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Who the financial crisis is really about.

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Re: Who the financial crisis is really about.

Unread postby joeltrout » Wed 01 Oct 2008, 11:16:57

$this->bbcode_second_pass_quote('Concerned', '
')Well then just be silent and don't answer with banalities


Haha :P

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Re: Who the financial crisis is really about.

Unread postby joeltrout » Wed 01 Oct 2008, 11:27:17

$this->bbcode_second_pass_quote('AlexdeLarge', 'S')ome of the talking heads were talking last night about how the frozen credit markets are impacting retailers. Now is the time they start preparing for Christmas Sales. They need short term credit to stock the shelves.

Of course this year, it may be a blessing in disguise. Christmas sales are going to be dismal. The only thing worse than not having the goods to sale, is being stuck with them when nobody buys.

This may be a year without Santa! :(


Were you watching CNBC this morning??? They were talking about this exact scenario happening. Many toy companies (Big and Small) are unable to buy inventory because they cannot get access to credit or at least access to cheap credit. The credit they can access is extremely expensive.

Therefore less toys are going to be in store inventories and will be sold out quicker which causes shopping frenzies for parents trying to get that perfect toy for their little one. If people thought the fights after Thanksgiving were bad in the past...wait till this year.

This is one small example of how tight credit will affect you as a consumer.

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Re: Who the financial crisis is really about.

Unread postby Buggy » Wed 01 Oct 2008, 12:20:05

$this->bbcode_second_pass_quote('joeltrout', '')$this->bbcode_second_pass_quote('AlexdeLarge', 'S')ome of the talking heads were talking last night about how the frozen credit markets are impacting retailers. Now is the time they start preparing for Christmas Sales. They need short term credit to stock the shelves.

Of course this year, it may be a blessing in disguise. Christmas sales are going to be dismal. The only thing worse than not having the goods to sale, is being stuck with them when nobody buys.

This may be a year without Santa! :(


Were you watching CNBC this morning??? They were talking about this exact scenario happening. Many toy companies (Big and Small) are unable to buy inventory because they cannot get access to credit or at least access to cheap credit. The credit they can access is extremely expensive.

Therefore less toys are going to be in store inventories and will be sold out quicker which causes shopping frenzies for parents trying to get that perfect toy for their little one. If people thought the fights after Thanksgiving were bad in the past...wait till this year.

This is one small example of how tight credit will affect you as a consumer.

joeltrout


Are there businesses out there who operate out of their own savings instead of credit to provide for their goods for consumer consumption?
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Re: Who the financial crisis is really about.

Unread postby Specop_007 » Wed 01 Oct 2008, 12:47:34

$this->bbcode_second_pass_quote('Buggy', '
')
Are there businesses out there who operate out of their own savings instead of credit to provide for their goods for consumer consumption?


Yep.
My wifes business does not use debt to operate.

Thats probably a poor example though. :oops:
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Re: Who the financial crisis is really about.

Unread postby joeltrout » Wed 01 Oct 2008, 12:51:40

$this->bbcode_second_pass_quote('Buggy', '
')Are there businesses out there who operate out of their own savings instead of credit to provide for their goods for consumer consumption?


The quick answer is Yes. But many more business use revolving credit for their day-to-day operations. Without that they cannot operate normally.

Here are a few articles:

Credit crunch freezes hiring, expansion

Small Businesses Feeling Squeeze

How a credit crunch could squeeze the state

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Re: Who the financial crisis is really about.

Unread postby joeltrout » Wed 01 Oct 2008, 13:07:48

$this->bbcode_second_pass_quote('joeltrout', '
')Here are a few articles:

Credit crunch freezes hiring, expansion

Small Businesses Feeling Squeeze

How a credit crunch could squeeze the state

joeltrout


Here are some highlights for those who don't like to read articles.

$this->bbcode_second_pass_quote('', '
')After 41 years in business, Hull Printing shut down its printing presses for good in March, laying off 19 workers and closing one of the oldest family-run businesses in Barre, Vt. The catalyst: Hull Printing's bank slashed its line of credit, kicking off a death spiral that led to the company's collapse.


$this->bbcode_second_pass_quote('', '
')Hull's story is a familiar one to millions of small business owners across the U.S. who rely on credit lines and loans to fund expansion or help them recover from setbacks. In a National Small Business Association (NSBA) survey released this week, 67% of business owners polled reported being affected by the credit crunch in August, up from 55% in February. Additionally, 32% reported a deterioration in the terms of available bank loans, up from 27% six months earlier.


$this->bbcode_second_pass_quote('', '
')In D'Iberville, Miss., Fayard's Grocery owner Rusty Quave is waiting to find out if he'll receive a deferral on loan payments that will mean the difference between staying in business and going under for his general store. For now, Quave has shortened the store's operating hours and temporarily stopped selling gas and diesel as he tries to cut his daily operating costs enough to stay afloat.


$this->bbcode_second_pass_quote('', '
')Sandy Baruah, acting administrator of the U.S. Small Business Administration, said his agency is responsible for giving government back loans to small business, but the numbers of loans its handed out has dropped 50 percent.

$this->bbcode_second_pass_quote('', '
')That's why Baruah is pushing the government's $700 billion bailout plan. He says the bailout plan means the government will buy the bank's bad loans and sell them on the open market in the future. But in the meantime it means banks will once again loan money to small businesses.

$this->bbcode_second_pass_quote('2007 Article', '
')Still, access to credit remains a worry in Massachusetts, which has many older companies that need to retool frequently to meet global competition, said Andre Mayer, senior vice president for research at Associated Industries of Massachusetts, a business group.

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Re: Who the financial crisis is really about.

Unread postby Buggy » Wed 01 Oct 2008, 15:25:20

joeltrout[/quote]
$this->bbcode_second_pass_quote('', 'S')till, access to credit remains a worry in Massachusetts, which has many older companies that need to retool frequently to meet global competition, said Andre Mayer, senior vice president for research at Associated Industries of Massachusetts, a business group.




Thanks Joel,

I just don't think I could ever live in rotating debt like that. As some point I would hope that I could get ahead of the ball.
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Re: Who the financial crisis is really about.

Unread postby joeltrout » Wed 01 Oct 2008, 15:33:04

$this->bbcode_second_pass_quote('Buggy', '
')I just don't think I could ever live in rotating debt like that. As some point I would hope that I could get ahead of the ball.


It is a tough spot to be in especially for small businesses.

If most small businesses have a really bad month then they struggle to just pay their employees much less make a profit.

Also few small business owners are willing to pay their employees/expenses out of their own personal savings. They will let the company go bust before they begin giving their own savings away.

Without a line of credit small businesses can easily go under when business slows down which we are seeing in a big way right now. Two bad [s]months[/s] quarters back to back is enough to cripple almost any small business.

joeltrout

Edited to say say "Two bad quarters" not months
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Re: Who the financial crisis is really about.

Unread postby nobodypanic » Wed 01 Oct 2008, 15:37:58

$this->bbcode_second_pass_quote('Buggy', '')$this->bbcode_second_pass_quote('joeltrout', '')$this->bbcode_second_pass_quote('AlexdeLarge', 'S')ome of the talking heads were talking last night about how the frozen credit markets are impacting retailers. Now is the time they start preparing for Christmas Sales. They need short term credit to stock the shelves.

Of course this year, it may be a blessing in disguise. Christmas sales are going to be dismal. The only thing worse than not having the goods to sale, is being stuck with them when nobody buys.

This may be a year without Santa! :(


Were you watching CNBC this morning??? They were talking about this exact scenario happening. Many toy companies (Big and Small) are unable to buy inventory because they cannot get access to credit or at least access to cheap credit. The credit they can access is extremely expensive.

Therefore less toys are going to be in store inventories and will be sold out quicker which causes shopping frenzies for parents trying to get that perfect toy for their little one. If people thought the fights after Thanksgiving were bad in the past...wait till this year.

This is one small example of how tight credit will affect you as a consumer.

joeltrout


Are there businesses out there who operate out of their own savings instead of credit to provide for their goods for consumer consumption?

yeah, sure, right now they probably all are! :lol:

once their cash reserves are drained, then that's it. no credit means, no ability to buy stock, no ability to meet payroll, in short, no ability to function.
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Re: Who the financial crisis is really about.

Unread postby ubercrap » Wed 01 Oct 2008, 15:53:53

$this->bbcode_second_pass_quote('Buggy', '
')
Are there businesses out there who operate out of their own savings instead of credit to provide for their goods for consumer consumption?


I recall reading something, whether correct or not, is that one reason corporations don't keep stockpiles cash around is because it makes them susceptible to "corporate raiders" who might acquire a company, hollow it out for then cash, then sell...So they deliberate operate lean, and in need of various lines of credit to operate. Or was that hogwash?
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Re: Who the financial crisis is really about.

Unread postby Buggy » Wed 01 Oct 2008, 16:08:50

$this->bbcode_second_pass_quote('ubercrap', '')$this->bbcode_second_pass_quote('Buggy', '
')
Are there businesses out there who operate out of their own savings instead of credit to provide for their goods for consumer consumption?


I recall reading something, whether correct or not, is that one reason corporations don't keep stockpiles cash around is because it makes them susceptible to "corporate raiders" who might acquire a company, hollow it out for then cash, then sell...So they deliberate operate lean, and in need of various lines of credit to operate. Or was that hogwash?


I don't know if it's hogwash, but it actually makes sense to me.
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Re: Who the financial crisis is really about.

Unread postby madpaddler » Wed 01 Oct 2008, 16:36:58

I have been on this site for some time now and have posted very little as I am one to learn before jumping in and posting things to people who know far more than I. This is a great site, and I have learned much from coming here on a daily basis..yeah maybe I have been stalking. Well that said:

I am a small business owner. Here is what happens: You secure a line of credit with a bank to cover the costs of materials, labor etc... for projects you are working on. You invoice for the finished product, wait for your payment, then pay your credit line back as you move forward doing business. You slowly build a reserve to continue the operation lowering the line of credit you owe to reduce the interest being charged, trying to balance that need with your reserve. If all goes well and the business runs at a constant rate you continue. But all business is cyclical and there are peaks and valleys that change due to outside influences (as we are seeing).

Example: I opened a 100K line of credit in December 07 to be able to purchase raw materials, and cover my employees for the first 3 months of operation 08. By April 08, I had enough reserves to get me through September, so I paid the line of credit off to save the interest on that credit line. Now, our clients are having trouble in the credit market, so projects we should be doing now are on "hold" so now I have to hit the credit line again. If I am lucky, my bank will not close the line now because of all his shite happening because they are fearing my ability to pay based on the ability of my customer to be able to pay me. My business should be flourishing and it is stuck in neutral waiting for the next wave of our mighty Congress' magic wand.

People, this is happening in every small business I know right now (I have many friends that own businesses and they are all in trouble). From businesses that cater to construction, restaurants, production of consumer products, sports related biz, printing companies etc... This week a local small business owner committed suicide at his office due to the stresses involved in what we are seeing right now. I know that happens even in the good times, but I am here to tell you, if the credit market crashes(yeah I know "if"), we are all going down. It sucks because I have been working for 15 years to get my business where I am finally making enough money to pay myself a little, and it could all end for me and my employees by the end of the year, or sooner. It is more than depressing, let me tell you.
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Re: Who the financial crisis is really about.

Unread postby Buggy » Wed 01 Oct 2008, 16:55:29

$this->bbcode_second_pass_quote('madpaddler', 'I') have been on this site for some time now and have posted very little as I am one to learn before jumping in and posting things to people who know far more than I. This is a great site, and I have learned much from coming here on a daily basis..yeah maybe I have been stalking. Well that said:

I am a small business owner. Here is what happens: You secure a line of credit with a bank to cover the costs of materials, labor etc... for projects you are working on. You invoice for the finished product, wait for your payment, then pay your credit line back as you move forward doing business. You slowly build a reserve to continue the operation lowering the line of credit you owe to reduce the interest being charged, trying to balance that need with your reserve. If all goes well and the business runs at a constant rate you continue. But all business is cyclical and there are peaks and valleys that change due to outside influences (as we are seeing).

Example: I opened a 100K line of credit in December 07 to be able to purchase raw materials, and cover my employees for the first 3 months of operation 08. By April 08, I had enough reserves to get me through September, so I paid the line of credit off to save the interest on that credit line. Now, our clients are having trouble in the credit market, so projects we should be doing now are on "hold" so now I have to hit the credit line again. If I am lucky, my bank will not close the line now because of all his shite happening because they are fearing my ability to pay based on the ability of my customer to be able to pay me. My business should be flourishing and it is stuck in neutral waiting for the next wave of our mighty Congress' magic wand.

People, this is happening in every small business I know right now (I have many friends that own businesses and they are all in trouble). From businesses that cater to construction, restaurants, production of consumer products, sports related biz, printing companies etc... This week a local small business owner committed suicide at his office due to the stresses involved in what we are seeing right now. I know that happens even in the good times, but I am here to tell you, if the credit market crashes(yeah I know "if"), we are all going down. It sucks because I have been working for 15 years to get my business where I am finally making enough money to pay myself a little, and it could all end for me and my employees by the end of the year, or sooner. It is more than depressing, let me tell you.


Madpaddler,

Thank you. Great post. I sincerely hope that congress does what is best for folks like you. My prayers are with you and your friends.
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Re: Who the financial crisis is really about.

Unread postby madpaddler » Wed 01 Oct 2008, 17:13:53

Thanks Buggy for the kind words... I am not saying Congress should sign the deal either, I am against it. It will do more harm in the long run by adding to inflation and the devaluation of the dollar and on and on. It is like 700 Billion Dutch boys all with their fingers in the dike, not realizing there is a 300 foot wave coming over the top.
I really believe no one knows what to do, and they are truly struggling to find a solution... there may just be none.
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Re: Who the financial crisis is really about.

Unread postby Buggy » Wed 01 Oct 2008, 17:21:33

$this->bbcode_second_pass_quote('madpaddler', 'T')hanks Buggy for the kind words... I am not saying Congress should sign the deal either, I am against it. It will do more harm in the long run by adding to inflation and the devaluation of the dollar and on and on. It is like 700 Billion Dutch boys all with their fingers in the dike, not realizing there is a 300 foot wave coming over the top.I really believe no one knows what to do, and they are truly struggling to find a solution... there may just be none.


I have run out of fingers and I really need to go to the bathroom! And I'm not even dutch.
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Re: Who the financial crisis is really about.

Unread postby madpaddler » Wed 01 Oct 2008, 17:24:21

I have run out of fingers and I really need to go to the bathroom! And I'm not even dutch.[/quote]

HAAAAAA! That one made my day!
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Re: Who the financial crisis is really about.

Unread postby Madpaddy » Wed 01 Oct 2008, 17:28:24

Wouldn't a dike prefer to have Dutch girls fingers stuck in.
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Re: Who the financial crisis is really about.

Unread postby phaster » Thu 02 Oct 2008, 00:16:14

$this->bbcode_second_pass_quote('mefistofeles', '')$this->bbcode_second_pass_quote('', 'S')o why all this fuss and worry about the economy?


I'll answer your question with a two expressions:

First from the matrix:
"There is no spoon."
There is a virtual economy that coexists with the "real" economy where goods are produced its called financial economy. The activities of this financial economy affect the "real economy" by creating credit that can be used to purchase goods and services in the "real world".

Now when this financial economy goes bust the ability of the real economy to operate is hampered.

When most firms deal with others firm they don't bill immediately they have what are called terms that determine when their suppliers are paid. This is especially true for retail when a supplier will ship goods to customer before he is paid. Usually its 30-60 days for most large companies. Companies can do this because the can arrange for lines of credit from a bank that can cover their outlay. However if the credit system collapses and you have no faith in getting paid what happens to economic activity? It slows down because as a supplier you want to be paid upon delivery or even in advance, because your not sure if the company delays paying you later that you will be paid.

Even if you have good customers if you can't wait until the end of the month to pay them you may have a mismatch between when you get paid and when you pay suppliers. This in and of itself could be a big problem.

Now imagine that you want to expand. It takes time to build new factories or expand an existing facility but you need the money immediately. If banks can't advance you this money its hard to expand your business.

In addition alot of companies finance their customers by issuing credit cards for their particular store.

Consumers can't buy homes or cars because there is no credit. Students are unable to obtain financial aid.

Yes people can get along but their access to credit is greatly impaired, or if they do have access to credit interest rates are much higher.

Now sure maybe you can live on a cash basis, but what about your employer? What about the supermarket that you shop at? Or better yet what about your employers customers can they live if they can't obtain credit or financing?

Now of course if there is a credit collapse even if you had extra money would you want to put it into your mutual fund or bank? Banks are important because they lend money and inject money into the system. Although to a large degree they have been displaced by the investment banks.

So therefore there could be no capital formation(if people stopped depositing their savings) and banks may not be able to lend.

Believe it or not that's not really the worst part of this crisis. That's just the begining the worst part is that the dollar could collapse. To use another expression:

"From the one come all things and from all things come the one.":

Most of the world's key economies are tied into the US. More importantly the US dollar is the world's reserve currency. In other words the dollar is the closest thing the world has to a global currency. You can go many countries and get price quotes in dollars.

As a result of the dollar being the world's premier currency 2/3's of the world's commodities (most notably oil) are priced in dollars. What that means is that if you want to buy an oil futures contract its done in dollars. Therefore you need dollars.

Yes you can have a contract that is denominated in other currencies but when you engage in price discovery to figure out how much you going to pay for that contract, its done through dollars. Even if both buyers want to use another currency.

This is important because the US imports 2/3's of its energy. It doesn't need any other currency except its own to buy all the oil it needs.

Now if this financial crisis causes dollar denominated assets,i.e. mortgage bonds, to collapse in value the US government will have to sell even more Bonds. At some point there is a limit to how many US bonds the foreign markets can absorb. Too many foreign bond sales and their is less demand for treasuries. Pushing down the dollar.

If this happens there could be a "run on the bank" for the dollar, i.e. no more cheap imported. No more shoes from China. As you can see this could lead to rapid collapse of the US.

Think about like this, we still haven't recovered from Ike. Now imagine if someone pulled twice as much oil the US would have serious problems.

For various reasons I think the bailout is a bad idea. However I can see why people would want to keep the credit system and therefore the dollar itself going.





Loved that movie the matrix (but they should have stopped with the 2nd and 3rd movies cause IMHO they sucked, kinda like the economy is doing now to credit).

IMHO in some ways, we are living in the matrix like world when the fractional-reserve system creates "credit" money.

http://www.youtube.com/watch?v=28kOO6qDk7s

BTW there is another quote that kinda explains what's going on "A deja vu is usually a glitch in the Matrix." We know the virtual economy coexists with the "real" economy when we use mortgages or even credit cards to to purchase goods and services in the "real world." The "glitch" is decline in prices in the real world are having devastating effects in the virtual "credit" economy, which affects the "real world" and so on till the blue screen of death

http://en.wikipedia.org/wiki/Blue_Screen_of_Death

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Re: Who the financial crisis is really about.

Unread postby hironegro » Thu 02 Oct 2008, 00:49:34

$this->bbcode_second_pass_quote('joeltrout', '')$this->bbcode_second_pass_quote('Buggy', 'I')'m your average middle classer. I pay cash and save for what I want. I squeak by. I always will. So why all this fuss and worry about the economy? This is about the rich no longer getting richer, isn't it? It's about the cry babies who are living beyond their means no longer being able to get loans. It's about people who have no business being in business not being able to charge for next months goods. And who will ultimately pay to keep the rich rich, the meaningless living beyond their means and keep the unworthy business owner in business???? Yup, that's right, me. Your average middle classer.


I am really sorry you don't understand how this actually affects you and our economy.

joeltrout


Why don't you explain it to him ass-hole.
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