Why the credit crunch is about more than Wall Street

I'm going to try to briefly accomplish in a few paragraphs what it seems to me our government has completely failed to do in this financial crisis.

No, I don't have $700 billion of my own to shell out. But to me, Congress' failure came not today on the House floor, but over the past week as both elected officials and members of the administration failed to translate the crisis into terms that have meaning for everyday Americans.

I've heard the phrases "Main Street" and "Wall Street" a lot, but what I haven't heard is plain explanations of what credit really means and how essential it is to our system of doing business.

Here goes.

If the credit markets should freeze up--which many say is happening and will continue without massive intervention--everyone that borrows money will face a cash crunch. That means companies that take advantage of short-term loans to get by won't be able to buy raw materials or make payroll. Even businesses that don't need short-term capital may defer purchases to preserve capital.

If even banks are having a hard time getting money, what does that say for the small and midsize business? The Wall Street Journal had a story on Monday on how companies like McDonald's may face a squeeze as their franchisees are unable to get loans to purchase or upgrade stores. I suspect that is just one visible example of a growing issue for businesses across the country.

We are stuck trying to move forward with new loans--essentially to keep the economy moving--while dealing with clearly bad ones of the past. While much of the attention has focused on concern over home loans, there are also construction loans and business loans that are at risk of default, risks that grow as those businesses find themselves essentially shut off from getting any new capital, extending the vicious circle.

You don't have to take it from me.

Here's C.H. Low, CEO of social-networking software start-up Orbius and a serial entrepreneur.

"When financial markets don't function well, the ramification is broad," he said in an e-mail interview on Monday. He said he is disappointed that the bailout is so misunderstood. Even the term bailout, he said, is a misnomer.

"This is an asset purchase, not a 100 percent bailout expense to taxpayer," he said. "There is risk but also possibility of making a profit. Government's main function is to do things that private sector cannot handle. This Market Stabilization Bill...is as necessary as having an Armed Forces to defend the country."

Low noted that the main beneficiary is not Wall Street.

"As an early stage start-up, we rely on venture investments to carry us through a few more stages before we can be self-sustaining," Low said. "With turmoil, smaller venture funds which fund many early stage companies themselves get anxious and their own investors may be affected and may affect their capital call. We ourselves planned for a rainy day but even we don't have that much for a prolonged monsoon."

He said that the seizing up of credit creates uncertainty in every sector. "Doing nothing is the worst of all choices," he said.

Microsoft, for its part, has also called on Congress to speedily revisit its decision.

John McCrea, vice president of marketing at Plaxo (now owned by Comcast), said it was "shocking and scary that they failed to come together on an issue of such vital importance. "

"I suppose my reaction's pretty similar to a lot of other people who think that we are on the brink of a very scary situation, and a lot of us thought that our political leaders were going to be able to come together and do the right thing, and put together a reasonable package," McCrea said. "I'm hopeful that they will return to work on it and get something passed soon, but I would say that there's a very big question mark hanging over all of our heads and we're seeing companies that were once considered blue-chip evaporate in days."

Then, he tried to put the best possible spin on it. And it was such a good spin, I decided to leave it in. "In such uncertain times one certainly is not surprised to see an awful lot of activity in services like Plaxo and LinkedIn. Now would be a good time to make sure that one's information and network are up to date..."

In terms of where things are at, Milken Institute senior fellow James Barth said that we are a long way from another Great Depression, but added that we are also far enough in that even the legislation Congress proposed isn't alone sufficient to solve it. In the meantime, cash really is king.

"Any firm that has lots of cash that can tide itself over during this credit and liquidity crunch will be in far better shape than other companies," Barth said.

Wedbush Morgan analyst Michael Pachter, who tracks the video game market, said his industry will suffer like any other, though he did offer a suggestion for how to make lemonade from the financial lemons being lobbed from Washington.

"I think we need a game where instead of shooting (Nazis), we shoot Congress," he said. "This is embarrassing."

CNET News' Daniel Terdiman, Elinor Mills, Jim Kerstetter, and Caroline McCarthy contributed to this report.

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