As Wall Street tanks, we're all suffering

WASHINGTON — While all eyes Thursday were on Wall Street's 679-point plunge, its cause is being felt across America as the snowballing financial crisis sends an already weak economy into an accelerating decline.

Dispatches from McClatchy newspapers in 30 U.S. cities make it clear that Main Street America is suffering from the deteriorating health of Wall Street. Banks are unable or unwilling to lend amid the growing crisis, and that's deepening the downturn.

In Sacramento, Calif., Bertram Chatham runs seasonal Halloween stores that stay open just a few months of the year. He received a $26,000 line of credit last year, but Wells Fargo this year allowed Chatham to tap only $10,000. He opened one store instead of two this year; that means 30 fewer jobs.

"We didn't understand it, [but] we understand it now. They simply don't have the money to lend," Chatham told The Sacramento Bee.

In North Carolina, The Charlotte Observer reported that Spectrum Yarns closed down plants last week in the towns of Kings Mountain and Marion because of the credit crunch, putting 200 more workers in the lengthening unemployment line.

"In the midst of this national financial crisis, Spectrum has been unable to obtain sufficient financing to keep operations going," C. Douglas Blanchard, the company's CEO, wrote to the North Carolina Department of Commerce.

The banks' credit crunch is rooted in the housing-finance bust.

Santa Margarita, Calif., resident Liz Pauschek recently wrote a $1,500 check to a contractor for a new patio, but the check was returned unpaid from GMAC. When she inquired, the creditor said her line of credit had been frozen because her home's value had declined. She had to use a credit card and money from her savings account to pay the bill.

"I explained that I was remodeling because I live there, and they absolutely would not work with me," she said. "They said the housing market is bad and your house isn't worth what it was. Essentially, you're out of luck."

Here in Washington state, Heininger Holdings, a Bellingham maker of automotive accessories such as trailer hitches and bike racks, is feeling the credit crunch ripple across the supply chain.

"We see [customers'] payments slowing," owner Jeffrey Heininger told the Bellingham Herald. "They look for every tidbit of opportunity to deduct something from the payment, and retail, in the auto-accessories area, is slow. Most continue to ask/demand longer payment terms, as well. Yet, vendors of ours want us to speed up payment terms."

The Federal Reserve has shoveled about $800 billion in short-term emergency loans into banks and other financial firms since March to keep the banking system functioning. Yet it hasn't been enough. The Fed this week bypassed the banks altogether to begin backstopping the finances of major U.S. corporations.

It did so by agreeing to buy commercial paper, the short-term promissory notes that corporations sell to investors in order to raise money for inventory and payrolls. New data released by the Fed on Thursday show that for the week ending Wednesday, this commercial-paper market shrunk by an additional $56.4 billion, or an unheard of $264.4 billion during the past four weeks.

That macro money squeeze means less cash across America.

In Modesto, Calif., two longtime area car dealerships — Friendly Chevrolet in Escalon and Generation Motors in Modesto — went out of business this month.

In South Carolina, William Bradshaw, who owns eight dealerships, has seen sales plunge as buyers are unable to secure car loans.

"People who could have gotten loans a few months ago can't," Bradshaw told The State in Columbia, S.C. "Credit has gotten more stringent, rates are up."

Vince Hanson, owner of Hanson Motors in Olympia, reported a 15 percent drop in year-over-year monthly sales.

"There have been recessions in the past, but this seems to be a pretty substantial downturn," he told The Olympian. "There are a lot of things we're having to deal with."

One is tightened credit. Car loans still are being made but now require 10 percent down and a credit score near 700, said Greg McBride, senior analyst for Bankrate.com.

"Loans are being closed every single day," he told the Raleigh News & Observer. "It's just that the rules of the road have changed."

High gasoline prices compound the slowdown.

In Bluffton, S.C., David Folts shuttered his Jack Frost ice-cream parlor Sept. 30. The souring economy left consumers with less money to spend. But what's really hurt Folts are high gasoline prices that have discouraged driving to his shop and added fuel surcharges to deliveries of his supplies.

"It's so expensive to do business anymore for the small businessman," Folts told The Island Packet. He's holding onto the equipment that he finished paying off months ago, hoping to reopen in better times, because the "entrepreneur in me won't let it go."

Once a symbol of America's manufacturing prowess, the U.S. auto sector is in deep trouble, and its problems are spreading to industries it supports: steelmakers, tire companies and electronics firms.

Thursday was as dismal a day as U.S. automakers have ever faced. Shares of General Motors plunged 31 percent and were trading at 1950 levels. Ford was down 21.8 percent. GM shares have fallen 56 percent over the past month as investors fret that recession will pummel a deeply troubled sector.

Market-research giant J.D. Power and Associates revised downward its outlook for U.S. auto sales, saying Thursday it now expects only 10.8 million new-vehicle units to be sold this year, 2 million fewer than in 2007. This year's slump began with high gasoline prices and accelerated with the credit crunch.

"Any truly pronounced recovery appears to be more than 18 months away," said Jeff Schuster, executive vice president of automotive forecasting, in a statement.