All very well and good, except that it doesn't address the cause of the credit crunch. The banks won't lend to each other because they don't have enough cash to cover the bad debts they are holding on their own books. Wachovia for example assets were just over half of it outstanding loans. They are also frightened to lend money to each other as no-one knows the exent of which other organizations are exposed to sub-prime loans.
Mr. Reinach is a financial jackass who has no experience in running a multinational corporations. Cash-Starved Companies Scrap Dividends, Tap Credit (Update2) By Kelly Riddell Oct. 1 (Bloomberg) -- Carmike Cinemas Inc., the third- largest U.S. theater chain by screens, suspended its dividend, while Duke Energy Corp., owner of utilities in five U.S. states, tapped $1 billion from a credit agreement and RC2 Corp., the maker of infant and preschool products, canceled an acquisition. The paralysis in credit markets is changing how U.S. companies do business as banks pull back on loans or make them prohibitively expensive. Some companies are closing plants and stores, postponing takeovers and grabbing any available credit in a fight for survival. ``If businesses don't have access to capital, smaller companies in particular, they might get wiped out,'' said Alec Young, a New York- based equity strategist at Standard & Poor's. ``It's impossible to quantify how expensive this crisis is going to be for Corporate America; there's unlimited downside.'' Ford Motor Co., the second-largest U.S. automaker, said it repaid $1.5 billion in debt that was due today, without giving details. Analysts said yesterday they expected Ford to make the payment in cash and not tap an $11.5 billion revolving credit line. Slumping auto sales and surging borrowing costs may boost U.S. new-vehicle dealership closures as much as 40 percent this year, the National Automobile Dealers Association said yesterday. Deal Scrapped Circuit City Stores Inc. and memory-chipmaker Spansion Inc. face higher interest expenses and slowing sales, analysts said. In the last week, Angiotech Pharmaceuticals Inc. scrapped a financing deal and newspaper publisher McClatchy Co. said it renegotiated credit lines. Banks more than doubled the interest rate they charge each other for borrowing dollars overnight, known as the London interbank offered rate, to a record 6.88 percent yesterday, the British Bankers' Association said. Adding to the financial stress was the U.S. House of Representatives' rejection of a $700 billion bank-rescue plan Sept. 29 and the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15. ``It's almost inconceivable that there won't be an enormous slowdown in the U.S. markets and with that, increased joblessness, lower employment and higher bankruptcy rates, both personal and corporate,'' Michael Vogelzang, who oversees $2 billion as chief investment officer at Boston Advisors LLC, said in an interview yesterday. ``Businesses are going to have to adapt.'' GE, Buffett Early today, General Electric Co., the second-largest U.S. company, said it's been able to sell corporate paper and fund operations without tapping bank lines. After the stock fell as much as 9.8 percent, GE announced plans to sell $12 billion in common shares and said billionaire investor Warren Buffett's Berkshire Hathaway Inc. will buy $3 billion in preferred shares. ``It enhances our flexibility and allows us to execute on our liquidity plan,'' CEO Jeff Immelt said in a statement. ``In addition, we remain committed to the Triple A rating and in the recent market volatility, we continue to successfully meet our commercial paper needs.'' Carmike Cinemas halted its dividend payment and spent $10 million to pay bank debt, the Columbus, Georgia-based company said in a statement yesterday. Over the past four quarters, Carmike said it made $9 million in dividend payments. It has $285 million in bank debt, down from $302 million on Dec. 31. Credit Agreement Duke has $650 million in bonds coming due this year, $442 million scheduled to mature next year and $500 million in 2010, according to data compiled by Bloomberg. Chief Financial Officer David Hauser said Duke is drawing from its credit agreement because it wasn't clear whether it would be able to secure more than $1 billion in new financing this year as planned. RC2, the maker of Learning Curve products, sank the most in more than a year in Nasdaq trading yesterday after canceling its acquisition of Publications International Ltd.'s children's publishing unit, citing difficulty obtaining financing. Citation Corp., a closely held auto- parts maker, said it postponed an acquisition planned for earlier this year due to the tightening credit markets. ``People are concerned with pending acquisitions especially if they are going to be financed via the debt markets or via bank-syndicated credit lines,'' Timothy Conder, a St. Louis- based analyst with Wachovia Securities Inc., said in an interview yesterday. `Unraveled a Week Later' ``Things you thought you had done last week get unraveled a week later,'' Citation Chief Executive Officer Douglas Grimm said in a telephone interview yesterday. ``The difficulty in the credit markets and your ability to negotiate with the banks is affecting everyone.'' Vancouver-based Angiotech said last week that it wouldn't be able to meet the terms of a financing deal with Ares Management LLC of Los Angeles and New York-based venture capital firm Leaf Venture Partners, citing lowered revenue expectations and cash shortages. The developer of drug-coated medical devices said it plans to cut jobs, close a U.S. plant and delay a new product. Sacramento, California-based McClatchy, the publisher of the Miami Herald, announced Sept. 26 it negotiated an amendment with banks on its $1.18 billion credit line, agreeing to higher interest rates and borrowing limits in exchange for more lenient terms on cash flow. Today, Gannett Co., the largest U.S. newspaper publisher, accessed a revolving credit line to ensure it has funds to repay commercial paper in response to credit- market disruption. Circuit City Circuit City, the second-largest U.S. consumer-electronics company, hired turnaround firm FTI Consulting Inc. as an adviser, according to two people familiar with the appointment. The interest rate on Circuit City's long-term debt is tied to Libor, which may increase the company's quarterly interest payment by at least $2 million, according to Bloomberg data. Circuit City said in a statement Sept. 29 that it had suspended plans for store openings for fiscal 2010, beyond commitments already made, and may close unprofitable locations. The chain has more than 1,480 stores. ``The risks of bankruptcy are very real,'' for Circuit City, David Schick, a Baltimore-based analyst with Stifel Nicolaus & Co., wrote in a Sept. 29 research note. ``Vendors will have to decide how they plan to do business at Circuit City.'' He recommends investors hold the shares. Circuit City has a secure line of credit through Bank of America Corp. that is backed by assets including inventory, spokesman Bill Cimino said in an interview yesterday. Suppliers `Sticking With Us' ``We feel we have adequate liquidity to fuel our turnaround, providing our vendors can support us,'' Cimino said. ``Even though the capital markets are making things more difficult for them, our vendors are sticking with us.'' Spansion, the memory-chipmaker that hasn't reported a profit since it was spun off from Advanced Micro Devices Inc. in 2005, may need to raise capital to stay in business, according to Cowen & Co. LLC analyst Daniel Berenbaum. Spansion's interest-coverage ratio, or earnings divided by interest expense, was negative 2.44 at the end of the second quarter. The lower the ratio, the less the company may have available to make interest payments. Spansion had $240 million cash at the end of the second quarter, down 28 percent from three months earlier. It has $2.4 billion in liabilities, according to Bloomberg data. Spokeswoman Holly Burkhart declined to comment. To contact the reporter on this story: Kelly Riddell in Washington at [EMAIL PROTECTED] Last Updated: October 1, 2008 15:57 EDT Microsoft, Schering-Plough See `Entire Economy' in Jeopardy By Dina Bass and Shannon Pettypiece Sept. 30 (Bloomberg) -- Officials from Microsoft Corp. to Office Depot Inc. and Schering-Plough Corp. said the government's failure to bail out the U.S. banking industry put the ``entire economy'' at risk unless a deal comes soon. ``The various sectors of the economy are so intricately linked, we need to recognize that the entire economy turns on what happens here,'' Microsoft General Counsel Brad Smith said in an interview after the House of Representatives voted 228 to 205 yesterday against giving Treasury Secretary Henry Paulson the authority to buy troubled assets from financial companies. Executives from across corporate America echoed the remarks, the first time Microsoft says it has weighed in on financial legislation. They called on lawmakers to put aside partisan differences and work to restore credit supplies and confidence to the financial markets. The Standard & Poor's 500 Index tumbled the most since 1987 yesterday and the Dow Jones Industrial Average slid 778 points, the most points ever. The liquidity crisis has spread beyond Wall Street, threatening earnings at businesses from retailers to technology companies. The Treasury's toolkit to protect the financial system is ``substantial but insufficient'' after the $700 billion bailout failed to pass, Paulson said yesterday. ``It is a pity that this has developed into such a mess,'' said Fred Hassan, chief executive officer of drugmaker Schering- Plough in Kenilworth, New Jersey. ``The probability of recession has gone up.'' Disbelief General Electric Co., with businesses that span real estate, consumer finance, aerospace, energy equipment, media and health care, has talked with leaders in the House to express support for the bill, a person familiar with GE's efforts said. The Fairfield, Connecticut-based company, which last week reduced its 2008 profit forecast for the second time this year, believes relief needs to be injected into the system even though it doesn't view the bill itself as perfect, the person said. Business officials expected the bill to pass, even with government leaders predicting a tight vote. That's why companies didn't speak up sooner about how important the legislation was, Microsoft's Smith said. ``I absolutely cannot believe it,'' said David Cosper, chief financial officer of Sonic Automotive Inc., the third- largest U.S. publicly traded auto retailer. ``I don't think the House knows what they're doing. We need this, the markets are frozen, banks are being taken over -- it's a crisis. I think they're leaving it in the lurch and going on a break.'' While the Charlotte, North Carolina-based company doesn't have any immediate liquidity challenges, Cosper said companies with debt coming due are facing major liquidity problems. `No Credit' ``There's no credit for businesses to work,'' Cosper said. ``I'm very frustrated by it, our whole team is.'' Computer-related stocks were among the hardest hit, with the Nasdaq Composite Index sinking 9.1 percent to 1,983.73 yesterday, the most since the technology bubble burst in 2000. Redmond, Washington-based Microsoft fell 8.7 percent and Apple Inc., the Cupertino, California- based maker of the Macintosh computer, dropped 18 percent, the most in eight years. ``It's a flight out of riskier assets into more safe-haven types of investments,'' such as consumer goods, tobacco and basic materials, said Ross Sandler, an analyst at RBC Capital Markets in New York. Google Inc., owner of the most-popular Internet search engine, dropped below $400 for the first time in more than two years. ``The dramatic volatility we're seeing in the financial markets is clearly creating uncertainty for both marketers and consumers,'' said Michael Roth, CEO of advertising firm Interpublic Group of Cos. The New York-based company is on track to meet its financial goals for 2008, he said. Assigning Blame Republicans and Democrats sparred yesterday over who was to blame for the measure's failure. Democrats voted for it 140 to 95, while 65 Republicans backed the bill and 133 opposed it. Lawmakers need to stop pointing fingers and assigning blame, said Robert S. Miller, chairman of Delphi Corp., the bankrupt auto-parts maker in Troy, Michigan. ``We are witnessing a most unfortunate and untimely collision of politics and economics,'' Miller said. ``This is not just about Wall Street. It is affecting Main Street. Bold action is required before there is further erosion of confidence.'' The Senate may take up the measure this week, and possibly send it back to the House, House Majority Leader Steny Hoyer said yesterday. Ripple Effect A resolution to the crisis needs to make it easier for businesses to get access to capital, said Steve Odland, CEO of Delray Beach, Florida- based office-supplies seller Office Depot. ``Our sales have been impacted as our customers have been hurting for liquidity,'' Odland said in an interview. ``The global economy is at stake here. The ripple effect has been far and wide and action needs to be taken.'' For other companies, the squeeze hurt their ability to raise debt. Akzo Nobel NV, the largest maker of paints, postponed a 1.6 billion- euro ($2.3 billion) stock buyback yesterday, sending the shares down the most in 19 years. The credit market seizure is hampering its ability to refinance loans. ``There's no liquidity,'' CFO Keith Nichols said in an interview. The Amsterdam-based company has 800 million euros of bonds due by the end of this year and another 1 billion euros in early May. Don't Panic Microsoft will reach out to other companies to step up pressure on lawmakers, Smith said. ``We're hoping it will get turned around. It needs to get turned around,'' he said. Other officials also expressed optimism that the government may ultimately pass a bill. ``It's still very early for anyone to express an opinion,'' real estate billionaire Sam Zell said in an interview. ``I'm not sure it's over, in terms of what Congress did.'' Zell said it's important not to rush to make decisions, a sentiment echoed by Michael Burns, vice chairman of film maker Lions Gate Entertainment Corp. ``I'll tell you one thing we're not going to do, we're not going to panic,'' said Burns, whose firm is based in Vancouver and run from Santa Monica, California. ``We're going to wake up tomorrow and people will still go to the movies and watch `Mad Men' and buy DVDs of `Weeds.' None of that will change.'' To contact the reporters on this story: Dina Bass in Seattle at [EMAIL PROTECTED]; Shannon Pettypiece in New York at [EMAIL PROTECTED] Last Updated: September 30, 2008 00:01 EDT Advertisement: Do stocks outperform bonds? Learn about the power of an all-bond portfolio. On Oct 2, 3:34 pm, "M.A. Johnson" <[EMAIL PROTECTED]> wrote: > Senate Votes Tonight on Bailout10/1/2008"The Senate plans to vote on the $700 > billion bank rescue plan Wednesday evening -- two days after the House failed > to pass it. The bill adds new provisions -- including raising the FDIC > insurance cap to $250,000 from $100,000 -- and will be attached to an > existing revenue bill that the House also rejected Monday, according to > several Democratic leadership aides. The vote is scheduled for after sundown, > in observance of Rosh Hashanah." (CNN, Wednesday) > Short-lived victory?The Freeman: Ideas on Liberty - December 1956 > Vol. 6 No. 12The Tight Money DelusionBy Anthony M. ReinachThe subway > economists are currently full of conversation about tight money. We are being > told that tight money is hurting the building business, hurting the stock > market, hurting business in general, and that tight money is the offspring of > government policy. Let’s see what this thing called “tight money” really is. > Ninety per cent of the monetary supply in the United States is comprised of > credit. Cash is mostly around for convenience. Credit, then, is the important > component of money. So, what is credit? > The principal things that a man can do with the product of his labor are: (1) > he can consume it, (2) he can give it away, (3) he can save it, (4) he can > lend it. Should he choose to lend a portion of the product of his labor, he > may do so to another individual, to a corporation or municipality by buying > their bonds, or to a savings and loan association or bank simply by making a > deposit. Real credit (as distinguished from artificial credit created by the > banking system or the government) is, therefore, simply a portion of the > product of a man’s labor that he is willing to lend to his fellow man at > prevailing prices (interest rates). > In a sense, credit can be considered a commodity. When it is scarce and the > demand for it is high, interest rates would be expected to rise. Conversely, > if there is a lot of credit looking for borrowers, interest rates would be > expected to fall. Conditions of tightness and ease thus disappear quickly, if > private transactions of borrowers and lenders are allowed to influence > interest rates and keep economic balance between the supply of and demand for > credit. > Why is it that conditions of easy bank credit persist for such a long time? > The answer is that the banks -the largest merchants of credit-are not allowed > to operate under completely free market conditions. Over long stretches of > time, interest rates are kept artificially low so that the biggest borrower > of all, the government, can finance its deficits at low cost. With interest > rates at artificially low prices, marginal producers are encouraged to > borrow, and the country is threatened with a runaway business boom. When this > leads to fear of a bust and its political consequences, interest rates are > allowed to seek their own level, which they are now doing. Then bank credit > is said to be “tight.” > Actually, bank credit would be considered “tight” by two types of potential > users. First, there are those who could borrow at free market interest rates, > but whose collateral or credit rating is not sufficient to acquire credit at > artificially low interest rates. So, in this sense, there is really no such > thing as”tight money”-only “tight money” at artificially low interest rates. > Secondly, there are those who feel they cannot afford to borrow at current > interest rates, but who would be willing borrowers if interest rates were > lower. They might speak of money as being tight. But those of us who don’t > own yachts would be equally justified in talking about a “tight yacht > market,” simply because yachts are priced beyond our means. > As we have seen, “tightness” is suffered either by those who can’t afford > credit at current interest rates, or by those who are willing to borrow at > free market interest rates but are eliminated as marginal risks at > artificially low interest rates. The only cure for unreasonable tightness, > then, is a permanently free market for all credit. This would encourage more > people to lend their savings to others, thus alleviating the artificial > scarcity of funds to be loaned.Mr. Reinach is a financial > consultant.http://www.fee.org/Publications/the-Freeman/article.asp?aid=324 --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
