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News Worth Noting: Stimulus Spending, Bi-Partisan Jobs Bill, The New Poor

Bulk of Stimulus Spending Yet to Come, by Louise Radnofsky
Wednesday, February 17, 2010, Wall Street Journal

Highlighted Points:

-A third of the total $787 billion has been spent so far during the first year to maintain social services, government jobs and to provide tax cuts for workers.

-Infrastructure spending is set to step up in the second year with the goal of more money flowing to private-sector employers. Economists state that won't likely have a big effect on the unemployment rate.

-The bulk of the money proposed for projects like new rail lines and water projects about $180 billion is likely to be spent this year at the earliest. According to Kenneth Simonson, chief economist of the Associated General Contractors of America, " a lot more stimulus money will go into actual contracts and actual hiring in 2010". That will contribute 1.4 percentage points to the Gross Domestic Product (GDP) this year according to Brian Bethune, chief US financial economist for IHS Global Insight.

-Many signature projects including $20 billion for doctors to create electronic medical records, $4.5 billion for an energy Smart Grid and $7.2 billion for broadband networks are still in the very eary stages.

-Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, medicaid and unemployment-benefits or to increase funding for food stamps.


Bipartisan Jobs Bill Advances Past GOP Filibuster, By ANDREW TAYLOR Associated Press Writer WASHINGTON February 23, 2010

Highlighted Points:

-Four provisions, one including a measure exempting businesses hiring the unemployed from Social Security payroll taxes through December and giving another $1000 credit if new workers stay on the job a full year.

-$250 payment to Social Security recipients

-$25 billion to help cash-strapped states

-$30 billion in Wall Street bailout money redirected to help community banks lend to small business


The New Poor: Millions of Unemployed Face Years Without Jobs, By PETER S. GOODMAN, February 20, 2010

Highlighted Points:

-Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed.

-Social safety net is already showing severe strains.

-Every downturn pushes some people out of the middle class before the economy resumes expanding. Most recover. Many prosper. But some economists worry that this time could be different. An unusual constellation of forces — some embedded in the modern-day economy, others unique to this wrenching recession — might make it especially difficult for those out of work to find their way back to their middle-class lives.

-Labor experts say the economy needs 100,000 new jobs a month just to absorb entrants to the labor force. With more than 15 million people officially jobless, even a vigorous recovery is likely to leave an enormous number out of work for years.

-Large companies are increasingly owned by institutional investors who crave swift profits, a feat often achieved by cutting payroll. The declining influence of unions has made it easier for employers to shift work to part-time and temporary employees. Factory work and even white-collar jobs have moved in recent years to low-cost countries in Asia and Latin America. Automation has helped manufacturing cut 5.6 million jobs since 2000 — the sort of jobs that once provided lower-skilled workers with middle-class paychecks.

-“American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics.

-Traditionally, three sectors have led the way out of recession: automobiles, home building and banking. But auto companies have been shrinking because strapped households have less buying power. Home building is limited by fears about a glut of foreclosed properties. Banking is expanding, but this seems largely a function of government support that is being withdrawn.

-The continued bite of the financial crisis has crimped the flow of money to small businesses and new ventures, which tend to be major sources of new jobs.

-“You have very large sets of people who have no social protections,” said Randy Albelda, an economist at the University of Massachusetts in Boston. “They are landing in this netherworld.”

Economic models can be such powerful tools in understanding some economic relationships, that it is easy to ignore their limitations. One tangible example where the limits of Economic Models collided with reality, but were nevertheless accepted as "evidence" in public policy debates, involved models to simulate the effects of NAFTA, the North American Free Trade Agreement. James Stanford published his examination of 10 of these models.

Small Banks and Trust Preferred Securities What?

I came across a very interesting article in the Wall Street Journal the other day "Small Banks Hit Snag As They Raise Cash", by Robin Sidel. This is what made my eyeballs pop: From 2000 to 2008, more than 1,500 small and regional banks issued about $50 billion in trust preferred securities, according to Red Pine Advisors LLC, a New York firm that helps small banks value illiquid investments. The banks favored the securities, a mixture of debt and equity, because they could be counted as capital for regulatory purposes. That gave the banks firmer footing to lend and boost earnings.

Many of the trust preferred securities were placed into pools of collateralized debt obligations. Ratings downgrades have battered the value of many trust preferred securities, which trade infrequently. "For many banks, raising capital is contingent on the extinguishment of the trust preferred securities, " said Brad Larson managing director at Hexagon Securities LLC, a New York Firm that advises small banks on the problem and is affiliated with Red Pine. " A long list of banks is likely to fail if their capital- raising efforts are unsuccessful."

The Consumer and Main Street especially small business owners need to understand the impact of the residue of the meltdown and keep the pressure on.

Slow Start But a Good Start to 2010

It has been a few weeks since the last post. A slow start but a good start as the economy continues to trek along, as more and more data is coming out about how "challenging" things really are with regard to getting small business lending and job growth on a re-newed course. About a week or so ago, the Obama administration announced a new initiative to use over 30 billion dollars of Troubled Asset Relief Fund (TARP) money to use for Coummunity Banks in as a guarantee to jumpstart lending for small business.

Let's track this process and see how successful this initiative will be.

Obama calls for $30 billion small business lending fund By Catherine Clifford, February 2, 2010 CNN Money

Re-Thinking and Expanding Strategies on Start-Up and Small Business Lending

It is not new News that the world, with the United States economy and the US dollar at the center, that we are experiencing a significant shift and financial reckoning at this period in history. Now, more than ever, it is critical that we get back to basics when it comes to churning the financial engines of our economy (in this case, the US economy first in its relation to the world economy).

The dirt and and dust that have lay under the rug for so many years is out, and there is no vacuum that has yet been created in order to suck it up, and to get rid of it in an orderly fashion. The dirt has to be analyzed so that it can be properly disposed of,“hopefully” once and for all.

I am a voracious reader as you will learn, if you continue to follow this BLOG. That being the case, I will continue to share articles, books, videos, podcasts and other information that I think may be useful to the readers; and vice versa. We hope to also direct the reader to ACTIONABLE resources and networks as a way to assist you in reaching your start-up and small business financing goals.

Here is some interesting data:

-NASDAQ has lost over 40% of its value since the glory years of the late 1990’s. In all, about 1.5 trillion in investments have been wiped out. A lot of money was lost following the advice of stock market analysts, these experts usually work for big brokerage houses. (see John K. Romano, article High-Risk-Patient Equity Capital for Small Business, International Open Finance Association)


- See New York Times Article "Bill Shields Most Banks From Review" by By STEPHEN LABATON Published: October 15, 2009. I found these points very interesting *House Approved tougher regulations over derivatives. * Community banks and Credit Unions only control about 20% of the roughly $14 Trillion in assets held by commercial banks. According to the articles there are approximately 8200 banks. The 150 largest banks would face more regulatory scrutiny; hold the remaining four fifths of the assets.

-What is the Miller-Moore Amendment? Let's continue to learn more about this amendment. The Miller-Moore Amendment, a new agency that has been created by congress has the authority to write rules for all banks and other lenders.

Other notables from Op-Ed pieces include:

-New York Post September 20, 2009 Hillary Kramer, President A&G Capital Research, New York writes "Rally is For Suckers: Markets Six-month Run" unsustainable without profits, jobs


-Wall Street Journal, October 8, 2009 David Malpass, President of Encina Global, LLC writes "The Weak Dollar Threat to Prosperity". Here are a few points Malpass made that I made an important note of: *Investors have been playing the weak dollar trade for years, diverting more and more dollars in to commodities, foreign currencies and foreign stock markets. *Corporations borrow billions in dollars in order to expand foreign businesses. * Most of the market capitalization of US stocks held by Americans, the dollar devaluation has caused a massive decline in the share of global wealth.


-Many believe that we are becoming a "Casino Economy" meaning we have seen a shift of investment capital from productive investment in the "job creating real economy" to speculative investment in "paper assets". (see John K. Romano, article High-Risk-Patient Equity Capital for Small Business, International Open Finance Association)

- Over the last 15 years, Fortune 500 companies(companies most likely financed by Wall Street) have reduced their workforce from 16 million to five million. Over the same period, small business have added 20 million new jobs. Small business has done this with less than 1% of publicly traded equity capital; it is obvious that if this creative force had the capital, they could propel the economy forward in a spectacular fashion. (see John K. Romano, article High-Risk-Patient Equity Capital for Small Business, International Open Finance Association)

Romano is right to note the extraordinary feat that small business have in the creation of those 20 million jobs or so, whether it be temporary, contract, part time and or full time work. What is important to add and to note as well is that many of these gains in job creation are short-lived if these business go out of business before the five year success threshold and or if these businesses are without sustainable capital in order to keep the business flowing as the owners and their teams build out revenue models and obtain and sustain the staff and talent to help grow their business.

We also need to challenge the SBA lending models that unfortunately often fail in its objective to meet the needs of small business. Ongoing analysis and statistics regarding small business lending through the United States Small Business Administration should be used to improve loan distribution and business support.

These varying points shed light on how the overall economy is affected when small business is not properly leveraged as a foundation to building and growing the economy.

Goldman Sachs launches small business initiative

Goldman Sachs launches small business initiative
(AP) – 3 days ago

NEW YORK — Goldman Sachs Group Inc. said Tuesday it is launching a $500 million initiative called "10,000 Small Businesses" to help employers overcome financial and education barriers that can limit growth and jobs creation.

The nationwide initiative includes a commitment by Goldman Sachs to invest $300 million through a combination of lending and philanthropic support. The money will be directed to community development financial institutions to increase capital and technical assistance available to small businesses in underserved communities.

Goldman Sachs also said the program will contribute $200 million to community colleges, universities and other institutions to provide scholarships to small business owners, and to expand education capacity.

In addition, small businesses will get advice, technical assistance and professional networking opportunities through partnerships with national and local business organizations.

An advisory council co-chaired by Goldman Sachs CEO Lloyd Blankfein will oversee the initiative. Other co-chairs are legendary investor Warren Buffett and Harvard Business School Professor Michael Porter.

The first community college to participate will be LaGuardia Community College in New York City's Queens borough, which houses a Small Business Development Center. The first community development financial institution to receive financing from Goldman Sachs will be New York-based Seedco Financial Services Inc.

Copyright © 2009 The Associated Press. All rights reserved.

Recession: Start Up and Small Business the Micro-Effects

Wikipedia: The Free Encyclopedia

In economics, a recession is a general slowdown in economic activity over a long period of time, or a business cycle contraction.[1][2] During recessions, many macroeconomic indicators vary in a similar way. Production as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during recessions; bankruptcies and the unemployment rate rises. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

The gross domestic product (GDP) or gross domestic income (GDI) is a basic measure of a country's overall economic performance. It is the market value of all final goods and services made within the borders of a country in a year. It is often positively correlated with the standard of living,[1] though its use as a stand-in for measuring the standard of living has come under increasing criticism and many countries are actively exploring alternative measures to GDP for that purpose.[2] GDP can be determined in three ways, all of which should in principle give the same result. They are the product (or output) approach, the income approach, and the expenditure approach.

The most direct of the three is the product approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors ("producers," colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes.[3].

In economics, Inflation is described as a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.[4]

Taxes, To tax (from the Latin taxo; "I estimate", which in turn is from tangō; "I touch") is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law.
The Four "R"s
Taxation has four main purposes or effects: Revenue, Redistribution, Repricing, and Representation.[3]

The main purpose is revenue: taxes raise money to spend on roads, schools and hospitals, and on more indirect government functions like market regulation or legal systems. This is the most widely known function.[3]
A second is redistribution. Normally, this means transferring wealth from the richer sections of society to poorer sections.

A third purpose of taxation is repricing. Taxes are levied to address externalities: tobacco is taxed, for example, to discourage smoking, and many people advocate policies such as implementing a carbon tax.[3]

A fourth, consequential effect of taxation in its historical setting has been representation.[3] The American revolutionary slogan "no taxation without representation" implied this: rulers tax citizens, and citizens demand accountability from their rulers as the other part of this bargain. Several studies have shown that direct taxation (such as income taxes) generates the greatest degree of accountability and better governance, while indirect taxation tends to have smaller effects.[4][5]

Start-up, A startup company or start-up is a company with a limited operating history. These companies, generally newly created, are in a phase of development and research for markets. The term became popular internationally during the dot-com bubble when a great number of dot-com companies were founded. A high tech startup company is a startup company specialized in a high tech industry.

Startup companies can come in all forms, including those that are simply life-style companies, but the phrase "startup company" is often associated with high growth, technology oriented companies. Investors are generally most attracted to those new companies distinguished by their risk/reward profile and scalability. That is, they have lower bootstrapping costs, higher risk, and higher potential return on investment. Successful startups are typically more scalable than an established business, in the sense that they can potentially grow rapidly with limited investment of capital, labor or land.

Startups enjoy several unique options for funding. Venture capital firms and angel investors may help startup companies begin operations, exchanging cash for an equity stake. In practice though, many startups are initially funded by the founders themselves. Factoring is another option, though not unique to start ups.

The newsmagazine The Economist estimated that up to 75% of the value of US public companies is now based on their intellectual property (up from 40% in 1980).[1] Often, 100% of a small startup company's value is based on its intellectual property. As such, it is important for technology oriented start up companies to develop a sound strategy for protecting their intellectual capital as early as possible.[2]

Small Business, A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. The legal definition of "small" often varies by country and industry, but is generally under 100 employees in the United States and under 50 employees in the European Union. In comparison, the definition of mid-sized business by the number of employees is generally under 500 in the U.S. and 250 for the European Union. In Australia, a small business is defined as 1-19 employees and a medium business as 20-200 employees. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships.

Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing etc.

The smallest businesses, often located in private homes, are called microbusinesses (term used by international organizations such as the World Bank and the International Finance Corporation) or SoHos. The term "mom and pop business" is a common colloquial expression for a single-family operated business with few (or no) employees other than the owners. When judged by the number of employees, the American and the European definitions are the same: under 10 employees.

SoHo (Small Office Home Office), The modern concept of small office/home office, or SoHo, refers to the category of business, which can be from 1 to 10 workers. SOHO can also stand for small or home office or single office/home office. A larger business enterprise, one notch up the size scale, is often categorized as a small business. When a company reaches 100 or more employees, it is often referred to as a Small and Medium-sized Enterprise (SME).