Spiraling Dow: Bank limits 900 colleges’ funds as economy tanks

by Jess Hoogendoorn and Brittany Phillips

People have been warning that the problems of Wall Street were going to hit Main Street. This week they hit Route 206.

On Monday, Rider was one of 900 colleges and universities whose access to investments funds was limited by Wachovia Bank. The investments were in the Commonfund, a Connecticut nonprofit that holds approximately $9.3 billion that universities invest short-term to cover operating costs.

Rider has about $20 million invested in the short-term fund. According to a statement released by President Mordechai Rozanski, Wachovia, as a trustee for Commonfund, will be distributing money to account holders only on a periodic basis.

“Please know that the university has other investments available to meet its current operating needs,” Rozanski said. “We are also working with our external financial advisors to establish a working capital line of credit to compensate for the fund’s investments that have longer-term maturities and have had positive expressions of interest by several banks.”

The hold on the funds should not affect disbursements or tuition, according to Julie Karns, vice president of finance and treasurer.

“We’re well-positioned to deal with this issue,” Karns said. “It shouldn’t impact students or employees.”

Rider does not expect to lose any money in the process just because Wachovia is preventing the university from withdrawing funds. The bank tells the university when and how much money can be withdrawn, said Karns.

Wachovia is one of the major banks experiencing serious difficulties in recent weeks. Under government pressure, the bank was sold to Citigroup on Monday.

Dr. Herbert Gishlick, an economics professor, said that Wachovia was most likely reacting to a foreseen problem of people making a “run on the bank.” With the economy in bad shape and banks showing signs of collapse, people may be considering taking funds out of the bank rather than running the risk of losing their money.

Gishlick breaks down on a personal level what Rider is experiencing.

“It’s like your personal checking account,” he said. “It’s like you have $500 but can only take out $200. What are you going to do about the other $300?”

Karns said she finds it interesting that there is a lot of information in the press about people not being able to borrow money, but in this case, it has become difficult to access money that is already in an account.

Although Rider has recently faced financial hurdles, the economy has been tanking for some time. On Sept. 29, the Dow Jones dropped more than 700 points, about 7 percent, the largest point drop in history. This occurred after the proposed $700 billion rescue plan, meant to stabilize the economy, failed to pass through the House of Representatives on Sept. 29.

A new plan was ultimately passed by the Senate on Oct. 1, and it goes up for vote again in the House today.

The economic crisis is influencing more than just stocks and businesses. It is also affecting several specific groups of individuals, one of them being students. It is becoming exceedingly difficult for students attending college to receive loans. This is because the mortgages taken out on homes are not being paid. Banks are suffering, and with limited money coming in, there is less to loan out to students.

Dr. Anne Carroll of the Finance Department believes that the $700 billion dollar bailout will benefit students.

“Without it, students would find it difficult, if not impossible, to get student loans — or any kind of loan (credit card, auto loan) for that matter,” Carroll said. “To the extent credit will begin flowing more freely after the bailout, firms will be able to expand and hire students, so your job prospects will be better.”

But the benefit of the bailout doesn’t come without cost.

“Ultimately, however, we taxpayers have to pay for it, and that burden is likely to fall more disproportionately on younger people,” said Carroll.

The source of the $700 billion dollar bailout raises other issues. Though it may stimulate the economy, there is a chance that taxpayers will have to make up the difference, which would come from loans and mortgages the government will buy. If the government can purchase them at a reasonable rate, money will come in from payments of the borrowers.

“There’s still a lot of uncertainty as to how the plan will work, or whether it will work as intended,” said Dr. Maury Randall of Economics. “They will be borrowing money; when they borrow money, this represents future obligations to taxpayers — that is, the students, and to others who are working today.”