Posted by Cognito on Tue, Dec 09 2008

All Posts by Cognito

The Mob Finds its David....

Republic Windows and Doors...

There are hundreds if not thousands of firms in this position across the US today. The challenge for Bank of America is that Republic Windows and Doors has become an emblem. It’s now a focal point for the frustrations of an entire nation.

Unions and politicians and the media are clearly willing this David vs Goliath story in to existence and to a casual observer this makes perfect sense: Banks and fat cats get a bail-out while the little guy gets crushed. Short, simple, powerful. It ‘feels’ right given what we think we know about the laws of natural justice.

The problem with this view of course is that it’s completely wrong. But it’s very hard to refute in 10 words or less.

What killed Republic Windows and Doors is exactly the same thing that killed Lehman Bros and Bear Stearns: lenders losing confidence in the ability of the borrower to repay the loan. With Lehman/Bear it happened at an institutional level so it’s more difficult to spot but the mechanism is exactly the same and the victims are no less real people with families to support and kids to put through school.

Today Main Street is going through what Wall Street went through 6 months ago. From small business bridge loans to mortgages there is a widespread reluctance to lend. The so called Bailout is in fact an effort by the government to specifically pre-empt this deadlock and get banks to lend again – not just to each other but to you and me. It’s designed to solve the Windows and Doors problem not exacerbate it!

Again this is a classic Wall Street communications challenge. Bank of America has to find a way to communicate the points above but more importantly the whole financial industry needs to do a much better job of educating the broader market about how the economy really works.

Topics
Banking Communications, Republic Windows and Doors,
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