Credit in Deep Freeze (The Boston Herald)

States can’t get loans, stocks fall, Fed eyes moves
By Jay Fitzgerald  |   Wednesday, October 8, 2008

The credit crunch intensified across the state, country and world yesterday as policymakers scrambled to come up with new emergency measures to deal with quickly deteriorating economic conditions.

After Massachusetts and other states once again pulled back from attempts to raise short-term loans to pay bills, the Fed announced an unprecedented plan to buy up large amounts of debt to unclog markets and stimulate capital lending.

Fed chairman Ben Bernanke also indicated the nation’s central bank may cut interest rates to shore up the faltering economy.

But the global situation was so severe yesterday that the tiny nation of Iceland seemed on the brink of declaring “national bankruptcy,” with its prime minister announcing after a bank takeover, “We have been forced to take decisive action to save the country.”

In the United States, stocks plummeted for the fifth straight day - for the largest five-day loss ever for the Dow.

At the Massachusetts State House, Treasurer Tim Cahill said the state balked for the second time in two weeks from issuing short-term notes to raise $750 million to pay future bills as state tax revenues decline.

“It was the unknown that forced postponement,” said Cahill, whose office will try again today to issue “revenue anticipation notes” with the help of Goldman Sachs and Citigroup.

Cahill, who insisted the state has enough money to pay its bills through this quarter, took a small swipe at Gov. Deval Patrick’s administration, saying the state should be reducing expenditures immediately to plug a growing budget deficit caused by declining tax revenues.

A spokeswoman for Patrick said the governor is working hard to prepare budget cuts and expects to announce “hundreds of millions” of dollars in reductions by next week, after the administration gets final revised revenue numbers.

Bankers across the state say some businesses are starting to pull back from seeking loans, looking warily at turbulent markets and their bottom lines - and deciding they don’t want to borrow or spend when there’s so much uncertainty.

The net effect could be a freeze on expansion plans or, in some cases, cuts in current operations, bankers warned.

Chris Anderson, president of the Massachusetts High Technology Council, said the credit crunch is “definitely filtering down” to a high-tech sector that’s previously been the state’s top economic performer over the past several years.

Some high-tech firms with cash are doing fine. But the companies needing loans are very nervous, Anderson said.