Montana State University

Banker tells MSU crowd the nation's long-term economic outlook is still bright

November 14, 2008 -- Anne Pettinger, MSU News Service


Though the U.S. is in the midst of a recession, Lyle R. Knight, an adviser to Federal Reserve Chairman Ben Bernanke, predicted that one day most people would wish they would have invested their money at today's prices. MSU photo by Kelly Gorham.   High-Res Available

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Tel: (406) 994-4571
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Though the United States is in the midst of a recession, an adviser to Federal Reserve Chairman Ben Bernanke told a capacity crowd gathered at Montana State University Thursday evening that this is actually a time of opportunity.

"It's hard for us living in times of recession to see these as times of opportunity," Lyle R. Knight, who is also president and C.E.O. for First Interstate BancSystem, Inc., told about 250 people gathered in MSU's Procrastinator Theater. "But clearly, it's a time of opportunity."

Knight also predicted that in five years, most people would wish they would have invested their money at today's prices.

"If I could convince all of you to meet me here in five years, we'd say, 'why didn't we buy bank stocks...or that surfside condo in Miami,'" Knight said.

Financial crises are all different, with different causes and solutions, said Knight, who has been in the banking business for 38 years.

"If you've seen one financial crisis, you've seen one financial crisis," he said.

In fact, recessions are a natural part of an economy's normal business cycle, Knight said.

Rather than being surprised by a recession, people should realize that the economy always becomes stronger because of them, Knight said. Weak businesses are outdone by stronger businesses during a recession, he added, when they are forced to reevaluate and be creative about their work.

To put the current recession in perspective, Knight said it pales in comparison to the crises of the 1930s and the 1980s.

During the meltdown in the 1980s, 1,000 banks failed, Knight said, while another 1,000 were on the Federal Deposit Insurance Corporation's watch list.

So far during this recession, 19 banks have failed and another 107 banks are on the FDIC's watch list.

Today's current financial crisis is not just due to sub-prime mortgage loans, Knight said, though they may have been the trigger that caused the problem to be recognized. Rather, he said a number of different causes have contributed to the recession. Among those causes are markets across the world flooding the United States with money; complicated investment products that may not actually be sound; a herd mentality in investing, where people try to mimic others' investments; and a misuse of incentives in the free enterprise system, such as annual bonuses for C.E.O.'s, which encourage short-term profit instead of long-term stability.

Knight also talked about a so-called moral hazard. With the government bailing out investment houses, he worries there will be no way to penalize companies for behaving badly.

"I'm worried we're creating such large institutions that they're too big to fail...because they'd harm the economy." But people and companies that make mistakes should be punished, Knight added.

For example, Knight blamed Wall Street itself for the money lost there, and said it was not the responsibility of the Federal Reserve to fix Wall Street's mistakes.

The real problem, he said, and one that Knight predicts won't be solved in his generation, is how to support retirees.

Social Security was founded when people were only supposed to live to be 67, he said. Now, with people living into their 80s and 90s, the system is simply not viable.

Knight said people who could afford their own insurance in retirement should be required to purchase it.

And he said a basic change might have to occur with Social Security in order for it to work, such as not giving Social Security benefits to people until they're 75.

Still, Knight remains optimistic about the economic future of the United States.

"I would never bet against the U.S. economy," Knight said.

As First Interstate's president and chief executive, Knight oversees 50 First Interstate branches located in Montana and Wyoming and 18 branches located in South Dakota. Knight has a degree in banking and finance from the University of Utah.

Knight was visiting MSU as a guest presenter at the College of Business' annual David Orser Executive Speaker's Forum. The forum is named for David B. Orser, a 1966 MSU graduate who started funding the program in 1988 in order to inspire MSU business students to pursue careers as innovative, responsible and ethical business leaders.

Audrey Lee, 406-994-7026 or audrey.lee@montana.edu