What people seem to fail to realize is that MOST businesses rely on credit. They do not have a pile of cash sitting around doing nothing. They have ASSETS to borrow against. If something — a Moody’s or S&P rating or something systemic — causes those ASSETS to be viewed with skepticism, then that business can be bankrupted in short order.
The current situation is that mortgage ASSETS that have real value — with real land and real buildings mortgaged — are being valued at ZERO by a market that is nonfunctional. This sort of systemic problem has already ruined Bear Stearns, Fannie and Freddie and AIG — as well as wiping out half the value of Bank America, Wells Fargo, Citigroup, etc. If left alone, it will ruin the rest of the financial industry and then it will ruin manufacturing, transportation, healthcare, etc. as nobody will be available (and willing) to lend the money needed to do capital improvement and even short-term operating expenses. Home Depot doesn’t pay its suppliers cash on the barrelhead — it expects the supplier to extend it credit and pay its bill 30 - 60 days later. We are on the brink of those suppliers refusing to do that because they can’t get the short term lending to produce the products it is supplying. When Paulsen says it will “cost more if we don’t do this”, that is what he’s talking about.
“What people seem to fail to realize is that MOST businesses rely on credit.”
I do understand that, and agree that something close to this plan is probably needed. But in this thread, stating that McCain’s action today is not really helping matters is an entirely different line of discussion.
And, I think I’ll be pleased to have been one of the few who considered this showboating. It’s not looking so much like some brilliant move on McCain’s part.