Can you imagine if the consumer tried this at home? Times are tough. Credit is tight. The consumer thinks, aha!, I can tap all of my credit limits -- by taking cash advances. They could call it their rainy-day fund. That would definitely play well with their creditors. NOT. Let's just hope that the consumer at home doesn't think that what works for corporate America will work for them. It never does.
From the MarketBeat blog over at WSJ.com: Corporations Adopt a Survivalist Approach
What’s happening now may be the corporate equivalent of buying 10-gallon containers of mayonnaise and gigantic drums of beans and wheat. The current strategy is one of cash-hoarding, as companies have elected to tap into credit lines on a “just in case” basis, while others suspend or pullback on dividends and stock-market buybacks.
Farther down in the blog entry, MarketBeat highlights a Wall Street Journal story out this morning, titled: U.S. Firms Gird for Hits and Draw On Credit Now
In that story, one particular passage caught my eye:
When a bank enters into a revolving credit line with a customer, whether it's a business or an individual, the amount of that loan commitment counts against the bank's capital ratios. That means that as companies draw down existing credit lines, it doesn't strain the bank's already-depleted capital levels.
The bigger impact is on a bank's liquidity. Bank treasurers are generally charged with gauging the likelihood that specific loans will be drawn down, and the expected demands that will place on the balance sheet. That in turn influences the bank's decisions about whether to make new loans to other borrowers.
The turn of the screw just made things a little tighter. I don't think we've seen anything yet.
Corporations are tapping these lines because they see storm clouds moving in. I'm wondering how long the consumer can continue to hold out.