455 Commercial Paper Shredder
Let's all salute Max Hall, late of Manufacturers Trust, a bank formed in Brooklyn about seven zillion years ago. Max was one of the first guys to think up a new and unregulated financial product. That was in the 1920s, a few years before things got window-jumping bad in the Great Depression. Max's real first name was Percy. Verybanky for the time. But his friends -- and there were many --- called him Max, so we will, too.
Max's invention is now called "commercial paper." Commercial paper is like a loan given to a mid size or big business. It's very short term. Sometimes only days. But never more than 270 days. Because these little (and sometimes big) loans command relatively low interest and because they're short term, they're securities that don't have to be registered as securities.
So, you have a business. You have bills due. You have money owed you, but not yet due or collected. So you borrow. Commercial paper. Low rates, quick turnaround. Your receivables come in, you pay back the lender -- often a money market fund, something in which lots of us have deposits.
Money market funds. Safe as safe can be. No one's ever lost a nickel. Well, not until now. One of the big ones, Reserve Primary Fund, "broke the buck" the other day. That means they actually lost money. Maybe not so safe anymore. That sent a lot of business boys and girls over to their banks, where they have backup lines of credit they don't like using because the rates are higher -- it costs more.
Except the banks, many of them, are, um, reluctant to lend. The bad loans already sinking them, don'tcha know.
Max didn't do a header out the window, as far as we can tell. But he might have looked out that window at beautiful downtown Brooklyn, and thought about it. Others are thinking the same today.
Max's invention has become the circulatory system of the financial world, and it's tough right now to get the blood flowing. This is not being widely reported.
You'll find scraps of articles in the Wall St. Journal, the Financial Times and the Bloomberg wire. But the mainstream newsies aren't much touching this.
This bailout thing might be a stent in the artery. It might even wipe the plaque out of the system.
But right now, to mix a metaphor, commercial paper is sitting in a box, dangerously close to the intake slot of the shredder.
--This is the Jewish New Year, Rosh Hashanah. The year is 5769. For those of us who hoped the 5760s would be as good as the 1960s, we have one year to make it work, and it doesn't look likely.
--No Dick Clark (or even Ryan Seacrest.) No descending ball in Times Square. Such a celebration!
--No Guy Lombardo, no drunken revelry. And you need tickets, to get into the synagogue, tickets! Such a celebration.
I'm Wes Richards. My opinions are my own but you're welcome to them.(R)