The real, everyday effect of the declining economy (from one businessman's point of view)

[Note to readers...When I started this blog I said I'd talk primarily about issues affecting the cable industry.  I also reserved the right to throw in a subject or two, every now and then, that aren't specific to cable.  Today's lead subject is about the distress that's affecting all businesses, including cable, in these unprecedented times.]

Is the current economic situation really impacting people other than the fat cats on Wall Street?  If you ask me, you bet it is. 

I run a business and frankly, it's a good business.  It tends to be somewhat resistant to economic downturns, at least the ones we've seen since the industry was born in the 1950's.  Indeed, when people are staying home more they rely more heavily on their cable connection to keep them entertained, connected and informed.

But make no mistake about it.  This is no ordinary downturn.  In my 35 years in business, I've never had the conversations we're having these days.  We're reviewing our bank group to see if any of our relationships are likely to change because of banks simply disappearing.  We're checking into our insurance carriers to satisfy ourselves that they will remain solvent.  We're analyzing our complex financial securities, like interest-rate swaps, that effectively convert our floating rate debt to fixed, which give us the security that we can afford to pay back our loans no matter where interest rates go.

And we're making sure we have enough cash in the bank to pay our bills, especially those that have to be paid precisely on time -- like payroll. 

That's right.  Payroll. 

Now, if that isn't "Main Street", I don't know what is.

The answer is, we're okay.  But we're lucky.  We don't need to borrow any money from our banks for now.  But many, many other companies are not so lucky.  They rely on short term credit lines to smooth out the cash in hand verses the immediate cash needs. 

While the politicians argue over who is at fault, our economy is seizing up. Make no mistake about it.  I'm no economist but I see it happening and, if I see it, a lot of other people are seeing it too.

So what happens when those short term credit lines are cut off, like what's happening all over the country today?  While Washington debates who's at fault and who should pay, I wondered if there is a simple lesson in history that could help me understand the psychology of what is going on today.

And then I came across this article on the front page of the New York Times on Wednesday.  It explains the risk associated with doing nothing in relation to the actions (or inaction) that occurred during the period of economic stress that led to the Great Depression.  The first few sentences says it all.

In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.

A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again.

To me, this article is a clear road map of what we have to learn from the past and how a loss of confidence in one another can lead to disaster for all.  But the scary parallel to 1929 is the fact that today's credit squeeze began a year ago and it took about a year for Mr. Mishkin's store and many other businesses to shut their doors forever.  We are now just past the one-year anniversary of a credit crash.  And the similarities are eery. 

The stock market crash was the catalyst in 1929 that led to the Depression.  The government was slow to step in in 1929 and the outcome is indisputable.  The run on the banks came later.  And then the availability of credit seized up. 

Today, we simply skipped the stock market crash (although it probably came in the form of a slow, steady, and severe decline since its recent highs).  Instead, we had a credit crash a year ago when people began to realize just how distressed the real estate market had become and how much was owed to banks in the form of questionable home mortgages.  We're now at the run on the banks stage.  And credit is seizing up.

So at this very moment, it's hard for me to conclude that we're not at the critical fork in the road.      

Many small businesses already are in trouble.  The longer the credit crunch lingers on every day, the more permanent the damage.  Unfortunately there is only one entity that has the financial wherewithal to be able to step in, taking the very long-term view, and provide liquidity to the banks which are the grease of the world economy.

It's the United States Government. 

This isn't about bailing out the "scoundrels" on Wall Street, as Meyer Mishkin thought of them.  And make no mistake about it -- the pain on Wall Street already is severe.  Contrary to the popular belief, the vast majority of people who work on Wall Street do not have golden parachutes.  Many, many hard working people have lost their jobs and their life savings as their firms vanished overnight. 

For us in the cable industry, it's not about meeting payroll or keeping the lights on.  For now, it's about not being forced to delay our capital spending program (which, by the way, creates many jobs).  Those capital programs allow us to extend service to more rural areas, upgrade plant to bring more channels, deliver faster broadband speeds, expand hi-definition lineups, and improve reliability.  It's those optional but important expenditures that are at risk for us and our customers.

The plan being considered by Congress is about preventing that pain from spreading across the nation at a speed no one would believe possible.   

The Senate passed the package overwhelmingly.  Many Senators who are running for reelection supported the bill despite the fact that many of their constituents were urging them not to.  It would have helped if someone did a better job explaining the perilous position we're in to the American people. History should write a chapter of Profiles in Courage for those who put the needs of the country in front of their political careers. 

Now it's time for the House to do the same.

Comments

[sineswiper]

This bill HAS to pass. There should be no doubt about that. Though, there is some misconception with the American public that the bailout bill shouldn't be passed. Bailouts -are- bad, but doing nothing is even worse. Much much worse. Don't get angry at your Congressmen if they vote for this bill. (That's part of what scared them the first time.)

However, I am astounded at just how much this bill has grown. This started out as a 3-page bill. Now, it has grown to a 400-page nightmare. The amount of pork on this bill is insane! I can't even write 400 pages in a week. (BTW, McCain, the champion of anti-pork, also voted for this bill. Though, I can't say that I blame him...)

Even in a crisis like this, Congress must hold the economy for ransom to make sure that makers of kid's wooden arrows get a tax break.

[ARGO]

Don't be surprised if we all find out this was a money making sham.