Banks Don't Belong in the Student Loan Business

Since I arrived in Washington, I've been looking at every line item in the budget of the U.S. Department of Education with two questions in mind: Is this program helping students learn? And is it a good use of taxpayer money? In the case of the Federal Family Education Loan (FFEL) program, the answer to both questions is no.

Under the current FFEL program, banks make loans to students. While those students remain in school, the federal government pays the interest on their loans; otherwise the interest accrues. Once the borrowers leave school or graduate, the lending agency collects on the loans. But if the student defaults, my department pays back the loan—plus the interest owed. The FFEL program, in short, is a great deal for bankers but a terrible one for taxpayers.

Over the next decade, according to the Congressional Budget Office, the Education Department is slated to subsidize banks to the tune of $87 billion to enable them to make federal student loans. All of this money would be put to better use providing financial aid directly to millions of needy students who want a college education. The Education Department will be able to accommodate the new loans through an existing federal public-private partnership, Through that partnership, the federal government makes loans directly to students and uses companies that will provide better service to borrowers at a lower cost to taxpayers

Critics contend that the government is trying to nationalize a private industry and do away with competition. Our real aim is to simply stop using banks as the middle man for student loans.

The banking industry would continue to compete in the marketplace to finance mortgages, business start-ups, and other forms of credit. But we are intent on stopping subsidies to bankers who make student loans at no risk because they know the federal government will bail them out in case of default.

By working with private sector companies with expertise in the field, we are prepared to initiate all new student loans in the existing federal Direct Loan program. Right now, the Education Department already owns and services 80% of the student loans made last year. It owns such a high volume of loans chiefly because it had to take emergency action in 2008 to ensure students had access to loans when lending in the nation's credit markets was frozen.

Our experience handling the bulk of student loans makes me confident in our capability. This year alone, an additional 500 colleges and universities joined the Direct Loan program. Just last month, the department's independent inspector general's office issued a report documenting that the Education Department had taken the right management steps so that all loans can be serviced by the Direct Loan program.

In a recent survey by the National Association of Student Financial Aid Administrators, schools that have made the switch to direct lending overwhelmingly reported the conversion was easy and quick. That is just one reason why that association of financial aid experts, along with organizations representing the nation's largest public and private universities, community colleges and college students, support the department's Direct Loan proposal.

The private sector would continue to play an important role in servicing loans. Last summer, the department's Federal Student Aid Office awarded contracts to four companies to service federal student loans, following an intense competition among the best companies in the loan servicing business. These companies are paid more when borrowers are in good standing, and those that keep defaults down and provide the best customer service will be given the most work.

We are preparing to make the switch to direct loans as easy as possible for colleges and universities. We appreciate their feedback, and their ideas will help us transition smoothly from FFEL to direct loans once Congress has passed a bill authorizing the switch to 100% direct loans

As for the $87 billion we'll save from ending the troubled FFEL program, the administration seeks to use that money for important programs that will improve our economic future. We propose to substantially increase scholarships in the Pell Grant program and other financial aid for low-income students. We would start new programs to raise college graduation rates and strengthen our community colleges. We will expand our investment in early childhood education. Plus, $10 billion would be set aside to reduce the deficit.

Now is the time to allocate resources to students—not to banks—so they have access to college and other educational opportunities. We cannot in good conscience let $87 billion in subsidies go to banks when our students desperately need financial help to realize the dream of getting a college education.

Small Business and Health

“Bristling at Health Plan to Cover Early Retirees” (“The Work-Up” series, news article, Sept. 9) pegs health care coverage for early retirees as exclusively a labor issue. In fact, this is an issue for all Americans.

Small Business Majority, a national nonprofit, is working for America’s 27 million small businesses and small-business owners.

Today, small businesses provide 75 percent of all net new jobs and employ 52 percent of the private-sector work force. What hurts small businesses hurts America’s economy. Not only are the majority of small-business owners between 55 and 64 years old — a precarious window for personal health care coverage — but they also face skyrocketing health care costs, which is hindering their ability to provide high-quality coverage to their employees.

Our research has shown that an average of 86 percent of small-business owners cite affordability as the reason they do not offer health care to their employees, while an average of 68 percent of small-business owners believe that health care reform is needed to help fix the economy.

The biggest problem facing America’s small businesses and America’s economy is unavailable, unaffordable health care. Emphasis on health care coverage for people between 55 and 64 is not just good for labor, it’s good for the economy.

How should my business market itself with Facebook?

How should my business market itself with Facebook?

Facebook is growing by 700,000 new members every day and is the third-most-trafficked site on the Web. Your business should be making the most of this marketing opportunity.

The most important thing to remember is that you’re there to build relationships with customers and prospects. Connecting in an authentic manner means approaching the world of social networking as a person and not necessarily as a brand.

You should actually start with your personal profile — if you’re not already on Facebook, sign up (it’s free), add a photo and a little information about yourself, find some friends on the site and begin to interact. Then, and only then, should you set up a business page with your logo.

After all, you wouldn’t start a sales call with a trial close — you’d get to know your prospects first and give them a chance to know you.

There are some distinct differences between personal profiles and pages. With personal profiles, people must request to become your friend in order to see your information, and you confirm these friendships manually. With pages, however, anyone can become a fan of your business page. Even better, all of their friends will see that they’re a fan and can join them; now you’re leveraging the viral power of the Internet to make new connections.

Content of your page and posts should be of service to the reader. Consider including reviews, tips, helpful hints, related articles you’ve found, relevant discussions, events and photos.

Next steps: Facebook ads may be purchased. These work similarly to Google AdWords.

Response provided by John Addessi, a consultant with the Kansas Small Business Development Center at Johnson County Community College.

PUBLISHERS URGE MORE PUBLIC AID FOR NEWSPAPERS, BUT H.R. 3602 WON'T SOLVE THEIR PROBLEMS

The push for government support for newspaper continues and this week publishers and their supporters—including the Newspaper Association of America—went before the House Joint Economic Committee detailing how the current economic climate has harmed their finances and arguing for preferential changes to tax and pension laws. They asked to be allowed to extend application of the net operating loss provisions from 2 years to 5 years and for changes in laws to allow them to underfund pension funds for a greater period of time. Both would improve their operating performance and balance sheets.

This is a case of the newspaper industry seeking long-term business benefits to solve a short-term crisis caused by poor management decisions and the recession. The leading newspaper firms and their representatives are making concerted efforts to dupe legislators and the public into believing their troubles are part of the general trends in the industry, rather than the result of management decisions and the financial crisis that is diminishing. If the provisions are passed, the public treasury will be diminished for years to come and risks for employee pensions will be increased.

Newspaper executives and other witnesses were sympathetically treated at the hearing this week, but it is unclear whether they will be able to achieve the policies they advocated.

Another proposal that the commercial firms are uninterested in themselves, but expressed sympathy for, would broadening laws regarding charities to include not-for-profit newspapers. Their support was astute because the House Joint Economic Committee’s chair, Rep. Carolyn Maloney (D-NY), has introduced her own bill (H.R. 3602) to allow newspapers to become tax exempt under section 501(C)(3) of the tax code. Her bill somewhat mirror Senate bill 673 by Sen. Benjamin Cardin, D-Md., that was discussed earlier in this blog (Analysis of the Newspaper Revitalization Act, http://themediabusiness.blogspot.com/2009/03/analysis-of-newspaper-revitalization.html). There are some differences in Maloney’s bill that need to be highlighted.

Under Section (b) of H.R. 3602, companies would qualify for tax exempt status through a 3-part test.

First, companies would have to be “publishing on a regular basis a newspaper of general circulation” to qualify. This provision stipulates no periodicity so it does not limit qualification to dailies, which are experiencing the greatest economic and financial difficulties. This language provides the exemption only to established papers and would thus exclude startups until after they were regularly publishing, requiring startups to initially obtain financing through other than tax-deductible donations.

The language in this first test requires that publications be “a newspaper of general circulation” and this will lead to questions whether it applies to newspapers focused on specific audiences in a community—such as African Americans or senior citizens—or papers providing more focused content—such as news and information for a specific neighborhood or devoted solely to politics or crime. This ambiguity could be used by IRS examiners against some papers and could be used by some publishers to take advantage of a policy not intended for them.

The second provision requires that qualifying papers publish “local, national or international stories of interest to the general public and the distribution of such newspaper is necessary or valuable in achieving an educational purpose.” The provision regarding type of coverage is better than the Senate bill because it does not require publication of all 3 types of news—something not done in many local papers.

The third provision requires that content preparation “follows methods generally accepted as educational in character.” This provision is exceedingly vague and its application is unclear because it does not deal with the content of the paper, but with the preparation of the paper. How “the preparation of the material” follows accepted educational methods would seem to require that the papers be part of an educational activity, such as being linked to training in schools or universities. This would highly limit the applicability of the bill to existing newspaper operations.

Like the Senate bill, Section (c) permits papers to carry advertising “to the extent that such newspaper does not exceed the space allotted to fulfilling the educational purposes of such qualified newspaper corporation.” This would require papers to publish no more than an equal amount of editorial and advertising content. This is lower than the limit of postal service limit (75%) and would force most existing papers to drop about 1/3 of their existing advertising or incur damaging costs by printing more news pages than they do now. This would cripple the finances of any daily paper.

Finally, Section (d) of the legislation permits qualified companies to accept tax deductable charitable donations to support their operations.

This bill, like its Senate predecessor, is likely to have limited affects on the newspaper industry because it will not interest newspaper owners because most of their papers are producing profits and it will preclude their abilities to benefit from greater profits when the advertising recovery occurs.

There is a place for not-for-profit media and journalism, but H.R. 3602 S. 673 will not do much to improve coverage or the overall condition newspaper industry. It is likely to continue to gain support from the commercial newspaper industry, however, because it can be used to provide cover for government policies that they really want.

Finance Chief to Tackle Japan's Economic Woes

TOKYO -- Japan's newly appointed finance minister, Hirohisa Fujii, will focus on fixing the country's economy, even if that means it will take longer to reduce Japan's massive public debt and possibly prompt more new-debt issuance.

In an interview this week, the 77-year-old Mr. Fujii said he would prioritize economic growth over fiscal overhaul. "If you allow me to make the story short, while fiscal rehabilitation is important, it comes after economic growth," he said. "There's no question that unless the economy recovers to some extent ... our country's fiscal state will get even worse."

He also hinted that the Democratic Party of Japan government may come up with new stimulus steps if the economy weakens, even if that would require a further issuance of bonds.

"We certainly must keep in mind the possibility of [the Japanese economy entering] a second round of sharp contraction," said Mr. Fujii, who was named finance minister Wednesday by new Prime Minister Yukio Hatoyama.

While exports to China and India are rebounding, Japanese business investment remains weak, and "wage and employment conditions are considered to be in the worst shape in the postwar era ... which will surely ricochet against consumer spending," he said.

Mr. Hatoyama has insisted that the DPJ's promised economic-support measures will be financed without floating more debt, but Mr. Fujii's remarks suggest the government's focus will be ensuring that the economy doesn't deteriorate further.

Should the economy demand more money, "it is possible" the government will sell more bonds to raise cash, Mr. Fujii said, despite worries about how that could worsen Japan's poor fiscal state. The country's public debt stands at 170% of gross domestic product -- the worst ratio in the industrialized world -- and the Organization for Economic Cooperation and Development expects the figure to hit around 200% next year.

The DPJ government could also support the economy by redirecting trillions of yen it plans to save through scrapping steps it considers ineffective in the previous government's last stimulus package, valued at 15.4 trillion yen, or $169 billion.

Mr. Fujii's immediate task is to work with Naoto Kan, a top DPJ officials who Wednesday was formally named minister in charge of the new National Strategy Bureau. The bureau is expected to set guidelines on key policies such as the national budget. Mr. Kan is expected to determine the priorities and outline of the budget, while Mr. Fujii will finalize details and make ends meet as tax revenue shrinks due to the economic slump.

Obama to give speech on financial crisis Monday

WASHINGTON (Reuters) - U.S. President Barack Obama will give a speech about the financial crisis on Monday in New York, marking the anniversary of the collapse of Lehman Brothers, the White House said on Thursday.

The fall of Lehman last year triggered a worldwide financial crisis and accelerated Obama's race to the presidency as the Democrat's cool reaction to the country's economic problems contrasted with a more scattered response from his Republican opponent, Senator John McCain.

Obama made financial regulatory reform a key platform of his candidacy and is trying to push through Congress legislative measures on the issue as president.

"He will discuss the aggressive steps the administration has taken to bring the economy back from the brink (and) the commitment to winding down the government's role in the financial sector," the White House said in a statement about the speech.

Actions the United States and other nations around the world must take to prevent "a crisis like this from ever happening again" would also feature in the speech, the statement said.

Lehman, once the fourth-largest U.S. investment bank, filed for bankruptcy protection on September 15, 2008, in the largest U.S. bankruptcy filing in history.

Obama's speech will take place at midday in New York City's Federal Hall.

High hopes: Small business is becoming optimistic

Small business owners are joining consumers and investors in showing some cautious optimism about the economy.

An index that measures owners' optimism rose last month, boosted by expectations that business conditions will improve in the future. And there's anecdotal evidence from owners in a variety of industries who say they have reasons to feel a little more upbeat.

The National Federation of Independent Business, which surveys its members each month, said its index of business owner optimism rose 2.1 points to 88.6 in August, an increase that NFIB chief economist William Dunkelberg called "a big gain." The optimism, though, is about the future, as owners still have a dim view of current economic conditions. Dunkelberg noted that small businesses generally aren't planning big capital expenditures or to start hiring again.

"First you have to feel better before you'll spend your money," Dunkelberg said.

Dunkelberg makes the same caveats that other economists do: If consumer spending doesn't pick up, the budding optimism is likely to wither. But, he said, having watched decades of economic cycles, "every recovery begins with an improvement in the feel good stuff, and that's followed by an improvement in the hard spending numbers."

Several small business owners interviewed by The Associated Press reported that their own optimism, as well as that of their clients and customers, has started to improve recently.

"It's still tough, but people are at least starting to speak in normal terms again," said Michael Frenkel, president of New York-based M Frenkel Communications Inc.

Like many other public relations firms, Frenkel's business was hurt when clients slashed their marketing budgets, often the first casualties when companies cut costs. Now, he said, with his hotel and real estate clients putting their budgets together, "things are looking a bit looser for the fourth quarter and they're looking even looser for the beginning of 2010."

But Frenkel said business owners have been forced to adapt to a new reality: The booming economy of two and three years ago, when a company like his could find business almost anywhere, isn't likely to return soon. So, he said, "you just try to go out there and make it happen."

Ian Ford, whose company sells discount tickets to Orlando, Fla., tourist attractions, has become more optimistic as his sales, which dropped off last September and fell as much as 20 percent, started to rebound this summer. Part of the improvement followed Walt Disney World's discontinuing some of its deep discounts, which in turn lifted demand for the tickets sold by Ford's company, Undercover Tourist. Also, more people are willing to travel now.

Now, Credit Crisis Is a Big Draw for Finance Museum

The Museum of American Finance was faced with an awkward situation recently: some of the corporate sponsors of the museum — dedicated to glories of free markets — had, well, failed.


Lee Kjelleren, the museum president, said the purpose of the exhibit was to illustrate the “forces that affected everybody’s lives.”

Rather than fretting, the museum tapped its own entrepreneurial spirit and mounted an exhibit — “Tracking the Credit Crisis” — that reveals what the museum’s president, Lee Kjelleren, calls the “greed, recklessness and arrogance” of Wall Street.

Probably not what Lehman Brothers, Merrill Lynch or the American International Group had in mind when they donated money to the museum.

But in the wake of the financial crisis, attendance at the museum — located at 48 Wall Street, near the epicenter of last year’s market collapse — has risen to about 200 visitors a day, nearly double its tally last summer. (The Metropolitan Museum of Art averages that many visitors almost every 90 seconds.)

And where else can you buy a poster for just $12 chronicling the lowlights of the credit crisis — so many, in fact, that it’s a five-poster set?

Among the biggest attractions for visitors? The morbid curiosity of a financial train wreck.

“This is about the market crashing,” said Lizzie McNeely, 26, a high school teacher from Toronto, as she wandered around the museum one recent afternoon. “I am interested in how they are going to represent that.”

For the $8 price of admission (or free Tuesday to Saturday from 10 to 11 a.m. through October), visitors who have seen enough van Goghs at the Met and Pollocks at the Museum of Modern Art can get a detailed look at the events that brought the global economy to its knees.

The most popular sections of the exhibit, Mr. Kjelleren said, describe so-called toxic assets and how these were exported from America around the world — “As if the rest of the world didn’t already love America enough!” — as well as the dubious role of the ratings agencies in concealing the riskiness of subprime mortgages and the securities based on their values.

A film about the crisis includes a still photograph of Richard S. Fuld Jr., the vilified former chief executive of Lehman Brothers, being harangued by an angry crowd, including a person holding a sign with the word “Crook” scrawled across it.

In curating the installation, Mr. Kjelleren said one of the things he wanted to capture was how “dumb” the banks had been about investment vehicles like credit-default swaps. “It was dumb, it was more than dumb, and it was occasionally reckless and irresponsible,” he said.

He pointed significantly to a section of the exhibit that discussed the so-called Lehman weekend last September, and the government’s decision to allow Lehman Brothers to fail, which Mr. Kjelleren characterized as a big mistake.

But he reminded visitors that the museum was all about learning from past mistakes.

One group striding by — five bankers from Goldman Sachs — seemed more focused on avoiding the educational experience of the exhibit devoted to the credit crisis.

John Cirincion, 60, one of the museum’s volunteer guides, beckoned to them to take a closer look, but the bankers shook their heads.

“We lived it!” one said, as the group headed instead for an exhibit titled “Women in Finance.”

The museum presents the global financial crisis employing a video and a dense timeline that catalogues what Mr. Kjelleren breathlessly describes as what may have been “the most challenging man-made calamity in modern experience,” excluding wars.

The color-coded timeline depicts crucial events from February 2007 through March 2009 in presenting an overview of the crisis, and provides definitions for important financial terms like subprime mortgage.

Mr. Kjelleren, a former banker for JPMorgan, said, “The idea was to create an awareness of the nature of the driving forces that affected everybody’s lives.”

One of the best measures of the scale of the crisis is not on display, but can be found in museum literature detailing its corporate sponsorships.

Goldman Sachs, Citigroup, Morgan Stanley and Wells Fargo generously opened their wallets here a year ago, long before they became part of Exhibit A in a display on the financial crisis.

And Lehman Brothers and Merrill Lynch are effectively gone, and American International Group is a shadow of its former self. The government owns nearly 80 percent of that company.

Alina Sichevaya, an 11-year-old whose father works for Credit Suisse, had just completed a weeklong finance camp for children at a Camp Millionaire program in her hometown of Cary, N.C. She strode into the gilded halls of the museum and made a beeline for the credit exhibit, staring intently at the giant panels of color-coded cards.

Though she had just learned at camp about complicated concepts like taxes and depreciating assets, Ms. Sichevaya said she found the exhibit “kind of confusing.”

“It’s a lot of information,” she added, as she and her mother, Olga, headed off to catch a sightseeing tour of the Brooklyn Bridge.

Even in the best of times, it was never going to be easy to curate an homage to high finance.

Correction: An earlier version of this article misstated the address of the Museum of American Finance.
Source: NYTIMES

SBA to host downtown small-business fair -Thursday

The U.S. Small Business Administration will host a resource fair in downtown Denver on Thursday, Aug. 20, for those who own a business or are thinking of starting one.

The free "Small Business Resource Fair" will be held at 10:15 a.m. to 3:45 p.m. at the Denver Public Library's Central Library at Civic Center, in the level B2 conference room. The library is co-hosting the event.
No advance registration is required.

On hand will be representatives from commercial lenders, federal prime contractors, business assistance organizations, local chambers of commerce and state and federal agencies.

The fair is intended "to answer questions relating to all aspects of starting, operating and growing a business. Small business owners will also learn how they can take advantage of the various programs initiated by the American Recovery and Reinvestment Act," SBA said in a statement.

Source: Bizjournals.com

Treasury announces energy tax credits

The U.S. Department of the Treasury and the Department of Energy today announced more than $2 billion in tax credits for energy manufacturers available through the stimulus.

The 30 percent tax credit will be provided to qualifying manufacturers of wind, solar, geothermal energy equipment, fuel cells, microturbines, batteries, electric cars and electric grids that support renewable energy transmission, plus energy conservation technologies and carbon sequestration equipment.
“This program will help encourage innovation in design of clean energy technologies,” said Treasury Secretary Tim Geithner.

The Bay Area is home to many cleantech companies including those that manufacture renewable energy equipment, batteries and electric cars.

In Pursuit of Small Business Loans !

At a recent meeting with Frank Burke, right foreground, who was representing Senator Frank R. Lautenberg’s office, South Orange business leaders discussed the need for credit. From left, Carole Anzalone-Newman of Main Street South Orange; Brian Boele of Bonte; Terrence Brooks of Vision Barber Salon; and Evelyn Lee, a reporter from NJbiz.com.


Joanna D’Angelo knows that starting a new business is no small accomplishment. Dealing in fine organic tea and jams from France, Ms. D’Angelo set up Tea Together, her storefront in Millburn, last November.

“We felt it was an up-and-coming area, and it was right for us,” Ms. D’Angelo said.

Business has not been bad, but she needed a small loan to keep momentum going until the busy season. While shopping for loans last month, Ms. D’Angelo walked into Chase, a preferred lender of loans backed by the federal Small Business Administration, and walked out a short time later — minus any money.

“We tried a few other banks, but they all had impossible conditions,” she said. “We did not qualify for an S.B.A. loan, something they were very adamant about.”
According to Ms. D’Angelo, Tea Together failed to qualify at Chase because the business was fewer than three years old, though she did not know if that was the Small Business Administration’s or Chase’s rule.

Ms. D’Angelo joins other owners of small local businesses who are finding credit hard to come by, even with the help of federal stimulus money directed to help. The dearth of small business loans nationally described in The Times’s article on Thursday seems to be playing out locally as well. So far in South Orange, only four S.B.A. loans have been approved from Oct. 1, 2008, through the end of June 2009, according to federal statistics. This is down from eight loans in the last financial year, from Oct. 1, 2007, and Sept. 30, 2008.
An S.B.A.-backed loan is intended for small businesses that might not qualify for a commercial loan. After being rejected, a small businesses can apply, often at the same bank, for an S.B.A.-backed loan.

Since the financial crisis began in September, the credit market dried up, hitting small businesses hard. In response, $730 million from the federal stimulus package was funneled to increase the guarantee on S.B.A. loans to 90 percent. However, even with the guarantee, loans can be hard to come by.

But who is responsible for the bottleneck? Is it the S.B.A., where mountains of paperwork are required? Or are the banks not wanting to go the extra mile to assist small businesses? Or perhaps, are small businesses considered a poor investment?

From the eyes of the banking industry, the problem centers around the red tape that entangles all areas of the S.B.A. loan process.

Sheila Spangler, who worked in the banking industry for more than 20 years and is now a business strategy coach, said she believed that banks are not lending because of the excessive paperwork required for an S.B.A. loan. Banks and the S.B.A. have their own qualifications, and both apply when a small business wants a loan.

“Just because the S.B.A. may be willing to guarantee the loan, the bank may not necessarily want to make the loan,” said Ms. Spangler, who calls herself a proponent of the federal agency.

She explained the S.B.A. guarantee is not real money. It is available only if the borrower defaults, so the bank must initially provide its own money for the loan. And when it comes to receiving the guarantee, from her own experience and from being in constant contact with bank managers, Ms. Spangler said it can take one or two years.

“It is a long, drawn-out process,” she said.

Furthermore, if the borrower defaults, there is also a chance that banks will not get their money back from the S.B.A.

“If the bank does make the S.B.A. loan, the package has to be done perfectly, or the bank risks not being able to exercise the government guarantee,” Ms. Spangler said.

Jonathan Swain, a spokesman for the Small Business Administration in Washington, countered that it did not take terribly long for a loan to receive a guarantee.

“We have made a commitment to lenders to turn their application around in 45 days or less,” Mr. Swain said, referring to the amount of time it takes banks to receive the guaranteed amount for a defaulted loan. He said the S.B.A. averages a 30-day turnaround, and that 95 percent of the guarantees on default loans are paid to banks.

Mr. Swain also noted the low default rate on S.B.A. loans in the first place.

“Our default rate is about 5 percent,” he said, “which is more than what it was historically. However, that is what you would expect in this economic time.”

A new initiative of the S.B.A., America’s Recovery Capital Loan Program, is also causing confusion for some would-be lenders. Operating for less than two months, this program provides $35,000 in short-term relief to struggling small businesses. Like in a standard S.B.A. loan, the business must be eligible by the standards of both the S.B.A. and the commercial lender.

“Over 1,000 A.R.C. loans have been offered across the country,” Mr. Swain said. “We feel good about where it is, and we expect to see those numbers go up.”

But so far, only four of those loans have been in New Jersey through the lenders JPMorgan Chase & Company, PNC Bank and Woori Bank. (They tend to head to businesses in Minnesota, Wisconsin and Iowa, according to The Boss blog.)

While there are 190 banks in New Jersey that partner with the S.B.A., some are part of the preferred or certified lenders program, and are able to get an accelerated application process for loans they approve. Here is a list of those banks [pdf].

Ms. Spangler said A.R.C. provides little incentive for commercial lenders to administer the loan.

“The mound of paperwork and knowledge is the same as for a million-dollar loan,” she said of the relatively small A.R.C. loans.

Mr. Swain said this was necessary to prove that the business was viable and still a good investment.

Elizabeth Boele, co-owner with her husband, Brian, of Bonte, a cafe and waffle shop on South Orange Avenue, was not granted an A.R.C. loan because she could not demonstrate financial difficulty on paper, a qualification for the loan. Instead, the business had been cutting back in other areas to avoid defaulting on other loans.

“If we had not been making our repayments, we would have been better off,” Mrs. Boele said she told an S.B.A. representative recently.

Mr. Swain encouraged business owners like this to speak with the New Jersey S.B.A. office, as options still might be available to them.

There are some who argue that market forces, not the government, should determine who stays in business. While the S.B.A. loans may be helpful, are they keeping people afloat who simply should sink?

“Small business that are barely making it should not get a loan,” said Mary Anne Spencer, from the Tenth Muse Gallery in Maplewood, who was able to use her own equity to start her business. “People are going in with no business plan, no demographic study … what are you going to give them a small business loan for?”

Ms. Spencer was concerned for those small businesses that were barely breaking even, operating under false hopes that the economy will suddenly improve, and taking on the added burden of new debt.

“People’s spending has changed, and it is going to stay that way for some time,” she said.

When this thought was posed to Mr. Swain, he said he believed that many of the businesses the S.B.A. supports have been profitable businesses that need an extra hand.

“There are a lot of good, viable small businesses who do not have access to the capital that they would have had in good economic times,” he said. Mr. Swain said S.B.A. loans were useful to businesses that were in the “maybe stack” of getting a commercial loan, and he stressed the loans were not there for businesses that are not viable.

Mr. Swain did have some good news for small business regarding the dollar amount of S.B.A. loans recently. Since February, “we have actually seen our loan volume increase 50 percent,” he said. “July was the highest months in terms of volume since last September.”
Source: NYTimes

Finance Site Mint.com Raises $14M in New Funding

Personal finance site Mint.com has raised $14 million in its latest round of venture funding, which was led by DAG Ventures.

The Mountain View, Calif.-based startup said this week that it secured financing from The Founder's Fund, current investors Benchmark Capital, Shasta Ventures, First Round Capital and Sherpalo.
The company did not disclose its current valuation. Since its launch in September 2007, the company has raised $31 million through three rounds of funding and a seed round.

Mint said it will use the funding to hire more engineers and to speed up product upgrades and partnership launches that are planned for the next six to 12 months.

Mint, which has more than 1.4 million registered users, is also set to roll out upgraded features on its site next week. These will mostly relate to Mint.com's budgeting functions, which let users see how they spend and save their money.

Source: NYTIMES

JOURNALISM STARTUPS ARE HELPFUL, BUT NO PANACEA FOR NEWS PROBLEMS

One of the most exciting developments in journalism is the widespread appearance of online news startups. These are taking a variety of not-for-profit and commercial forms and are typically designed to provide reporting of under-covered communities and neighborhoods or to cover topics or employ journalistic techniques that have been reduced in traditional media because of their expense.

These initiatives should be lauded and supported. However, we have to be careful that the optimism and idealism surrounding these efforts not be imbued with naïveté and unbridled expectation. All these initiatives face significant challenges that require pragmatism in their organization and sober reflection about their potential to solve the fundamental problems in the news industry today.

We need to recognize that these online initiatives are not without precedent. We can learn a great deal about their potential from other community- and public affairs-oriented media endeavors. Community radio, local public service radio and television, public access television, and not-for-profit news and public affairs magazines have existed for decades and provide some evidence about the potential of the startups. Most rely heavily on the same types of foundation, community support, and membership financial models that startups are employing and this gives them a head start in the competition of those resources.

Despite sharing fundamental objectives and goals, these existing news and public affairs enterprises exhibit wide differences in the services they provide and their effectiveness in offering them. Many suffer from precarious financial conditions.

For the most part, such initiatives are highly dependent upon volunteer labor, individuals with the best of intentions who contribute time and effort. Those who manage the operations must expend a great deal of effort to train, coordinate, motivate and support these volunteers. This incurs cost and takes time from other activities.

Most of the organizations operate with highly limited staffs of regularly employed personnel and this is especially true in news operations. Professional journalists working in these organizations tend to be poorly paid; few have health and retirement benefits; most do not have libel insurance that protects aggressive and investigative reporting; few have access to resources to invest time and money in significant journalistic research. The consequence of these challenges is that there tends to be high turnover because the operations typically rely on young journalists who use the organizations to gain professional experience and then move on to better funded or commercial firms.

The community and public affairs operations also exhibit widely disparate size and quality in their journalistic activities. Even most affiliates of National Public Radio—which is generally considered the most successful of non-commercial news operations—tend to have small and relatively undistinguished news operations. Most rely upon the exceptional content of the national organization, large metropolitan affiliates, and the best of the content collectively produced by other local affiliates. Affiliates with larger news staffs and quality tend to be limited to those linked to university journalism programs or in the best-funded metropolitan operations.

The challenges faced in these organizations should not deter the establishment of new online initiatives or keep the rest of us from supporting them. We need to be realistic about their potential, however. In the foreseeable future these startups will tend to supplement rather than to replace traditional news organizations. They may be part of the solution to the problem of news provision, but they alone are not the remedy.

BANKRUPT NEWSPAPERS GIVE EXECUTIVE BONUSES

Failure isn’t what it used to be. Bankrupt newspaper companies are following the lead of AIG and Lehman Brothers and rewarding executives with large bonuses. The Tribune Co. is trying to pay out $13 million in bonuses, the Journal Registers Co. is trying to pay $2 million, and Philadelphia Newspapers has already given hundreds of thousands in bonuses to its corporate officers.

Company spokesmen say the bonuses make good business sense by rewarding good performance and keeping executives from leaving the companies. Both arguments are hollow. The first rationale rewards performance in running the companies into the ground and the retention rationale assumes other newspaper companies are hiring and would want to hire the tainted executives.

The issue of bonuses has emerged because newspapers filing for bankruptcy are not liquidating, but using Chapter 11 to create reorganization plans that will allow them to change the terms of the debt and union contracts. They have to seek approval from the bankruptcy court for their expenditures.

It is true that most of the papers in these bankrupt companies are making operating profits, but their corporate parents are losing money. The fact that profits exist are one of the reasons the companies have been petitioning the bankruptcy courts to allow them to pay bonuses. Not surprisingly, company debt holders—including states that are owned taxes—are not too happy with the idea and employees who have suffered layoffs and wage concessions are rightfully resentful.

The bonus debacle is yet another indication that the bankruptcies were created in the board rooms and corporate offices, not by the economic downturn. Poor corporate and management decisions are their root problem.

The newspaper business is clearly hurting because of the recession, but it is not a unique phenomenon. About once a decade for the past 50 years, recessions have played havoc with newspaper revenues, but the industry has survived them. Poor economic times, however, push companies whose managers have not paid sufficient attention to their balance sheets into financial crises and bankruptcy.

The last time we saw such wholesale problems was in 1991-1993 recession. Ingersoll fell into insolvency in 1991 and was broken up after its use of junk bonds for financing backfired. The New York Daily News went into bankruptcy that year as part of the collapse of the Robert Maxwell house of cards. United Press International went into bankruptcy in that recession as well. All three were victims to poor managerial choices made earlier and their positions became untenable in the recession.

History is repeating itself.

The bankruptcies today are the result of companies surpassing their financial capabilities and because executives have exceeded their own abilities to manage the firms. Some newspaper executives unwisely loaded their companies with enormous debt to make acquisitions and others are in trouble because the cumulative weight of poor management over a period of time has finally caught up with them.

Most newspapers, however, are surviving the downturn and will be serving their communities for many years. They are responding to the poor advertising climate with responsibility and thrift--NOT by giving executive bonuses that should be used for strengthening their businesses.

ANALYSIS OF THE NEWSPAPER REVITALIZATION ACT

The Newspaper Revitalization Act introduced by Sen. Benjamin Cardin, D-Md., would permit newspapers to operate as not-for-profit entities under the tax code and is being heralded by some observers as a means of saving newspapers, much as was the Newspaper Preservation Act of 1970. Good purposes aside, it is useful to study the act to determine whether it will actually accomplish the goals that are stated as its rationale.

The bill is a small bill, about 435 words, that would amend the IRS Code of 1986 to permit newspapers to be given 501(c)(3) status, thus obtaining tax exempt status and the ability to accept charitable contributions. Currently tax laws do not permit newspapers to be operated tax exempt, but they do have mechanisms that permit foundations to own them or support them financially.

Paragraph (b)(1) of the bill would allow general circulation newspapers “publishing on a regular basis” to establish themselves as tax exempt organizations. The language does not limit periodicity so daily, bi-weekly, weekly, monthly, and other combinations would be possible. It would thus permit a range of neighborhood and community non-dailies, as well as dailies to use the mechanism.

Paragraph (b)(2) stipulates that the newspaper contain “local, national, and international news stories.” This section is somewhat problematic because non-dailies, particularly neighborhood and community papers, do not typically carry national and international news and nationally oriented dailies do not typically carry local news. The bill contains no provisions that require local creation of content, thus allowing publishers to fill a paper only with syndicated material or other content produced elsewhere.

Paragraph (c) permits advertising, but limits it “to the extent that the space allotted to all such advertisements….does not exceed the space allotted to fulfilling the educational purpose of such qualified newspaper corporation.” This provision is apparently intended to ensure advertising does not dominate the content and effectively limits advertising to 50 percent of the content. This provision, however, is problematic because daily newspapers and most non-dailies currently contain two-thirds to three-quarters advertising. Indeed the regulations governing Post Office (USPS) distribution limit advertising to 75 percent.

The bill does not require that newspapers have paid subscriptions or even requests to receive the paper, as do USPS regulations, so it would apply free circulation papers.

By giving not-for-profit status to newspapers, the bill would also make the paper eligible for USPS not-for-profit rates, which would permit lower postal delivery rates for such papers than those afforded for-profit papers. This might raise issues regarding the fairness of competition if commercial publishers exist in the market

It should also be noted that the bill makes no provision to limit payments to publishers and editors. This creates the potential for some abuse. A small commercial publisher could use the mechanism to become “non profit” to avoid company taxes by not taking compensation from profits but taking a higher salary instead—effectively letting tax payers subsidize his/her income.

One drawback of using 501(c)(3) status is that entities are not permitted to engage in direct political activities, such as endorsing candidates for local, state, or national office or possibly even taking positions on governmental proposals. This would somewhat limit the scope of content and could lead to IRS investigations if complaints were made to the IRS that a paper was taking sides, was too conservative or liberal, or evidenced some other kind of agenda that was deemed political activity.

It appears that the overall effect of the bill would be limited. It will be appealing to very few dailies and most neighborhood and community papers will have difficulties complying with its content and advertising requirements. Even with tax exempt status, the costs of creation, publishing, distribution of a newspaper probably can not be covered by many publishers with a 50 percent ad limit, unless they are especially effective at raising charitable contributions over time.

The bill appears to be well intentioned, however, it can not solve the problem it purports to address in its current form and creates potential for some abuse.

THE DEAD AND THE DYING

Judging from the continuing panicked commentary by big media journalists and commentators, newspapers are dead and dying. They are comatose, the family is gathering at the bedside, and quiet discussions are taking place about whether to disconnect them from life support.

Walter Isaacson writing in Time Magazine last week told us that “the crisis in journalism has reached meltdown proportions” and that we can save newspapers by starting to make micropayments for articles we read online.
http://www.time.com/time/business/article/0,8599,1877191-4,00.html

David Carr, writing in New York Times, this week tells us that a “digitally enabled free fall in ads and audience now has burly guys circling major daily newspapers with plywood and nail guns.” We need to start charging for news, forcing aggregators to pay, turn away from ad support, and start thinking about new ways of collaboration even if they require a new antitrust exemption.
http://www.nytimes.com/2009/03/09/business/media/09carr.html?emc=eta1

Jonathan Zimmermann writing in Christian Science Monitors tells us “The American newspaper is dead.” And that we can save its functions by having professors write for the public.
(http://news.yahoo.com/s/csm/20090309/cm_csm/yzimmerman)

Nickle and dime-ing readers like the airlines? Special treatment from the government? Relying on professors to tell us what's going on? Have journalists gone mad?

It some ways they have. They are panicking at problems in big city media and ignoring the fact that most newspapers are relatively stable and reasonably healthy. The only newspapers experiencing serious competitive difficulties are those in the top 25 markets (about 1 percent of the total) and these are joined in suffering by corporate newspaper companies whose executives have made serious managerial mistakes.

Journalists are sometimes their own worst enemies, and this is one such time. Through overly pessimistic outlooks and sweeping generalization, they may be hastening the obituaries of some weak papers by making readers and advertisers think their serve no purpose today.

Discussion of the newspaper industry’s situation is confused because many observers do not separate its short-term problems with the economy from the challenges of long-term trends. Then they compound that problem by using papers as examples of industry developments that are unrepresentative because of their market situations and managerial errors.

Most newspapers continued making profits up to the current financial crisis and many papers whose parents went into bankruptcy were doing likewise. They will make profits again when the recession ends as they have done in the past.

The Rocky Mountain News did not die because the newspaper industry is in trouble, but because it was the secondary paper in the market and the joint operating agreement was not enough to save it. Several other JOA papers are on their way to oblivion for the same reasons. The Journal Register Co. and Tribune Co. went into bankruptcy not because its newspapers were unable to survive but because its management took on far too much corporate debt.

Clearly, large metro papers are suffering from the effects of competition from television, cable, and Internet. But that same pain is not being felt by most of the nation’s papers that operate in small and mid-sized towns and are the primary or only significant provider of news in their communities. They will continue to survive for many years because their content is unique and because their local advertisers are not well served by other media options.

What we need is a dose of realism in the discussion of the journalistic situation today. Most papers are NOT in the hospital, let alone comatose. The dead and the dying may be there and if so it is because they can't figure out how to give readers something worth paying for.

NEWSPAPER RESTRUCTURING IS PAINFUL, BUT NECESSARY

Financial pages are full of developments and changes at newspaper companies and these are being commented upon anxiously by those in the industry. Unpleasant conditions certainly abound, but these development are not indications that the industry is dead or dying in the near future. What they signal is that things which worked in the past are not working now, that newspaper companies are badly in need of restructuring, refocusing, and renewal, and that the boards of the companies and the company managers are taking badly needed action.

The techniques for restructuring are no mystery. First, you need some cash. This can be obtained by attracting new capital through investment or loans. New York Times Co. did this recently by borrowings $250 million from Carlos Slim. Other firms are looking for friendly investors with liquidity.

Another way of raising cash is by turning assets into cash. A classic move made by many types of firms is the sell their building and lease back any space that is needed. Media General and New York Times Co. are currently employing this tactic. Financially troubled companies can also be expected to shed some of their poorest or best performing holdings to raise cash, so it is likely that we will see a number of newspapers companies putting papers up for sale in the near future.

Reducing and restructuring existing debt lessens financial performance pressures on companies. To accomplish it, they use cash that is raised to pay obligations imminently due or to make early partial payments to debt holders in exchange for obtaining better interest rates or lengthening payment terms. Watch for such transactions in the coming months.

As part of restructuring, many newspaper-based companies will seek to refocus on core news and informational activities, divesting non-core activities to raise cash. Baseball teams, holdings in cable systems, advertising service firms, and other types of peripheral companies are being sold or considered for sale.

Few newspaper company executives have experience restructuring and reorganizing their firms to make them leaner and more efficient or strong financial management background. The current environment requires different managerial skills so many newspaper firms will be looking outside the industry for experience. GateHouse Media, for example, has now hired a chief financial officer with a financial management background at companies including PayCheck, NCR , and PriceWaterhouse.

Expect to see multiple actions throughout the industry that are parts of the restructuring of newspaper companies in the coming month. Some will be painful, but will have two effects. First, it will lessen the financial pressures of the debt many companies are carrying. Second, it will force them to rethink their newspapers and the value and quality they are or aren’t providing.

BANKRUPTCY AND NEWSPAPER FIRMS

The bankruptcy filings of the Minneapolis Star-Tribune and Tribune Co. are cast by many as a sign of the continuing decline of the newspaper market. However, it is noteworthy that neither firm is owned by a company with a newspaper heritage, but by firms in the newspaper business primarily for financial gain. The Tribune’s owner is from the real estate business and the Star Trib’s is from private equity.

There is no doubt that the newspaper business is facing a difficult time now, but the business origins of the owners are important because their perceptions of bankruptcy, how the community will react, and how the company will be seen afterwards are colored by the norms and mores of those business fields.

Newspaper companies have long played special roles in communities, exercising social and political influence, and promoting corporate responsibility, accountability, and community standards. Publishers and editors have typically sat with the other civic leaders on boards and committees of chambers of commerce, community development organizations, foundations, and local offices of the United Way and the Better Business Bureau.

The roles and influence of newspaper executives were founded on their standing in the community and of perceptions of their respectability, community interest, and fiscal dependability. Newspaper publishers and editors would loathe any hint of financial instability or impropriety that would mar those views. The reputation of the newspaper and its brand were inextricably linked.

Newspaper companies have survived depressions, recessions, war, and all kinds of economic uncertainty in the past. They did so because they were financially solid companies with equity structures and balance sheets that allowed them survive very uncomfortable financial circumstances. Companies like the Tribune Co. and Star-Tribune are based on weaker foundations and come from cultures in which bankruptcy to reduce debts or abrogate contracts—hurting local businesses and their own employees--is just another business tool.

As I have previously discussed in this blog, there are a number of companies with long newspaper histories that are carrying significant debt or struggling with investors. It will be interesting to see how they handle their economic crises and the efforts they make avoid the stigma of bankruptcy. I suspect most will find other ways of dealing with their financial predicaments--unless they feel that the Star-Tribune and Tribune Co. choices have changed the norms for the entire industry.

THE CREDIT CRISIS, VOLATILE MARKETS, RECESSION AND MEDIA

The churning flood of economic developments and the desperate measures of governments to lay financial sandbags to control the torrent present not one, but three calamities for media managers. Those that escape one may well be swept away by another.

Most media can survive the collapse of credit markets because media firms have high cash flows are typically require less short term credit than manufacturing and retail firms. Because most can acquire their most important resources without accessing credit lines or issuing commercial paper, banks struggling to keep their heads above water are not a major short-term concern. However, those media firms with large debts due in the short-term that were hoping to refinance face significant hurdles. Some will be rapidly shedding media properties in order to stay afloat.

The more immediate problem for some publicly owned firms is the financial damage caused by the dramatic drop in share prices following the credit market collapse. Because a number of companies use debt financing linked to the value of their shares, the drop in prices makes their debt more risky and thus triggers automatic increases in interest rates and debt payments. This puts even more financial pressure on the firms and is sweeping them along with the flood.

Media firms that escaped the rising financial damage of the first two problems are nonetheless being sucked into the swirling waters of a recession. Because manufacturers are cutting production and laying off workers and because credit is tightening and making it harder for consumers to buy, advertising expenditures are eroding rapidly. Further, consumer spending and confidence are directly related to sales of media products so one can expect declines in sales of media hardware, recordings, books, and other products as well as consumers concentrate their expenditures on paying mortgages and other debt.

At the moment there is no means to effectively project how deep the recession will be, but whatever the depth it will be difficult for media. In the case of advertising, a 1 percent decline in GDP produces about a 3 to 5 percent decline in advertising. So a 3 percent decline could produce a 15 percent decline in income for many media firms. Print media tend to be most affected by recessions and their declines tend to be 3 to 4 times deeper than television because of differences in the types of advertising they carry.

Media companies that are financially strong will weather the financial storm, but those whose managers leveraged their companies to make acquisitions, those whose owners recently purchased the firms primarily using debt financing, and those that have been poorly managed will be struggling to survive. The current financial storm is a classic example for why conservative financial management of a media firm debt is crucial.

ASK DEEPER QUESTIONS ABOUT FINANCIAL CONDITIONS

Many observers tend to conceive any changes in media businesses as trends that are irreversible or to combine them with other changes to make sweeping generalizations about industry conditions. The results are often wrong and distract observers from asking deeper more appropriate questions about longer-term developments and how media companies use the resources they have.

To understand changes one needs to consider developments separately to determine their origin and expected duration. This allows one to determine what are the result of external trends and what are the result of company choices. Only then can one begin combining them with other observations.

Thus, one needs to consider whether the ratings increase for AMC is due to people spending more watching cable channels or an effect of the AMC's investments in quality programming and the popularity of programs such as Mad Men? If it is the former, one can enjoy benefits with little effort or extra investment; if it is the latter, the company will want to consider additional investments in other programming.

Is the decline in broadcast television advertising in the first half of 2008 a harbinger of a advertisers moving expenditures out of broadcasting or a reflection of the current economy and the condition of the automobile industry and its declining ad budget? If it is the first, long-term trouble is brewing and companies will need to give significant thought to their business models and cost structures. If it is the latter, the financial difficulties caused by the reduction may be short- to mid-term and will merely have to be endured until conditions improve.

Is the decline the in national newspaper advertising the result of reduced spending by advertisers or because of changes in the number of national advertisers and the ways they allocate their budgets. The latter requires rethinking income potential and expenditures for selling national advertising, whereas the former will create less longer-term trauma.

Many observers also seem to think that budgets cuts are necessarily bad and unusual for companies, but they are normal occurrences because of the cyclical nature of advertising expenditures. When ad dollars are flowing vigorously, media companies expand their budgets; when that flow lessens, companies reduce their budgets.

What is important about budget cuts is that they be instituted in strategic way to leave the core capabilities of the firm intact so the firm can benefit when conditions change and not miss critical time and financial benefits by having to rebuild those capabilities when better times occur.

It is alo important that budget cuts not be made equally and across the board, but that they be made by clearly analyzing the necessity of existing cost structures and operations. The challenge for many traditional media is that they are labor intensive and labor costs often are the one of the leading portions of their expenses. If one must cut labor, it should be done considering which employees can easily be replaced later, whether all operations, products, and services need to be maintained, and whether outsourcing some functions is an option.

Many companies also forget to look at the top as well as the bottom of their operations when cost cutting occurs. Today, for example, many newspaper companies need to be asking whether expensive corporate offices, private jets, and high corporate salaries and perks are warranted and necessary or if they should cut those corporate expenditures and the management fees they lay on local newspapers to pay for them.

In times of change, one needs clear vision of what is happening to an industry and company and to ask broader questions than are typically asked in firms and by industry observers. Those who do so benefit; those who don't pay a price.