The Jobless Recovery and Small Business

The Jobless Recovery and Small Business
By: Rene Velez Sept 28th, 2009


By most accounts in our current aspirations towards a recovery, we are seeing better times ahead but yet, everyone is asking, where are the jobs? Indeed as we somehow get ourselves out of this recession, jobs will continue to be hard to come by. Manufacturing, in the U.S. will likely increase production and take up any existing elasticity in their production capacity before taking on new employees. What’s more is that because we are essentially an information and technology economy, those with existing employment simply will have to do more with less labor as before. This is a kind of employment expectation creep. We are essentially assigned more tasks to perform, without increasing the labor pool. Typically, we simply work longer.

Many articles and studies show that as the global economy improves, emerging markets will have a greater increase in growth than some of the developed nations. This is in large part because companies from the developing countries shift their production activities to countries that have a lower cost of labor.

Small Business

Small business in the U.S. may play a very big role in adding jobs in the future, at least domestically. Many small businesses operate on profit margins that would not be considered viable businesses by larger corporations. It stands to reason that many small closely held businesses, have a very small net profit after covering employee salaries, overhead and salaries for their working owners. This profit in many instances may actually be so small that their no nothing left for a would be investor. Hence, the reason big business models do not consider them worthy of an investment.

We should understand that this does not mean they are not viable businesses. In the end they fulfill a very important role in our economy. They pay salaries, they employ many people, they pay taxes and they consume other services and products that further create jobs and help stimulate the economy. The multiplier effect of a small business is key to our current jobless recovery.

The Credit Crunch

During this recession banks have been forced to take a second look at their lending policies. Their mounting losses and the reduction of their capital base is being addressed by lending guidelines that are tightening up credit. I have come across many stories of banks reducing or terminating commercial lines of credit. In addition many small businesses rely on the owners’ home equity line of credit to meet short term needs when disbursements exceed collections. These too are under attack as banks are taking a second look and evaluating the underlying value of the real estate which is often the collateral for these loans. Even credit card companies are declining credit applications and reducing credit limits to shed the risk associated with losses and an overall tight credit market. I should mention that many small businesses rely on credit cards as the only means of short term borrowings to finance everything from inventory to the payment of taxes. All of this begs the question, how well will this jobless recovery pan out if these small companies that hire so many people could potentially be forced out of the market for lack of capital?

Government Reform or Banking Transformation

I see two possible solutions to the potential for small businesses to obtain much needed capital. (1) Government policy and programs to help small business. Kind of the SBA on steroids. (2) The banking industry taking on small business lending as with a high touch high service analytical lending model. Really get to know your borrower and business client.

Although government policy and programs are helpful, it does not seem likely that yet another government bailout program is going to be well received politically. The American voter , even if it means their own business, may not want the government to step in and create a small business welfare program. In addition , of the existing programs that are offered through SBA, the red tape and the work involved in meeting the program requirements and the banks hesitancy to administer these programs creates a barrier to many small businesses. Not just in the red tape but the cost of CPA’s and other people to get all the paperwork done. One just has to look at the SBA program to offer floor plan loans to auto dealerships and see first hand what comes of this. In all more government intervention may not be plausible.

The second idea is that banks get back into the business of lending to small business. Banks really are in the best position to do this. They have the bank account, they see the activity, they can request tax returns and informal financial statements. They get to know the character of the owners and in the end can form the best of relationships with their clients. The only real issue I see is whether banks are willing to take on risk, and whether they can gather the management and analytical expertise to do the job right. This last statement may not seem obvious to many people. But you should understand that banks are notorious for creating cookie cutter products that basically are form driven. If they don’t understand it, if there isn’t a form and if a loan committee can not analyze it; they simply do not lend you the money. I know that may be hard to believe but I can not tell you how many times I have had to explain to an MBA banker how to read a tax return and match it to a financial statement.

Knowledge Based Banking

My opinion of the failure of Wall Street and the banking system is that both became very entrenched on trying to assess risk based on some FICO score or some rating(which happens to be flawed) , and then transferring that risk via some fancy packaging we call a security debt obligation.

Let’s change how banking and Wall Street does business by doing what we should be doing better than any other developed country. By lending based on knowledge, analysis, skill level and the capacity to repay loans based on the probability of success. Sure this sounds like banking but, my point is banking has gotten away from its core function. A function of placing money where it has the highest level of achieving success and repayment.

Again this sounds easy and it sounds like what a bank should be doing but its hard work and requires a substantive infrastructure, of highly trained and well rounded business analysts to carry on the relationship.

President O'bama's Speech To Students

President O’bama’s Speech to Students
By: Rene Velez Sept. 8th, 2009

I promise this will be short. This is a country where freedom of speech is paramount to the democratic rights of our citizens. It is at the very core of being American and being a country where your freedom is protected. It is what keeps us from becoming the type of country , like Iran, where if we as a people do not like the turn out of an election we can not be silenced. We can not be forcibly told not to demonstrate, to speak and to protest what is willed upon us. However, with this power there is great responsibility.

O’bama was elected president of this country by a majority vote. He won the all important vote of the majority of the American public. Whether you like his politics, his point of view or any part of his party; he should be allowed to speak, and to be heard by any Citizen or visitor of this country. There is nothing he could say that in any way could endanger our young in an educational setting. And even if he were to utter a word of anything that would be out of line, it would doom his presidency. He is not about to take that chance. His views political or otherwise, as long as they are presented before the public, and subject to debate, should be heard by all.

Who Do We Think We Are?

As a parent I can not help but think that we all have a part to play in how badly we have managed this great country. For what we have done but most importantly for not getting involved in some way. For what we have failed to do. Essentially, for not being better informed and not taking ownership of our communities, our schools and our government. In general we simply assume someone else will handle it for us. We routinely, bury our heads in the sand. In the end we deserve what we get, for our own ignorance. And yet we have the presumptive right to make this same decision for our children.

To all the Mom’s and Dad’s in the good old USA, perhaps your complaints should be better addressed at the foul mouthed music the travels our airwaves and plagues the music industry. Perhaps we should be more interested at the violence and sex on television and in the video games our children play. Perhaps we should complain about the sexualization of teenage youths in advertising. Perhaps we should shout out on how we are poisoned by greasy and fatty foods that make us and our children fat and sick. Perhaps we should speak out about the quality of education and how poorly our teachers are paid.

There are a lot of topics that we need to speak out about. But never against our president’s desire to address the nation or its younger generation. More importantly is that we need to understand how to defend our positions and how to understand the political process. It is the only way we can arrive at a better world for our children. Exposing them to our country’s concerns not only educates them and prepares them for the real world. It also is a way in which our own children can educate us by bringing new ideas to the table and teaching us how we could do better.

Our Founding Fathers

This great nation was formed and fought for by many young people who where in their, teens, twenties and thirties. The life expectancy at the time was around 55, if you were lucky. They did a really great job forming a great country!........... We messed it up!

Health Care Reform - The Madness

Health Care Reform – The Madness
By: Rene Velez Aug. 31st 2009

Health care reform has to happen. Despite all the negativity over the Public Option plan most Americans realize that something has to be done. O’bama has done a poor job at selling health care reform to the American people. My perception is that he has distanced himself from the talks because anything that comes out of reform will be far from what people want. On the other hand distancing himself from health care reform issues may actually help the cause because he can not be blamed for what he has asked congress to propose, in a bipartisan effort. The question is, will he take the bull by the horns and truly reform health care? I doubt it. You must remember, he is a politician after all.

This is a complicated issue and overall I give our US government an “F” in coming forth with a comprehensive plan that people understand. Having had to shop for health care policy recently there is a lot to choose from. It is difficult to calculate what is your out of pocket costs, what is covered and if your current doctors are in any given plan. Despite all the news attention this topic is getting no one knows what we will be getting, or how it works. This has got to be the worst sales pitch for reform we have ever witnessed.

It is generally understood health insurance companies are making big profits while deciding what is best for you and often at odds with the doctor’s ability to practice. I don’t like a national health care policy. I don’t like the idea that we are substituting private enterprise’s profit motive in managing your health for the bureaucracy of government . Neither one will do us any good. Perhaps the best scenario is a private venture with government reform and regulation. Yet this is a compromise at best.

Start with the Basics

For the sake of accomplishment and to not waste any further time let’s address some basic issues that have to change. Rather than try to adopt a sweeping change to healthcare, let’s address the big pitfalls of the current system. I can just see the critics citing a piecemeal process. But that isn’t the case. We did not get into this mess overnight, so why should we expect to get out of it in one swooping move.

(1) Regulate health care companies so that premiums and operating expenses have to be approved. Just like we do with utilities. Cut out the extra pork and profits.

(2) Prohibit insurance companies from denying you coverage for existing conditions.

(3) Let’s cap medical malpractice liabilities. Let’s eliminate frivolous law suits that are expensive and do not prove negligence. Let’s come to terms with the fact that the practice of medicine is not an exact science.

(4) Let’s have an insurance portability act so you can take your insurance with you.

(5) Let’s have a government guaranteed insurance program, provided by private enterprise, specifically for high deductible policy holders that covers their out of pocket costs so that people do not suffer economic hardships. This is to be funded by minimal premiums as part of an elected payroll tax, or premiums you pay directly into the fund.

(6) Let’s provide a health care policy premium insurance so that the unemployed have continued and uninterrupted health care in times of unemployment. To be paid by a payroll tax.

(7) Let’s create regulations that allow you to buy medicines anywhere in the world to make medication affordable. Prohibit the drug companies from offering a different price for drugs outside the USA. Let’s also prohibit extravagant advertising and promotions programs that drug companies use to sell their products to doctors. This practice ads a tremendous amount of cost to medicines. There are less expensive ways to market to doctors that is informative and more cost effective.

(8) Let’s consider if Pharma and medical equipment needs closer regulation on pricing and profits. Then establish a new more equitable playing field that protects the consumer.

(9) Let’s revise bankruptcy laws to give people a clean slate when their bankruptcy is caused by extraneous health care bills.


I am not a health insurance expert and I am sure this is just a sample of the pitfalls. But we need to get back to the basics of providing affordable health care that people understand.

Taxpayers Already Pay For The Disadvantaged

In just about every urban city there is a health care hospital that can not turn you away in the event of an emergency. So the argument that people are dying because they can not get healthcare is not properly portrayed. There is some truth to this in that if they had preventive and ongoing health care they may not wind up in these hospitals but that is another matter that needs to be addressed.

These public hospitals are funded with tax dollars already, in a variety of ways. Many of these hospitals are some of the best hospitals you can go to especially for trauma. In Miami we have Jackson Memorial Hospital. Funded in part by a .5% sales tax. In addition it receives other tax awards and of course money from donations. It is known as an excellent hospital. No one gets turned away and we as taxpayer pay a large portion of the bill.

Then how can we, especially at a time of all time high deficit spending pile on an additional health care tab for the 15% of America that has no healthcare. Something is not right. We should also take note that in some cases, people choose (sometimes knowingly) not to have health care. The compassionate side of all Americans is to help those in need. America’s generosity is unequal to other countries. Yet I do not feel it is correct to impose a welfare system that benefits those who do not bother to help themselves. We must be cautious before we dole out public funds.

Health Care Bailout Syndrome

We should all be uneasy about how government proposes health care reform. Just look at how our government has bailed out big business. No strings attached, poor controls and checks and balances. Executives taking home huge compensation packages with American tax dollars. Let’s not be too quick on this matter. Let’s demand a comprehensive plan that coves what is needed rather than falling victims of the bailout hysteria.

Where Are Our Elected Leaders?

I keep asking myself the big question. With all the lawyers in Washington, DC why is it that only the opportunistic blind seem to get elected? Isn’t there anyone who can create a movement that is for the benefit of the American citizen? We do not want to destroy the health care system or keep companies from making a profit. We simply want a more even playing field. One that works for this great country and not just for the rich and powerful. Where are our elected leaders?