DECATUR - The economy and it's collapse into recession became the defining story of 2008.

It also promises to haunt Central Illinois, the rest of the nation and even the entire world throughout much of 2009.

So when is the nightmare going to end?

Some experts are gloomy about glimpsing any ray of sunshine in the next 12 months, while others think the Christmas season of 2009 might start to unwrap the gift of hope.

"Around the third or fourth quarter of next year I would hope that we are seeing the beginnings of recovery by then," said professor Richard Whitaker, who teaches business at Eastern Illinois University.

"But, right now, we haven't seen the bottom of this recession. This is like the first innings of the recession. And I think this will be the most severe since the recession of 1979-1981."

Officially, economists chart the start of the current recession as an unpleasant gift left under the tree in December 2007. Like a time bomb amid the tinsel and glitter of what had seemed like an economy cruising at a steady altitude, it ticked away and then began exploding at intervals throughout 2008.

By the end of the summer, it appeared to be an economic freefall as the housing market in large areas of the country collapsed and, by September, the government moved to take over mortgage giants Fannie Mae and Freddie Mac. As billions of dollars were wiped off stock market investments and plunging 401k accounts, major Wall Street firms went to the wall like 158-year-old Lehman Brothers, which filed for bankruptcy Sept. 14.

Washington finally stepped in on Nov. 25 with an $800 billion bailout plan aimed at saving the mortgage and financial sector.

Coast to coast, meanwhile, it is estimated that some 1.9 million jobs have vanished since December 2007, leaving the U.S. with an unemployment rate of 6.7 percent, the highest since 1993. Some experts believe the rate will peak at maybe 9.8 percent before the recession is over.

In Decatur, the unemployment rate was already hovering around 7.8 percent by October, just above the state average of 7.4 percent. And yet the figures could have been a lot worse, with the Decatur area so far having escaped some of the mass layoffs that have devastated cities such as Detroit where fortunes are tied closely with ailing carmakers General Motors and Chrysler. They are now both being kept running on $17.4 billion worth of taxpayer loans announced Dec. 19.

Craig Coil, president of the Economic and Development Corporation of Decatur and Macon County, says the local employment base is a lot more diversified than it used to be and this has helped shield us from more severe job losses.

But there have been some hits. Mueller Co. laid off 42 workers in April and is imposing "down days" production cutbacks as the failing U.S. housing market cuts demand for its pipes, valves and fire hydrants.

Caterpillar Inc. announced Dec. 16 it was cutting the jobs of some 200 contractors at its Decatur plant and has been laying off hundreds of regular workers at other plants in Illinois. It had enjoyed record quarter after quarter but the party stopped in 2008 when plunging overseas markets - a source for perhaps 60 percent of Caterpillar's earnings - began to falter. On Dec. 22, the company said it was slashing executive pay by 50 percent, while cutting other white collar compensation, offering voluntary layoffs and imposing a hiring freeze.

More uncertainty persists into 2009 as Caterpillar's 5,000-strong workforce in Decatur awaits news of a restructuring that will expand production of the world's biggest mining truck while shifting away some 1,000 jobs tied to motor grader production. As truck manufacture is ramped up, Caterpillar has yet to announce what the net job gain/loss totals will be associated with the move.

What that might mean for the local economy has more than Caterpillar workers concerned. Decatur's housing market, along with that of much of Central Illinois, has been a remarkable bright spot, bucking national trends with extraordinary median third-quarter price growth of 8.7 percent compared to 2007.

But Andrew Chiligiris, owner of the Macon County Title Co., says much depends on a stable jobs base with no major upsets. "Decatur has so far been insulated and, yes, it's been good for us," he said. "And everything will be hunky-dory as long as our current employment situation remains hunky-dory."

The Central Illinois housing market has seen some big changes, however, in the type of loans available as the 2008 credit squeeze tightened lending standards.

Karylle Wike, vice president for mortgage lending at Regions Bank in Decatur, said loans were available six months ago that offered 100 percent financing with no cash down.

"Now they have totally been taken away," she said. "I probably closed eight to 10 loans a month on those programs, but they were the first thing to go."

Homebuyers today need 3 or 3.5 percent down and a credit score of 680-plus. Armed with all that, though, borrowers will find local banks willing to lend and interest rates - thanks to record rate reductions by the Federal Reserve - around 5.5 percent or even less.

Local banks are quick to point out they didn't take part in the lending frenzy that fueled the housing bubble in areas like California. Mortgage brokers in these once white-hot real estate markets sold loans that were repackaged by Wall Street and resold as mortgage-backed securities all over the world; this is now the "toxic" debt which has crippled the global financial system.

Chuck LeFebvre, executive vice president of trust and wealth management for First Mid-Illinois Bank & Trust in Mattoon, said the mortgage boom was a fatal error. "If you don't have to worry about who you make the loan to - because you're never going to have to collect it - you are going to make loans to anybody, it's human nature," he said.

Dan Downs, president of Central Illinois' First Neighbor Bank, shared a podium recently at Eastern Illinois University with LeFebvre and other experts to talk about the economy. One hot discussion topic that came up repeatedly was the role of local banks as opposed to the Wall Street investment banks that grabbed all the headlines.

"The local bank industry wasn't the cause of the national housing mess," said Downs. "Locally, we're in the business of making loans and collecting the payments in order to be paid back," said Downs.

"We don't want to sell people's houses, and everybody loses when the bank has to foreclose on a home: the bank loses, the customer loses. That's why you've got to make prudent lending decisions in the first place. Most of our local delinquencies today remain due to the same old four 'D's that have always been around: death, divorce, disability or downsizing."

Picking around among the other financial wreckage of 2008, some Central Illinois financial experts say it's proved the worth of local banks and financial systems, the growth of which ought to be encouraged.

Jack Schultz is chief executive officer of Effingham-based Agracel, Inc., an industrial development firm, and is also a frequent writer and speaker on all issues economic. He says the last 12 months have shown it's time to focus on Main Street rather than Wall Street banking.

"I would like to see some new legislation passed that would encourage the development of local banks," said Schultz, 56, who is also a bank director. He said federal red tape encourages small, hometown, banks to sell out to bigger ones, robbing communities of sound sources of lending in their own neighborhoods.

He doesn't have much sympathy for Wall Street, and says the federal bailout is sending the wrong message to greedy bankers who made serious mistakes. "It can't be capitalism on the way up and socialism on the way down," he added. Schultz condemns the taxpayer bailout as a "gravy train" that the nation can't afford, and believes it would be better to let the marketplace sort out winners and losers.

As for the collapse in stocks and the demise of 401ks, like his own, Schultz said gains built on overinflated values had to fall, but the good thing about financial markets is they always come back. Schultz said every investor must realign his portfolio to his needs but, for the brave, the carnage of 2008 is a buying opportunity.

"Right now, with stocks, it's like going into a supermarket where they are offering a two-for-one deal," he added. "Investors are getting a lot more for their money then they were six months ago."

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