Re: Be afraid, be very afraid!
- From: Islander <nospam@xxxxxxxxxxx>
- Date: Sun, 28 Sep 2008 18:36:10 -0700
Harry Thompson wrote:
"Islander" <nospam@xxxxxxxxxxx> wrote in message news:FvOdnUcpWc6MjH3VnZ2dnUVZ_hidnZ2d@xxxxxxxxxxxxxxxxxI agree that nobody knows what to do. Paulson's hail Mary attempt is simply to restore confidence in the existing system when what we need to do is change the system. It doesn't help to restore a broken system and I am very much afraid that once the money is committed that everyone will breathe a sigh of relief and postpone dealing with the underlying problems much less do the work to implement solutions. This is going to take considerable will to correct and I am not convinced that the will is there. Better, I think, to keep Congress' and Treasury's feet to the fire!Rita wrote:On Sun, 28 Sep 2008 14:20:26 -0500, "Harry Thompson" <me@xxxxxxxxxxx>
wrote:
snip
Not so. The banks retain enough funds on hand to cover normal transactions. Beyond that, FDIC protects normal deposits up to $100K which takes care of most folk. Companies that cannot make payroll without borrowing money are not being managed very well. There are also those who claim that people cannot get financing to purchase a new car. It seems to me that it is no great sacrifice to put off purchasing a new car for a while until this mess gets straightened out. Since most of our car purchases are now going abroad that should help the balance of payments too. Detroit could use a time out to clean up their own mess.But you really don't pay cash, Rumpel. Your check is a credit to you and a debit to your bank. Your bank doesn't have cash, or moola, long green, the jack, or just plain dough. Your bank has lent it out. Those loans are assets to your bank, but it takes time for the money to return to it. If everybody wrote a check on your bank at the same time, the bank would have to borrow the money to pay. What if nobody was willing to lend to the bank?A good explanation of what I have deduced could easily
You expressed a.consumer point of view. Let's broaden that view.
Most companies of any size don't keep money on hand. If they have dough on hand, they lend it out at interest. Still, they have to pay suppliers, payrolls, and so on. They don't have their profits yet from the sale of goods, so they have lines of credit, that is, institutions (usually banks) willing to supply the moola for a charge. This generates all sorts of short term debt, normally quite good, and is the basis of the money market.
Right now, the fear is that the credit squeeze will hit local government. They don't collect taxes every day. So to meet expenses, they borrow money with future tax receipts and revenues as pledge. TANs (tax anticipation notes), RANs (revenue anticipation notes), and so on. Day to day expenses. But with money sources hoarding their cash in fear of creditor demands upon themselves these sources dare not pungle up the dough for local government even though it is a sure thing.
To return to companies borrowing to pay suppliers and employees, the same credit squeeze makes their sources fearful to lend the short term moola, for the same reason, the normal lenders must hoard cash due to a feared avalanche of demand for payment on them.
To see how it may affect you, imagine if there is no moola at hand to fund the day-to-day credits and debits. There simply is no money to put life and blood into our credits and debits.
happen. We are not talking here of running up more charges
on credit cards, but keeping day to day commerce going.
Including our ablity to withdraw our funds as needed from
ATM machines, etc.
Believe me, I fully understand the value of credit in normal times but this has gone far too far from normal commerce!
Islander, that's just it. What you say about insurance and reserves is true enough. In normal times we could go on thinking about our checks as cash with no need to consider the system of credits and debits behind the checks. As you note, though, we have left normal times.
But I'm not saying our little deposits will fail. I meant to use it to show the system behind it.
You may be right about poor management being behind company borrowing to meet payroll. That is happening now to Bo Pilgrim's chicken empire. Apparently, he expanded with borrowed money from a small feed operation in East Texas to become a huge chicken empire. As credit is squeezed, there is worry that he will have difficulty meeting his payroll, among other demands. Pilgrim's Chicken may soon be eligible for bankruptcy.
Maybe payroll wasn't the best example, and I should have left it with paying suppliers.
I strongly dislike being put in a situation where we have to act without taking the time to break this problem down into manageable parts. That would be the responsible thing to do and I, for one, am not gaining confidence in the financial community as a result of this bailout.
As I feel it, the situation is dire. Paulson doesn't know exactly what to do, so he must play it by ear. However, he needs dictatorial powers to escape punishment if he guesses wrong. I think that's why he asked for non-reviewable power.
Nobody knows what to do.
I also argue that just as no one knows what to do, that no one knows what the ramifications will be if we proceed at a more cautious pace. Lots of threats of dire consequences, but where is the beef?
Your reference to Bo Pilgrim's Chicken empire is a good example. One can very effectively use credit to grow a business, but when you cannot meet payroll, there is something very seriously wrong with your business plan.
A good part of the problem with Pilgrim's Pride appears to be the increased cost of feed, primarily corn and soybean. Of course, Bo is a Bush Pioneer and has contributed handsomely to the Bush campaigns. Too bad if the Republican agricultural and energy policies contributed to his troubles.
I note the Bo Pilgrim received over $15M in USDA subsidies in 2002 and over $11M in 2003. Even I could run a business with that kind of subsidy! http://farm.ewg.org/farm/persondetail.php?custnumber=009338467
In this case, it may also have a great deal more to do with the crackdown on hiring illegal immigrants. Isn't Bo under investigation for allegedly providing fraudulent IDs to illegal immigrants? Wasn't this the outfit that had hundreds of workers arrested back in April? http://www.alipac.us/article3116.html
No, the failure of Pilgrim's Pride is not due to the credit meltdown!
.
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