By THOMAS HARTLEY
Business First

As Wall Street strives to shake off a crisis of historic proportions, the impact on Western New York remains a big question mark.

Beyond that, some people are asking whether the reforms and safeguards now being proposed or enacted by the federal government are sufficient to prevent future meltdowns in the U.S. financial-services system.

"Right now, the biggest problem is the uncertainty of any (rescue) plan," said M&T Bank economist Gary Keith. "It's still ‘show me' time until we get the $700 billion package passed - a step in the direction that we need to go."

Keith's comments came Tuesday as debate raged in Congress about a plan for the government to purchase banks' bad-mortgage debt.

As the wrangling continued, effects of the crisis began threatening to push the nation further into the recession that Keith says the economy already has entered.

In the short term, one of the sectors affected the most by the recent events on Wall Street and their aftermath will be durable goods - automobiles, appliances and other big-ticket items, he said.

"Loans won't be easy, but people who have good credit will always be able to get one. But the question is: Will consumer demand be there?" he said. "In the long term, we won't know what the impact will be until we see what the government is going to do and how."

For the auto industry and suppliers such as Delphi Thermal Systems in Lockport, the GM Tonawanda engine plant and Ford stamping plant in Woodlawn, the worst market crisis since the 1930s is likely to further depress an already-hurting industry.

Carmakers aside, though, the general-manufacturing sector has been humming. Some manufacturers, such as John Goller, president of Arrow Grinding Inc. and Toolset Inc., both in the City of Tonawanda, say they have dodged the initial impact of turmoil that began Sept. 15.

"It's too early to tell how we'll be affected, or if we will, but business has been strong and the manufacturing sector that we are in has been strong," he said.

Had the Wall Street events occurred before or while Goller was planning a $750,000, 18,000-square-foot plant expansion that is now being completed, it would have injected major uncertainty into the project, he said.

"But I think I still would have gone forward," Goller said.

Timothy Farrell, sales manager of Ryerson Inc., said the Lancaster steel distributor has not yet seen an impact from the market chaos.

"We're just watching and waiting. It's too early to see any effect. This year has been very good for us and for our core customers, who have been through a bunch of cycles before," he said.

Ryerson services the transportation, heavy-construction-equipment and hospital-equipment sectors.

Watching the markets go through their volatile up-and-down swings, retired Allstate Insurance senior account agent John Stanistreet of Newfane is nervous about his investments now and in the future, especially if government actions are not followed by meaningful reform coupled with strict oversight.

"They can't allow the fox to guard the henhouse like they did," said Stanistreet, who retired 10 years ago.

William Piento, director of the United Steelworkers union's nine-state District 4, is concerned about the impact on the pension plan of his union.

"All pension plans invest in the stock market, and if the stock market is depressed, it certainly can't help," said Piento, whose union represents 1,200 workers at Goodyear Dunlop Tires NA Ltd. and 61,000 in nine Northeastern states.

Though the earthquake on the financial markets left investors confused, worried and shaken, some advisers said concern was more prevalent than fear.

"I received a few inquiries but they were more along the lines of ‘Should I be concerned?' rather than ‘I can't handle this!' " said Amy Jo Lauber, director of planning for Harold C. Brown & Co. LLC and president-elect of the Financial Planning Association of Western New York.

"I tell them that the bottom line is the ability to think long-term even when it's difficult to do so," she said.

The dust is still settling on the events of Sept. 15-23 and prior weeks. They include:

• A $700 billion proposal before Congress to buy banks' bad-mortgage debt to unfreeze the credit markets.

• The resounding collapse of investment bank Lehman Brothers.

• Merrill Lynch's sale to Bank of America.

• Three unprecedented actions by the U.S. government - a $30 billion loan to facilitate the sale of investment bank Bear Sterns, an $85 billion loan to rescue global insurance giant American International Group, and an earlier $200 billion injection to mortgage backers Freddie Mac and Fannie Mae.

Blame for the turmoil has been directed at a toxic combination of loose oversight of or absence of regulations on investment banks, growth of the subprime mortgage market and a steep drop in housing prices in some regions.

Patrick Heraty, professor of business administration at Hilbert College in Hamburg, says the reforms being put into place might not be sufficient to prevent future "market corrections," the term some people initially used to label the meltdown.

"The greedy fellows always seem to be one step ahead of the regulators with new schemes," Heraty said.

Former Rep. John LaFalce warns that the next trouble spot for the U.S. financial-services system could result from the mountainous load of private and public debt in credit cards and student loans.

LaFalce served 28 years in Congress and was ranking Democrat on the House Financial Services Committee in 2003 when he retired.

To avoid a future crisis, he said, "regulators need to do a much better job of regulating, and nonregulators ought not to be appointed as regulators.

"Laissez-faire economics can't work in this increasingly interwoven, interconnected international financial system," said LaFalce, now senior counsel with the Amherst law firm Hogan Willig PLLC.

"There are too many ways to slice it, dice it and abuse it, and that's exactly what took place," he said.

Cristian Tiu, assistant professor of financial and managerial economics at the University at Buffalo School of Management, said the rescue plan proposed by Treasury Secretary Henry Paulson Jr. and Fed Chairman Ben Bernanke "in the short run seemed to have been a must-do."

But in the long term, he said, "this bailout creates moral hazard problems as companies are only rewarded for risk-taking but not punished.

"It dents the budget of the next administrations, and if the companies the state plans to take control of are not resuscitated, these dollars are spent on assets without much value," he said.

Tiu is not optimistic that permanent lessons will be learned after the current crisis passes into history.

"Crises of this magnitude happen only once every few generations, so they can easily be forgotten," he said. "Time will tell."