I know, it's my imagination and I'm a chicken-little

[DemoRabbit]

I've tried to talk with folks around here on how the credit freeze effects us all. Some just don't want to hear it. Some don't understand it. Lots of people say that wallstreet should fall and they can survive on cash. What many don't realize is that our whole economy works via credit.

Someone posted yesterday that her husband, who works for a good sized company that hasn't really been struggling, is facing layoffs and other problems because of this. It suddenly hit home with her.

This morning, I went down to my local grocery... a small store, like a Handy-Pantry or a Wawa or 7/11 (but not a chain).

They are suddenly out of a lot of things. There are big chunks of inventory missing. It started Friday, but I just figured they ran short on some things. Now it's Tuesday and there are empty shelves in the store. Yes, I could go to another store and get those items (for now), but that's not the point. The point is there is obviously SOME kind of problem that is suddenly causing them not to be able to get inventory, or at least certain items.

The company I work for IS struggling and has been for about a year. We are budgeted down to the last penny and can't even buy a box basic office supplies without approval. We've had several batches of layoffs. I can tell you this... if the credit markets continue on the bath they are, we will be out of business in weeks. A good percentage of you may be facing the same thing even if the company you work for ISN'T struggling. Without credit you might not get paid. With interest rates in short-term loans going up, it might cost more just to make payroll or pay for inventory. Do not be fooled into thinking you are safe just because you have no PERSONAL debt.

Does the "bail out" suck? Absolutely... but I don't know that we have the time it will take to hash out the RIGHT deal. Pass something now, buy us some time and then fix it later.... after Obama takes office :)

[Indiana_Dem]

1. EXACTLY my thoughts. Thanks for speaking out. nt

[soothsayer]

2. Did you ask them why the shelves are empty?

[snappyturtle]

3. Excuse me, and I am sincere, but how does a company running on

credit ever realize profit? I can see where they could make enough to pay expenses. Maybe some companies have wanted growth fast expecting that the business would grow more in the future. I don't know.

I do know I do not agree with your last statement. I'm too afeared that the repukes will steal the election and we won't be able to fix things later. 'Never put off 'til tomorrow what can be done today'....an adage my mother told me many times while I was growing up.

[nadinbrzezinski]

7. 99.9 % of American Companies run with lines of credtis

this is called commercial short term paper

This system didn't start in the US either, but way back with the Templar Knights back in the 12th century

They realize profits at the end of the fiscal year after all costs are accounted for, and that includes interest rates for your commercial paper

[TahitiNut]

13. When they stop lending they stop earning. They can only "hold their breath" for so long.

This is a tantrum intended to stampede the adults. They're saying "I'll hold my breath and kill myself" ... and the intelligent parent says "Go ahead." When the MOST STUBBORN kid faints and starts breathing again, the crisis is over.

[nadinbrzezinski]

23. As I said in another thread... that was precisely the thinking during

the very early stages of the great depression.

[snappyturtle]

26. OK! That makes sense! nt

[tosh]

8. snappy turtle, I want to ask,

and I'm REALLY not trying to argue, because I just haven't thought of that aspect until now: Your fear that the Repugs will take office & not follow up on the rest of the plan, is that your main reason for not supporting the rescue/bailout? It is a valid concern.

I'll post this and then try to answer your question if no one else has done so.

Edited to add: Thanks, nadinbrzezinski.

[snappyturtle]

27. This is one of the reasons I don't like the bailout. I don't want any

blank spaces to be filled in later. I'm generally distrustful anymore! HA!

[whopis01]

12. A lot of companies would have a very difficult time operating without credit.

I work in an industry where many suppliers are small business, but the items that they are producing are very expensive (both the sale price and the production costs).

So, the way things work are typically they would get an order for a custom designed machine. It will sell for $100k, but they don't get paid until they deliver. Now they have to turn around and buy the components that they need to build this system, so they have to come up with something like $75k out of pocket (or from a short term loan if they don't have it in pocket - which is the usual case). They take out a $75k loan (say at 12%), buy the parts, pay their labour, deliver the product and get their $100k. Then they pay back the loan. This all takes place within about 30 days, so it only costs them roughly $750 in interest.

Typically they have the cash on hand to cover payroll and normal operating costs, but the inventory (that they don't hold onto very long) is just too expensive to buy out of pocket, so short term loans float it.

[DemoRabbit]

19. Good example - thanks for sharing!

[snappyturtle]

32. Very interesting! Thanks for taking the time to explain. I was a production

artist for eight years and had orders in hand but was paid net thirty after shipment. I did exactly as your industry....just on a much smaller scale...much, much smaller, although it afforded me a good living (until I burned out)! I never worried about credit extended to me because I already had the means to pay in hand. How companies buy supplies/tools or whatever, on speculation that business will support associated lines of credit, is above my pay grade! I guess one would have a lot of homework do to before venturing out into business.

[notaboutus]

4. I don't think so

My theory is that this was going to happen either way and the republicans wanted the democrats to pass the bill to have something to campaign on. I didn't know until my mom just told me that the republicans wanted a re-vote on the floor after the bill failed and Frank said no. This was a set-up. Now the democrats are saying we tried you guys didn't do your part.
Obama's to insure $250,000.00 up from $100,000.00 is because he knows the republicans plan to screw us any way this breaks. I also read a post on Daily Kos that showed a bill the republicans passed in 2006 before they lost control of the house that states banks can have zero assets on deposit. It wasn't to take effect until 2011 but with Paulson's wide yielding authority in this bill he has the authority to make it happen now. Did I mention this bill also calls for more de-regulation. We were being set-up and the democrats knew it too and are covering bases at this point.

[mike_c]

5. a bail out will only postpone the reckoning, and put us all further into debt...

...at the same time, unless it's coupled with some fundamental changes in our economy and banking system. Frankly, I don't even think strong regulation will save it. It's based on greed and consumer debt, with walls constructed of ever higher piles of debt and risk. There's little of any real worth there at all.

You want a return to a comfortable illusion. That's all it was-- an illusion. That's all it will still be if we indenture ourselves and our children-- and our grandchildren-- to "save" it today, only to have it crash again tomorrow. We've let the financial industry suck all the worth out of our economy-- the "value" of debt far exceeds the value of all the goods we produce in America.

That topsy-turvy economics is just crazy. Anyone who couldn't see this coming wasn't paying attention.

We cannot go back through the looking glass to the land of economic illusions, at least not for long. It never really existed.

[That Guy 888]

6. "We'll fix it later" hasn't worked out so far

We do need some sort of economic recovery plan. We don't need one planned by a man with the fecal version of the Midas Touch. I'd like to see several proposals brought up for discussion and vote. We have enough time to get something closer to a good plan then that bailout scheme.

[The Backlash Cometh]

9. Where do you live?

Could some of the transportation issues be tied to Ike?

[DemoRabbit]

20. Nope. NY

[ProfessorGAC]

10. You've Bitten On The Hook

The liquidity is there, my friend. The big cap companies are now freezing people out because they see the Paulson Plan, and its analogues, as a way to mitigate the risk they took when they bought into the participation portfolios that included some of these polluted mortgages.

If they can create a squeeze, even though the cash flow exists, and get people screaming to the gov't to fix it right now(!), they get their risk reduced and don't have to ever lobby for it.

Be cautious that we're not seeing an illusory shortage of capital. There is no liquidity crunch and the capital crunch is smaller than advertised.

If you want to believe the real cause is the current crisis (and yes, it is a big problem, but rapid solutions to problems that took 25 to create seems a dangerous approach) then be my guest.

But banks and capital firms make money BY LENDING IT OUT! And community banks and credit unions are seeing this as an opportunity to expand their small business product lines. Why? Because they have the liquidity too, but they play by different rules and can't play the "we don't have it" game.
The Professor

[TahitiNut]

11. It's NOT a liquidity issue ... it's a capital strike intended to stampede the politicians.

That's WHY it's happening so close to an election!!! Pay attention. NOTHING warrants this election panic. Nothing.

The problems of both the economy (declining wages and salaries) AND the financial system (lack of regulation, oversight, and transparency) are pretty well-known. And it's NOT about liquidity.

[nadinbrzezinski]

You know people said similar things back in 1931

the crisis wasn't real either, and it was a bailout to wall street

Of course back in '31 IT WAS more of a wall street deal and had NOTHING for main street but then again... Hoover also said the fundamentals are strong until days before FDR took over the Presidency.

This crisis has been building up for a while... just blew up now, FINALLY and anybody who's been paying attention knows that and is not too shocked that this blew

But for those paying attention... and you know I've said this before, as in years ago... the fundamentals of this economy are those of 1929

Why do you think I've said that?

The parallels, including to the end of the Hoover administration are just astounding... and the reasons for this crisis are very similar as well

But they are not manufacturing this... if anything they were trying as hard as they could to hold the flood by putting their fingers in the hole in the dike... while the water was pouring in all around them

[ProfessorGAC]

15. Who Said That?

Hoover? Of course he did. And we know his knowledge of economics wouldn't fill a thimble.

You do realize that those educated in economics most likely to support this action are supply-siders, right?

If you want to throw in with that crowd, be my guest. But, i will base my opinion on what i know about economics, which after several published papers and 20+ years of teaching econometric theory at the grad school level is not insubstantial. This is the wrong solution to the problem, and the problem is not one of liquidity. There is plenty of liquid funding.

The problem is one of confidence, and if you want to dump $700B on a wish and prayer hoping to get those complicit in the situation to get the house in order, that again, be my guest.
The Professor

[nadinbrzezinski]

Read the bill Professor?

It is NOT JUST ABOUT DUMPING MONEY INTO THE STOCK EXCHANGE

and it is a liquidity crisis

I am sure you already know the State of Massachusetts has been denied credit that happened today

Now partly it is trust... LIBOR is clear on that... but still

And you will not get an argument from me about Hoover or for that matter McHoover..

[nadinbrzezinski]

Read the bill Professor?

It is NOT JUST ABOUT DUMPING MONEY INTO THE STOCK EXCHANGE

and it is a liquidity crisis

I am sure you already know the State of Massachusetts has been denied credit that happened today

Now partly it is trust... LIBOR is clear on that... but still

And you will not get an argument from me about Hoover or for that matter McHoover..

[Greyhound]

18. The crisis was manufactured and their huge bailout didn't work except

to ease the transition for the select few, whose names you would recognize as the same robber barons that rammed the system through in the dead of night for just this purpose.

The bailout was, just as this one is, one last grab to inject liquidity into their accounts so they had plenty of cash to buy up all those distressed bargains that the collapse created in the first place.

Did you think this is was some sort of mistake based on miscalculations? This is a premeditated robbery-homicide, plain and simple, and the bail out you keep begging for is a bullet to be put in your head.

This is going to suck either way. People will be made poor either way. People are going to suffer and die either way. The only question is who will be around afterward to rebuild.

Do you want to live in a world you help to create, or do you want to live in the world they have planned for you?

[TahitiNut]

22. The economic conditions are deteriorating, as they have for 30 years.

The Gini Ratio continues to increase, and we're in Banana Republic territory - the HIGHEST of the OECD. (That means the rich are richer and the workers are poorer. Plantation economics.) There's no question that the economy is the worst for the working class since 1929. That's about the economy, not the financial system.

The financial system (and 'industry') is, however, awash in all kinds of 'money' ... including cash, equities, options, derivatives. bonds, etc. The financial system has been running amok for over 8 years ... and lack of regulation, oversight, and transparency ... along with corruption, and 'exotic' markets ... has resulted in the transfer of more wealth to the wealthy than an Army of accountants could possibly track in a decade.

That kind of greed is insatiable ... and $700 billion would rapidly become a mere appetizer as soon as the taxpayer vein was opened and the vampires gathered.

[Greyhound]

25. Yes, and this is exactly the same game they ran last time.

I guess it comes down to whether or not we want our country back or if we are content with servitude.

[RainDog]

28. Capital actually DID THIS to Allende, too.

so that's another possible analogy. At this time, republicans are not looking too good in the polls and Obama will likely win. So, is Obama more like Allende with his promises of affordable college, or is the current situation (that benefits republican-leaning investment banks and punished the one democrat-supporting one) more like the crash - considering reports that liquidity is not a problem for credit unions and responsible banks? and considering that the banks are the ones refusing to lend to one another?

oh, and factor into the question the knowledge of Bush tactics over the last 8 years. and the fact that they tried to do the same thing yet again, to ram through a stinking pile of shit and call it gravy.

[nadinbrzezinski]

14. You know people said similar things back in 1931

the crisis wasn't real either, and it was a bailout to wall street

Of course back in '31 IT WAS more of a wall street deal and had NOTHING for main street but then again... Hoover also said the fundamentals are strong until days before FDR took over the Presidency.

This crisis has been building up for a while... just blew up now, FINALLY and anybody who's been paying attention knows that and is not too shocked that this blew

But for those paying attention... and you know I've said this before, as in years ago... the fundamentals of this economy are those of 1929

Why do you think I've said that?

The parallels, including to the end of the Hoover administration are just astounding... and the reasons for this crisis are very similar as well

But they are not manufacturing this... if anything they were trying as hard as they could to hold the flood by putting their fingers in the hole in the dike... while the water was pouring in all around them

[RainDog]

29. but didn't you leave out the part about Hoover's bail out while he was prez?

so, if the bail out occurs as presented on Monday, that would make this the same "hoover" moment - which means it solves nothing.

but then we'll still have a depression or at least a huge recession (one way or the other) with the possibility of huge stagflation as well.

[Marie26]

21. It's not a liquidity issue?

I'm posting this chart again because IMO it explains it better than words could. The banks are BROKE.

[TahitiNut]

24. Backatcha ...

:shrug:

[satya]

16. Yes, there is a problem & it affects all of us. But look to history (Hoover/FDR) for the solution:

The bank bailout would buy some time; but it will ultimately fail and then we'll have to cough up even more money to fix it. Thom Hartmann has been discussing this on his radio show, and writing about it.

After Hoover’s 1931 bailout of the banks failed, FDR did a cold reboot of the entire system, putting into place strong rules to prevent speculative abuse. And he doubled the STET tax, both producing revenue that more than funded the Securities and Exchange Commission and further prevented a repeat of the speculative bubble of the1920s that led directly to the Republican Great Depression. FDR considered the impact on generations to come. These decisions of FDR have now been rolled back by a new set of Republicans for short-term gains and we are again facing a new Republican Great Depression.

FDR also put a New Deal into place that set a floor where citizens couldn’t fall below - between 1933 to 1938. The Roosevelt administration implemented banking reform laws, emergency relief programs, work relief programs, agricultural programs, labor union support, the WPA relief program, the Social Security Act, and programs to aid farmers, including tenant farmers and migrant workers.

WE NEED a COLD RE-BOOT NOT A SHORT TERM FIX

[Virginia Dare]

17. My Target had no soda yesterday..

and they weren't giving rain checks. Lots of other shelves seemed pretty empty as well. I think we'll be facing food and staples shortages very soon, along with a lot of other problems.

[RainDog]

30. where do you live?

there are no such problems here. Are you in an area where people have been hoarding fuel after the hurricane scare?

[Virginia Dare]

33. No, Northern Virginia D.C. suburbs..

at first I thought maybe it was due to going on sale on Sunday, but if that were the case, you would think they would be giving out rain checks...:shrug: I don't buy soda, so I wasn't curious enough to pursue it, but there were a bunch of people in the store trying to buy soda or get a raincheck, and the manager was in a frenzy over it.

[Joe Fields]

31. Time to get back to basics.

Maybe it's time this country, and the rest of the world quit depending so much on credit.