I read in the news today of a proposal under consideration at our state legislature in Albany that would assess $15,000 fines against car owners for their failures to remove snow and ice from their vehicles. Most cars on the road probably are not worth $15,000. The car depreciates 50% in value the minute you drive it off of the dealer’s lot. Crazy ideas such as this proposed fine reveal the desperation of our politicians to find revenues. Sneaky fees are taxes in disguise and we should be vigilant. There are so many fines, fees and penalties for matters that can hardly be considered infractions that you simply cannot keep track of them all. It is disheartening.
Desperate Politicians
October 21st, 2010Penny Wise, Pound Foolish
October 20th, 2010In connection with austerity measures, the UK government reduced spending for flood and coastal defenses, a move that elicited sharp criticism from insurance industry trade groups. Nick Starling, the Association on British Insurers director of general insurance and health said: “The Government is right to recognize the importance of continued investment in flood defenses. But we are disappointed that this will not be maintained at current levels, given the scale of the problem and the wider economic benefits provided by flood defenses to our communities and businesses.” The UK, like the U.S., China and other major economies, has experienced severe flooding this past year. Fortifications against flood risk makes insurance affordable in vulnerable communities. It also reduces the disaster relief burden the government would shoulder should severe floods occur. The fiscal pressures on governments result in aggressive public risk taking: if the gamble pays off, the taxpayer saves money. If it doesn’t, the losses are greater than they would have been with an investment in systems for risk mitigation. It is no different than in the U.S., where many state governments are foregoing reinsurance coverage altogether.
Shouldn’t Care Be the Norm in Public Spending?
October 19th, 2010The Financial Times published an excellent column describing how some entrepreneurs believe that the “age of austerity” could benefit private businesses. The UK government is undertaking a spending review to identify items in the public budgets that can be cut. Some entrepreneurs are hopeful that government agencies will take this opportunity to review their procurement policies to see where better value can be gained from small business suppliers. This column reminded me of a 2005 Leadership Exchange event held at Long Beach. A speaker from the California Governor’s office expressed surprise at the quality of service she had received from a small local print shop. Not only was the price the proprietor offered for his services below the bid submitted by a national chain, he followed up diligently to ensure that she was pleased. She had not expected such artisan-like care from a vendor. Do we need to wait for an economic crisis to implement such cost-savings and quality control measures? Shouldn’t this be our normal procedure? I see real opportunities in this economic crisis to create opportunity and was encouraged to read the FT’s column.
Tethered to a Real Estate Asset
October 18th, 2010
Time to Rethink Housing Assets
Declining home values are choking a major source of small business capital. Sadly, the consequences are most severe in the Gulf Coast states that are dealing with the longer-term consequences of the oil spill. According to Lending Tree, three of the top ten states with underwater mortgages are Florida (47.8% of mortgages in the state are underwater, meaning negative equity for the homeowner), Louisiana and Mississippi, each with 23.8% of mortgages underwater. Nationwide, small business owners frequently tapped home equity lines of credit to finance their businesses. Barlow Research’s quarterly small business survey reports that one-quarter of respondents used their homes as collateral for their businesses or for personal loans in which the proceeds were used to finance the businesses. With housing prices having fallen by one-quarter from their peak in March 2006, the home ATM machine has dried up. At the same time, banks have tightened loan underwriting criteria to deal with their nonperforming real estate loans, leaving small business owners with few financing options. Add to that pain the fact that more than 99.6% of all companies operating in the real estate and construction industries (according to the U.S. Small Business Administration) are small businesses, which took an extra hit from declining home prices. Small wonder that many Americans feel tethered to their homes. We must de-couple small business finance from housing finance and develop better lending options to resume growth in the small business sector.
Effects of the Oil Spill on Children
October 17th, 2010
Disaster Stresses Children
The BP oil spill is responsible for health problems and financial hardship for Gulf Coast residents that may continue well after the cleanup work is finished, according to a team of researchers at the National Center for Disaster Preparedness at Columbia University’s Mailman School of Public Health. The researchers found that one in five residents surveyed earn less money now than before the spill; 8% of the 1,200 people surveyed lost their jobs. Households with incomes of less than $25,000 suffered the greatest economic impact. The economic stress felt by the parents trickles down to the children; one-third of the parents surveyed reported that their children have become anxious or depressed since the oil spill occurred. In addition to the psychological stress, medical problems, such as respiratory ailments and skin irritations, are related to the spill. The Children’s Health Fund is sending mobile pediatric units to help. “There are literally no pediatricians in the lower two-third of Plaquemines Parish, Louisiana, one of the worst-hit areas,” according to Irwin Redlener MD, the lead researcher of the National Center on Disaster Preparedness. Sadly, these difficulties appear likely to continue long after the disaster has receded from the newspaper headlines. As a society, we have not yet come to grips with the long-term needs of disaster recovery.
Disability Income for Both Parents
October 16th, 2010I 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
October 15th, 2010The 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
October 14th, 2010The 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
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
October 12th, 2010
I 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.