Archive for August, 2010

It’s IOU Time Again

Tuesday, August 31st, 2010
World's 8th Largest Economy in Trouble

World's 8th Largest Economy in Trouble

On July 8 of last year, I posted a blog to update on the California budget crisis:

Further to an earlier blog posting on the topic of California’s decision to pay certain of its contractors in scrip, the State Legislature is considering a bill that would require the State to accept its own paper as payment for taxes, fees and other obligation due. After all, it is only fair that California accept its own currency. Irrespective of what happens with this bill, small business owners should use the IOUs as payments towards California state taxes, city taxes, fees, and other government obligations. If I were a California small business owner, I would even use the IOUs to pay the IRS. After all, the federal government is in a better position to collect from California than I am. This should dampen the pain for the businesses that are put in a terrible cash flow position with this move. Check cashing companies have indicated that they will accept the IOUs, but they charge onerous fees. Better to redeem the notes pack to the state to retire other obligations and conserve cash.

Well, one year later and we are right back where we started. California’s Controller, John Chiang, stated that unless the state passes a budget, he may be forced to resume issuing IOU’s within a few weeks’ time. In response, Republican Assemblyman Joel Anderson drafted a bill that would allow businesses and individuals who receive IOU’s from the state to redeem them with the state for payment of taxes, tuition at state universities, motor vehicle fees and other obligations to California. The bill awaits Governor Schwarzenegger’s signature, but the governor’s finance staff oppose the bill, stating that accepting IOU’s as a currency would deplete the cash balances the state is trying to preserve. Anderson responded that if the governor fails to sign the bill, it is an acknowledgement that California is “such a dead-beat state” that it won’t even accept its own paper. As if running a small business isn’t sufficiently challenging, those businesses that count California as its client may be compelled to finance the state’s recklessness.

Corporate M&A Activity Signals Poor Outlook

Monday, August 30th, 2010

Corporate mergers and acquisitions are heating up, with French pharmaceutical giant Sanofi-Aventis, U.S. technology companies Hewlett-Packard and Intel and others preparing to purchase other companies. No doubt strategic acquisitions are a better use of cash than letting it idle on the balance sheet. But this activity represents a vote of no-confidence in our economic future. When such corporate leaders could not think of a more imaginative way to invest in their futures (more research and development to seed future innovation perhaps?) than the pursuit of operational efficiency, this does not bode well. Of course, the profits to be generated will result from cost savings as the acquired company is integrated into its new corporate owner. This suggests more corporate downsizing and rising unemployment. It is hardly likely to persuade small business owners that we should take on debt and hire when the Fortune-500 appear to share our lack of confidence in our economic future. The Administration does not appear to have taken note of the implications of this spate of merger activity as it is pushing for a major piece of legislation for spur small business lending. Even with the capital available, who would borrow?

Commuter Disaster

Wednesday, August 25th, 2010
Cisalpino - High Speed Rail Between Switzerland and Italy

High Speed Rail Between Switzerland and Italy

From time to time we are reminded of the costs of our failure to maintain our public infrastructure. The mass delays on Amtrak and the Long Island Railroad provided another timely reminder. The disaster began on Monday morning when a fire destroyed train switches of the LIRR. The fire was quickly extinguished, but nevertheless crippled the entire commuter train system. One third of the scheduled trains were canceled, but the inconvenience of rebooking and lengthy travel delays is insignificant relative to the risk of passenger or worker injury due to human error. The New York Daily News reports that train workers are manually operating the machinery that keeps the trains on the tracks, working back-t-back shifts until the equipment is fixed. Isn’t that scary? That problem was followed by a major voltage outage affecting the entire Northeast Corridor. Many Long Island commuters had to book hotel rooms to spend the night in the city, as they could not get safely home. As these incidents become more and more frequent, we have to explicitly consider the cost of doing business in major U.S. cities. I took this photograph when I lived in Switzerland. It is the Cisalpino, the high-speed train I used to take between Zurich and Milan. It runs like clockwork.

Hurricane Danielle

Tuesday, August 24th, 2010
Hurricane Danielle

Hurricane Danielle

The National Hurricane Center has upgraded Danielle to hurricane status, but its present course suggests it is unlikely to strike the East Coast. The 2010 hurricane season is particularly stressful, as it represents the fifth anniversary of Katrina, bringing back painful memories for those affected. It is forecast to be especially severe, it coincides with another disaster in the Gulf Coast and this is a time when financial resources are strained.

One of the programs developed by Texas emergency authorities, in drawing on the lessons of Katrina, was to consider in some detail the evacuation needs of disadvantaged people. There may be those with cars who lack money for gasoline to make a long evacuation trip. The state arranged for people who need rides to register in advance so that no one would be left behind. We will all breathe a sigh of relief when the peak hurricane season is behind us. Meanwhile, we need to apply innovative thinking such as this example in Texas to plan for extreme demands on limited resources.

Massive Floods World Wide

Tuesday, August 24th, 2010

This appears to be the year for epic flooding. Rhode Island experienced the worst flooding in 200 years in the spring and many affected businesses have yet to re-open. Tennessee experienced a 1-in-500 year flood event, devastating a good part of the state, including Nashville and the Grand Ole Opry. Germany, the Czech Republic and Poland experienced major floods this year. China’s floods required massive mobilization of public resources. India is underwater and Pakistan’s flooding represents a humanitarian crisis with the very real threat of cholera and other water-borne illnesses. Check out the photographs of the flooding disasters from Asia to Europe here. The tragedies are compounded by the fact the lack of public resources to provide relief aid, as a consequence of a protracted global recession. We should all give whatever we can.

Unemployment Continues to Rise

Thursday, August 19th, 2010
Either One Is Bad

Either One Is Bad

The number of people filing first-time unemployment claims last week rose to 500,000, a level not seen since last November and well above the expectations of most economists. But the true number of unemployed Americans may be much worse than even the grim data of the U.S. Department of Labor indicate. TechnoMetrica Market Intelligence, which conducts polls for major new media such as Investors’ Business Daily, has expressed skepticism about the official unemployment numbers. In its latest poll, TMI found that 28.6% of households surveyed have at least one member who is out of work, which translates to an unemployment rate of over 22%, well above the official 9.5% unemployment rate. The Bureau of Labor Statistics tabulates the total unemployment rate at 16.5%.

The largest source of the discrepancies between official and unofficial numbers is likely the number of people who are underemployed with part-time jobs or temporary positions for which they are overqualified. According to the Department of Labor, 8.6 million Americans fall into this category. Indeed, a Pew Research survey found that more than half of workers had suffered a decline in their income. The “discouraged unemployed”, those who have exhausted their allotted unemployment benefits or who have given up working, also contribute to the undercounting. Whichever measure you use to capture the data, the unemployment rate continues to be unacceptable. Had policymakers focused on supporting the traditional engine of job growth, small businesses, rather than the big bailout strategy, we would be in a different place.

Red Cross Assesses 2005 Hurricane Response

Wednesday, August 18th, 2010
We Did Our Part

We Did Our Part

As we approach the fifth anniversary of Hurricane Katrina, the American Red Cross is sharing its lessons learned in a report Bringing Help, Bringing Hope: The American Red Cross Response to Hurricanes Katrina, Rita and Wilma. With $2.2 billion in donor funds, the Red Cross provided shelter and emergency financial assistance to evacuees across thirty-one states and the District of Columbia. This assistance reached 1.4 million families or 4.5 million people, nineteen times the Red Cross’ previous record of outreach. The unprecedented scope and scale of the relief effort prompted the Red Cross to enhance planning for large-scale disasters and created new partnerships at the local, state and national levels. The Red Cross also established a national warehouse system, stocked with more than twice the amount of disaster relief supplies previously kept in inventory – enough to support 35,000 shelter residents. The number of trained disaster volunteers was increased from 25,000 to nearly 95,000, including nearly 50,000 who are on call to travel to disasters around the country. Finally, the Red Cross created web tools to connect families online after disasters. It was an extraordinary response to an unthinkable event. The image here shows the certificate we received from the Hurricane Recovery Director of the American Red Cross for our assistance to affected small businesses. We can all do something and the Red Cross report shows the results of many individual contributions.

Gloom All Round

Tuesday, August 17th, 2010
A Global Phenomenon

A Global Phenomenon

It appears to be a global phenomenon: increasingly downbeat small business owners who see a completely different economy than the one that exists for large corporations. The current monthly survey of small business sentiment conducted by the National Federation of Independent Business states “seventy-three (73) percent of the owners report that the current period is not a good time to expand. Of those, 66 percent cite the weak economy as the main reason, but 18 percent cite the “political climate” as the source of uncertainty. This elevated level of concern has prevailed since January 2008 when Congress began debating the “stimulus” and other possible actions to deal with the economy and the government changed hands. The expiration of the Bush tax program and the implementation of the health care bill represent the two largest tax increases in modern history. Add to that serious talk of a VAT and passing cap and trade. Nothing here to create optimism about the future for business owners or consumers. Top that off with government borrowing of $1.8 trillion last year and $1.5 trillion this year and on into the future, it is no surprise that owners are fearful and pessimistic.” The survey didn’t find concerns about small business access to capital as the most credit worthy businesses are reluctant to assume additional debt: “The saving rate is over six percent, good for the long haul but tough for firms that became accustomed to a “zero” savings rate supported by unsustainable home price appreciation and the borrowing that supported. But most “good” borrowers are on the sidelines, still waiting for a reason to seek a loan and expand their businesses.” To read the report in its entirety, click here.

Compelling Images

Friday, August 6th, 2010

I was very impressed by ABC’s late night news program “Nightline” in presenting the day’s testimony at The Hague in the war crimes trial of former Liberian President Charles Taylor. Former 1980’s super-model Naomi Campbell testified about the night that Taylor’s staff gave her blood diamonds. ABC News ran her testimony without interruption for the usual talking head commentary giving the viewers the opportunity to form their own opinions. Campbell’s apparent indifference to those who had suffered in Africa was obvious and any attempt to summarize what she had said would detract from the shock value of her actual words. She actually said, “I didn’t really want to be here. I just want to get this over with and get on with my life, this is a big inconvenience for me.” She just exuded her sense of entitlement, dismissing the practice of men giving her gifts all of the time and her thinking nothing of that. The juxtaposition of her physical beauty and her ugly character could not have been more striking. ABC News then showed the video of the next witness to testify against Taylor. After Campbell left the courtroom, dressed in stunning designer clothing, the next witness placed the stubs that remained of his limbs on the table before him and described how he and his family had been mutilated by Taylor’s regime. I have to commend ABC News for letting the viewers see the video footage and keeping the commentary to a minimum. My respect for Mia Farrow, who had reported her conversation with Campbell concerning the diamonds, just jumped. Disaster recovery is a long slow process, but people take longer to heal from acts of man than we do from acts of God. The former are much more traumatic and what could be more painful to the amputee who testified about his suffering than the indifference to his plight exhibited by one of the most privileged women in the world.

Spending Caravan

Wednesday, August 4th, 2010

Crossing the Gulf Coast Communities

A group of small business owners in St. Louis, Missouri plan a “caravan” across the Gulf Coast traveling from Bay St. Louis, Mississippi as far east as Panama City Beach with stops along Mississippi and Alabama coastal communities, including Biloxi, Gulfport, Pascagoula and Grand Bay. The group plans to spend money at local small businesses at each stop and in the process, create a “Gulf Cara-van Kit” to help other cities recreate their project to aid Gulf Coast communities in their recovery from the losses arising from the oil spill. Group members will blog and tweet about their caravan and have published a site,, for more information. Called “tourism with a purpose”, the caravan plans local media events to call attention to the need to support the Gulf Coast. They can look forward to a warm welcome as mayors of several of the communities plan to present the group with keys to their cities. I am planning an event in the Gulf Coast this fall; we should all do what we can to show our support.