Saturday, August 29, 2009

WSJ "Halting Recovery Divides America in Two"

Aug 29 WSJ article describes the recovery (and non-recovery) of 2 economies. The first economy is a "cadre of companies and banks, mostly big, united by an enviable access to credit." These companies and banks can go directly to capital markets to raise funds through bonds. The people employed by these privileged companies and banks have job security and living wages.

In contrast, an estimated 1 in 4 companies is in "dire straights due to lack of profits combined with not being able to borrow." These smaller companies are not being bailed out by essentially free government money lent by the Fed. These smaller companies are feeling the effects of reduced consumer spending and the pullback of credit by banks.

The WSJ's description does not reflect capitalism's "creative destruction." A company's cutting edge relevance or obsolescence does not predict its access to capital. What predicts access to capital is size and crony connections.

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