ACP Pubs

Loren Faulkner

“These are indeed interesting times…”
September 28, 2008

That is a quote from John McClelland’s article, “To Bail Or Not To Bail”, released this weekend. McClelland is the American Rental Association’s (ARA) vice president of government affairs.  (For his full article, see www.ararental.org)

McClelland pins down--as well as anyone I’ve read recently --what will happen to day-to-day business transactions if somehow the Wall Street mess causes a system-wide failure of acquiring credit in the U.S. As he writes:

A prevailing view is that we are not dealing with a situation that is only going to affect people who invest in exotic financial instruments. If the credit system does collapse because banks and financial institutions who have money will not take the risk of lending it to others, including businesses and consumers, then American Rental Association (ARA) members will be affected directly.

Here’s how: A good customer comes into your rental store and wants to rent several items for a project or a party. You say, “Sure,” and write up the ticket. The customer gives you their credit card, which you run and which is promptly denied by the bank. The customer may have no idea he no longer has credit available on his card, but this is a real possibility if credit markets collapse. Remember, credit cards are unsecured debt. That is why we pay higher interest rates on this kind of credit. If the credit markets can no longer function, millions of Americans who rely on credit cards to finance their daily life may find that cash is the only thing they can use if they want something.

Small businesses also are likely to be affected adversely if credit markets fail. Many small businesses use lines of credit to finance inventory and even payroll when cash flow is off during slow periods of business activity. Bankers may decide that it is just too risky to lend money to a business that may not be able to repay. It just isn’t business loans and credit cards. College loans, auto loans, home equity, you name it. If it is a form of credit, it is in danger.

As of Sunday night, it’s not clear if Congress has agreed to the proposed $700 billion bail-out or “rescue” plan. But even if it has, it is apparently not a “sure thing” that it will work for the long-haul. McClelland is right, these are indeed interesting times…

Posted by Loren Faulkner on September 28, 2008 | Comments (0)