Posted on 09/29/2008 9:42:02 PM PDT by goldstategop
I’ve seen and heard the anecdotes about McDonald’s franchises getting denied credit spread everywhere over the past week.
Stop pounding the panic button. Don’t blame the bailout flame-out. Memo to the McChicken Littles: The sky is not falling because we refused to fork over $700 billion to failing banks.
The inconvenient truth:
Bank of America said it is not freezing any current or new lines of credit to McDonald’s Corp. franchise owners, despite reports citing an internal memo from the fast-food giant advising franchisees of the contrary.
Bank spokesman Larry DiRita said the Charlotte-based bank will continue to honor its obligations to the company’s franchise owners, who are spending up to $100,000 to remodel and update each restaurant to accommodate the restaurant chain’s plans to overhaul its drink options.
“There are no credit issues at McDonald’s,” said Walt Riker, a spokesman for the Oak Brook-based fast-food giant, who added that franchisees have more than 50 other lenders from which they can receive financing. “There continues to be more than sufficient liquidity available to our franchisees to fund capital improvements in their restaurants.”
The Mother of All Bailouts fails. Life goes on.
Yes, Asian markets are down this morning.
No, you shouldn’t jump off a cliff.
More wisdom and perspective from Terence Corcoran at the Financial Post:
…it would be unwise to read too much into the Dow plunge, or to link it exclusively to the political circus in Washington. Stocks appeared to be heading lower no matter how Congress voted. Indeed, from the moment congressional leaders announced Sunday they had a deal, filled with anti-market schemes and regulation, stock prices began falling in Asia and Europe. Early yesterday, when it was expected the bailout would be approved, the Dow was down 500 points.
Bailout or no bailout, the stock markets were heading lower as financial markets continue to undergo massive asset revaluations. No matter what elaborate new rescue packages Congress, the Bush administration and the U.S. Federal Reserve bring to the party, the market is going to continue marking stock prices and other assets down until values reach realistic levels.
This is not, nor can it be, the beginning of the end of the U.S. or world financial system. It’s simply how the financial market works, how it should work. And it is working, whatever the games being played out in Washington and whatever their belief that governments can resolve the crisis.
Banks all over the world are being knocked down, their stock prices falling and their balance sheets under revision. Troubled institutions are being taken over - Citigroup is taking over Wachovia, AIG is being sold in parcels to groups all over the world, Bank of America bought Merrill Lynch, Lehman is in bankruptcy, Washington Mutual is being taken over by the namesake of the man who held capitalism on his shoulders back in 1907 - JP Morgan Chase. The Japanese banking giant, Mitsubishi, yesterday bought 20% of Morgan Stanley.
None of these deals or markdowns could, would or should have been avoided under Washington’s so-called bailout law. By the time any new version of the law is passed in the days or weeks ahead, more such transactions and takeovers will have taken place.
Doomish comments typically follow such deals. “It just seems that there are only going to be two types of banks in existence now,” said one portfolio manager, “the ones that survive and get market share, or the ones that get gobbled up and have to be euthanized.” That’s true enough, but not much help.
Allowed to run their course over time, these market workouts would eventually render the bailout package redundant. As George Bush said of the congressional legislative process, watching markets revalue assets “isn’t pretty.” Markets, over time, will do a much better job of reaching sustainable and realistic values more quickly than any giant state-run rescue effort backed by however many trillions of taxpayers dollars…
…Now wonder investors were bailing out on the bailout. They had better things to do, such as trying to figure out what the world’s banks and financial institutions are really worth - without getting any help from government.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
I wonder why such large companies NEED credit to operate. Don’t they have enough cash on hand to simply buy what they need?
Is it just me or do I hear the sound of many happy moos?
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
I agree. The financially sound companies will still be able to get credit. Others not so financially sound may still be able to credit, but maybe less of a credit line than they want, and also at a higher interest rate, which, because of their risk is the way it should be.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
“Bailout or no bailout, the stock markets were heading lower as financial markets continue to undergo massive asset revaluations. No matter what elaborate new rescue packages Congress, the Bush administration and the U.S. Federal Reserve bring to the party, the market is going to continue marking stock prices and other assets down until values reach realistic levels.”
I CALL BS ON THIS.
Markets respond to the realities of what is going on. The market reacted instantly to the vote - it lost 500 points in MINUTES.
That tells you that the market perceives a MUCH ROCKIER RETURN ON INVESTMENT WITHOUT THE BAILOUT. They view the economy as being weaker without the rescue package.
The reality is simple: The rescue bill is good for the financial markets.
To claim that markets would have fallen anyway is non-credible and it impeaches the other statements of the sources.
I am getting suspicious.
Paulson is said to be worth 500 million....how is one worth 500 mill and not see this coming?
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
I’m with you. Those investors who took the risks need to bear the risks.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
good question.
Don’t fast food places do a lot of cash sales every day, as opposed to credit card sales that don’t clear the bank right away?
Years ago I had known somebody in fast food, and they typically made 3 bank deposits a day since they didn’t want too much cash on hand, they wanted to get it to the bank. This was before fast food places took credit cards.
I had heard the McDonald’s credit story too. You figure that McDonald’s is a huge profitable company, and if their bankers are nervous, what about the rest of us?
Who the heck makes up these stories? Several news outlets report this as the truth. We are influenced by what we hear in the news, even if we never eat a Big Mac and don’t care about fast food, news like this will influence people’s opinions of what’s going on on Wall Street.
The Nikkei 225 is down about 3% right not. Not exactly catastrophic (though it’s up from about 5% down—also not catastrophic).
If you borrow money to fund your business improvements, then the business must generate sufficient income to pay back the principle and interest on the loan. Anything over that amount is a profitable result of making the improvements.
If you make use of capital that you already have, you need to make exactly the same amount as above in order to be making a profit. Failing to make a profit but not seeing that you failed to make a profit (because you used your own cash) causes many businesses to make improper decisions.
Another way of looking at this is, "You shouldn't loan yourself money to do things that other people are unwilling to finance."
You are right, it is good for the financial markets. But it a lousy deal for the taxpayers. If I make some bad investments, the government is not going to bail me out. Especially if I made some careless investments.
And with a government bailout, this just encourages more careless investing in the future. Why not invest and be careless, if you know the government will bail you out if the investments goes sour? That is crazy.
Way to go Michelle!
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
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