Why the credit crunch is about more than Wall Street
I'm going to try to briefly accomplish in a few paragraphs what it seems to me our government has completely failed to do in this financial crisis.
No, I don't have $700 billion of my own to shell out. But to me, Congress' failure came not today on the House floor, but over the past week as both elected officials and members of the administration failed to translate the crisis into terms that have meaning for everyday Americans.
I've heard the phrases "Main Street" and "Wall Street" a lot, but what I haven't heard is plain explanations of what credit really means and how essential it is to our system of doing business.
Here goes.
If the credit markets should freeze up--which many say is happening and will continue without massive intervention--everyone that borrows money will face a cash crunch. That means companies that take advantage of short-term loans to get by won't be able to buy raw materials or make payroll. Even businesses that don't need short-term capital may defer purchases to preserve capital.
If even banks are having a hard time getting money, what does that say for the small and midsize business? The Wall Street Journal had a story on Monday on how companies like McDonald's may face a squeeze as their franchisees are unable to get loans to purchase or upgrade stores. I suspect that is just one visible example of a growing issue for businesses across the country.
We are stuck trying to move forward with new loans--essentially to keep the economy moving--while dealing with clearly bad ones of the past. While much of the attention has focused on concern over home loans, there are also construction loans and business loans that are at risk of default, risks that grow as those businesses find themselves essentially shut off from getting any new capital, extending the vicious circle.
You don't have to take it from me.
Here's C.H. Low, CEO of social-networking software start-up Orbius and a serial entrepreneur.
"When financial markets don't function well, the ramification is broad," he said in an e-mail interview on Monday. He said he is disappointed that the bailout is so misunderstood. Even the term bailout, he said, is a misnomer.
"This is an asset purchase, not a 100 percent bailout expense to taxpayer," he said. "There is risk but also possibility of making a profit. Government's main function is to do things that private sector cannot handle. This Market Stabilization Bill...is as necessary as having an Armed Forces to defend the country."
Low noted that the main beneficiary is not Wall Street.
"As an early stage start-up, we rely on venture investments to carry us through a few more stages before we can be self-sustaining," Low said. "With turmoil, smaller venture funds which fund many early stage companies themselves get anxious and their own investors may be affected and may affect their capital call. We ourselves planned for a rainy day but even we don't have that much for a prolonged monsoon."
He said that the seizing up of credit creates uncertainty in every sector. "Doing nothing is the worst of all choices," he said.
News.com Poll
Microsoft, for its part, has also called on Congress to speedily revisit its decision.
John McCrea, vice president of marketing at Plaxo (now owned by Comcast), said it was "shocking and scary that they failed to come together on an issue of such vital importance. "
"I suppose my reaction's pretty similar to a lot of other people who think that we are on the brink of a very scary situation, and a lot of us thought that our political leaders were going to be able to come together and do the right thing, and put together a reasonable package," McCrea said. "I'm hopeful that they will return to work on it and get something passed soon, but I would say that there's a very big question mark hanging over all of our heads and we're seeing companies that were once considered blue-chip evaporate in days."
Then, he tried to put the best possible spin on it. And it was such a good spin, I decided to leave it in. "In such uncertain times one certainly is not surprised to see an awful lot of activity in services like Plaxo and LinkedIn. Now would be a good time to make sure that one's information and network are up to date..."
In terms of where things are at, Milken Institute senior fellow James Barth said that we are a long way from another Great Depression, but added that we are also far enough in that even the legislation Congress proposed isn't alone sufficient to solve it. In the meantime, cash really is king.
"Any firm that has lots of cash that can tide itself over during this credit and liquidity crunch will be in far better shape than other companies," Barth said.
Wedbush Morgan analyst Michael Pachter, who tracks the video game market, said his industry will suffer like any other, though he did offer a suggestion for how to make lemonade from the financial lemons being lobbed from Washington.
"I think we need a game where instead of shooting (Nazis), we shoot Congress," he said. "This is embarrassing."
CNET News' Daniel Terdiman, Elinor Mills, Jim Kerstetter, and Caroline McCarthy contributed to this report.
Click here for ongoing coverage from CNET News, 'Tough times for tech'
During her years at CNET News, Ina Fried has changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley. These days, most of her attention is focused on Microsoft. E-mail Ina. 
That being said, I think the plan to revive the short-term credit markets will be revived by further concessions on the powers of the administrator (ie, the Treasury). Already concessions have been made on executive compensation. Why not some power of review or control administered by congress?
Live Long And Prosper!
http://therehearsalstudio.blogspot.com/2008/09/is-sky-falling-yet.html
Live Long And Prosper!
Re: "[....Moreno emphasized the IDB?s efforts to support Latin American and Caribbean countries against the effects of the food crisis, skyrocketing fuel costs and financial turmoil. He said the IDB is managing the crisis through three main channels: demand, supply and liquidity.
On the demand side, the IDB is strengthening and expanding social welfare and anti-poverty programs. On the supply side, the Bank is moving faster to launch and carry out programs to support agriculture, such as the PRONEGOCIOS program in Honduras, as well as programs to promote biofuels and to strengthen financial regulation. More liquidity is being injected into the financial system through budgetary support programs designed to buttress social welfare initiatives.
Moreno also noted that other IDB loan priorities for Honduras have focused on ensuring sustainable growth by improving the country?s infrastructure (energy and roads), modernizing the state, managing risks posed by natural disasters, and boosting competitiveness. ..."]
http://www.iadb.org/NEWS/articledetail.cfm?artid=4773&language=En
Different strokes (to grapple with the "effects of international financial turmoil") by different folks.
Wake up America.
Commander_Spock must certainly be getting tired after all of these years, and years of sending out the warnings about the absence of "skills-set" and the requisite Information Technologies.
Take a page (an hint) from the Inter-American Development Bank; and, Live Long And Prosper!
http://www.iadb.org
"Regulation" (not completely a dirty word) would force these CEO's to be transparent with the status of things like, you know, active mortgage accounts. This would have been totally predictable, BUT WE WANT NO REGULATION, right?
No, it isn't.
I'm sorry, but the governments only function is to make its citizens lives better. All this mess in the financial sector is the result of too much greed and too little regulation. However we are so deep in this there's probably no faster solution than the bailout to get us back to waist level.
After we bail the banks out, we really need to make sure this doesn't happen again: Either we let the banks operate however they please and also let them sink when they get in trouble, or we enforce them to operate responsibly through reasonable regulation and then we help them when they need.
This crap started in the 90s (Clinton Era), was driven farther by GWB and the Republicans and completely ignored for the last two years by the Democrats. They are all to blame!!
There won't be a bailout for my investments and 401k, why should I bail out and put more on the backs of my kids for Bill Gates, Warren Buffett, Congress and the banking Industry. JP Morgan, Citi and others seems to have billions to buy the greedy banks.
So please tell me what the difference is between the banking industry failing and the US government failing in 20 years?
Civil war.
Re: "Russia may launch nuclear cooperation with Venezuela
4 days ago"
http://afp.google.com/article/ALeqM5iiePu64JzQSc5fGJA_zjPpJ4IGIw
Think beyond (outside) America's borders. Huh!
Live Long And Prosper.
As for the crisis - there are many solutions on the Intenet by people such as Cuban that appear can ease the immediate issues and Congress needs be seeking thesepeople for solutions and select the best.
Keep in mind greed is what makes us so powerful and rick, but uncontroled by those with no moral judgement puts us in this fix. And that is the fault of several past congress'es for not keeping controls in place or making new ones as the greedy learn of the holes.
DO NOT RE-ELECT ANYONE IN CONGRESS TODAY!!!
And yes, it is a bailout. if these 'assets' were worth anything we wouldn't have to be forced at gunpoint to buy them.
I do not agree to add more to the debt of my country with a plan that was initially proposed to not to be reviewed by any court. That just shows that Paulson is as greedy as anyone else in Wall St and we shouldn't allow ourselves another greedy Wall St CEO to spend our future 'trying new things'. Paulson is the last person I would trust with our blank check. His only contribution to this mess was the panic that Paulson induced with the show he put up in the last weeks. If he is trying to rewrite his legacy, we are going to remember him as the 'failed showman', 'The-Sky-is-Falling Treasury Secretary'.
Just reading this morning's headlines, he is now trying to use yesterday's fall to get his plan approved. I will continue calling my congress representatives and send not just a NO, but a HELL NO!
-Very Angry Citizen
I'm talking with my financial advisor and basically cherry-picking the depressed stocks that look promising. I only had a 100,000k to play with anyway, so I'm definately no Warren Buffet. Subprime "junk" that is pure debt should be allowed to fail. Greed is one of the seven deadly sins and all the greedy folks can go to hell on their own accounts, not that of otherwise prudent Americans.
I don't live off of dividends or stock sales; so this doesn't immediately affect me. It IS killing the elderly who subsist off of their dividend checks and asset sales. The 'bailout' won't directly, or immediately, benefit them or return them to solvency.
Adn I've only heard from a few experts about how much of a negative impact 700 billion dollars dumped into the money supply would have on the value of current incomes and savings, as well as the unearned, unjust windfalls to be seen by the holders of the junk that gets bought up.
answer to a very complex problem, may even thought up just to make the republicans look.
The thing from what I understood is they would only going to be buying up debt which the banks want to sell to the government and the banks were only going to ever sell the worst of the worst of the debt to the government. And seriously would you buy back debt which almost bankrupted you the last time you had them on your books. I would not and to tell you the truth I do not think the banks were going to.
The only real solution is to make sure any of the weak banks are force to merge with larger banks, before they run out of money. Make 100+ billion dollars of emergency loans available to small-medium large companies to keep those companies ticking over, if they are unable to borrow from banks. This is to try and prevent the job losses which are expected over the coming months.
On top of this you introduce laws which we have Britain which makes it pretty difficult to reprocess one house. Here in Britain the Bank have to make you a fair and reasonable offer of assistence, if they do not the court can decide to actually block any repocessions, for any length of time, a former friend got his block for year and in that time he was able to get back on track his finances, and well after Judge rule in his favour the bank started renegotiation on his morteage deals abd being much more friendlier. Now he is now happily repaying his mortgage.
Similar laws in the US probably would not of prevented the current crisis but may be made it a whole lot smaller than it is.
On top of this theirs need to be a global regulatory body set to monitor the entire banking system world wide range of powers to intervene if they see it as necessary. We such act eventually each back under the regulatory frame work. This will probably takes years to establish but essential if we are to prevent another credit crunch.
Why are not products, goods and services the life blood? Maybe I am old fashioned but I always thought jobs were the life blood? Why do these businesses have to rely on credit? Are they not operating in the black? Is it because they offshore all of their profits and take loans to make payrole to avoid paying taxes? If it is the home loans and consumer loans and credit causing this, why are they not able to pay their bills? (perhaps its because the corperations, by way of the government free trade agreements, shipped all the jobs overseas?) Is it because all the teenagers working in fast food were re-classified as manufacturing workers to cover up the loss of these jobs? Is it because if you are not growing your business at unrealistic rates (so that Wall Street can siphon off more money), that businesses need to borrow more than they can actually profit, iow: more than they can afford, to sustain that growth rate?
The only real, true value ever created is through productive work, not Wall Street speculations. Most shareholders these days are nothing but greedy, want money for doing nothing, daytraders. They have inflated the speculative value of everything so much, that it must crash. The bubble must burst so that we get back to reality and base things on real value, not speculation. Real work, real products, real services, real profits, real jobs.
Economics are based upon supply, and demand. Gambling is based upon risk and speculation. Wall Street has become a glorified Casino, rather than the commodity price regulating entity it was intended to be. Growth can not be sustained indefinately, not at the rate of their greed, yet Wall Street bases nearly all of its decisions on growth. I have yet to hear a compelling argument that convinces me that they really need a bailout, quit borrowing what you can not afford, quit trading debt like a commodity, quit avoiding payrole taxes with loans, quit bribeing/lobbying government for tax breaks for the rich and corperate, quit shipping the real value overseas (jobs), and if growth slows to a crawl, so be it, it will be growth we can actually afford. If we can not afford it, then face the truth, we can not afford it, don't hide it with another bail-out, that will end up in CEO pockets!
- by algie123777 October 6, 2008 9:31 AM PDT
- I believe the existing business that plan to upgrade their assets or expand their liabilities as detailed on a balance sheet. This is applicable for business because they can afford to pay it back in relation to assets and capital, well yeah send those greed bastards to us and we'll exploit them! http://www.greedypeople.com
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