Perhaps the Fed and the Treasury have saved the banking and brokerage industries. The Fed has certainly provided hundreds of billions of dollars at its emergency window and Paulson has his $700 billion.

Next up in the rolling disaster which is taking down the American economy is all of those big companies, cities, and states which may not have access to capital to keep themselves operating. With plenty of mouths to feed, there may not be enough salvation to go around.

According to Bloomberg, The central bank has power to extend credit to any company under “unusual and exigent circumstances.” With really big firms including GM (GM) and Gannett (GCI) pulling down on their credit lines because the commercial paper market has been decimated, some portion of the Fortune 500 may be hard up for cash.

If the Paulson plan does not defrost the credit market in a few weeks, companies and governments will be begging for relief. Former body-builder and "Academy Award-winning" actor turned California governor Arnold Schwarzenegger says his state needs a $7 billion short-term loan. With 50 states, the requests could move up into the hundreds of billions of dollars.

On the private enterprise side, the auto industry has already gotten a gift of $25 billion in loan guarantees, but those will not supply access to cash the this week of next. The airline industry has plenty of problems. If there is no credit for payrolls, capex, and inventory purchases, there may very few parts of the corporate world that escape.

The lifeboats are limited and the number of firms that need them is growing. The Fed may well be left to decide whether some huge companies have to shrink rapidly or suspend operations completely.

The most damaging portion of the credit crisis was supposed to be handled, but that is not even remotely true.

Douglas A. McIntyre

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