Roy Maynard: Early Returns

It's big and scary -- a $700 billion bailout of the nation's financial institutions, in hopes of staving off a recession, or worse.

"Our entire economy is in danger," President Bush said on Thursday. "Without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold."

But what does it mean to us? Do failures on Wall Street really affect East Texas that much?

The answer is yes -- both directly and indirectly. How?

Remember that the current financial crisis is really a credit crisis. That's how it began -- with bad loans. Lenders and mortgage brokers invested heavily in "sub-prime" mortgages, home loans for people with credit or income problems. These loans promised big profits, but they were very, very risky.

The risk was spread out among the companies insuring the loans, such as AIG, and investors who backed the loans with various financial instruments hoping to cash in on the housing boom.

So when the housing bubble popped, banks and other firms found themselves sinking under the weight of these bad loans. They now have little or no credit to extend. And that's a serious problem.

"The choking up of credit is like taking the lifeblood out of an economy," Federal Reserve Chairman Ben Bernanke told Congress last week.

Now, my grandfather would disagree -- he saw borrowing money as a form of voluntary servitude.

But the economic reality is that people and businesses need credit at times.

There's an example very close to home. Pittsburg-based Pilgrim's Pride is a company in trouble.

"Pilgrim's Pride Corp. said Thursday it expects to report a 'significant loss' in its fourth-quarter and is so sagged by debt it may not meet the terms of its loan agreements," the Associated Press reported on Friday.

The biggest problem is the high cost of animal feed -- mostly corn, which has tripled in price in recent years. High fuel prices have also hurt, and there's a temporary oversupply in the marketplace.

On Wednesday, the chicken-producer's stock shares fell by 38 percent.

What the company needs now is capital. Fuel prices are going down and demand for chicken will inevitably go back up. But Pilgrim's Pride needs some cash to keep it going until it can get some relief.

But with credit so tight, what's the company to do? It has already laid off 2,300 workers from its North American facilities. Now it's talking about selling off some of its assets.

This is a locally based company that employs 54,900 people. If there's no infusion of capital, plants could begin to close. And the effect would spread to the local firms that supply Pilgrim's Pride and the local businesses that depend on those paychecks.

The big bailout continues to take shape. Congress is meeting through the weekend to try to hammer out an agreement. But it's not something that matters only to Washington politicians and to Wall Street financiers.

It matters here.

Early Returns is the political observations column of Editorial Page Editor Roy Maynard, who can be contacted at 903-596-6291 or at rmaynard@tylerpaper.com.

Roy Maynard
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