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Local businesses respond to Feds' plan to open credit lines
The Federal Reserve announced Oct. 7 that it will buy commercial paper – or short-term debts that businesses use to fund their daily operations – in order to free up the loan market.
As the money markets continue to plummet, the Federal Reserve stepped in, saying its plan will “enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households,” according to a statement released Tuesday.
“This issue definitely needs to be addressed,” said Susan Novak, owner of Sister's Boutique and Gifts in Ashburn. “There are a lot of [businesses] on the fringe, and the ability to access capital is really going to help.”
Kim Dziabis, owner of the Madisonbelle clothing store in Leesburg, said she doesn't think it's the federal government's job to keep small businesses afloat.
“There is no question that as a small business owner, I am going to feel that crunch,” she added. “But I don't feel the doom and gloom yet.”
Loudoun County Chamber of Commerce President Tony Howard said anything the federal government can do would be a positive.
“This has not yet manifested itself in its entirety on Main Street, but ultimately it will affect small- to medium-sized businesses because the banks are not going to have the funds to lend,” Howard said.
Stephen Fuller, director of George Mason University's Center for Regional Analysis, agreed, saying, “This is a very important step” and it is “part of the bigger efforts that are to help unjam the financial freeze.”
Fuller added, “If [the lack of credit availability] continued, there would be a major restraint on local businesses of all sizes. This was a necessary step. The Fed wouldn't have done it if the banks could have. This is probably the [fastest way] of fixing this problem.”
The Feds' plan is something the government has not done in the past, but drastic times call for drastic measures.
“The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper,” the Reserve stated in a press release. “As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day.”
The new plan, which is not part of the $700 billion bailout plan, “should encourage investors to once again engage in term lending in the commercial paper market,” the Fed stated.
John Wood, president of Telos in Ashburn and a former Wall Street professional, said this step by the federal government was necessary to help out businesses, but he also thinks the only way this issue will be resolved is if other countries make similar efforts, as this is a global problem.
“The other four or five superpowers need to step up to the plate,” Wood said. “This is a global economic problem.”
Contact the reporter at lwolstenholme@timespapers.com
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