At 03:07 AM 09/11/2001 -0400, you wrote:
>Jim notes:
>>there's a lot of finance going on via corporate bond markets, not via banks.
>
> While the largest and most "credit-worthy" corporations have gone
> directly to Wall Street via bond sales for cheaper capital following the
> deregulation of financial services in the early 1980s, it is important to
> note that net job creation in the U.S. is attributed to relatively small
> businesses--fewer than 100 employees and especially under 30--who are the
> least able to go directly to Wall Street underwriters. Instead, they are
> more likely to have to resort to the strategic management of home equity
> loans and credit cards. Indeed, for loans over $100,000 most small
> businesses (esp without sufficient collateral) are increasingly being
> rejected for traditional small business loans as local community and
> regional banks are taken-over by industry behemoths.
In his LEAN & MEAN, the late Bennett Harrison presented a critique of the
"small businesses create most of the jobs" thesis.
> For small and medium sized companies, the lack of access to credit
> will be devastating during the recession as it is more profitable for
> money center banks to syndicate unsecured loans (via expansion of
> securitized credit card debt)than lend in the form of lower interest,
> installment loans. With a new bankruptcy bill in conference committee
> that will force small companies to liquidate after 179 days of
> "reorganization," this draconian legislation could exacerbate banks'
> concerns over lending new money to companies that may be forced into
> liquation anyway. Ultimately, the Fed's impending reduction of the
> discount rate another .50 basis points is meaningless to businesses and
> consumers who are finding that banks are reluctant to offer new loans at
> anything less than "junk bond" rates.
the new bankruptcy law hasn't passed yet, but I agree with you that credit
rationing hits small businesses and consumers hardest.
> Without clearly understanding the emerging dynamics of the lending
> markets as well as the source of near future job loss/corporate
> bankrutpcies, the Fed managers will soon find out that their magic wand
> of interest rate regulation will be irrelevant to the realities of the
> "new" economy.
to my mind, the major barriers to the policy working are (1) bank credit
rationing and (2) the unwillingness of businesses (big & small) and --
increasingly -- consumer to borrow.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~JDevine
