol Hill.

"We don't know a great deal about what these candidates are going to do, from an economic standpoint," said Bachmann.

Bachmann is a native of Salem, Ill. He received a bachelor's degree in economics from Wabash College in Crawfordsville, Ind., and an MBA in finance from Northwestern University in Evanston, Ill. He began his career at Edward Jones as a part-time college intern in 1959. Upon graduation, he joined the firm full time.

During Bachmann's tenure as managing partner of Edward Jones from 1980 to 2003, the company grew from 200 offices in 28 states to more than 9,000 offices throughout the U.S., with affiliates in Canada and the United Kingdom.

Bachmann served two terms as chairman of the Securities Industry Association in 1987 and 1988. His other outside activities have included service as chairman of the executive committee of the U.S. Chamber of Commerce from 2005 to 2006. He currently is Canadian Honorary Consul in Missouri and director of AMR Corp., American Airlines Inc. and The Monsanto Co. He also serves on the boards of several colleges and universities.

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