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Category Archives: Ideas, Opinions & News
Jobless Recovery? We Need To Work On That
In September, 2008, after watching the seams being ripped out of the economy for almost a solid year with the collapse of dozens of major mortgage lenders and the crash of Bear Sterns, I wrote a memo to my staff with my observations of the economy. It was more an exercise for me to organize all the thoughts I had on these events so to try and make sense of it all, and clarify what we needed to do as a bank to respond moving forward in this environment.
Reading the memo again recently, it was better than I gave myself credit for at the time, and what I predicted then that seems somewhat prophetic now is that what we were experiencing was a paradigm shift. The recession rising around us was not just the run- of-the-mill kind of economic cycle, but a major change. Read More 
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The State of the Union’s Business
I have been mesmerized by the President’s annual ‘State of the Union’ speech and watch it each year since I had the privilege to attend one during college. It was a matter of me being at the right place at the right time. I was serving as an intern to my Senator in Washington, and his wife was not feeling well on the morning of President Carter’s speech in January, 1978, and decided to stay home. I just happened to walk into the office at the moment that decision was made. The offer was made and accepted immediately, and I got an experience that will always remain with me.
To be sure, I have not enjoyed every one of them, and as my political reasoning and viewpoint evolved over the years, I sharply agreed or disagreed with most of them. But as an institution, I believe it is the ultimate town hall meeting for the nation, and I treasure the opportunity for us all to sit down and hear our Chief Executive Officer speak to the world. Read More
How Would You Stimulate Small Business Lending?
As I wrote last week, the FDIC convened a panel of “experts” and stakeholders of the small business sector in Arlington, Virginia on January 13th to examine the issues of and potential solutions to the challenges facing small business funding. But after four hours of espousing policy, pushing political points, and covering a lot of collective posteriors, I don’t believe funding increased one iota.
Entitled “Overcoming Obstacles to Small Business Lending Forum,” the event offered two distinct panels: “Framing the Issues,” which provided a macroeconomic context of these funding challenges, and “Confronting the Obstacles,” which offered potential solutions from various perspectives.
My first critique is that the first panel was unnecessary – if you don’t know what caused the problem by now, it’s unlikely you will be a part of the solution. Other than the U.S. Chamber Chair admitting that TARP and other government intervention actually worked, there was nothing new really offered.
The second panel was long on handwringing and waxing political philosophy, but other than that, there was no cohesive message emerging that represented solutions to the funding challenges facing small businesses. And why should we have expected any? Only two people on the panel had ever been directly involved with funding a small business!
How could four regulators, a business advocate, and a researcher have a clue as to what the challenges facing business owners really are or what could possibly be done to resolve them? And frankly, the bankers on the panel had no incentive to speak freely about big ideas, which may have run contrary to one of the agencies represented or been shot down by the anti-government fogey from the NFIB.
(L-R Don Graves, Jr., Steven Smits, Rebeca Rainey, Anthony Lowe, John Harrison, Kathleen Sowa, Jorge Corralejo, and William Dennis, Jr.)
What could have made a difference? How about a panel composed of professionals who have actually made a loan? Gathering a group of experienced bankers, lenders, factors, investors, and other deal makers who have actually been in the trenches would have been a smarter move. It might not have made good television, but the results would have been much more tangible and probably produced some ideas worth considering.
Ok, so you ask, what kinds of ideas am I referring to? I won’t pretend to have all the answers, but I guarantee you, anyone who can originate $10-$15 million of SBA loans per year, or manages $50 million of asset-based lines of credit, or supervises 10-12 commercial lenders could find something to talk about with concrete ideas. Without ideology, politics, or political correctness to interfere, assembling practitioners could lead to ideas – even big ideas – that would give policy makers and politicians alike something to think about and maybe act on.
With that, I will throw out a couple of ideas of my own. I know there is a downside for each of these proposals, but believe each could stand on its own successfully to initiate funding that is not occurring today. In other words, do more good than harm.
1. Reconfigure the payment process to federal small business contractors. Thousands of small contractors have seen credit lines disappear from struggling banks and cannot finance the contracts they won. Jobber advances and faster payment turnaround by the federal government would keep these businesses working and enable them to expand contracts without the hindrance of a shaky bank or inadequate capital.
2. Open access to non-recourse SBIC funding for new job creation investments (Small Business Investment Companies, an SBA program) Leverage participation to experienced venture funds for investments aimed exclusively at start-up enterprises. While higher risks are involved, there would be instant new job creation under the watchful eye of seasoned business operators with an upside for success.
3. Extend the SBA 7(a) loan guaranty to 90% for five years. The higher guaranty would encourage more bank participation through better capital leverage, and lower risk
What would you do? If you have any big ideas on this subject, send them to me at AskCharles@CharlesGreenCo.com. I will forward them on to the organizers of this panel and see if they would really like to sponsor a meeting that will matter. Who knows?
FDIC Assembles Forum to Offer Funding Solutions
The FDIC convened a broad panel of experts and stakeholders of the small business sector in Arlington, Virginia on Thursday to examine the issues of and potential solutions to the challenges facing small business funding.
Entitled “Overcoming Obstacles to Small Business Lending Forum,” the event offered two distinct panels: “Framing the Issues[1],” which provided a macroeconomic context of these funding challenges, and “Confronting the Obstacles[2],” which offered potential solutions from various perspectives.
The first panel offered much familiar information with little debate about where the economy had risen from since the darker days of 2008. Even U.S. Chamber Chair Thomas Bell grudgingly agreed that TARP and other government intervention prevented a meltdown of the capital markets, and was proving to have been legendary action by the Federal Reserve and Bush Administration. Read More
Read Similar: business banking, business financing, economy, financial crisis, financial regulatory reform, small business
Words Matter
This Monday morning opens with the terrible news of the weekend shooting of a U.S. Congresswoman from Arizona, who was hosting an open air town hall gathering with constituents in a Tucson AZ Safeway shopping center. Shot down with a slew of other victims, fourteen people were wounded and six persons died. Representative Gabrielle Gifford clings to life with an uncertain recovery.
There is no way to adequately express the tragedy of this event, and I believe all Americans share with my sadness, anger, and frustration at the senseless violence, futile outrage, and unseemly consequences of this act. And, we know there are many less sincere people who have already begun using this event to spin their own political liberal and conservative positions, well ahead of a clear explanation of the motivations, methods or madness that was behind this tragic act.
I have my own opinions and this is not the forum to air them – but a hint would be that senseless backhanded references to violence in our national political theater have contributed to this ugly chapter in political discourse. Consider former Senate candidate Sharon Angle’s comments “if we don’t win at the ballot box, we’ll start looking at 2nd amendment solutions…” or potential presidential candidate Sarah Palin’s use of a gun sight crosshairs to ‘target’ opposing Congressional district races.
Instead of following that story, I want to borrow that theme to point to current rumblings about fiscal policy before the U.S. Congress. The new Republican majority has arrived in the House and with them all the disjointed promises, demagoguery, and mistaken assumptions are on the floor. First issue at hand: a promised $100 billion spending cut.
Words matter.
If this freshman class was as brash to promise such an irresponsible idea, they darn well should have accepted the responsibility to understand exactly what they were promising. Flying into office, posing for all the pictures, figuring out how to navigate the Capitol, they have stumbled into the inconvenient truth of what a $100 billion spending cut really means. Particularly since their leadership removed defense, social security, and Medicare off the lists of possibilities where such cuts would be made.
If you add up the remainder of the federal budget (like government operations, bank regulators, investor protection, national parks, education, pollution control, drug enforcement, foreign diplomacy, etc.), they will have to cut $100 billion out of roughly 14% of the federal budget, which will equate to about 20% across the board on every program provided for by the federal budget. Oh, and they did cut $35 million out of Congressional operations – chump change.
Nuts.
Republican legislative aides are already backing down, claiming that since the fiscal year is almost half over, the sum must be adjusted to $50 billion, representing an annualized reduction. And for what good? How will their bold act impact the deficit? Zilch. $50 billion on $1+ trillion is a rounding error. How does it impact the economy? It will reduce employment in virtually every state, and add pressure to 50 state budgets already stressed. Job growth? Fuggetaboutit.
Words matter.
When you decide to campaign and roll into a public position full of spit and vinegar about big, bold ideas, it might help to understand what the hell you are talking about. Don’t get pushed in a corner by political rhetoric that makes a great soundbite, but hurts everybody that hears it.
The most sacred rule of health care delivery is appropriate here: do no harm.
Point of Personal Privilege – Announcing Small Business Finance Institute
Today is the first work day of 2011, and I am using this transitional moment to announce the recent founding of the Small Business Finance Institute (http://www.SBFI.org), let’s call SBFI. With the concurrence of the IRS, my intention is for this enterprise to be recognized as a non-profit 501-c-3 corporation, serving many people across the country as an effective resource to spur job creation, economic advancement and community development. With your indulgence, I will explain further.
During my 30 finance career (banking, venture capital, and business advisor), one recurring challenge I found when dealing with clients was the void in their knowledge about basic finance. I’m not talking about financing strategies, products, or planning, but rather about very basic tenets, like how to read a financial statement.
I found it surprising that these gifted entrepreneurs could perform exceptional services or manufacture, sell and deliver so many products in a fast-paced, competitive, world, but be at a complete loss to interpret their CPA’s accounting for it. Using their bank balance as the sole measurement of success, they plodded on ahead if there was money in the bank.
Cash flow planning? Non-existent. Essentially they knew that there was a payroll in the non-to-distant future, and meeting that obstacle was as far as any kind of meaningful planning went.
This foray into education is not my first. In 1996, I penned my first book to teach business owners about the finer points of using the SBA program to provide business financing. The book was intended to be a resource to explain the process and reasoning used by banks to employ SBA-guaranteed loans to fund long term capital financing for less mature, or even start-up businesses. It also tried to break the negative myths and bad stereotypes many borrowers and lenders held about SBA loans.
That original book was revised in 1999, 2005, and a new version (The SBA Loan Book, 3rd Edition – Adams Media) will be released later this month. To date, almost 60,000 business owners have purchased it, for whatever purpose, making it quite successful for a how-to guide on government-guaranteed debt financing.
Having closed the last chapter of my banking career in 2010, I decided to pursue the challenge of business education full time with a different strategy, and thus SBFI was born. Rather than writing more books, which sit around and wait to be found and read, I decided to launch a full time enterprise that intends to deliver a full curriculum of applied financial education. Eventually I want to provide a full library of financial literature online, free to the small business community. And, with academics and major financial institutions, organize a think tank to create more innovative financial products and delivery streams.
Yes, I recognize the inherent risk of being considered a bit grandiose by my naming such an effort an “institute,” but frankly that degree of confidence is born from practicing finance for more than 30 years, both inside and outside of small business. Having lived it, I believe I am fairly seasoned as to what is needed in the market, and how to make a real difference in these challenging economic times.
My aspiration is for SBFI to eventually become a national platform to teach small business owners better financial management skills and how to better fund their enterprises with a number of strategies. Through conferences, seminars, and digital presentations, meaningful information can be delivered that will change their approach to planning, executing and measuring financial success for their small business operation.
SBFI’s first foray will be a one-day conference in Atlanta on March 16th, “Stepping Up To Business.” This event will be a fitting preview of more to come, with eight workshops presented to teach everything from how to write a successful financing proposal, to the finer points of cash flow planning, to how to navigate angel financing. Read more about the conference at http://www.sbfi.org/registration.
More events and learning opportunities will follow that are intended to engage small business owners of every level of experience and development in strengthening their ability to survive and thrive. While there are many talented, thoughtful people starting and operating businesses, if they don’t get the money right, everything else in their efforts will be for naught.
SBFI can be a prominent resource to help them get the money right. I hope it can be a resource for you.
Onward, upward.
Happy New Year.
Looking Ahead To 2011
The only good predictions are ones that we can point back to with some measure of accuracy. Putting those predictions in writing carries some risks, because it also provides proof to others in the event you were wrong. Economists are famous for having an opinion and contra-opinion about everything (“…on the other hand”), which I believe is only a hedge to ensure they can always claim to be right.
Demonstrating fearless confidence in my own sense of what to expect, I humbly offer these predictions about our economy and the contributing financial factors that will largely shape it in 2011. Watch this column late next year and we’ll compare notes to see how well I did.
Dow Jones Average – Having recently attained the highest value since August, 2007, and watching other international equity markets similarly climbing back up toward pre-crisis levels, I predict that the DJA will return to the high 13,000 – low-14,000 range in 2011. But don’t read more than economic confidence in the status quo into these metrics, because the Dow won’t be driven by extraordinary growth.
Many factors contribute to sending equities back into higher numbers: a) smaller investors have bailed out of the market as hundreds of companies have used surplus cash to repurchase shares and drive prices higher; this trend will continue. 2) Growth expectations are moderate, so companies will be rewarded by exceeding modest targets. 3) corporate profits will remain strong as no one ventures to break out into an aggressive growth strategy, and hesitate to bulk up employment further, and 4) most economists are starting to see daylight in an uptick in consumer spending during the holidays and lower unemployment claims.
Potential pitfalls may be financial stocks, given the unknown drama to play out over home foreclosures and growing litigation related to the CDO mess.
Bank Failures – Bank closings in 2010 were less than expected with only 154 shut down while expectations were higher. No one is saying why, but I believe that the FDIC is still a little overwhelmed at the volume of work involved with so many failures and so many banks operating under formal agreements.
That may change in 2011 as the regulators seek to clear the decks and take the worst of their 800+ problem banks down. Their incentives would be to help the residential market begin to recover faster and consolidate more operations into banks that are healthy enough to continue lending. Both of these factors would contribute to the general economic recovery. I predict 225 banks will be closed in 2011.
Home Foreclosures – No one is predicting unemployment will improve nationally to less than 9% in 2011, and that statistic will block progress on reducing home foreclosures. I believe the foreclosure volume will remain at the same volume, as will bankruptcies and short sales.
Gross Domestic Product – Lots of leading indicators smell like GDP will finally start migrating north, as consumers couldn’t hold back from a decent holiday sales spree, and new job are slowly growing. I will go out on a limb and price a 3% growth rate for 2011 – optimism is a good thing. You can help – take someone out to dinner one more time each month to do your fair share.
Tax Legislation – Hard to say what will happen in the 112th Congress, infused (confused?) with lots of rookie patriots who will try making their point in all the wrong ways. Look for much grandstanding on the deficit commission report, as the president seems to be signaling that he will present a plan to re-write much of the tax code to pave the way for broader tax base and lower tax rates.
Expect everyone to support these efforts enthusiastically… except seniors (who oppose tinkering with social security benefits of their grandchildren), home builders (who want to save the home mortgage deduction), and dozens of industries that have been enjoying decades of tax breaks we didn’t even know about. In other words, it will be a mess.
But I predict something less than a heroic repair will emerge, but it will be more than just kicking the can down the road.
Happy New Year!
Looking Back At 2010
Is it the mega-gigabytes of memory enabling constantly faster computer processing speeds that makes an entire year seem to elapse in the space of what felt to be only a few months? The year 2010 is almost over as fast as it was upon us, and the events that shaped it are now history.
So what happened in economic and finance terms? Plenty – definitely some maneuvering around the globe as central bankers and markets everywhere positioned and repositioned to jump start a disappointing economic recovery. Although the Great Recession was certified to have ended in the summer of 2009, it just doesn’t feel that way.
Looking back over the past eleven and a half months, here are the stories I think were most intriguing, and will impact our 2011 more than most:
Federal Reserve – the Fed was probably in the news much more than they wanted to be in 2010, accentuated by a tense election cycle commandeered by an angry contingent of conservative libertarians named the “Tea Party.” Promoting strict adherence to the U.S. Constitution, which few apparently understood or was given a creative license to define. They railed about much and actually elected a few people to Congress who subscribe to the conspiratory myths about its origin and therefore oppose the existence of the Fed.
Hopefully, the new Congress will begin attacking the unemployment rate, budget deficit, and complicated tax code, and leave the paper monsters alone until the next election. I am afraid the fireworks will continue though, as perennial gadfly and Tea Party kindred spirit Rep. Ron Paul is set to Chair a House subcommittee overseeing the Fed.
Domestic Banks – Banks did not fail at the predicted rate in 2010. Only 154 failed through December 17th, which is far short of the predicted 200-250 failures that were expected by none other than the Federal Deposit Insurance Corporation.
While many banks have begun to see daylight, some markets like Atlanta, Phoenix and Las Vegas are still going to be tough places to get new financing. The real estate recovery in those cities will be slow to unload their remaining volume of unsold properties.
The Dodd-Frank Act enacted a number of sweeping financial regulatory reform measures, particularly regulations to break up a major failing bank, provide consumer protection, and beef-up bank capitalization.
Wall Street – The Street is back – profits soared again at most major brokerage firms and year-end bonuses have returned with a vengeance. Lobbyists for the industry did an effective job of avoiding much of the feared regulatory reform in the Dodd-Frank Act, which barely tightened a modest oversight of derivative trading.
These overpaid, “masters of the universe” traders also proved to be fairly thin-skinned when made the object of criticism of the economic malaise presently sidetracking most of Main Street. The Dow Jones Average has returned to its highest level since mid-2007.
Small Business Jobs Act – A bone was thrown to the small business sector in the form of the Small Business Jobs Act, bantered around unnecessarily for months by politics in the U.S. Senate. The final bill provided a $30 billion fund to invest in community bank capital, which could be leveraged 10:1 into $300 billion of small business financing. The more banks grow that lending, the cheaper the payback will be to Uncle Sam.
Also big news was authorization to increase SBA loan size limit to $5 million (from $2 million) which will enhance program’s utility for larger companies. Concurrently, the agency expanded eligibility for an SBA loan to tens of thousands of new businesses.
European Union – Some of the poor cousins in the EU had to face up to a debt crisis, with pending defaults. During 2010, booth Greece and Ireland had to be bailed out of a crisis, with a poorly kept secret that Spain and Portugal are probably next.
Finance ministers continue to grapple with longer term solutions, and are beginning to talk publicly about the possibility of “common fiscal policy.” That will be an interesting idea to follow next year.
China – It’s another year, another continuation of an undervalued Renminbi to other major world currencies. That trend may prove to have lasted too long, because in 2011 the Chinese Central Bank will have to deal with an accelerating inflation rate, fueled by a 9% GDP growth rate. Watch for more pressure on their own housing bubble as well.
A more ominous trend for American’s to watch is the recent approval to exchange the Renminbi outside China for the first time. They are settling trades with Russia directly with Rubles and Renminbi, instead of using Dollars. What’s next, the Petro-Renminbi?
There were plenty more stories, but needless to say, 2010 has proven to be another fascinating year in finance. Tune in next week for a look ahead to 2011.
Read Similar: business financing, economy, financial regulatory reform, small business, year in review
Funding A Tax Break With Borrowed Money?
Who does not like the idea of lower taxes? No matter how progressive one is, all the liberals I know will agree with their conservative friends that lower taxes are better than higher taxes, right? Particularly when you are talking about those that you have to write a check to pay. No responsible person would unnecessarily pay higher taxes if given the choice to not do so.
But what is Congress preparing to do? Extend a “tax break” for two years, and using more borrowed money to pay for the expenses that they are unwilling to reduce in the meantime. Does that make sense? Of course it does not. Read More
It’s A Plugged-In World
Do you know how these three topics are interrelated: the U.S. budget deficit, Chinese monetary policy, and iPhones? As disparate as they sound, they are all three closely related, and each will impact our economic future enormously.
Our nation has been spending more money than it generates in tax collections for most of the years over the past four decades. That deficit has been funded largely by government bond sales because presidents and Congress have either been willing to bet on the revenue growth their budgets would create, or unwilling to collect a reasonable tax assessment for the spending they have seen as necessary. As this debt grows, the annual interest payments have become a sizable sum that has to be paid, thereby adding resistance to balancing the budget in future years. Read More
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