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Bailout/Rescue Pkg: WHAT IT MEANS TO YOU!

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If you’re still on the fence as to why some kind of bailout-rescue package is necessary for the U.S. economy, look at the following excerpts from today’s business columns and reports.

While everyone is wringing their hands and decrying the excess of Investment Banks (and excess there most definitely was!), it behooves everyone to look at what is happening and will continue to happen should nothing be done or a decision be put off. Unfortunately, the current financial meltdown, causing a credit stoppage, is an emergency for every business in the country. It cannot wait until Congress comes back in November after the elections. Nor can it wait until next week.

Every day that a decision is delayed, hundreds upon thousands of businesses, particularly small businesses, are put at risk of having to close their doors.

Americans have a good and justifiable reason to be angry at the lack of Federal oversight, deregulation, investment banker greed, and the rating agencies’ seemingly collaboration in not providing accurate, quality ratings on risky investments. All of these failings must be addressed, but the immediate need to address the current financial needs of American businesses and families must be addressed first. The rest can follow when time permits a more thoughtful discussion.

Putting righteous anger against Wall Street aside, Americans need to look at their own futures, to their own jobs and businesses, towards what will occur if they just continue spew anger, as they have been to their legislators, rather than become active participants in the solution. Granted, Paulson and Bernanke did not present the best of all possible solutions to Congress. However, Congress has been working very hard to negotiate a deal that would save the taxpayers (and potentially make money for the taxpayers), release funds into the credit markets which will save thousands of companies and jobs, provide increased regulation and oversight, and limit corporate salaries and “golden parachutes” of troubled institutions.

The following excerpts from today’s financial columns provide some idea of what is occurring all across the landscape of American businesses.

From Kenneth Stier of CNBC in his column today:

While most of the nation’s attention is focused on saving behemoth financial firms, small businesses are struggling to ride out a perfect storm of tougher credit conditions in a badly hobbled economy.

The result is that the finance sector’s woes—which has spawned new lending prudence—is exacerbating, rather than relieving, economic weakness.

Even government programs designed to help small business are falling down on their mandate just when they are needed most, says small business advocates.

“It’s always been difficult for small business but now it is become almost impossible” to survive, say Marilyn Landis, chairwoman of the National Small Business Association (NSBA). “Many factors are coming together to make this a perfect storm for small businesses.”

Until recently most small business owners could go to their local banks and get unsecured loan of $100,000 or more but those days are long gone.

[….]

Sixty percent of domestic banks reported having tightened standards on commercial and industrial (C&I) loans to medium and large firms, according to the Federal Reserve Bank’s July survey of senior loan officer’s opinion on their lending practices.

But for small firms, terms tightened even more. Lending standards to small firms were raised on C&I loans at 65 percent of banks, up from 50 percent in April.

Some 32 percent of small business survey by the NSBA said they were experiencing worsening bank terms, forcing many to use credit cards more.

That’s more convenient for banks—which can shift debt off their books to a handful of credit companies – but it subjects borrowers to higher rates and terms that can be changed at will.

In an August survey, 67 percent of small business owners reported worsening credit card terms—up from 57 percent in February.

From CNBC:

As the government bailout plan for the nation’s banking system nears approval, credit markets seized up as banks virtually stopped lending to each other.

Key measures of dollar funding strains hitting record levels as nervous market participants awaited developments from Washington on the $700 billion financial bailout plan.

Also, the U.S. commercial paper market contracted dramatically for a second straight week, Federal Reserve data showed, as the rapidly worsening global credit crisis eroded investors’ confidence in all but the safest instruments issued by the U.S. government.

[….]

Analysts agree that the commercial paper market, along with most other conduits of short-term borrowing for banks and companies, has become effectively paralyzed over the past week.

From CNBC:

Orders for costly U.S. manufactured goods plunged in August and the number of workers filing new claims for jobless benefits shot up, according to government reports Thursday that showed the economy rapidly weakening.

The Commerce Department said new orders for durable goods like new cars and refrigerators slumped by a sharper-than-expected 4.5 percent as demand for nearly every major category of manufactured item weakened from July.

[….]

Analysts said the data only reinforced a widespread impression that economic activity is fading in the second half of the year, perhaps more severely than anticipated.

“The durable goods and jobless claims data that just came out this morning are certainly on the weak side, which is not totally unexpected given the fact the economy is likely to weaken somewhat during the second half,” said Michael Sheldon, chief market strategist for RDM Financial in Westport, Conn.

Excluding transportation, August durables orders were down 3 percent after edging up 0.1 percent in July. The fall in orders excluding transportation was the steepest since the beginning of 2007.

Last week’s jobless claims total was the highest since Sept. 29, 2001, in the aftermath of terror attacks on New York and Washington.

[…]

Transportation orders tumbled 8.9 percent in August after rising 2.8 percent in July. Non-defense capital goods excluding aircraft, seen as a barometer of business spending plans, were down 2 percent after increasing by 0.4 percent in July.

By Bob Willis and Timothy R. Homan of Bloomberg News

Sales of new homes in the U.S. fell in August to a 17-year low and orders for durable goods dropped more than forecast, evidence of the mounting risks to the economy that Federal Reserve Chairman Ben S. Bernanke warned of yesterday.
Home sales decreased 11.5 percent, more than forecast, to the lowest annual rate since the 1991 recession and the median price sank to a four-year low, figures from the Commerce Department showed today in Washington. Bookings for goods meant to last several years declined 4.5 percent and orders excluding transportation equipment were down 3 percent.

The credit crisis that brought down Lehman Brothers Holdings Inc. and American International Group Inc. this month is making it harder for companies to invest in new equipment and for home buyers to get financing. Bernanke yesterday told Congress the economy has “decelerated broadly,” feeding speculation that the Fed will lower interest rates by year-end.

Today’s reports are “a recipe for recession,” said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. “The housing market is weak, consumer spending is weak, and we’re facing weaker corporate spending.”

Following the report on durable goods orders, economists at Morgan Stanley in New York cut their forecast for third-quarter economic growth in half, to a 0.5 percent annual pace, on expectations that business investment would drop more than previously estimated.

[….]

The financial meltdown and the broader economic slowdown prompted General Electric Co., whose businesses reflect a swath of the economy from jet engines to financial services, to lower its profit forecast for the second time this year and suspend its stock buyback.

[…]

Lennar Corp., the second-largest U.S. homebuilder, this week reported its sixth straight quarterly loss and said the government must take measures to boost home prices that are down by nearly a fifth from their 2006 peaks.

“Consensus is building that falling home prices are not only detrimental to the economy at large, but in order to repair our failing financial system we will have to stop the decline,” Chief Executive Officer Stuart Miller said.

The durable-goods orders report showed bookings for non- defense capital goods excluding aircraft, a measure of future business investment, dropped 2 percent after a 0.4 percent increase in July that was smaller than previously estimated. The decline last month was the biggest since January 2007. Shipments of those items, used in calculating gross domestic product, fell 1.7 percent.

Bookings for transportation equipment dropped 8.9 percent, today’s report showed. Orders for commercial aircraft decreased 38 percent and those for automobiles fell 8.1 percent, the most since January 2007.

Boeing Co., the world’s second-largest commercial planemaker, may have to provide more financing for its customers and may see more cancellations because of the spreading financial turmoil, Chief Executive Officer Jim McNerney said yesterday.

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Written by Valerie Curl

September 26, 2008 at 2:50 AM

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