This whole financial crisis is about perception and will have an impact each and everyone of us.

[WCGreen]

If investors, and that includes Sovereign Funds, loose face in the US ability to keep a fairly steady value, then there will be what is essentially a run on the countries wealth. That's the big picture. The country to county part that big time people think about.

But it gets to the personal level real quick if there is something that causes the liquidity of cash to flow through the system to slow down.

One of the main reasons this "crisis" effects all of us is that the money that companies use to finance short term, meaning 3 months or less, has almost become too expensive for most firms to use.

That short term money is more and more important to a company because of stuff like just in time inventory which decreases holding costs but also increases short term money needs. Think of it this way, the crisis that effects us is the cost of just in time money. Look at the proliferation of the so-called Cash Stores. Their interest rates are usurious but yet they are there as a bridge to get people out of a short term crush. Of course some people abuse this and treat the Money Stores as a sort of really really really expensive credit card.

For a business, the cost of their just in time money is far lower than an ordinary person since they are have assets other than a '63 chevy to back up the loan. But as that cost increases, it becomes prohibitive for a company to make use of that just in time money. And if a company needs to find some extra cash real quick, the easiest way is to trim employment. Why, because in places that have employment whose requirements are can you read and can you perform easy tasks, workers are replaceable. Workers in these companies are basically generic.

Why, you ask, don't the companies keep extra cash laying around for these types of moments? Well, the cost of holding cash is high because of the low rates paid on short term money. It actually makes more sense to use someone Else's money if the cost is low than to hold your short term cash in what is essentially a zero interest rate fund.

Also, if you have too much cash on hand, the people who make a living by searching balance sheets for easily disposed of assets will target your company. It's a delicate balance.

Bottom line, if that safe access to easy cash dries up, unemployment will increase fairly rapidly.

It's basically about trust in the system. But it is also a liquidity issue which just means how fast or slow money flows through the economy.

Like it or not, the sins of the greedy will be visited upon our houses.

[NMDemDist2]

1. thank you WC, i'm seeing way too many "Let em fall" posts around here

we can't stop the crash, but we *do* need to try and soften the landing.

While I'm not onboard with the bailout as it was presented in 3 pages, I recognize the need for some action to insure liquidity in the credit markets.

[WCGreen]

2. It's really not about who to blame but about what to do...

That is the curse of the Democratic Party. That is why we make for a better ruling party, for lack of a better term, and the GOP is a better opposition party.

[CaliforniaPeggy]

3. Well said...

K&R