Credit Freeze Trickling Down

The meltdown on Wall Street that has essentially frozen up the credit market may be trickling down, affecting corporations and even local governments, according to Bloomberg News.

Goodyear Tire & Rubber Co., Duke Energy Corp., Gannett Co. and Caterpillar Inc. have all recently tapped emergency lines of credit. Calif. Gov. Arnold Schwarzenegger has said that his state may be forced to ask for emergency federal loans if the credit market remains as tight as it is now.

The problem is banks are still fearful of lending to one another because they do not want to get themselves entangled in the toxic assets in the market. With banks doing very little lending, it is making it next to impossible for others to obtain credit.

For corporations this is making it difficult to pay rent, suppliers and in some cases make payroll. The market for commercial paper, which typically helps businesses meet those expenses, is at a three-year low. Corporate bond sales also hit their worst four-week period since 1999.

Local governments are experiencing the same trouble. Their inability to obtain credit could negatively impact the services they provide, such as schools, roads and health care.

To combat the credit freeze the Fed is almost certain to lower interest rates to spur more lending. The current benchmark rate is 2 percent and analysts expect at least another half-point cut at the Fed’s next meeting.

Source Bloomberg News:

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