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RSS icon Comments on The Credit Crunch Starts Hurting Us


you should of thought of that before you single handedly crushed WAMU.

Posted by cochise. | October 6, 2008 1:21 PM

Again this is the fault of companies that got addicted to cheap credit, they are insolvent by the nature of shaping their business models around insolvency and working off of credit. Now the totally unregulated paper market of short term loans from wall street as evaporated and these companies playing accounting tricks are screwed. Why should I feel sorry for companies who use payday loans to run their businesses?

Banks arent loaning money? it came from the government, if they cant lend federal money at rates set by the fed, they should lose it, or face fines and penalties for there bullshit they are pulling about
"confidence" in the market.

Posted by meanie | October 6, 2008 1:26 PM

Bush ruined our country.

Posted by hunting_in_a_zoo | October 6, 2008 1:28 PM

man I need to write posts at the same time, I came back to finish this and I sound like palin.


Posted by meanie | October 6, 2008 1:28 PM

ted spread spiked again

Posted by mnm | October 6, 2008 1:32 PM

Uh, meanie, there is nothing dangerous or unstable about commercial paper. It makes companies and governments MORE efficient, not less, to be able to borrow covering amounts on a short term basis. Nothing irresponsible or untoward has gone on in that market AT ALL -- yet they're locked up, because of what's going on in bad mortgages.

Commercial paper is absolutely necessary. This is going to be really, really rocky.

Posted by Fnarf | October 6, 2008 1:36 PM

how is the stranger doing in it's ad revenue right now?

Posted by Bellevue Ave | October 6, 2008 1:51 PM

@3 as much as I'd like to say it was Bush who did this I don't think that is true. I'm pretty sure it's shadowy executives who figured out a way to manipulate the economy to make themselves lots and lots of money.

Posted by Little Red Ryan Hood | October 6, 2008 1:56 PM

How do you think the credit crunch affects an individual who's trying to get a mortgage right now? Obviously, the standards for who qualifies and for what type of mortgage have been raised. But, assuming a person is a "good borrower" -- has good credit, a job, and can put 20% down -- how much more difficult will it be to get a mortgage now vs. three or four months ago?

Posted by Julie in Chicago | October 6, 2008 1:57 PM

I find all this hard to believe. I mean, okay, some small business can't get a loan *at the rate they want*, but surely someone will loan them money *at a higher rate*? Everyone complaining they can't get credit really means "I can't get credit at the rate I want to pay". I could use those convenience checks from the credit card companies to borrow 40k right now if I wanted, it just wouldn't be at a rate I want.

Posted by hard to believe | October 6, 2008 2:00 PM

The other problem is that a lot of people are gaming the system. They can borrow money, but only at rates much higher than they're used to, and so they're running to the feds. No one, not even the states, have a god-given right to cheap credit.

Posted by bob | October 6, 2008 2:00 PM


Posted by Fnarf | October 6, 2008 2:03 PM

Btw, this line in the article speaks volumes -

State and local governments and other tax-exempt borrowers sold about 15 percent less debt in this week in credit markets than in typical periods, according to data compiled by Bloomberg.

In other words, they sold 85% of the debt they usually do. It's inconvenient and more expensive for them to float more debt, but it's not impossible. They're lining up with their hands out because they think they can use the crisis to save money.

Posted by bob | October 6, 2008 2:04 PM

I genuinely don't understand -- why would you run a company in such a manner that you have to borrow to pay wages (assuming the company is profitable to begin with)? Is it really that hard to hold enough cash that instead of being 30 days behind and needing to borrow funds for a few days to meet payroll, to hold enough cash that you're 30 days ahead and can pay payroll without borrowing anything?

Posted by why would you run your company like that? | October 6, 2008 2:08 PM

How about THIS week, Bob? Ah, populism; the one force that can unite right-wing fools and left-wing fools.

Julie, if you've got 20% down, you should be OK. But your credit score better be huge.

Posted by Fnarf | October 6, 2008 2:09 PM

"Most of us arenít really directly impacted by the Dow trading below 10,000 points today."

Any sense of how many pensions and retirement plans-- alternatives to social security, which is on shaky ground already-- have been substantially reduced by the Wall street crisis? I suspect it's more than you're letting on here with your casual comment about "most of us."

Posted by Trevor | October 6, 2008 2:10 PM

Guys: What Fnarf said at @6.

Or, listen to this podcast, via This American Life, entitled Another Frightening Show About the Economy.

It isn't just a matter of credit costing more. For companies and even state governments now, it simply isn't available. Even if it were available at a higher price, certainly you can see how this higher price for short-term debt would lead to big jumps in the cost of everything as the higher borrowing costs are multiplied at each step in the economy. Stagflation isn't fun; this is a very obvious way by which it's going to happen.

Posted by Jonathan Golob | October 6, 2008 2:10 PM

Interest rates on short term credit don't matter so much if your business has infinite margins, but it can be crushing to any business model that only expects to collect a tiny percentage of revenue as profit. Which is a lot of businesses- retail, manufacturing, and it's especially bad for business that rely on the owner's own unpaid labor.

Posted by oljb | October 6, 2008 2:17 PM

Fnarf - No one is saying there's not a serious problem, simply that people are taking advantage of the crisis.

You can't have it both ways, claim that it's impossible for the states to sell debt and then turn around and admit that they sold 85% of their usual level. Everyone is going to need to pay more for credit, but if the immediate response is always running to the feds it's going to take even longer to recover.

We just finished giving $25 billion to the US auto makers, you know the ones that for decades have refused to make smaller cars and fought any attempt to increase the required MPG tooth and nail.

Posted by bob | October 6, 2008 2:20 PM

@14: I'm not sure if I can do a proper job explaining why.

Ask the owners of the shops you frequent--independent coffee places, dry cleaners, whatever. They might be forthcoming. And they'll do an infinitely better job of explaining the importance of short-term credit than I can.

Posted by Jonathan Golob | October 6, 2008 2:20 PM

Jonathan -

If it's "simply not available" how did they manage to sell 85% of their usual debt?

Posted by bob | October 6, 2008 2:22 PM

The Dow isn't important for two reasons: the crisis isn't about the stock market at all, and also, the Dow is a tiny segment of the stock market -- forty stocks. A much better look at the stock market can be had from one of the broader indexes, like the S&P 500 or the Russell 2000.

The broader indexes are off by much more than the relatively safe Dow. The S&P is off by HALF from its all-time high. That is evaporated wealth; it's exactly as if you'd thrown half of your money in the fire. And the S&P has resonance far beyond the 500 stocks, because so many pensions and mutual funds are indexed to it.

And these market losses are a trivial part of the crisis.

Posted by Fnarf | October 6, 2008 2:22 PM

egads people... my husband got laid off at his job on Friday. Why? because the local bank where his boss has banked for 6 years froze the line of credit. Never made a late payment, never had more than 30% of the line of credit out at any given time. Why? They said so. No explanation or warning given. Their business is based on orders received, product delivered, payment received. The line of credit serves as a stop gap until payment is received. No more operating capital = no money to pay the employees on time.

Posted by kdk | October 6, 2008 2:23 PM

In honor of the Wall Street haters and those who think the haters are now more (or simpler) to blame, I have a joining-of-the-Slog-memes joke, with a lot of hyphens. Wall Street being allowed to embed, throughout our 70%-consumer-spending-dependent economy, during a housing-value bubble, a slew of unregulated highly leveraged investment schemes with built-in cascading cross-default possibilities, is like... a pit bull left loose to wander the neighborhood every day for a couple of years. Sure, when it comes down to it, some granny- and baby-parts will get chewed on, but why waste time blaming the dog?

Posted by tomasyalba | October 6, 2008 2:24 PM

Again: how about this week, Bob?

Posted by Fnarf | October 6, 2008 2:25 PM

Fnarf -

The article was written today, it was the most recent data.

State and local governments and other tax-exempt borrowers sold about 15 percent less debt in this week in credit markets than in typical periods, according to data compiled by Bloomberg.

By the way, I was just reading that Massachusetts has the highest debt-per-capita of any state in the country, might have something to do with why they're going to have to pay a lot for people to take on their debt.

Posted by bob | October 6, 2008 2:29 PM

No, Bob, the most recent data isn't in Bloomberg's statistics yet. And how does that overnight 15% drop stack up against history? You can pretend everything's hunky dory all you want, but if you're saying the credit crunch isn't real, you're just plain wrong. And wrong in a particular way that is being orchestrated by the most repulsive right-wing populists in America. Are you keen to get back on the gold standard, too?

Posted by Fnarf | October 6, 2008 2:33 PM

Do you think that a 15% reduction in credit liquidity is insignificant? Because from the tone of your posts it sounds like you do.

Posted by oljb | October 6, 2008 2:36 PM

Fnarf -

Why don't you read what I wrote. I said there was a very serious problem AND that people were trying to game the system to take advantage.

I believe that small business and a lot of individuals trying to get credit are screwed. I also believe that a lot of the states are unwilling to pay higher interest and so are going to the federal government for a bailout.

Yes, the rates have risen for states but that's not the same as 'impossible.' The fact is that everyone and anyone is going to have their hand out, and if we give it to all of them, ask you obviously favor, we'll be more screwed than we already are.

Posted by bob | October 6, 2008 2:42 PM

I mentioned this last week to Bellevue Ave as a reason we needed the bailout, regular companies can't have their normal operating credit. And @ 14: companies run lines of credit because many place are waiting for invoices to pass, checks to clear, at any given time, they need cash liquidity and the abiilty to pay their employees before they get all their funds in for the week or month. Hence, why most small and medium sized companies use credit (totally safely and responsibly) for their payroll and business expenses.

And if the bailout didn't happen, this would be 1000X worse. So fuck you guys (in earlier comment threads and your "we should let everything fail" attitude.

Posted by Original Monique | October 6, 2008 2:54 PM

@14 and others - You are confusing profitability with cash flow. A company can be healthy, successful, and profitable, yet occasionally have trouble making payroll.

The time to pay suppliers, manufacturing costs, and employees is rarely in sync with the time that a company gets paid by customers. If you look at any given year for a company, they may have a healthy looking balance sheet. However, if you looked at the same company with a more powerful microscope (i.e. for any given month or any given week), it is not uncommon for them to occasionally be out of cash.

Furthermore, it is not necessarily wise for companies to horde excess cash (probably less true today than in healthier economic times). Keeping cash in the bank isn't much better than keeping cash stuffed in an old mattress, and it certainly isn't helping the business grow.

Posted by Mahtli69 | October 6, 2008 2:54 PM

By the way, the government can pour all the money into the system it wants, but until these banks recapitalize, they're not going to be willing to lend very much money.

Which is why the bailout bill should have given the banks money in return for preferred stock warrants, rather than for garbage assets. It's going to weeks and months to figure out the asset-buyup program and unless they're paying the banks significantly above market prices it won't do a thing to help their capitalization problem.

Posted by bob | October 6, 2008 2:55 PM

thank you #31, for a perfect explanation of wtf.

Posted by mud | October 6, 2008 2:59 PM

Interesting side note, Chase just *increased* the limit on my credit card by $10,000 totally unsolicited.

Posted by happy renter | October 6, 2008 3:06 PM

When Lehman went under, it started a chain reaction because it was a major player in the "linked leverage" market. That chain reaction is still going on, and we are getting seriously close to a fissionable event. This is the Chernobyl of the financial system, and it is an open question whether the feds or anyone else can contain it. Let's hope they can.

Posted by crazycatguy | October 6, 2008 3:21 PM

happy renter, max that thing out immediately! Do your part to help JPM Chase gussy up its balance sheet before its next takeover move. Make your sacrifice for the sake of the Wall Street status quo we've come to depend on, er, love. And remember: a hero on Wall Street is a hero on Main Street, now and forever.

Posted by tomasyalba | October 6, 2008 3:21 PM

@32, the bill that passed included your preferred-stock injection, if the TARP administrators see fit.

Though it's unclear to me why it's better to own a piece of a failing bank than some of their debts -- which are crashing but still have SOME value.

Posted by Fnarf | October 6, 2008 3:23 PM

OM, there are better ways to increase liquidity in credit markets than the "bailout". But your never ending aversion to face the music blinds you to that.

Posted by Bellevue Ave | October 6, 2008 3:24 PM

My father owns a small business. It is a seasonal business. He has most of his expenses in the spring and summer, and most of his income in the fall and winter. It has been this way for 30 years; it is the nature of the business he is in.

He has a line of credit at the bank. Some years he has to dip into that line of credit in the summer to get through until the income starts kicking in in the fall. Not every year; probably about every 2-3 years (depends on the income from the previous season balanced against the expenses of the current season).

His bank informed him that his line of credit -- which he's had for 30 years -- has been canceled. Nothing about his or the business creditworthiness. Nothing about alternative interest rates. Just canceled. Period.

The bank did say that if the credit market opens up, they may be able to reinstate his line of credit at a later date (no promises if or when). Right now it doesn't matter, because he's through the low season and into the income season. But if this credit crises continues into next year, and he needs to borrow money again next year, and can't, then his business will fold. And a dozen employees will have to be laid off.

All through no fault of either him or his employees. Due entirely to unavailability of credit.

So yes this can and will effect all of us if something isn't done to fix the problem.

Posted by Reverse Polarity | October 6, 2008 3:40 PM

Awesome! Paulson's handpicked TARP administrator is...wait for it...a former Goldman Sachs V.P.

Who is all of 35 years old.

As the WSJ puts it, "A Goldman Sachs Group alumnus in charge of the nationís economic rescue? How unusual."

Posted by tomasyalba | October 6, 2008 3:43 PM

Fnarf -

First, the stock for money deal can be done quickly, the asset program is going to take months, last I heard it will be 6 weeks before they even make the first deal.

Second, as I already said, buying up junk assets is not going to significantly increase the bank's capital. Even if the government is generous, say paying 20-30% over the market value, it's not going to make that much of a dent.

Posted by bob | October 6, 2008 3:55 PM

@39, you just described virtually every retail business. They make all their money in the Christmas season, and live off the fat for the rest of the year. Holding money back to pay expenses instead of investing in new stock is a starvation diet that will kill you.

Posted by Fnarf | October 6, 2008 3:57 PM

Buying up bad bank debt or buying a stake in the banks themselves isn't going to make a damn bit of difference. 6 in one hand, half a dozen in the other. Unless someone is willing to swoop in and clear up that 60 TRILLION in outstanding Credit Default Swaps we're screwed.

Posted by crazycatguy | October 6, 2008 4:10 PM

Since we just pissed away $700 BILLION DOLLARS along with mark-to-market, why don't we just repeal all accounting rules and call losses "profits" from here on out?

Posted by Original Andrew | October 6, 2008 4:27 PM

@Bellevue: Face what music? The average business doesn't need to 'face music'. They are normal, capable business that are getting screwed. What music do you want them to face? Why should they and their employees suffer?

Also, BTW, many people in Japan are saying what a success the the USA is for getting involved as quickly as it did. The Japanese had a similar crisis in the early 90s (as I am sure you are aware) and because the government didnt act, they were in a depression for the better part of a decade (and still dealing with it now). So no, an entire failing of a system (as shown by Japan, and well, Russia after the fall) doesn't make for a better market or for better companies.

Your continual push for a completely failed system is baffalling to me.

Posted by Original Monique | October 6, 2008 4:30 PM

Hmm, still sounds like it could be a necessary correction: if these businesses have legitimate reasons for borrowing, fuck banks... there are lenty of millionaires looking for investment opportunity. @Reverse Polarity, if your pop can prove that he pays back on time, I'll gladly give him money. As long as he beats the return I'd get elsewhere. And Fnarf, most retail does not live off christmas. They are profitable all year. And all the small businesses that I know (that are sucessful) do not generally borrow money to pay bills. That's what our "revenues" are for. The biggest "problem" of this "crisis" is (a) people getting evicted from homes due to skyrocketing mortgages. They should be protected. (But not the speculators. That's just tough luck) (b) people spending less means some small business will suffer. But people *should* send less. We are a nation of overconsumers, and we need to save more.

Posted by dude | October 6, 2008 4:41 PM

Original Monique @ 45,

The major prob is that we're doing essentially the same thing the Japanese did but on a much larger, crazier scale; it still won't work. The Swedish solution has been proven to work, but that would piss off too many of Preznit Caligutard's BFFs and screw those sweet Goldmine Sachs insider deals.

In fact, OUR government told the Japanese over and over again that they needed to let their insolvent banks fail and write off their bad loans from the 80s. We have one set of rules for us, and one set for the rest of the world.

Posted by Original Andrew | October 6, 2008 4:43 PM

@42: Absolutely correct. Though some retailers have robust sales during other seasons, Christmas is usually more green than white and nearly everyone relies on holiday spending.

I manufacture and wholesale. All my retail distributors are concerned about this, yet they all want product because no one buys anything from an empty store.

The banks are capping or canceling lines of credit for even some of the most well-established accounts both large and small. In turn, I am seeing net30 turn into net60. Soon, I'll cap the amount any one account can order at any one time. Then, it's back to selling product C.O.D. only.

It's manageable when credit is tight. People place smaller orders. Then, if a product or line is successful, re-order more frequently. Manageable, perhaps, but not nearly as profitable as moving units in large quantities. But, if credit is non-existent... forget it.

The suck part for retailers is that they are getting hit from both sides. Banks aren't lending and consumers aren't spending.

I have, for many years now, "jokingly" claimed that Generation X would be the first generation to eat their elders. Perhaps, I should start manufacturing Barbecue sauce.

Posted by mud | October 6, 2008 4:49 PM

@46: Dude, you flashing your money around?

What kind of returns are you getting currently?

Posted by mud | October 6, 2008 4:58 PM

Fuck people in Japan. Their opinions on anything are rotten to the core. And they don't know a lick about finance and regulation considering the shitsandwich clusterfuck they put themselves in back in the 80s and the fact they still aren't out of it yet. Anyone that touts how great Japan is based on the corporations of Japan has no fucking clue how fucked up things are in Japan to this day economically.

Posted by Bellevue Ave | October 6, 2008 5:09 PM

and OM, you still havent explained how your "DO SOMETHING, ANYTHING!" hysterical support is warranted for that craptastic bill isn't going to restore confidence and liquidity in credit markets.

Posted by Bellevue Ave | October 6, 2008 5:12 PM

So Jonathan, my question is this: how's that $850 billion doing at dealing with this credit crisis?

Posted by Greg | October 6, 2008 5:14 PM

"you see how the whole teetering tower can collapse."

a) this was a very long-lived thread, and has kept me from much work today!
b) the disputatious comments seem to boil down to whether it's true that the tower "can collapse," i.e., unless we do/did something and fast; or if it's instead true that what we're seeing is the collapse itself of a tower that will not uncollapse with the hurling of tax dollars in its general direction.

We have a poorly scoped argument using ill-defined terms so far, a dispute over milk that may or may not be milk, may or may not have in fact spilled, and the extent to which crying over it is helpful and/or sincere.

FWIW, maybe Roubini's latest glowerings present a sobering view of how radical the terms of an effective discussion may need to be.

Posted by tomasyalba | October 6, 2008 5:21 PM


It's a rhetorical question you're asking. I'm answering it anyways.

Too early to tell.

The bill is much better than the original proposal from Paulson. (Thanks Christopher Dodd!)

It's probably too little too late, given the collapsed commercial paper market traded (before this crisis) hundreds of billions of dollars a day--on the order of the entire bailout.

I'm already thinking about what we can do if there is nothing the government can do to prevent the total meltdown of the entire credit private credit system.

I've already written about vastly beefing up the SBA. I also think we should at least prepare for a total economic collapse, by extending medicare benefits to everyone, starting a government-backed open venture capital firm and perhaps even resurrecting a WPA-like work program. People are still buying federal treasury bonds. Pouring that money into the market might not help. We could at least consider directly employing the newly unemployed.

But I'm a dirty fucking socialist. You already knew that.

Posted by Jonathan Golob | October 6, 2008 5:23 PM

Thanks for the response. It wasn't actually a rhetorical question; I've been reading a lot of articles about all this, and I still don't feel like I have a clue what's going on.

Posted by Greg | October 6, 2008 5:39 PM

jonathan saying that the bill is better than the first in spite of 100 bil of pork is like saying palin did very well in the debates in spite of winking. in both cases things still suck.

Posted by Bellevue Ave | October 6, 2008 5:41 PM

@ Jonathan Golob,

I love it when you talk dirty.

Posted by Original Andrew | October 6, 2008 5:45 PM

and OM is like someone supporting a guy running into a burning building to rescue a pitbull; The building is still on fire, the pitbull started the fire, no one believes 911 works and she's pointing out how the arsonist pitbull coddling japanese loved the heroic actions of running into the building.

Any action isn't good action OM. You don't get that.

Posted by Bellevue Ave | October 6, 2008 6:01 PM

Luck for us, this guy has all the answers:

... disappearance of money as banks collapsed showed that wealth meant "nothing" ... people should instead base their lives on God's word. Those who think that "concrete things we can touch are the surest reality" are deceiving themselves ... those who seek "success, career or money are building on sand" ...

OK, how much sand can we buy with 700 billion dollars?

Posted by RonK, Seattle | October 6, 2008 6:06 PM

Golob -

And how do you plan to fund this huge new expansion of Medicare/SBA/WPA/etc, especially when our foreign debtors stop cutting us so much slack?

Posted by hillster | October 6, 2008 6:52 PM

raise taxes, raise em to the hilt. Which isn't a bad idea.

Posted by Bellevue Ave | October 6, 2008 7:36 PM

@13 for the insightful win.

But, most of the problem is we're bailing out the wrong group - the undertaxed unregulated hedge funds for the ultra-rich - instead of buying the actual underlying US-only residential-only mortgages that are problematic - at cost not triple price - and refinancing them on proof of income as 30 or 40 year fixed mortgages.

But that would be cheaper and actually fix the problem without enriching further the ultra-rich, so we can't do that in Socialist Republican America.

Posted by Will in Seattle | October 6, 2008 11:18 PM


Please write more dirty fucking posts about the economy for those of us who don't understand what's going on.

(ps - if you know of any good primers, I for one would appreciate it.)

Posted by asteria | October 7, 2008 1:17 AM
Posted by Dork | October 7, 2008 1:20 PM
Posted by Dork | October 7, 2008 1:22 PM

For the record (for those who think that Wall Street has no effect on "us":

Retirement Savings Lose $2 Trillion in 15 Months

The stock market's prolonged tumble has wiped out about $2 trillion in Americans' retirement savings in the past 15 months, a blow that could force workers to stay on the job longer than planned, rein in spending and possibly further stall an economy reliant on consumer dollars, Congress's top budget analyst said yesterday.

Posted by Trevor | October 8, 2008 6:51 AM

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