Fed May See Companies, States as Next Crisis Fronts

Federal Reserve Chairman Ben S. Bernanke may find the next fronts of the financial crisis to be just as chilling as last month’s downfall of Wall Street titans: its spread to corporate America and state and local governments.

Companies from Goodyear Tire & Rubber Co. and Duke Energy Corp. to Gannett Co. and Caterpillar Inc. are being forced to tap emergency credit lines or pay more to borrow as investors flee even firms with few links to the subprime-mortgage debacle. California Governor Arnold Schwarzenegger says his and other states may need emergency federal loans as funding dries up.

A cash crunch on Main Street would endanger companies’ basic functions — paying suppliers, making payrolls and rolling over debt. The widening of the crisis suggests that Bernanke and Treasury Secretary Henry Paulson may have further fires to put out even as the Treasury sets up the $700 billion financial- industry rescue plan approved last week.

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“The rest of the economy is clearly being affected right now by the tightness of credit,” said Kurt Karl, chief U.S. economist at Swiss Reinsurance Co. in New York. “It’s just gathering momentum in the wrong direction.”

Bernanke announced new moves today aimed at easing the lending crunch. The Fed will double its auctions of cash to banks to as much as $900 billion and is considering further steps to unfreeze short-term lending markets.

• A d v e r t i s e m e n t

The market for commercial paper, which typically matures in 270 days or less and is used to help pay for expenses such as payroll and rent, shrank to a three-year low of $1.6 trillion in the week to Oct. 1, Fed data show.

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