Businesses Operate In Tightened Credit Market
RENEE MONTAGNE, host:
And the Senate may have passed that bailout, but Americans still are deeply divided on the plan. Among the strongest supporters, though, are business owners, large and small, who say the crisis is now affecting them far beyond Wall Street. NPR's Chris Arnold reports.
CHRIS ARNOLD: Last week a customer sent Jamie McGregor a letter that scared him. McGregor is an owner of his family's Morgal Machine Tool Company in Springfield, Ohio. It makes parts for things like exercise treadmills and cars. In the letter, one of his top customers told him that they didn't want to buy anything more.
Mr. JAMIE MCGREGOR (Proprietor, Morgal Machine Tool Company): To stop shipments entirely. And of course that caused us to be gravely concerned about their financial health and wellbeing. And we actually jumped in the car and drove over to the customer's facility and counted cars in their parking lot.
ARNOLD: McGregor wanted to make sure the company hadn't gone out of business. It hadn't. But McGregor says it was having trouble negotiating a loan. Direct evidence, he says, that the credit crisis has now spread way beyond Wall Street.
Mr. MCGREGOR: And that customer is a manufacturer of riding lawnmowers. So, you know, we're certainly seeing things that we've never seen before.
ARNOLD: McGregor says in just the past 10 days, he's gotten a lot more careful about the smaller customers that he ships parts to because he's nervous about whether they'll be able to pay him.
Mr. MCGREGOR: We aren't accepting orders unless they either pay for half upfront, or cash in advance, or cash with order, which is something that we typically have not had to do very much at all.
ARNOLD: What McGregor's describing is the gears of the credit system starting to grind together and slow down. Companies need more cash, but it's getting harder to borrow. McGregor's losing business by demanding payment upfront. All that hurts the economy. So McGregor is in favor of a rescue package, and so are lots of other businesses.
Mr. JOHN CASTELLANI (President, Business Roundtable): We need decisive and immediate action by our government.
ARNOLD: John Castellani is the president of the Business Roundtable which is made up of the CEOs of many of the nation's largest companies. He says many of those executives worry that if the government doesn't act here, we could end up in a serious recession.
Mr. CASTELLANI: Hundreds of thousands, if not millions, of Americans' jobs would be in jeopardy.
ARNOLD: And he says the stock market would keep tanking. And for that reason, it's not just business groups that have started lobbying heavily for the rescue package. Bill Novelli heads up AARP which represents Americans over the age of 50.
Mr. BILL NOVELLI (CEO, AARP): People's nest eggs are disappearing. And people already in retirement are being hit the hardest. People are very worried. It's no secret that they're angry at the idea of bailing out Wall Street. But in this case, Wall Street is us. Wall Street is average America. These are our stocks, our retirement funds, and our futures. And so this requires urgent action.
ARNOLD: That's not to say Novelli loves this plan. He says it doesn't have strong enough language in it to help homeowners. He says many older Americans are facing foreclosure, and the foreclosure crisis is still the albatross around the economy's neck dragging it down. But Novelli feels at this point we have no choice.
Mr. NOVELLI: In the past four days, AARP members have generated 110,000 emails to members of Congress asking them to get this thing passed. The alternative is potential disaster.
ARNOLD: But some economists are unconvinced that we have to act so quickly.
Dr. DEAN BAKER (Co-Director, Center for Economic and Policy Research): I don't think that things are getting that bad.
ARNOLD: Dean Baker is co-director of the Center for Economic and Policy Research. He says, true we are headed into a recession, but he doesn't think we are on the verge of cataclysm. So he thinks the government should take more time to do this right and consider alternative proposals, like one that billionaire investor George Soros has been pushing for in the past couple of days.
Dr. BAKER: Well, basically what Soros is saying is the problem with the banks is they're undercapitalized. You solve the problem of undercapitalization by you directly provide a capital stake to the banks in exchange for ownership, essentially what Warren Buffett did with Goldman Sachs.
ARNOLD: Just give the banks money and take a big chunk of stock in return. Baker thinks that's got a better chance of making sure taxpayers get paid back. Baker and Soros would also like to see stronger measures for stopping foreclosures. Other economists, though, paint a much darker picture of the consequences of not passing something very quickly. So a lot depends on which people members of Congress are listening to. Chris Arnold, NPR News.