Cash-Starved Companies Scrap Dividends, Tap Credit

[depakid]

Source: Bloomberg

Carmike Cinemas Inc., the third- largest U.S. theater chain by screens, suspended its dividend, while Duke Energy Corp., owner of utilities in five U.S. states, tapped $1 billion from a credit agreement and RC2 Corp., the maker of infant and preschool products, canceled an acquisition.

The paralysis in credit markets is changing how U.S. companies do business as banks pull back on loans or make them prohibitively expensive. Some companies are closing plants and stores, postponing takeovers and grabbing any available credit in a fight for survival.

``If businesses don't have access to capital, smaller companies in particular, they might get wiped out,'' said Alec Young, a New York-based equity strategist at Standard & Poor's. ``It's impossible to quantify how expensive this crisis is going to be for Corporate America; there's unlimited downside.''

<snip>

``It's almost inconceivable that there won't be an enormous slowdown in the U.S. markets and with that, increased joblessness, lower employment and higher bankruptcy rates, both personal and corporate,'' Michael Vogelzang, who oversees $2 billion as chief investment officer at Boston Advisors LLC, said in an interview yesterday. ``Businesses are going to have to adapt.''

Read more: http://www.bloomberg.com/apps/news?pid=20601109&sid=aLnv4NhdZ3Hs&refer=home

[mbperrin]

1. Okay, they've got to make up their minds. Can't have "no credit" and

Duke getting $1 billion in credit at the same time.....


BE AFRAID!!!!!!!!!!!!!!!!!!DON'T THINK!!!!!!!!!!!!!!!!JUST DO WHAT WE SAY!!!!!!!!!!!HAND OVER THE CASH!!!!!!

[depakid]

2. The point of the article is how many diverse businesses in every sector of the economy

Are being affected.

It's simple minded to yell about "being afraid: blah, blah, blah" -while ignoring at what's happening right before their eyes- and recognizing what it portends (much more and much worse situations) if Congress fails to act.

Moreover- no one is "handing over cash" that's not how the bill works.

James Galbraith gives a succint explanation of it here:

Many are concerned with the fiscal implications of this bill, so let me turn to that question. Despite the common use of language, the capital cost of this bill does not involve "taxpayer dollars." It authorizes a financial transaction, exchanging good debt (U.S. Treasury bills and bonds) for bad debt (the "troubled assets").

Many of those troubled assets will continue to earn income for some time, perhaps a long time. The U.S. Treasury commits itself to paying the interest on the debts it issues. The net fiscal cost -- which is also the net fiscal stimulus -- of this bill is the difference between those two revenue streams. Given the very low rate of interest presently prevailing on Treasury bills, this is likely to be somewhere between $20 billion per year and zero from the beginning, even if the Treasury were to issue all $700 billion in new debt at once. It is a mistake, in short, to count the capital cost as a "cost to the taxpayer." This is not the war in Iraq.

http://www.prospect.org/cs/articles?article=how_much_will_it_cost_and_will_it_come_soon_enough

[lapfog_1]

3. Now don't go confusing people with facts.

We all know that it's a $700B heist and taxpayer giveaway to the fat cats on Wall Street. :sarcasm:

(It's not even the Wall Street people that get the "good debt" you mention, it's Wall Street's INVESTORS, many of them are working people all over the world).

[Alcibiades]

4. Galbraith doesn't get it

There's the moral hazard problem, for starters. Then, quite frankly, there's the issue that they very folks being bailed out here are the same ones who have done all the things he himself has decried over the years. The same folks in an industry that gives scads of cash to the deregulating, tax-cutting Republicans year-in year-out are now asking for a bailout. According to their own ideology, government intervention in the economy is wrong. So fuck them.

We're not all in this together. The average American family knows how to tighten their belts. These people have never been asked to do so. Let's wait until after the election and see what happens. There's no rush, and the folks saying there is a rush are the same ones who said we needed to invade Iraq, lest there be a mushroom cloud. So fuck them.

Galbraith says he wants to overpay for these assets. What kind of economist is he? I do like his proposal that a tax on Wall Street be enacted to claw aback some of this bleeding. That would be a sweetener. I think we should enact the tax and give them something closer to the real value of the assets. But $700 billion, and they get to keep their golden parachutes? Riiiiiight.

[metapunditedgy]

5. pension funds

Suspending dividends is an interesting move. I think that a lot of large pension funds are required to own stocks that post dividends, since these stocks are (were) a more reliable source of income. I wonder if big funds will be required to sell stocks that cut their dividends?