Without Bailout Credit Rates to Increase, Predicts MU Expert

Sept. 30, 2008

Story Contact:  Kelsey Jackson, (573) 882-8353, JacksonKN@missouri.edu
Karen A. Schnatterly, (573) 882-7672, SchnatterlyK@missouri.edu

COLUMBIA, Mo. – Yesterday as the U.S. House of Representatives rejected the $700 billion bailout package in Washington D.C., stocks plummeted on Wall Street. A University of Missouri expert predicts that without a bailout, the negative effects of the financial crisis will soon move more rapidly from Wall Street to Main Street.

“Without the bailout, the markets are very afraid,” said Karen A. Schnatterly, assistant professor of management in MU’s Robert J. Trulaske Sr. College of Business. “The banks are unwilling to lend to even to each other, and this means a tightening of credit for everyone. There are going to be a number of things that are going to get worse because nobody wants to be holding a long-term loan right now. More banks folding is a real possibility.”

One of the negative effects of not implementing a bailout is mortgage rates, credit card rates and car loan rates are likely to increase very soon, Schnatterly said. Because firms cannot pass price hikes on to consumers who cannot afford them, Schnatterly also predicts more layoffs.

“There are a lot of unknowns right now, and we can’t say yet if we are headed toward the Great Depression of 2009,” Schnatterly said. “I hope that the stock markets plummeting yesterday is a warning signal and will encourage people to tell their representatives in Congress the importance of supporting a bailout. Although I still have concerns about implementing the bailout, I believe a bailout is better than no bailout at all.”

Schnatterly is a member of the Academy of Management and the Strategic Management Society.  Her teaching and research interests include white collar crime, boards of directors and institutional owners.  She has been published in the Strategic Management Journal and the Financial Times and has authored several book chapters.

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