How Wall Street's Crisis Impacts Main Street's Business

What to make of the financial crisis?  My first concern is Main Street business.  Forgive me, but I don't get choked up when guys with multi-million dollar salaries hit the unemployment lines. It's sad, but not too sad. Probably a good time to pick up a beach house in the Hamptons.

What about the rest of the economy? The obvious problems are companies planning stock or bond offerings or major private placements. With Lehman (LEH) in bankruptcy and Merrill Lynch (MER) in transition, some companies will not be able to get the capital they had planned--right now. Virtually everyone in that position, though, will be able to shift their offering to another investment bank, but the deals will be delayed.

How about garden variety lending from commercial banks? Probably not much change, though I'm keeping my fingers crossed. Banks tightened lending standards some time back. Potential bad news: a fire-sale on Lehman's and Merrill's assets could have established very low prices for similar assets held by commercial banks, which could have triggered write-offs and inadequate capital to fund routine loans. We've dodged that bullet, at least for now.

My best estimate: Main Street business is unaffected by today's crisis. But if you're still nervous, make room--I'm nervous, too.

Good news today: Interest rates down, oil prices down. The time lags are significant before these help the economy, but they will help. On the negative side, the news about industrial production was just awful. I plowed through the detail looking for the silver lining, but I found nothing but dark cloud.

Contingency Planning: I'm all for companies doing contingency planning. The key element to consider: credit availability. A secondary element: insurance availability, if AIG (AIG) has to dial back hard.

Comments

[Steven Hansen:]

the market "should" reflect main street but we all know it does not - the market does what the market does. the market has removed a whole bunch of value from the accounts of consumers. add to that the real estate deflation.

without the consumer seeing an end to this recession, he will hunker down and stop discretionary spending. with 70% of GDP generated by consumers - main street will not look too pretty.

2008 Sep 16 04:53 AM

[oldfolkdancer:]

I'm a consumer with some free cash and I intend to spend it. I regret that I didn't spend what I had invested before the downturn. Just call me "Sorry I didn't sell". I'm not going to sell now at what I think is bottom but I'm not going to invest either.

2008 Sep 16 10:22 AM