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Beltway Media: Fortune 500 Equals "Main Street"

By Big Tent Democrat, Section Media
Posted on Tue Oct 07, 2008 at 10:04:56 AM EST
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The Washington Post Online has the most incredible headline I have seen in some time - NOTE - WaPo changed the headline (I take full credit for the change):

Fed Moves To Assist Main Street Businesses

Central bank will buy up commercial paper, the short-term debt that large companies across the country use to fund their day-to-day operations.

(Emphasis supplied.) That's helping Main Street? Only in the Beltway cocktail party set could that possibly be the headline for handouts to Fortune 500 companies. And you can't blame the headline writer. Here is the first graf of the story:

The Federal Reserve said today it is establishing a special fund to lend money directly to businesses so they have adequate cash to operate, a major move by the central bank to ensure that "main street" companies are not crippled by the financial crisis gripping Wall Street and other money centers around the world.

(Emphasis supplied.) A handout to corporate America is the Republican idea of helping "Main Street." And apparently also the Beltway Media view of helping Main Street. Is this really their view? Or are they just taking steno from the Fed?

By Big Tent Democrat, speaking for me only

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    Beltway Media: Fortune 500 Equals "Main Street" | 60 comments (60 topical)

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    Whether or not it's a good idea (none / 0) (#1)
    by andgarden on Tue Oct 07, 2008 at 10:06:05 AM EST
    is a different question. I have no idea about that.

    But a newspaper being so misleading is ridiculous.

    Exactly (none / 0) (#2)
    by Big Tent Democrat on Tue Oct 07, 2008 at 10:08:12 AM EST


    Parent
    Sorry, you are way off on this one. (5.00 / 1) (#33)
    by steviez314 on Tue Oct 07, 2008 at 10:54:39 AM EST
    Let's talk about how the Asset Backed Commercial Paper (ABCP) market works.  

    The largest student loan lender, Sallie Mae, uses the ABCP market to fund the loans they make to students.  Would you prefer that each individual student try to get a loan from "the market"?  Can't happen.  the loans must be aggregated by a large company and then financed in the ABCP market.

    Joe's Main Street Car Dealership cannot borrow from the "market".  There is no ability by the market to assess Joe's creditworthiness.  Instead, Ford and GM finance their dealers, and use the ABCP market to finance themselves in turn.

    Sometimes the concept of "helping Main Street" has no practical way of implementation except by helping the companies that, in their normal course of business, help main street.

    Parent

    hardly (none / 0) (#5)
    by wystler on Tue Oct 07, 2008 at 10:13:31 AM EST
    a newspaper being so misleading (by eliding logical jumps) is par for the course

    here's a bit o' the Rube Goldberg of it:

    1. fed buying paper

    2. to keep F500s afloat

    3. retaining employees on the payroll

    4. whose spending habits support the quasi-mythical Main Street entrepreneurs

    not suggesting it cannot be criticized ... and it's pretty damned hard to do so with WaPo short-cutting, all the while expecting us to nod our heads like good little proles

    Parent
    I think the rationale (none / 0) (#6)
    by litigatormom on Tue Oct 07, 2008 at 10:16:43 AM EST
    is that buying commercial paper would "free up credit" that is currently unavailable to small and medium sized businesses.

    Whether the move will actually achieve that is a different question, one I cannot answer.

    Parent

    Really? (5.00 / 2) (#7)
    by Big Tent Democrat on Tue Oct 07, 2008 at 10:18:37 AM EST
    I have a better plan for that - how about the government loan the money directly to Main Street?

    Parent
    I didn't say I thought it was a good idea (none / 0) (#15)
    by litigatormom on Tue Oct 07, 2008 at 10:25:35 AM EST
    or one that was likely to work!

    Given the number of Main Street business who likely need help, direct government loans may not be feasible, or fast enough. But again, I don't know either of those things to be true. Your suggestion is certainly something lawmakers and the candidates ought to be discussing. If they can get off the subject of Ayers and Wright....

    Parent

    Since everyone knows that (none / 0) (#37)
    by Militarytracy on Tue Oct 07, 2008 at 11:17:34 AM EST
    the strategy is a failing one I have to ask myself what other reasons the Fed has for doing this.  I have other questions as well like why Paulson chose Neel Kashkari as well.

    Treasury Secretary Henry Paulson has tapped a former Goldman Sachs executive to be director of the government's bailout program. Neel Kashkari, who has worked with Paulson at the department since July 2006, was chosen Monday as the interim head of the government's unprecedented effort to unclog the credit markets.

    Kashkari, who was a vice president in Goldman's San Francisco office before joining the department, is one of four former executives from the firm now working feverishly to resolve the financial crisis.

    People like Kashkari are responsible for the  new "investment vehicles" that have recently been created.  They used extremely technical mathematical equations to prove that a lot of these really bad mortgage securities really weren't bad investments at all except they seem to be bad investments.  Then they enabled the totally unregulated CDS market to expand and grow into a monster by using even more of these engineering type equations.

     After graduating, Kashkari worked on NASA space missions including the James Webb telescope project before switching to finance and studying for an MBA at the University of Pennsylvania's Wharton School.

    "The whole idea was to combine engineering with finance," Kashkari's father Chaman Kashkari, also an engineer, said at the time. "He told me the country needed people who have a good concept of engineering and a good concept of finance."

    According to Peter Dowd, executive dean at the Faculty of Engineering, Computer and Mathematical Sciences and the University of Adelaide, Kashkari's thinking was perfectly understandable.

    "It's indicative of the change in engineering to what most people would call systems engineering," Professor Dowd said yesterday.

    So someone who was closely involved in creating all the smoke and mirrors is now going to fix all this?  But he's an engineer, not an economist.

    But not everyone is impressed with the selection of Kashkari to run the bailout unit.

    Former director Federal Reserve Bank of Atlanta director Robert Eisenbeis said Paulson should have chosen someone familiar with the Savings and Loan Crisis of the late 1980s and early 1990s when the US Federal Reserve created the Resolution Trust Corp to dispose of billions of dollars of assets from bankrupt banks.

    "The kind of people that you need are the ones who were associated with RTC and had experience dealing with these large volumes of assets," Eisenbeis told AAP. "Working at Goldman Sachs doesn't qualify you for doing this job."

    I think someone is more interested in hiding stuff about how bad everything really is going to be in the real world until November or January more than anything!

    Parent

    Oh Boy (none / 0) (#40)
    by Militarytracy on Tue Oct 07, 2008 at 11:36:29 AM EST
    So this is where the engineers at the Fed are going to come into play?  They are going to do the whole fiasco all over again and make unsecured loans for a fee after they "prove" that these loans really aren't that risky?  The fee is supposed to make up for the fact that the asset of the loan could be completely lost with no recourse in the middle of the worst financial crisis since the great depression?  THIS IS NUTS!  COMPLETELY INSANELY NUTS!

    Parent
    The difference, (none / 0) (#3)
    by eric on Tue Oct 07, 2008 at 10:11:13 AM EST
    of course, is that Main Street businesses don't take out loans to make payroll.  They tend to pay their employees with money that they, you know, actually earned.

    Not always (5.00 / 3) (#11)
    by litigatormom on Tue Oct 07, 2008 at 10:20:50 AM EST
    Many small to medium sized businesses have revolving lines of credit with banks to cover short term cash crunches. My husband owns a small business, and he has one. I'm not sure he's ever used it that way, as opposed to covering rent or making large purchases of equipment, etc. But it's really six of one, half a dozen of another, if you are borrowing to meet expenses. But you can't make borrowing just to make payroll a habit.  

    My law firm has always eschewed short term borrowing to make partners' monthly distributions (going "into the banks"), but other big firms have done it. Usually with not good long term results. A few have gone out of business doing that, the most spectacular example being Finley Kumble back in the 80s.

    Parent

    Well sure (5.00 / 1) (#17)
    by eric on Tue Oct 07, 2008 at 10:27:18 AM EST
    a line of credit is good if the receivables are a little short from time to time.  Nothing wrong with that.  But is is quite a different thing to always make payroll with credit, just as a matter of course.  Maybe this works for large Fortune whatever companies, but surely they must have realized the peril they put themselves in.  If the credit goes away, they are screwed.

    Parent
    I have a lot of such first hand experience (none / 0) (#53)
    by Militarytracy on Tue Oct 07, 2008 at 04:15:29 PM EST
    also and many people lack the discipline it requires to start a business.  Instead of building a reputation slowly through consistent work and a reliable product they attempt to start out deep in debt for every fixture and brand new tool.

    Parent
    I actually think alot of businesses have (5.00 / 1) (#13)
    by tigercourse on Tue Oct 07, 2008 at 10:23:52 AM EST
    lines of credit to make payroll.

    I also don't really know what constitutes a "Main street business".

    Parent

    There are millions of businesses (5.00 / 3) (#25)
    by cpa1 on Tue Oct 07, 2008 at 10:36:03 AM EST
    that have revolving credit accounts and the factoring of their receivables.  If that is prematurely cut off, it could cause businesses to go under.  

    I do business valuations and my 4 largest current valuation projects involve businesses that use short term credit.  These valuations range from a group of car dealerships, to a wholesale meat distributor to a wholesale hvac suppliers to a garment manufacturer.  Of course, if everyone paid them on time there would be less of a problem but that situation is not getting better, it's getting worse.

    We're still on the brink and our worst fear is fear itself, to quote FDR.

    Parent

    That is untrue (none / 0) (#41)
    by Maryb2004 on Tue Oct 07, 2008 at 11:43:18 AM EST
    Many small to medium sized business operate with lines of credit which they use to manage their cash flow.  That includes paying expenses such as payroll while still waiting for receivables to be collected.

    Parent
    That is the recipe for sound business practices (none / 0) (#42)
    by Militarytracy on Tue Oct 07, 2008 at 11:51:51 AM EST
    but in the new world economy that is about to be replaced by the old world economy of sound business practices that has not been what many business owners have been doing with their profits.  It is as if businesses developed ADD and they now feel justified in how they run things living hand to mouth and month to month.  The gravy train and easy credit was never going to end.

    Parent
    humbug (5.00 / 1) (#47)
    by wystler on Tue Oct 07, 2008 at 02:09:08 PM EST
    Sound biz practices? Requiring cash flows to cover each week's payroll?

    Nonsense. You lack appreciation for a plethora of sound business models that do not feature daily inflows of revenue. (see the other replies to the comment you answered)

    Business cycles aren't always measured in hours or days or weeks. Revenues are not typically due until services have been rendered or product has been delivered. Many entrepreneurs depend on a credit line to foot the bill for labor and materials in anticipation of revenue. If their credit disappears, paychecks will bounce, vendors and landlords will not be paid, and the entrepreneur will be out of business, with the employees suddenly out of work.

    Parent

    I know, I know nothing (none / 0) (#50)
    by Militarytracy on Tue Oct 07, 2008 at 03:59:24 PM EST
    Just a multi-generational history of small business owners and ranchers.  Used to own a small town landscaping business that grossed $250,000 its second year.  Employed ten employees besides myself and the other owner, paid for supplies, rented equipment, did all of that and never once used a line of credit until we purchased our own trencher instead of renting one.  So whatever

    Parent
    Wikipedia (none / 0) (#4)
    by Steve M on Tue Oct 07, 2008 at 10:11:52 AM EST
    Currently, more than 1,700 companies in the United States issue commercial paper. Financial companies constitute the largest group of commercial paper issuers, accounting for nearly 75 percent of the commercial paper outstanding at mid-year 1990. Financial-company paper is issued by firms in commercial, savings and mortgage banking; sales, personal and mortgage financing; factoring; finance leasing and other business lending; insurance underwriting; and other investment activities. The remaining commercial paper outstanding at mid-year 1990--over 25 percent--was issued by nonfinancial firms such as manufacturers, public utilities, industrial concerns and service industries.

    Suffice it to say that if only 1700 companies in the entire country issue commercial paper, and 75% of those are financial companies, it's not a very "main street" activity.

    The purpose of this move is to loosen up credit and get the interbank lending market moving again, and there is definitely a hoped-for "trickle down" benefit to main street companies that may rely on credit to make payroll and meet short-term needs.  But this is an extent to which trickle-down thinking has become ingrained in the public consciousness over the last three decades.  You can do something that benefits rich people and big corporations, claim that your intent is to create a trickle-down effect, and the media will report it as if the trickle-down effect is as inevitable as night following day.

    Well, unlike some others on the left (5.00 / 1) (#8)
    by andgarden on Tue Oct 07, 2008 at 10:18:49 AM EST
    I accept the proposition that if Wall Street is actually melting down and banks are potentially going to fail, stopping that from happening is actually good for everyone.

    But it's not clear that what's described in this article is doing that.

    Parent

    For my part (none / 0) (#16)
    by Steve M on Tue Oct 07, 2008 at 10:26:48 AM EST
    unlike some others on the left, I accept the proposition that if Saddam Hussein is actually seeking to create chemical, biological and nuclear weapons to supply to terrorists, we should depose him.

    Of course, arguably it's not clear that he is really doing that.

    Parent

    Well duh (5.00 / 1) (#20)
    by andgarden on Tue Oct 07, 2008 at 10:29:32 AM EST
    But those people who are arguing that there are no financial crisis are being. . . . . . . irresponsible. (Yes, I know it's loaded, but that's what I happen to believe now. Ramblings of Sirota, Bowers, and Stoller notwithstanding).

    Parent
    Oh you were wrong then (none / 0) (#19)
    by Big Tent Democrat on Tue Oct 07, 2008 at 10:28:00 AM EST


    Parent
    Wrong about what? (none / 0) (#22)
    by Steve M on Tue Oct 07, 2008 at 10:31:13 AM EST


    Parent
    Thinking we should depose Saddam (none / 0) (#24)
    by Big Tent Democrat on Tue Oct 07, 2008 at 10:33:18 AM EST


    Parent
    But I didn't say we should depose Saddam! (none / 0) (#34)
    by Steve M on Tue Oct 07, 2008 at 11:06:49 AM EST


    Parent
    Steve M (5.00 / 1) (#36)
    by eric on Tue Oct 07, 2008 at 11:15:46 AM EST
    never fear, I got the snark.

    Parent
    I disagree (none / 0) (#58)
    by Manuel on Tue Oct 07, 2008 at 04:46:18 PM EST
    This is the libertarian position which does not recognize the government as an integral part of the economic system.  I disagree with that.  The government is already a huge part of the economy.  When the system is in crisis, it is the role of the government to intervene in order to modify the effects of the market.

    Parent
    Were you in favor of partial nationalization? (none / 0) (#64)
    by Manuel on Tue Oct 07, 2008 at 06:54:59 PM EST
    i.e. equity for preferred shares as was just done in the UK.  The way I read your argument it sounded like you were not in favor of any intervention.  I apologize if that characterrization is wrong.  No intervention is more in line with conservative and libertarian economists. Ideological politics do tend to color people's ideas about the existance of a crisis and what to do about it.  In your post, you accused anyone who supported the bailout of being misinformed and not having an undrstanding of the situation.  That is far from a universal truth.

    Parent
    In a democracy (none / 0) (#66)
    by Manuel on Wed Oct 08, 2008 at 12:15:59 AM EST
    everyone gets a voice, even the uninformed.  Our best hope is to inform them.  Obviously you felt strongly that the "bailout" plan as passed was the wrong thing to do.  However, other than questioning the education and experience of some of those who were in favor, you have not advanced an aletrnative or given a substantive reason for your position.

    Parent
    Atrios posted (5.00 / 1) (#10)
    by eric on Tue Oct 07, 2008 at 10:19:56 AM EST
    about short term commercial paper today, writing,

    I understand that we've gotten accustomed to world, and adopted practices accordingly, in which free and easy access to cheap credit by everyone all the time is the "norm," but I'm not really sure it needs to be that way.

    And I agree completely.  It is sort of like the trend (encouraged by FedEx and UPS) of not keeping any substantial inventory on hand because a business can always get it delivered quickly.  That way you can save on warehousing costs.  The problem is, what happens if easy, quick shipping disappears?  Then, you are screwed.  So it is with quick, easy credit.

    Parent

    As I write below (none / 0) (#9)
    by Big Tent Democrat on Tue Oct 07, 2008 at 10:19:55 AM EST
    how about the government lend directly to Main Street?

    Parent
    I dunno (5.00 / 1) (#21)
    by Steve M on Tue Oct 07, 2008 at 10:30:31 AM EST
    I hate the trickle-down paradigm too.  But a direct lending program with such a broad scope would be very complicated to devise and administer.  Not that it can't be done, but that it probably can't be whipped together on an emergency basis.

    Of course, there's a real question about the extent of the emergency.  It's starting to feel to me like the Fed is trying to stave off not just the short-term emergency, which I'm fine with, but the entire negative business cycle which seems more or less inevitable.  We cannot stimulate our way out of this.

    Parent

    Nationalize (5.00 / 1) (#26)
    by eric on Tue Oct 07, 2008 at 10:37:16 AM EST
    a few failing banks and use them to make the loans.  We are paying for all of this anyway.

    Krugman was on Rachel Maddow last night and said that it is eventually going to come to nationalization sooner or later.

    Parent

    actually, the federal gov't (5.00 / 1) (#44)
    by cpinva on Tue Oct 07, 2008 at 11:57:19 AM EST
    already has an infrastructure in place, able to accomplish exactly that,

    But a direct lending program with such a broad scope would be very complicated to devise and administer.

    it's called the Small Business Administration (SBA), and it's been around for years and years. its sole purpose for existing is to process and administer loans to (you guessed it!) small, main street businesses.

    so, systemically, that isn't the real issue. the real issue is, who do they really want the money going to?

    Parent

    Not under Fed control (none / 0) (#56)
    by Manuel on Tue Oct 07, 2008 at 04:37:47 PM EST
    It is an independent agency.  Providing more loans to small businesses won't help a lot with the current crisis.  It may be something we have to do as part of a broad based stimulus package in a new administration.  The agency may also need to grow in order to scale if we need to expand small business loans.

    Parent
    Sort of like HOLC (none / 0) (#23)
    by Big Tent Democrat on Tue Oct 07, 2008 at 10:32:47 AM EST
    Here' what I think. We need a new hundred days and a new Harold Ickes, Sr. and Harry Hopkins and a new FDR.

    Parent
    BTD, I've been looking at this credit crisis, (5.00 / 1) (#30)
    by jeffinalabama on Tue Oct 07, 2008 at 10:49:36 AM EST
    Bank holidays, national recovery programs, a New Deal approach may be the only course by January.

    Since 1980, the Right has been at work dismantling many of the economic policies of the New Deal, especially oversight.

    I think that the global scope of the financial meltdown hasn't gotten enough discussion in the US, because people are looking at their own issues... but  the threat to main street and to all of us is grave.

    It's time to revisit the New Deal, because everyone is in jeopardy. Draw parallells to the June-August 1914 era, and how an assasination in the Balkans turned into The World War.

    My concern is that too many, especially those on the right, but even some on the left, don't understand that we are looking into the abyss... and the abyss is looking into us, to paraphrase Nietzsche.

    Parent

    Of course we can't stimulate our way out of this.. (none / 0) (#46)
    by Moishele on Tue Oct 07, 2008 at 12:34:16 PM EST
    but this is not a stimulus package. The fed is trying to restore liquidity, and for once seems to realize they can't wait for things to trickle down from the big banks.

    Most businesses do not operate on a cash basis. Even the ones who say they do generally run on a  30/60/90 plan. If their suppliers can't ride that out the suppliers go under, and that echoes through the economy.

    In the best of all possible worlds the fed wouldn't be buying up short term paper, but the apparatus is already in place for getting money to the smaller businesses. And if things went directly from the fed to businesses we'd add the cost of a whole new layer of bureaucracy to adminsiter those loans.

    Parent

    To Lend Directly to Main Street, (5.00 / 1) (#32)
    by santarita on Tue Oct 07, 2008 at 10:54:22 AM EST
    the Feds should nationalize banks.  The Fed doesn't have the people or infrastructure.

    Parent
    Ummm trickle down (none / 0) (#27)
    by gyrfalcon on Tue Oct 07, 2008 at 10:38:39 AM EST
    If a couple of these Fortune 500 companies can't meet payroll, isn't that a pretty direct "trickle down" effect on its employees?

    Seems to me we have to get over this artificial construct of "us" and "them."  If I'm misinterpreting you, I apologize.


    Parent

    Well, from my perspective (5.00 / 1) (#29)
    by eric on Tue Oct 07, 2008 at 10:45:07 AM EST
    Fortune 500 isn't me, it's them.  Let them sell some stuff to make payroll, let them cut back on some CEO salaries.

    Give us money or we won't pay our employees?  I don't care for extortion.

    Parent

    Well, I'm no biz will, but this comment (5.00 / 1) (#31)
    by andgarden on Tue Oct 07, 2008 at 10:51:50 AM EST
    seems not to reflect the reality of how businesses work.

    It's in the same vein as "let them eat cake," and "everyone can go to the emergency room."

    Parent

    i guess you're specially blessed (none / 0) (#48)
    by wystler on Tue Oct 07, 2008 at 02:13:41 PM EST
    you don't work for a Fortune 500?

    any customers, perhaps, who are?

    any family members or neighbors who are employed by a Fortune500? or who depend on relationships with customers or vendors who are?

    take a look around you. carefully. then re-think.

    Parent

    so what you're saying is (none / 0) (#51)
    by of1000Kings on Tue Oct 07, 2008 at 04:08:43 PM EST
    that a company just needs to become big enough that the government cannot allow it to fail and that company will never have to worry about the bottom line b/c the government will always be there to ensure 'trickle-down'...

    Parent
    hardly (none / 0) (#57)
    by wystler on Tue Oct 07, 2008 at 04:41:18 PM EST
    this isn't about 1 company, friend ... the problem here is systemic and broad

    cause? insufficient financial regulation

    the prognosis? a domino-like piece-by-piece collapse the likes of which most of us have never seen, unless something is done to ameliorate the financial ailment

    the underlying reason? an asleep-at-the-switch public, and a compliant fourth estate, that failed to demand their democratically elected officials act responsibly

    Parent

    So we are supposed to (none / 0) (#59)
    by eric on Tue Oct 07, 2008 at 05:17:14 PM EST
    give them free money?  Claims that they will fail to pay their employees is extortion, plain and simple.  And they get away with it because people are willing to negotiate with them.  They are too big and important!  They need free money!

    Parent
    Fortune 500 companies and their employees (none / 0) (#55)
    by Manuel on Tue Oct 07, 2008 at 04:28:28 PM EST
    pay taxes.  Failure will mean lower tax revenues which will eventually affect everyone.

    There is only one economy.  It does affect everyone (unless you live in a self sufficient community).  We'd like to change how the allocation of resources is done but that doesn't mean we can afford to have the economic system fail.

    Parent

    Nobody (none / 0) (#60)
    by eric on Tue Oct 07, 2008 at 05:20:10 PM EST
    wants any fortune 500 company to fail.  I am just saying that they don't need my money.  They should just buck up and find a better way to pay their suppliers and employees than taking money from me.

    It's reverse Robin Hoodism, again.

    Parent

    They are not taking our money (none / 0) (#63)
    by Manuel on Tue Oct 07, 2008 at 06:39:14 PM EST
    They are borrowing it because the credit markets are frozen.  Depending on the terms, we might even turn a profit.  It isn't ideal but these are extraordinary times.

    Parent
    Sure (5.00 / 1) (#35)
    by Steve M on Tue Oct 07, 2008 at 11:13:47 AM EST
    But you have to make an argument about how the economy as a whole will be impacted.  The government cannot be the guarantor of every company, every debt, every mortgage payment.  The argument for major intervention has to be based on concerns about a wider systemic meltdown.

    Whenever a company fails, lots of employees lose their jobs, lots of suppliers and vendors lose business as a result.  But you and I both know that the government doesn't bail out every failing company, or even every failing Fortune 500 company.  For a bailout to make sense, the intended effect has to be a lot wider than "we're going to save all the jobs of the people who work at this company we're bailing out."  Otherwise we bail out everyone.

    Parent

    Agreed (none / 0) (#49)
    by gyrfalcon on Tue Oct 07, 2008 at 03:56:47 PM EST
    But it would seem that most of the Fortune 500, for instance, are victims of a financial system mess they had little or nothing to do with creating and are not in trouble because of bad business practices or bad products, lack of consumer demand, etc.  The businesses are as solid as ever.

    And my point is that the economy as a whole most certainly is affected if a number of these big companies go down.  "Trickle down" doesn't work so well with income, agreed, but it sure as heck does with unemployment.  Just ask the folks in Detroit.

    Parent

    Quote marks on "Main Street" (none / 0) (#12)
    by blogtopus on Tue Oct 07, 2008 at 10:23:44 AM EST
    Do you think they should have tagged the article with /snark?

    Boy, since when have the articles been written by sarcastic 19 year olds?

    I'm not taking sides in this argument but isn't (none / 0) (#14)
    by Angel on Tue Oct 07, 2008 at 10:25:15 AM EST
    some of this short-term debt bonds that have been issued?  If so, that would affect many more people than it sounds like because many are in the bond market through mutual fund investments, retirement accounts and the like.  These investments have usually been considered pretty safe because of the very reason that they were mostly issued to large financial institutions and public entities for utility and infrastructure construction, etc.  I think a lot more people are affected than you might believe. Just ask anyone who owned a position in a bond for Washington Mutual.  Their investment vanished overnight.  Literally.  So this could help a lot of people, not just rich people and corporations.    

    Nope (none / 0) (#18)
    by Big Tent Democrat on Tue Oct 07, 2008 at 10:27:27 AM EST
    these are not munis or government bonds.

    this is short term commercial paper.

    Completely different.

    Parent

    This may be too (none / 0) (#28)
    by Jackson Hunter on Tue Oct 07, 2008 at 10:44:12 AM EST
    far left for even a place called Talk Left, but I'm not shocked at all.  For the last 20 years if not longer the People have been propagandized that they are not workers, but consumers.  We've been told ad nauseum that what is good for Wall Street and the Gates' and the Buffets' is what is good for America.  The Corporate media, owned by major Corporations, have a direct financial interest in maintaining this utter fallacy.  Most people work for small businesses, not major corporations, but that is hardly mentioned and when it is the obvious conclusion is never spoken.  I'm not saying that we should burn down the Fortune 500, but we don't need to pander to them like a bunch of helots all snuggly in their wage-slavery.  

    Only when the People decide that they have had enough is when this situation will change, and I fervently hope we realize it before the real ugliness begins.  This Country is far too atomized and factionalized to survive anything close to another Great Depression (which frankly is probably too late to avoid if there is going to be one, I'm not going that far yet, but it is certainly possible.)  I doubt we'll reach 25% unemployment, but if we do, I'd be ready for some serious crap to fall upon this Country if I were one of you, which of course I am.  :)

    Jackson

    it's a free-for-all (none / 0) (#52)
    by of1000Kings on Tue Oct 07, 2008 at 04:10:49 PM EST
    if the unemployment rate goes over 15% in this country...

    the government will be up for grabs, basically...

    Parent

    This was a stupid headline (none / 0) (#45)
    by Maryb2004 on Tue Oct 07, 2008 at 12:17:46 PM EST
    and neither this article or the NYTimes article explained how this might help Main Street.  But that doesn't mean it won't.  I'm not by any means an economics experts but I work with a lot of small to medium sized businesses.  

    I've seen suggestions that the Fed go in and make direct loans to Main Street.  It seems sensible on its face.  But look at what Main Street's biggest problem is right now - slow orders and slow collection of receivables.  

    Most of Main Street has loans.  They have lines of credit.  But they are concerned because they are having to draw down on those lines more than in the past because their receivables are coming in slower.  

    And they are concerned that those lines of credit will be shut down.  Why?  Defaults.  Not payment defaults, they are making their payments But they are blowing through their financial covenants because business is slowing down.  As the availability of credit under their lines gets cut back, so, in turn the Main Street companies are cutting back and making fewer orders and paying their receivables slower and hording their cash and their credit availability.  It's a cycle.  

    The big companies make the most orders and pay the receivables that are due to the Main Street companies.  Big companies don't generally worry about drawing on lines of credit - because they go to the commercial paper market.  When the commercial paper market dries up it has the same effect on big companies as a cut in their lines of credit.  

    Both articles explain that this is they way they fund the cash flow for their day-to-day operations.  Day-to-day operations includes paying their workers AND it includes ordering and paying.  

    The theory seems to be that if you can cut through the log jam in credit at the big company level they will go back to doing business as usual which means Main Street will be getting orders and will be receiving payments.  That will help Main Street with its own banks by alleviating some of the covenant defaults and loosening up credit to the Main Street companies so that they can go back to doing business as usual.

    I have no idea if it will work.  But a bad headline doesn't make a plan bad.


    Roubini (none / 0) (#54)
    by Manuel on Tue Oct 07, 2008 at 04:18:07 PM EST
    who has provided some good economic discussion in this crisis, endorsed this move.

    The Fed just announced a plan to start buying commercial paper (both asset backed and unsecured) from financial institutions and corporations. This action follows closely one of the radical policy options that I recommended last week:

    Here is the recommendation .

    This is a serious crisis and the Fed is doing what it can to prop up the system.  I don't think it is fair to paint the Fed action as a Republican idea.  We may need to consider creating a national bank but that is something that can't be done until after the election and with much deliberation.

    Beltway Media: Fortune 500 Equals "Main Street" | 60 comments (60 topical)

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