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Entrepreneurs Reflect on Wall Street's Scary Week

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Entrepreneurs Reflect on Wall Street's Scary Week

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Entrepreneurs Reflect on Wall Street's Scary Week

Entrepreneurs Reflect on Wall Street's Scary Week

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The volatility in stock markets around the world appears to have subsided, at least for now. But the past 10 days have been a wrenching ride for investors, and many analysts still don't understand what set off the slide. NPR's Adam Davidson profiles two entrepreneurs and how the market turmoil affected them.

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On Wall Street today, stocks lost ground, but things were relatively calm. A stark contrast to the last week of big drops and dramatic recoveries. We spent a lot of time lately talking with economists and analysts who follow the markets closely. But today, we thought we'd review the week from the business trenches. That's where NPR's Adam Davidson found a couple of guys from New Jersey. Entrepreneurs who say it was a pretty scary week.

ADAM DAVIDSON: J.B. Blanchard can tell you where he was on Monday the moment he first heard that stock prices all over Asia and Europe were falling ridiculously fast.

BLANCHARD: I was driving into the city when I heard that. I got back out as quickly as possible.

DAVIDSON: Did you feel a thing in your chest? What were you thinking?

BLANCHARD: Chest, sphincter, all kinds of - kinds of ways that that stuff hits you on a visceral level, absolutely.

DAVIDSON: Is Blanchard some high-powered investor with huge exposure to Asian stocks or Euro bonds? No. He's a small businessman. He owns StoneDeck Northeast. They put in high-end roof decks in New York penthouses. He did Jon Stewart's, Bette Midler's, Tyra Banks'. In fact, his clientele is so exclusive, no one would give him permission to show me any of the decks.

BLANCHARD: The one I wanted to show you does have a hot tub that cascades into a pool that has a skylight coming up from the kitchen. So it's really astounding stuff.

DAVIDSON: In Manhattan?

BLANCHARD: In Manhattan. In Manhattan. People are absolutely trying to escape the feel of Manhattan on their little rooftop.

DAVIDSON: So the question still stands. Why does a New York roof deck installer care so much about stock prices in Asia?

BLANCHARD: There's absolutely no reason on Earth why you would have to have a roof deck outside your house. And my, my initial concern when this market started getting scary was that we would become an excess expenditure.

DAVIDSON: Now, Blanchard's business probably wouldn't exist, except for the fact that money from all over the world has been pouring into New York in recent years - to Wall Street investment bankers and global media stars. A tiny bit of that money was filtering down to the New York roof deck business. Blanchard says he has a sense that he's part of the global economy, but he doesn't understand many of the details. That's not his job. So on Monday, he was thinking...

BLANCHARD: What the heck is going on? Holy smokes. What's going on and why?

DAVIDSON: What was going on is that those investors selling all their stocks in Shanghai and Tokyo and London, the guys Blanchard was worried about, well, they were worried about him - small businesses, entrepreneurs like Blanchard are a big part of what moves the U.S. economy.

Take Blanchard. He had this idea for a business and it worked. Now, he buys roofing materials from Latin America and Europe. He hired four employees. They use their salary to buy TV's and T-shirts from China. It's a global feedback loop. Blanchard depends on those investors for his business. Those investors depend on Blanchard and every other American entrepreneur. And this applies just as much to small business people far away from globally connected New York.

Mike Michalowicz runs Obsidian Launch.

MIKE MICHALOWICZ: I literally got a call Monday night, I think it was 2:00 a.m., saying, oh my God, we're going to collapse.

DAVIDSON: Michalowicz is an investor and adviser to Blanchard and others. Like the guy in Missouri who woke him up late Monday night. The owner of Hedgehog Leatherworks.

MICHALOWICZ: They make sheaths for survivalists. These are guys that live out off the woods for weeks and it's just them and their knife. And they learn how to kind of blend in and work with nature. He makes the sheaths that carry those type of knives.

DAVIDSON: There's enough of those guys to make a living doing that?

MICHALOWICZ: Absolutely, absolutely. It's surprising. It's not just those guys. Then you have people that want to be like them. So you have the hunters and the fishermen and so forth.

DAVIDSON: Those sheaths costs around 180 bucks. A small luxury for the core customer in the Midwest. The past few years, plenty of Midwesterners were feeling flush enough to treat themselves. Home values were going up in part because of cheap mortgages funded by investors in Asia and Europe. Now, global investors are nervous, pulling back. Credit is tightening. Housing prices are falling. A fancy knife sheath may start looking superfluous. Until a week ago, Michalowicz says, some of his clients were still hoping they could avoid this economic downturn they've heard pundits talk about. Now, they're not so sure.

MICHALOWICZ: I can say it's like a schoolyard fight. There's all that nasty talk going on six months ago. This was the first punch, dead center in the gut. And now, the crowd's coming around looking. Is there going to be a fight? And some people are chanting fight. Some people are calling for the teachers. But the bloody noses and the broken bones haven't happened yet.

DAVIDSON: This week, Michalowicz says, none of his clients lost money. The loss was psychological. They lost confidence. They felt, in their guts, just how chaotic and vulnerable the global economy can be. That feeling didn't go away even when the market started recovering. Everyone feels more cautious, including him. Michalowicz is telling all his clients to save money, to put off making big purchases for their businesses just in case bad times are coming. But of course, if small business people in the U.S. stop spending, maybe some layoff a few workers who also stop spending, then Asia and Europe will be hurt. It's that global feedback loop again.

All these people in Shanghai and Frankfurt and Missouri and a rooftop garden in Greenwich Village are looking at each other nervously. Everyone is afraid that someone else somewhere in the world will stop spending or investing and the economy will slow down. And everyone's fear feeds everyone else's.

Adam Davidson, NPR News, New York.

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Timeline: A Wild Week on Wall Street

Traders work on the floor of the New York Stock Exchange on Jan. 22. The Federal Reserve, in reaction to a severe downturn in worldwide stock markets and concern about a United States recession, reduced its interest rate by three-quarters of a percentage point before the opening NYSC bell. Stephen Chernin/Getty Images hide caption

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Stephen Chernin/Getty Images

Traders work on the floor of the New York Stock Exchange on Jan. 22. The Federal Reserve, in reaction to a severe downturn in worldwide stock markets and concern about a United States recession, reduced its interest rate by three-quarters of a percentage point before the opening NYSC bell.

Stephen Chernin/Getty Images

Global financial markets appear to have survived a wild week without collapsing. But the volatility highlights the fragile investor psychology, as fears of a U.S. recession grow. It has also shown how quickly those fears can spread, affecting investors around the world.

Here, a timeline of the past week's economic troubles — and the steps that helped allay investor worries:

Thursday, Jan. 17:

Commerce Department data released at 8:30 a.m. shows a 14 percent drop in U.S. home construction, the largest dip in 16 years. Coupled with increasing speculation that the economy is headed for a recession — fueled by fears about the dismal housing market — the data signals to investors that bad times are indeed coming.

An hour-and-a-half later, Federal Reserve Chairman Ben Bernanke delivers testimony to the House Budget Committee. Bernanke discusses a stimulus proposal that could help the economy in the short term; investors continue to sell.

The Dow Jones Industrial Average plunges more than 300 points and closes at its lowest level since March.

Friday, Jan. 18:

After an initial rally early in the day, it's another lousy close on Wall Street.

Meanwhile, President Bush makes a move to quell investor concerns by describing the outlines of a $145 billion economic stimulus package, but it lacks details. When Democrats counter with their own suggestions, it appears a short-term economic package might get bogged down by partisan politics.

Monday, Jan. 21:

The U.S. markets are closed in observance of the Martin Luther King Jr. holiday. But global markets remain open and, time zone by time zone, they respond to what's been happening on Wall Street. In Europe, Asia and India, investors sell amid worries over an American recession. (News reports later reveal a rogue futures trader contributed billions of Euros to a major sell-off in France.)

As it becomes clearer that markets in the U.S. are likely to drop significantly when the trading day opens on Tuesday, Bernanke calls for an emergency meeting of the Federal Reserve Open Market Committee, which sets U.S. monetary policy.

Tuesday, Jan. 22:

An hour before the markets open, the Fed announces it is lowering a key interest rate by three-quarters of a percent. Asian and European markets respond favorably.

Later, Treasury Secretary Henry Paulson says Democrats, Republicans and President Bush have talked and all want a short-term, fast-acting economic stimulus bill as soon as possible.

The U.S. market does falls dramatically as the trading day opens — the Dow Jones fell 465 points in the early part of the day — but it eventually rebounds. The Dow finishes down 128 points.

Wednesday, Jan. 23:

The Dow drops again as the trading day begins — and continues to fall throughout the day — but then gains nearly 300 points by the closing bell.

Thursday, Jan. 24:

President Bush and House Democrats announce a tentative deal on a $150 billion economic stimulus package that includes tax rebates for individuals and families, business tax cuts and help for troubled homeowners. The announcement reassures investors that Washington policymakers are serious about wanting to jumpstart the economy as soon as possible. The markets continue to rebound on Wall Street.

While a short-term crisis seems to have been averted over the course of the past seven days, the long-term economic fundamentals have not changed: the credit crunch, a deeply troubled housing market, and structural problems throughout the financial system.

Written by Heidi Glenn, with reporting by Adam Davidson.