Monday, September 29, 2008

Here's the picture

At the risk of over-simplifying the situation, I will try to explain what the current financial market crisis involves.

Most businesses, from local business owners to national and multi-national entrepreneurs, do not have money on hand to cover their daily obligations. The business community uses lines of credit and other short-term borrowing methods to cover payroll and other normal operating costs. Whenever commercial borrowers cannot obtain such short-term money, business is reduced to what can be done with cash on hand.

Meanwhile, every day consumers also depend on short-term credit when we make purchases with our credit cards and when we deposit our payroll checks. In other words, you and I depend on the ability to borrow money--the credit market--for the money we receive for our work and for the money we use to engage in our daily spending. The senior citizens who charge medications with credit cards and the consumers who use the equity in their houses to underwrite family spending are not Wall Street tycoons. These are our neighbors, relatives, friends, and co-workers. People of ordinary means are more challenged than ever to find short term credit to continue business operations, maintain production schedules, and pursue new business opportunities as credit dwindles, prices rise, and economic fears mount.

Many people have complained that the financial market situation is a Wall Street problem that Main Street (referring to average consumers and taxpayers) are being forced to fix. The hard truth is that this situation is as personal as the expenses you and I incur every day. The United States is already in a recession. If business owners and consumers cannot readily obtain short term credit, the recession will be even more painful and prolonged.

Many people have expressed justifiable anger about how and why the present financial market crisis happened. However, cursing darkness does not produce light. The reason for the darkness is distasteful. That does not make the need for light less real and urgent.

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