Cycle or Reset
March 31, 2009
Everything goes in cycles. It always does. The economy always goes up and down. Recessions come and go. We always get through them. But what about today’s recession/depression? Is it the same or different? Many smart people are saying that this time its different. People are saying that this will be a permanent reset to our economy, and not just the usual cycle. And it makes sense if you trace the history of how we got where we are today.
Here’s the short version. It would make a great movie. It involves power and greed. Our economy has been based on easy credit. We got used to the practically free money the banks were giving in loans, credit cards, mortgages, etc. Our savings rate was less than 0% in this country. We were surviving on credit. And the banks didn’t really care, because they would package up all those loans and sell them to Wall Street who would then repackage them and sell them on the global market. It was fueled by greed and allowed to proceed because of lack of regulation. There is no one person or group to blame. It started with people doing no-doc (liar) loans with the banks as complicit partners. The banks allowed it because they were being pressured from Wall Street for more loan packages.
In the end, it created an unsustainable bubble. There was no way it could continue. So when it finally came crashing down, it didn’t just go through a regular cycle. And it didn’t affect just the U.S. It created a global financial crisis. The downside is that we are going to realize that things need to reset back to where they should be. Banks have been deleveraging since last year. The credit crunch turned into a credit freeze for most banks. People’s credit lines have been slashed. People are having to learn to live within their means. With credit maxed out, many people are reverting to a cash and carry system. You can only spend what you have. The people who are slow to come to terms with this reset are the people who will be in the worst situation.
In our business, we have been telling people for months about the banks and the credit crunch. Unfortunately, many people are still in denial and think they are still living in 2006. The strategy for this year is to stop and reassess your situation and to start planning and preparing for when the market rebounds. There will be more regulation. The banks’ criteria for getting money will be more difficult. So make no mistake, this is not your usual economic cycle. Expect the economy to reset to a lower level than what you may be used to. It won’t be forever. Things will get better. But this year, everyone needs to face reality. Be positive. Don’t let it get you down. The one good thing I see coming from this crisis is that people are beginning to talk about things like virute and family and the more important things in life. When times are tough, people and families come together. Maybe its an American trait, I don’t know. But we will all get through this year. And things will get better.
Bank Closings
December 5, 2008
Here’s a list of some of the bank closings over the past two years.
| Bank Name | Closing Date | Updated Date |
|---|---|---|
| PFF Bank and Trust, Pomona, CA | November 21, 2008 | November 21, 2008 |
| Downey Savings and Loan, Newport Beach, CA | November 21, 2008 | November 21, 2008 |
| The Community Bank, Loganville, GA | November 21, 2008 | November 21, 2008 |
| Security Pacific Bank, Los Angeles, CA | November 7, 2008 | November 7, 2008 |
| Franklin Bank, SSB, Houston, TX | November 7, 2008 | November 7, 2008 |
| Freedom Bank, Bradenton, FL | October 31, 2008 | October 31, 2008 |
| Alpha Bank & Trust, Alpharetta, GA | October 24, 2008 | October 24, 2008 |
| Meridian Bank, Eldred, IL | October 10, 2008 | October 10, 2008 |
| Main Street Bank, Northville, MI | October 10, 2008 | October 10, 2008 |
| Washington Mutual Bank, Henderson, NV and Washington Mutual Bank FSB, Park City, UT | September 25, 2008 | October 20, 2008 |
| Ameribank, Northfork, WV | September 19, 2008 | October 20, 2008 |
| Silver State Bank, Henderson, NV En Español |
September 5, 2008 | October 20, 2008 |
| Integrity Bank, Alpharetta, GA | August 29, 2008 | October 20, 2008 |
| The Columbian Bank and Trust, Topeka, KS | August 22, 2008 | October 20, 2008 |
| First Priority Bank, Bradenton, FL | August 1, 2008 | October 27, 2008 |
| First Heritage Bank, NA, Newport Beach, CA | July 25, 2008 | October 20, 2008 |
| First National Bank of Nevada, Reno, NV | July 25, 2008 | October 20, 2008 |
| IndyMac Bank, Pasadena, CA | July 11, 2008 | October 27, 2008 |
| First Integrity Bank, NA, Staples, MN | May 30, 2008 | October 20, 2008 |
| ANB Financial, NA, Bentonville, AR | May 9, 2008 | October 27, 2008 |
| Hume Bank, Hume, MO | March 7, 2008 | October 27, 2008 |
| Douglass National Bank, Kansas City, MO | January 25, 2008 | October 20, 2008 |
| Miami Valley Bank, Lakeview, OH | October 4, 2007 | October 20, 2008 |
| NetBank, Alpharetta, GA | September 28, 2007 | October 20, 2008 |
| Metropolitan Savings Bank, Pittsburgh, PA | February 2, 2007 | October 20, 2008 |
A couple of tips
December 5, 2008
We have seen a pattern arising with a lot of people we talk to. We are finding that a lot of people are inadvertantly shooting themselves in the foot. In order to get business credit these days, a good personal guarantor is essential. Having a good FICO score is not always enough. Banks are looking at your “risk factor” which incorporates more than just your FICO scores. When you become a client, we will go over both your personal and business credit in order to assure you get the most money possible from our lenders.
The problem arises when somebody tries to do everything by themselves without understanding the rules of the game. People are running up their personal credit and applying for all the credit cards they can. When that doesn’t work, then they come to us. But now it is much more difficult for us to get them business credit because of the actions they have taken upon themselves to do.
We advise people to have a little foresight and talk to us before going out and trying to do it on their own. People who follow our instructions usually get funding in a timely manner and keep both their personal and business credit healthy. People who don’t follow our instructions invariably shoot themselves in the foot. I only say this because we want you and your business to succeed. We want to help you. And I hate to see people destroy their business and their credit when it could be avoided. Give us a call and let’s discuss your situation.
Christmas Party ‘08
December 4, 2008
We will be having our annual Christmas Party on Tuesday, December 9, at the Shark Club in Costa Mesa from 6-10PM. If you would like to attend, please RSVP.
Hosted by Dreamcatcher Marketing and sponsored by Axiom, this Christmas party is free to all our clients and their friends. There will be live entertainment, a complimentary appetizer buffet, a no host bar, raffle prizes, dance music, and fun for all. And it will be a great networking opportunity. The proceeds go to benefit the Youth Entrepreneur Leadership Program.
Admission is free with RSVP.
See you there!
Deleveraging America
November 3, 2008
The word of the day is “Deleverage”. This is what is happening in our economy today. Over the past 20 years, both individuals and businesses alike (as well as banks) used leverage (ie credit) to fuel the economy. Leveraging allowed for the boom during the Reagan years. Leveraging allowed for the dot com bubble and the real estate bubble. The problem came about when the banks started making credit available to anyone. The goal was to give everyone in America the opportunity to own their own home. It seemed like a good idea at the time. Add to that the fact that consumer debt now stands at $13.8 trillion (up 20% since ‘05), and stagnant wages, and its a recipe for disaster. Our country, from each individual person up through business up to the banks have all used too much credit assuming that the good times would go on indefinitely.
Last year about this time, we saw cracks beginning to form in the system. Banks started giving less money to small businesses. The criteria for getting credit from banks changed during the first quarter of ‘08. It seems the banks and the Fed underestimated the magnitude of the problem. The credit crunch kept getting tighter and tighter until last month it came to a screeching halt. Banks were not even lending money to other banks. The banks were holding onto their money for dear life. One by one, banks and insurance companies started to wobble. The problem has become global in nature. The rules of the game are changing, and unfortunately, nobody knows what the new rules are.
One thing that we’ve seen recently is that banks and credit card companies are lowering everyone’s credit limit to the amount that you are currently using. So, if you have a $20,000 line of credit and you are only using $5,000, then your limit may be reduced to $5,000. We knew something was going on with AMEX for the past month because they were declining all of our clients credit, regardless of their personal credit score. They were not offering increases. And they were lowering all credit limits. It came as no surprise when they layed of 7000 employees last week.
So unwinding all the credit that is out there is called Deleveraging. Deleveraging is what causes a credit crunch. It happened in Japan in the 1990’s which lead to Japan’s “Lost Decade” where they had little or no growth. Hopefully, we’ll be able to get ourselves back on track within the next two quarters.
Everything is cyclical, so its only a matter of time before the banks figure out what they need to do and start lending again. In the meantime, everyone is going to have to go on a credit diet. We will all have to learn to live a little more within our means and not rely on so much credit. This will be painful for a lot of people and businesses. The solution is to be a little more creative and a little more strategic. There is no need to quit. Hope is not lost. There is still money out there. You just have to know where to look.
If you’re having trouble obtaining money for your business, give us a call. We can help with your strategy.
Behind the Scenes at WAMU
November 3, 2008
“At WaMu it wasn’t about the quality of the loans; it was about the numbers. They didn’t care if we were giving loans to people that didn’t qualify. Instead, it was ‘How many loans did you guys close and fund?’” This according to former WaMu underwriter Keysha Cooper. She could have worked at lots of companies and come to the same conclusion. She shares her story as one of 89 employees whose accounts are contained in a suit against the thrift by an Ontario pension. She says starting about 2006, the company started ramping up the pressure to close loans at all costs. No loan was suspect. “You were like a bad person if you declined a loan,” she said. She was sure that a lot of fraudulent activity was taking place. She ended up being put on leave for refusing to sign off on a loan that was plainly just wrong. Brokers sometimes tried to bribe her to approve loans. This is akin to inviting regulation.
Good News!
October 2, 2008
That’s right. You heard me. With so many banks teetering on the brink of insolvency, the good news is that we are still able to get our clients money. We talk to people every day who think that it is impossible to get money these days. That’s when we tell them about all our clients that we got money for this month.
Who knows what’s going to happen within the next 3-6 months? Our suggestion is to sign up and get your business going as soon as possible. Get the credit while its still available. I can’t begin to tell you how many people I’ve spoken to who didn’t sign up a year ago because they said they didn’t neet any business credit. Now they call in a panic asking if we can get them money in week because their personal credit has crashed and they can’t get any personal or business credit.
My second suggestion is to plan ahead. If you have a business, you should be planning for the future, no matter what your situation looks like today. Start building your business and your business credit now. If the economy takes a turn for the worse, or if the banks change their lending criteria (which they have) you may not be able to get the capital you need to survive or grow.
Give us a call to discuss your business plans and let us help you with your business funding needs.
Top 10 Businesses in Bad Economy
April 24, 2008
Most people think that during a bad economy, starting a business might be a foolish idea. But there are a number of businesses that thrive in a slow economy. Here is a list of businesses that seem to do well when the economy is not doing well:
Debt Collection
Credit Repair
Job Search Agency
Mediator
Bancruptcy, Divorce, and other legal matters
Computer Repair
Internet Marketer
Web Entrepreneur
Pawn Broker
Direct Marketing/MLM
Strategy, Strategy, Strategy
April 24, 2008
As banks’ lending criteria continues to tighten up, it is more important than ever to have a good plan and strategy. Especially if you are a new business, you can no longer just walk into a bank and expect easy money. My suggestion would be to get your business incorporated first. As soon as you have an idea and you’re sure you’re going to start a business, get incorporated. Even if you do nothing with it for the first year, it is better to have it than not, for many reasons. Your corporation is like fine wine - it’s value increases with age.
The Corporate Code, Only $995
