Archive for October, 2010

Disability Income for Both Parents

Saturday, October 16th, 2010

I had an interesting conversation the other day with a freelance journalist who writes about parenting topics for a national magazine. We were discussing disability insurance. According to the Society of Actuaries, working Americans between the ages of 25 and 65 years old have a 1-in-5 chance of becoming disabled for a year. Experts recommend having coverage to replace 60% of your income. But what about the value of the work performed by someone who has no income? Imagine that a full-time homemaker becomes temporarily disabled. Her family would incur the expense of replacing the services she provides for free: caring for children, cooking, housekeeping, etc. Many families don’t take the value of those services into consideration when they make their financial plans. Don’t make that mistake. Ensure that your savings plan contemplates the value that both parents bring to the family, not just the parent with earned income.

How We Learned of Robosigners

Friday, October 15th, 2010

The home foreclosure that halted other foreclosures nationwide, that of Mrs. Nicolle Bradbury of Maine, is the subject of a compelling article in the New York Times. Mrs. Bradbury’s mortgage lender, General Motors Acceptance Corporation, is now making its third attempt to foreclose on the home. Mrs. Bradbury would today be homeless but for the determined work of a pro bono attorney who deposed an employee of GMAC Mortgage. It was through this deposition that we learned that contrary to his sworn statements, the employee had no knowledge of Mrs. Bradbury’s case as he was preparing 400 foreclosures each day. Thus, the term “robo-signer” entered our lexicon.

The judge who heard the foreclosure case censured GMAC for its failure to comply with the directive of a Florida court four years ago for its unacceptable use of robo-signers. GMAC’s lawyers asked the court to place the incriminating deposition of its employee under court seal and to delete the transcript of the deposition from any online posting. The brazen nature of that request speaks volumes about the abuse of corporate power. The New York Times, to its credit, posted the deposition online if you wish to download it, click here.

We still don’t have clarity on whether these practices were common to commercial mortgage as well as residential ones. If your small business owns a mortgage and you are in arrears on your payments, you should consult legal counsel immediately.

Ban On Deepwater Drilling Lifted

Thursday, October 14th, 2010

The Obama administration lifted the moratorium on deepwater drilling, citing new environmental and safety regulations that it believes significantly reduce the risk of another major accident. The moratorium was originally scheduled to end on November 30. Whether the early release will have any benefit to the economies of the Gulf Coast states remains to be seen. Oil companies believe that ending the moratorium was a meaningless gesture, because they continue to face lengthy processes for drilling permits required to resume their work. For small businesses in the Gulf Coast states, where the oil and gas industry is a major contributor to employment, it will be some time before they see normal business activity.

Bank Crisis Slowed Business Creation

Wednesday, October 13th, 2010

Global Entrepreneurship

A report from the World Bank’s Development Research Group finds that new business creation fell dramatically in the wealthiest countries as the global banking crisis of 2008 – 09 deepened. But business creation in low-income countries remained constant. The inhibition in the wealthier countries appears to be the result of a widespread lack of business confidence and frozen credit markets. For lower-income countries, where the credit markets are generally not accessible to entrepreneurs to begin with, the banking crisis did not have the same impact. Leora F. Klapper and Inessa Love, the World Bank senior economists who authored the report, emphasize that the recent crisis notwithstanding, the financial markets offer more benefits than risks to new business creation. They write

Entrepreneurship is essential for the continued dynamism of the modern market economy and a robust entry rate of new businesses can foster competition and economic growth…Entrepreneurial activity can also contribute to employment generation. For instance, in the United States and Canada, young firms have been shown to be an important source of net job creation, relative to incumbent firms.

The World Bank’s “Doing Business” series, unrelated to this report on new business creation, tracks metrics such as ease of incorporating a new business, access to finance, tax policy and other variables that influence entrepreneurial activity. True to the adage that “what is measured is managed”, countries take active steps to improve their rankings in this report, with reform measures to streamline the process of business start-ups. As small business owners, we need to get our elected officials in Washington to read this report and act upon its recommendations.

New Jersey Small Business Clinic

Tuesday, October 12th, 2010

An Entrepreneur in the SenateI snapped this picture of New Jersey Senator Frank Lautenberg delivering the lunchtime address at the New Jersey Small Business Clinic on Friday. The event was held on the campus of the New Jersey Institute of Technology in Newark, which hosts the largest technology incubator in the country, housing nascent start-ups in industries from life sciences to software. The Senator is an entrepreneur himself having joined with two partners to found Automatic Data Processing, or ADP, the country’s first payroll processing company. Lautenberg served as chairman and chief executive officer of ADP which grew into one of the world’s largest computing services companies. The senator spoke about the small business jobs bill that was recently signed into law. The senator’s staff organized this clinic, which featured workshops and sessions with banks lending in the community. Newark Mayor Corey Booker welcomed us with the opening breakfast session. I try to attend events such as this one when time permits, as entrepreneurship is a team sport. It renews my motivation to connect with others and discuss issues of common concern. I enjoyed a particularly interesting conversation over lunch when I was seated with a production team from WNJN News concerning the cutbacks in coverage for local news events. You never know who you will meet at these events.

The More Things Change..

Sunday, October 10th, 2010

A draft report released by a White House commission charged with examining the government’s response to the Gulf Coast oil spill revealed responses that are consistent in our national approach to disasters:

  • An initial assessment by the White House that was “over-optimistic” as to the extent of the damages, resulting in delays in bringing the necessary resources to bear in containing the damage;
  • The government’s initial reports to the public concerning scientific data on the spill damage were misleading; and
  • Conflicts between state and local officials and the federal government confounded recovery work.

The New Orleans Times-Picayune presents an excellent summary of the report. With respect to disaster response and recovery, we are simply wasting too many resources reinventing the wheel. You could redact the words “oil spill” from the report and replace them with “Hurricane Katrina” and the findings would be largely unchanged. We need a forward-looking approach to disaster response that reflects what we have learned to date.

Hungary Fortifies Against A Second Leak

Saturday, October 9th, 2010

Toxic Mud in HungaryHungary suffered an unimaginable environmental disaster last week when toxic sludge leaked from an alumina plant, prompting an evacuation of nearly all 800 residents of the town of Kolontar. Red sludge is the byproduct of refining bauxite into alumina, the essential component of aluminum. The sludge is typically treated to reduce its alkalinity, resulting in a final byproduct of harmless red clay. Unfortunately, that treatment was not practiced at this particular plant such that when the sludge leak flooded local villages, it killed at least seven people and injured more than 100 more, causing severe burns. Approximately 184 million gallons of the toxic red sludge were released into the environment.

But there may be more leaks to follow. Local authorities just discovered expanding cracks on the plant reservoir wall. They believe that the wall could collapse within the week. Emergency teams are racing against time to fortify the facility against a second leak before the next rainstorm. Sadly, environmental disasters continue to increase in frequency and severity.

This photograph shows a view from space of the toxic mud leak in Hungary, courtesy of NASA.

Rhode Island Looks Forward

Friday, October 8th, 2010

Six months after Rhode Island experienced the worst floods in over 200 years, the state is considering different proposals to protect against future damage, including aid to small businesses for relocation. The problem, of course, is that the cities and the state are broke. And the small businesses certainly cannot afford to relocate themselves at this point in the economic cycle. The Providence Journal reported the scope of the flood clean-up. The town of West Warwick removed from its roads and sidewalks:

  • 2,000 tons of silt and sludge
  • 427 tons of construction debris and furniture
  • 11.8 tons of ruined electronics, such as microwaves and air conditioners
  • 7 tons of water-soaked mattresses and box springs
  • 2.5 tons of tires

During the boom cycle, we should have been investing in our infrastructure and in our security, investments that would prove critical in leaner time. Now we have critical needs for our communities, but we lack the means to pay for them.

Unemployment Takes Its Toll on Workers Compensation

Thursday, October 7th, 2010

Waiting for the Recovery

Persistently high unemployment is taking its toll on the workers compensation market. A.M. Best, an insurance rating agency, reports that net premiums written for the workers comp line declined for the fourth consecutive year in 2009, from $41.9 billion in 2008 to $36.2 billion in 2009, a decrease of 11.6%. Fewer employed workers results in lower premium volume for workers compensation coverage.  At the same time, workers comp claims typically rise in an economic downturn. Uninsured workers are more likely to attribute injuries and illnesses to work-related incidents when they cannot afford the cost of their own care. This is reflected in the 8.8 percentage point increase in the combined ratio of A.M. Best’s index of workers comp underwriters. The combined ratio rose to 120% in 2009, the highest level since 2002. This means that for every dollar the insurers collect in premiums for workers comp coverage, they pay out $1.20 in claims and expenses. Profits for workers’ comp underwriters have fallen off a cliff; the net income for the A.M. Best composite workers comp insurers fell 61% in 2009. So small businesses can expect declining capacity and rising rates in the near future.

It’s Not Over Yet

Wednesday, October 6th, 2010

As the North Atlantic hurricane season ends November 30, we have two months remaining before we can breathe a sigh of relief. However, these are the peak months of the storm season. Remember that it was in the month of October (2005) that Hurricane Wilma, a Category 5 storm, struck Florida and is now remembered as one of the five worst Atlantic hurricanes in terms of damage expense. A recent study  by Colorado State University forecasts above-average Atlantic storm activity over the next week. Another modeling agency, Risk Management Solutions, expects one or two more named storms to develop before the 2010 season ends. What is particularly worrisome about the 2010 hurricane season is that it coincides with high unemployment, record deficits at both the state and federal levels and persistent economic weakness. According to the Institute of Business & Home Safety, 25% of small businesses fail to re-open following a major disaster. Factor into that gloomy statistic the lack of funds to finance a disaster relief effort and you appreciate our luck so far this season.