Effects of stock market run deep in Central Va.

What happens on Wall Street does not stay on Wall Street.

The major companies on the stock market have products on kitchen shelves and in gas tanks, and their stock is in retirement portfolios.

We asked: How are you adjusting to the economic downturn?

The broad reach of those companies is what has the federal government hashing out a potential $700 billion bailout, according to Lynchburg-area bankers.

The bailout bill would buy “troubled assets” — mortgages and loans that could default — from investment banks in hopes that credit will become more available to help grow the economy.

The investment banks holding bad loans “orchestrate the financing of our economy” said Rob Gilliam, president of First National Bank of Altavista.

They provide loans to pay for construction and other economic activities, and then sell those loans to investors.

“Right now everybody’s so spooked by the market that there are no buyers,” Gilliam said. “That’s what came to a head last week. The broader financial markets are broken.”

Gilliam is attending a conference in Washington, D.C., this week. He said he received a “hurried education” on the bill.

It focuses on helping investment banks, not commercial banks like First National Bank of Altavista or Bank of the James, which have very limited exposure to bad debt.

Todd Scruggs, vice president of Bank of the James, said that the firms holding bad loans can’t afford to keep holding them and still issue new loans.

The idea of the bailout is to have the federal government hold onto those loans at a reduced price. The loans could eventually turn a profit, Scruggs said.

But how did billions of dollars in bad debt end up on some companies’ books in the first place?

“Greed,” said Robert Chapman, president of Bank of the James. “It was all greed. People just got caught in the frenzy” when housing prices ballooned.

“It’s just a real shame that a lot of the folks have made their money, and they’re retired now, and they have left us holding the bag.”

Scruggs said that the Wall Street financing industry started selling packages of loans that were rated low-risk even though they contained some subprime loans.

Those packages attracted investors because they paid high interest like a high-risk investment, and looked safe, he said.

Scruggs said the market reached a turning point when foreclosures piled up and real estate values fell. With many empty houses on the market, some new construction stalled, and construction loans went bad.

Neither Bank of the James nor First National Bank of Altavista issued subprime loans. Also, “we were very guarded on the development loans we did,” Chapman said.

Details about the bill are slowly emerging, with politicians from both major parties asserting what should be left in and out.

“I think it’s healthy that they’re arguing back and forth,” Scruggs said.

Gilliam said, “I feel for the taxpayers, because nobody has all of the answers.”

However, one answer involves commercial banks, Gilliam said. Those banks are still loaning money, although on a smaller scale than the giant investment banks.

“We see ourselves as a solution to what’s happening, and not the problem,” he said.