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Questions and Answers about the Financial Crisis

by Don Childears
President/CEO: Colorado Bankers Association

These are serious times and people need answers. Here are some honest answers to some key questions. This is the best information we can provide now; major developments may alter some answers. These answers become all the more relevant with the rejection of the financial stabilization bill in the U.S. House last Monday.

What is the crisis?

“Frozen credit markets” is the simple answer but that’s hard for most of us to understand. It means that credit is frozen or very difficult to obtain so consumers and businesses can’t borrow the money they need. When that happens it cascades throughout the economy – impacting Main Street, everyone.



What does this mean for the typical Coloradan?

Consumers need credit for everyday life, and businesses of all sizes rely on short-term credit for daily operations: make payroll, build inventory, and pay suppliers. Big companies go directly to investors and smaller companies and consumers go to the local Main Street bank. Due to recent events, investors are so nervous that they’ve essentially stopped lending to big companies. If they can’t get short-term funding, these companies have trouble paying their suppliers and making payroll. They have to slow production, lay off workers, and order fewer supplies and services.



Then each of the smaller suppliers becomes short on cash. These smaller businesses, in turn, reduce costs by cutting back on staff and services they use. Incomes fall and jobs are lost. Consumer spending falls. People have trouble meeting their debts.

The Main Street community bank that never made a subprime mortgage loan is affected too. Its customers are local citizens and various small businesses. As ailing small businesses and their employees see their bank deposits shrink and have trouble repaying their loans, it is more difficult for banks to renew existing loans and make new ones. As businesses try to expand or as families look to refinance mortgages or borrow for a car or to send their kids to college, money is in short supply. Our economy is driven by small businesses and consumer spending; without having credit available to them, how can our economy recover from the current malaise?

Thus, while global capital markets and short-term funding seem a world away from Main Street, no one is insulated from the impact. The tightening of credit in the wider market is just the beginning.

These are serious times and people need answers. Here are some honest answers to some key questions. This is the best information we can provide now; major developments may alter some answers. These answers become all the more relevant with the rejection of the financial stabilization bill in the U.S. House last Monday.

What is the crisis?

“Frozen credit markets” is the simple answer but that’s hard for most of us to understand. It means that credit is frozen or very difficult to obtain so consumers and businesses can’t borrow the money they need. When that happens it cascades throughout the economy – impacting Main Street, everyone.

What does this mean for the typical Coloradan?

Consumers need credit for everyday life, and businesses of all sizes rely on short-term credit for daily operations: make payroll, build inventory, and pay suppliers. Big companies go directly to investors and smaller companies and consumers go to the local Main Street bank. Due to recent events, investors are so nervous that they’ve essentially stopped lending to big companies. If they can’t get short-term funding, these companies have trouble paying their suppliers and making payroll. They have to slow production, lay off workers, and order fewer supplies and services.

Then each of the smaller suppliers becomes short on cash. These smaller businesses, in turn, reduce costs by cutting back on staff and services they use. Incomes fall and jobs are lost. Consumer spending falls. People have trouble meeting their debts.

The Main Street community bank that never made a subprime mortgage loan is affected too. Its customers are local citizens and various small businesses. As ailing small businesses and their employees see their bank deposits shrink and have trouble repaying their loans, it is more difficult for banks to renew existing loans and make new ones. As businesses try to expand or as families look to refinance mortgages or borrow for a car or to send their kids to college, money is in short supply. Our economy is driven by small businesses and consumer spending; without having credit available to them, how can our economy recover from the current malaise?

Thus, while global capital markets and short-term funding seem a world away from Main Street, no one is insulated from the impact. The tightening of credit in the wider market is just the beginning.

These are serious times and people need answers. Here are some honest answers to some key questions. This is the best information we can provide now; major developments may alter some answers. These answers become all the more relevant with the rejection of the financial stabilization bill in the U.S. House last Monday.

What is the crisis?

“Frozen credit markets” is the simple answer but that’s hard for most of us to understand. It means that credit is frozen or very difficult to obtain so consumers and businesses can’t borrow the money they need. When that happens it cascades throughout the economy – impacting Main Street, everyone.

What does this mean for the typical Coloradan?

Consumers need credit for everyday life, and businesses of all sizes rely on short-term credit for daily operations: make payroll, build inventory, and pay suppliers. Big companies go directly to investors and smaller companies and consumers go to the local Main Street bank. Due to recent events, investors are so nervous that they’ve essentially stopped lending to big companies. If they can’t get short-term funding, these companies have trouble paying their suppliers and making payroll. They have to slow production, lay off workers, and order fewer supplies and services.

Then each of the smaller suppliers becomes short on cash. These smaller businesses, in turn, reduce costs by cutting back on staff and services they use. Incomes fall and jobs are lost. Consumer spending falls. People have trouble meeting their debts.

The Main Street community bank that never made a subprime mortgage loan is affected too. Its customers are local citizens and various small businesses. As ailing small businesses and their employees see their bank deposits shrink and have trouble repaying their loans, it is more difficult for banks to renew existing loans and make new ones. As businesses try to expand or as families look to refinance mortgages or borrow for a car or to send their kids to college, money is in short supply. Our economy is driven by small businesses and consumer spending; without having credit available to them, how can our economy recover from the current malaise?

Thus, while global capital markets and short-term funding seem a world away from Main Street, no one is insulated from the impact. The tightening of credit in the wider market is just the beginning.


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