Sabbatical

I will be taking some time off – and may return early next year – you can follow me on Facebook >>> http://www.facebook.com/steve.king.9216 or LinkedIn >>> http://www.linkedin.com/profile/edit?trk=tab_pro or just e-mail me at sking1145@yahoo.com and I will keep you posted – cheers!


How to End the Great Recession.

And, dramatically reduce unemployment, create 4 million high paying jobs, eliminate the retirement savings crisis, solve the student loan bubble, create unprecedented innovation, stoke social security and Medicare, and do actual real good in the world. Sound incredible? It isn’t. Follow along.

I want you to think about 10 people you know and write down their names, and under each write down the first three skills that come to your mind, even if they don’t seem like skills (e.g. she’s patient, a nice person, and she treats people with respect). Then, think of the one thing that you have always wanted to do (could be anything, including hiking across the country, baking the best chocolate chip cookies, driving an 18 wheeler across Alaska, inventing 5 new cocktails, writing that book, opening that restaurant with your grandmother’s recipes, anything.).

Now, create 10 jobs for those people whose names you wrote down, and write down what each person’s role would be. Then, figure out how to monetize your dream. Write down the amount of money you think you can make each year starting with year one, and then do the same for year two and year three. Next, figure out how much money you will have to spend to get that done. If your spending rate is higher than the money you will make, cut the spending until you show a profit. There. Now, you have a business plan. 

What? You can’t figure out how to make money hiking across the country? How about a theme? How about interesting cities? How about a camera? How about a diary? Do you think Ken Kesey had a plan? You don’t know who Ken Kesey is? That’s OK. I KNOW you can come up with a way to make money at whatever your dream might be. 

Maybe you think you are not worthy. We all have self-esteem issues. Especially people like Paul Allen, Bill Gates and Larry Ellison. As you probably know unless you are living under a rock somewhere, all three men dropped out of college. None of the three of them invented anything.   

     

All three of them used someone else’s invention to start them on their path. All three of them became dirty, filthy, and ridiculously rich. Doing what? Doing what they loved. Gates played with very rudimentary computers. Computers that would make the Apple I look like a Fujitsu K by today’s standards. Allen loved writing software in BASIC, a language that is dumber than the firmware that connects your keyboard to your PC. Then, after hooking up with Gates and finding IBM in a stupid marketing pinch for its entry into the PC market without an Operating System, bought a product called Quick and Dirty Operating System (QDOS) from a random programmer in Seattle named Tim Paterson, for $50,000, sold licenses to IBM, and the rest is Microsoft. While working as a grunt at Ampex, Ellison ripped off a relational database scheme described in a paper written by Edgar Codd, and used it on a project for a database system for the CIA. That became Oracle. How’s your self-esteem doing now?

So, you have your business plan, and you have your future employees identified, and your self-esteem is a little jacked up. What do you do now? 

Before I lay out my plan to End the Great Recession, I should mention that a similar (though tongue-in-cheek) plan was proposed in an article by Sheila Bair, the former head of the FDIC, which she called the “Get Rid of Employment and Education Directive.”  But, not to be confused with hers, my plan is anything BUT tongue-in-cheek and here’s how it goes:

1) The Fed agrees to loan $400 Billion to the “American Future Entrepreneur Growth Fund” (it has no corny acronym, so it might have trouble passing Congress), at an interest rate of .5%, the exact same rate it charged the 6 big banks it lent $9 Trillion to back in December of 2010. This amount by the way, is half of the TARP bailout that saved the biggest investment banks in the world with your tax dollars, back in 2008. Half.

2) The AFEGF is organized like a Venture incubator, and the first thing it does is hire 100,000 really good recruiters who are then tasked with finding the most promising 400,000 entrepreneurs in the US, with fungible business plans. This will take 6 months. The criteria are a track record of entrepreneurship in one form or another, successful or otherwise, a business plan that passes a few tests, and the passion to do something big.

3) Those entrepreneurs are each loaned $1,000,000 and are given a goal of 3 years to turn that loan into positive cash flow. They must immediately hire 10 people from their list and assign them roles. They are each assigned a mentor from the VC community who VOLUNTEER their services to guide these start-ups to success. VCs like Joe Rizzi, Val Vaden, Don Dixon and Vinod Khosla who are all about making really smart investments and guiding them to ridiculous profitability, while looking for ways to make a positive difference in the world.

They will also be assigned community mentors. People like Joy Amulya from Global Family Village, Shawn Ahmed of the Uncultured Project, Beth Kanter and Allison Fine of The Networked Nonprofit, and  Craig Kielburger of Free the Children, to help entrepreneurs focus on global community projects where their energy, capital and spirit can turn their entrepreneurship into real and lasting good.

The entrepreneurs are each assigned a regional incubation lab where they will work out and implement their plan. The incubation lab will be staffed by accountants, sales and marketing leaders, PR, Advertising and communication consultants, lawyers, human resource professionals, and prototype design and manufacturing engineers who will provide the back-office infrastructure for 100 separate entities. The entrepreneurs agree to quarterly board meetings where their mentors review progress and manage their growth track. At anytime along the way, the entrepreneurs can use Crowdfunding to raise additional capital, allowing a whole lot of ordinary people to get a piece of this amazing action, and to potentially create even greater wealth.

4) There will be NO RULES.

5) At the end of this 3 year period, the Fed will either be re-paid the loans with interest or optionally be able to take an equity stake in the most promising enterprises, equivalent to their loan amount, and over a 10 year period, will recoup all of the money lent to these enterprises as the result of a 1 in 20 success rate (for every 20 start-up who fail, there is one who becomes the next Google, Facebook, Adobe, Apple, Microsoft, etc. These are the odds that the VC have been gambling other people’s money with since the late 1960’s and history says it always works).

That’s it.

If these 400,000 start-ups fail and succeed at the historic rate of Silicon Valley start-ups, they will create over 5 million jobs. They will re-pay all of the debt several-fold to the Fed and they will have solved at least 5 significant world problems. Along the way, their employees will have fully funded Social Security and Medicare for the next hundred years and created more wealth and innovation than the world has ever seen. Including a sustainable, endless and ultra-cheap alternate energy source. Trust me. I’ve done the math.

After Gates sold QDOS to IBM, Big-blue hired Microsoft (13 random guys and girls) to build their next release operating system, OS/2 for their cool new PC. Gates, by this time, was smart enough not to transfer the copyrights for QDOS or the new OS/2 to IBM, believing that there would be other hardware manufacturers of the new PC in the immediate future. Then, due to design differences, the IBM/Microsoft partnership broke down allowing Microsoft to go off and become, well … Microsoft. 

You can argue with and debate my plan, and I agree it has holes, and there are always tons of devils lurking in the details, but there are always holes and devils in every plan, and there is also the undisputed history of the Silicon Valley and Microsoft and Apple and Google, and the unfettered tenacity and passion of the American people. And, you can’t argue with that. 


Greece Readying Big Head-fake.

After Delay, Greek Leaders Meet About Austerity Plan

This may seem trivial to some of you, but for those who have been following this blog you are aware that I think Greece is the linchpin for both Europe’s immediate future and any chance America has for a recovery anytime soon.

After three days of delays, Prime Minister Lucas Papademos finally met Wednesday evening with leaders of his interim government as evidence mounted that they were close to agreeing to support new austerity measures demanded by Greece’s financial backers in return for a $170 billion bailout.

Greek and European Union flags fluttered near the Parthenon in Athens on Wednesday.

Jean-Claude Juncker, the prime minster of Luxembourg, who heads a group of euro zone finance ministers, scheduled a ministerial meeting for Thursday that he had previously said he would call only if Athens were ready to sign off on the plan.

Even that meeting will not be the final word. But it will allow for preparations to be made for a bond swap under which private investors would take losses of up to 70 percent, according to one person briefed on discussions who agreed only to describe them anonymously.

In Athens, the leaders were still locked in a room Wednesday evening after more than six hours of talks. But a government official said that they were inching their way toward consensus on the package. “This is a serious document. One wouldn’t expect discussions to be done in two or three hours,” the official said. More like two or three months. He added that he expected party leaders “to rise to the challenges and responsibilities involved” and reach an agreement “very soon.”

Some details of the bailout remained unclear, but it appeared increasingly likely that the European Central Bank would agree to forgo at least some of its potential profits on Greek bonds once the government in Athens had agreed to the austerity measures.

The 50-page document, which sets out the measures and fiscal targets that the leaders would have to accept, is said to have provoked vehement objections from the ranks of all three parties in the ruling coalition: the Socialists, New Democracy and the right-wing Popular Orthodox Rally, or L.A.O.S. Analysts suggested that the coalition partners were seeking to avoid blame for the agreement in hopes of leaving Mr. Papademos as the principal target of public anger.

One of the most controversial measures is a 22 percent reduction in the minimum wage, to around $775 a month. The cut is expected to affect all salaried workers, because the base wage is used as a benchmark by employers.

Once the leaders agree to the package, they will move Thursday to the next phase of considering a document drawn up the so-called troika — the International Monetary Fund, the European Commission and the European Central Bank — ahead of a scheduled Parliament vote Sunday on the austerity measures, which are expected to pass. The government will then hold a cabinet meeting about the troika’s document, and parties will brief their lawmakers.

In Athens, the prospect of wage and pension cuts was particularly hard to swallow. They “move us backwards,” said Constantine Michalos, the president of the Athens Chamber of Commerce. “When you have severe cuts but you are a non-producing country because you depend on imports, it’s most likely that prices will go higher.”

Mr. Michalos said that he was also upset that European leaders had spoken more positively about the need for economic growth in recent weeks but then had not come through with concrete offers.

The first installment of the bailout was supposed to be a massive $118 billion tranche in March, but officials are now saying that it might be limited to about $40 billion to ensure that Greece continues to abide by the terms in coming months. Because no one trusts that the Greeks won’t just take the money, bow out of the Eurozone, default on all their debt and devalue the Drachma while ignoring agreements to implement enormously unpopular austerity measures. Which is exactly what I think they will do anyway.

It has also become evident that Greece’s ambitious goal of raising $12 billion this year through privatizations is going to fall short because of a lack of international interest. Officials involved in the process say that around $6 billion is a more realistic target, though many believe even this will be hard to meet.

European officials now estimate that Greece will need at least another $20 billion in 2012 to close its financing gap. But with the I.M.F. making it known that it will not increase its loans to Greece, the burden to come up with the extra money has fallen on euro zone governments and the European Central Bank. 


How ‘Shadow Inventory’ Is Killing the Housing Market.

Two reports surfaced last week indicating that, for the nation as a whole, home prices dropped by 3.5% to 5% in 2011. And one factor hurting the prices of homes that are for sale is the enormous number of homes that aren’t for sale — but should be.

The Case-Shiller housing index was released last week, stating that home prices had dropped 3.7% in 2011, compared with the previous year. CoreLogic, a real estate research firm, also recently released a report estimating that prices had dropped in 2011 — by 5%.

“While overall prices declined by almost 5% in 2011, nondistressed prices showed only a small decrease,” said Mark Fleming, CoreLogic’s chief economist. “Until distressed sales in the market recede, we will see continued downward pressure on prices.”

Most housing experts agree: prices won’t rise until all distressed inventory (a.k.a. foreclosures and short sales) is moved through the market. Distressed sales keep prices low because banks want to get rid of such properties asap, and they’re willing to sell at a loss so long as the homes are out of their hands.

Exactly how many foreclosures need to be cleared out of the system is somewhat unknown, however. While about 3.5 million homes are officially for sale at any particular time, millions of homes that otherwise would be for sale are currently off the market. It’s these properties that are known as “shadow inventory.”

There are many reasons why homes that could be for sale aren’t. Some are stalled in the foreclosure process, which can easily take more than a year in some states. Some banks decide against putting certain homes on the market either because they can’t process all their distressed inventory, or because flooding the market would drive prices further down. Technically, shadow inventory also refers to homeowners who would like to sell but are waiting for market conditions to improve.

How much shadow inventory exists? No one knows for sure. Yesterday, the U.S. Department of Housing and Urban Development released the January Scorecard, which reported that the number of homes left off the market decreased from 3.9 million units at the beginning of 2011 to 3.6 million at the end of the year. These figures include homes that defaulted through a Fannie Mae or Freddie Mac loan. While lenders who participated in such loans are required to report data regarding how much inventory is left off the market, other lenders are under no such obligation. Therefore, it’s difficult for housing analysts to estimate just how much shadow inventory is out there at any given time. According to the Wall Street Journal, the number could be anywhere from 3 million to 10 million homes (and I suspect it could be more).

About 4.4 million homes were sold in 2011, according to Bloomberg. There are about 3.5 million homes on the market now, and if you were to add millions and millions of shadow inventory homes into the mix, it would take years to sell all these properties to get to a point where the market was “normal.”

The Administration recognizes that distressed inventory is holding back the housing recovery and has made efforts to minimize the number of homes facing foreclosure. Recently, the Home Affordable Modification Program was expanded so that more underwater homeowners would qualify for assistance. President Obama is pushing a mortgage-refinancing program to allow homeowners to reduce how much principal they owe, and the Fed recommended that lawmakers enact a government-sponsored program to rent out foreclosed properties. Owners who defaulted on their loan could potentially rent their old homes, which might otherwise be sold by the banks at a loss or fall into the category of vacant shadow inventory. Fannie Mae and Freddie Mac have also revised their forbearance program that will allow owners who’ve lost their job to opt out of paying their mortgages for up to a year.

It’s hard to gauge which, if any, of these programs will actually get enacted and which will make much of a difference in the housing market. The Republican Congress opposes all of them. Considering the staggering amount of distressed homes and shadow-inventory properties around the country, there really is no quick-fix solution — and likely, no way that housing prices are going to rebound substantially in the near future.


To Envision Dodd-Frank’s Future, Look to Its Predecessor. Maybe.

Will the banks allow Dodd-Frank to happen?

 
Michael G. Oxley, left, and Paul S. Sarbanes, the authors of the Sarbanes-Oxley Act, which reformed corporate accounting.
Michael G. Oxley, left, and Paul S. Sarbanes, the authors of the Sarbanes-Oxley Act, which reformed corporate accounting.

As fears mount that Dodd-Frank, the financial overhaul law, is about to be emasculated, it’s worth reflecting on the 10-year anniversary of a major regulatory success.

I’m speaking of the mocked, patronized and vilified Sarbanes-Oxley, the law that cleaned up American corporate accounting.

SOX, as it’s known, was a response to an epidemic in corporate accounting fraud that swept American business in the late 1990s and early 2000s. Because the 2008 financial crisis dwarfs that earlier round of scandal, it’s easy to forget how rotten things were, said Broc Romanek, editor of TheCorporateCounsel.net, a site devoted to securities law and corporate governance. “Everyone had lost faith in the numbers put out by big public companies,” he said.

Cast your mind back. The scandals erupted in some of the purportedly best, most recognizable companies in America. Enron and WorldCom were the two biggest names and the two biggest failures. Tyco and Adelphia were in the second tier. But there were appalling accounting disgraces at HealthSouth, Rite Aid and Sunbeam.Waste Management and Xerox barely survived theirs.

Today, there are certainly debates about stocks and their valuations — and some questionable accounting — but no company that finds itself under scrutiny now is anywhere near as large, respected or celebrated as those were then.

Something else characterized those dark days: the frauds often lasted and lasted. Investors known as short-sellers, who make money when stocks collapse, waged battles for years over certain companies. Today, accounting disputes are finished before they start. An accounting scandal at Groupon, the online coupon company, came and went in a matter of weeks back in the fall — resolved by the regulators before the company went public.

When SOX was passed, it was attacked — almost exactly like Dodd-Frank is today. Sarbanes-Oxley got “horrible press,” said Jack T. Ciesielski, who edits the Analyst’s Accounting Observer. People mocked it for requiring companies “to flow chart the keys to the executive washroom,” he said. But the result is that accounting at American companies is much cleaner today.

The main criticisms of the law haven’t panned out. Corporate earnings have soared, and no company has ever missed a quarterly estimate because it was spending too much on its accounting and internal controls.

Critics railed that it would cost small companies too much, which it may have, though the evidence is debated. They also argued that it would hurt initial public offerings, which it didn’t. Yet, there remains vestigial criticism from the right; Newt Gingrich called for its repeal the other day on the campaign trail.

Is Sarbanes-Oxley perfect? Of course not. The financial crisis included accounting problems. The books of the American International Group,Lehman Brothers and Merrill Lynchmisrepresented the true state of the companies. The auditors have managed to skirt blame — even more so than other gatekeepers, like the ratings agencies, have. But at its heart, the financial crisis wasn’t an accounting scandal. It was a bubble, albeit one exacerbated by some book-cooking.

But the evidence in SOX’s favor is that one big dog didn’t bark. Even as the financial panic turned into the Great Recession, corporate America weathered the worst of the downturn without a series of major accounting frauds.

SOX required that chief executives and chief financial officers personally sign off on their companies’ financial statements. That seems minor. No doubt a Madoff wouldn’t be deterred by a little dissembling signature. But blackhearts aren’t the typical accounting fraudsters.

At huge corporations, corruption usually develops slowly, incrementally, starting with a minor crossing of the line. At the end of a quarter, a sale is booked before it was actually ordered — to make the numbers for Wall Street. Over time, the fraud builds on itself and it’s easier to keep the game going than to clean it up.

Requiring a step where the top dogs actually have to mark the books as their own territory halts that process. It steels their concentration and improves the culture, preventing those initial halting steps toward fraud.

The accounting industry has been improved as well. The new SOX-created industry overseer, the Public Company Accounting Oversight Board, has made inroads. Accountants have done a better job, remembering the devastating collapse of the accounting firm Arthur Andersen in the wake of the Enron debacle.

         

SOX wasn’t the only factor in this cleanup, of course. The accounting trials of the early 2000s made a cultural mark. Kenneth L. Lay and Jeffrey K. Skilling of Enron, the Tyco fraudsters L. Dennis Kozlowski and Bernard J. Ebbers of WorldCom all had their day in court. All the world, including their executive peers, watched them go from their mansions to the big house.

Is there a lesson to draw here for the prospects of Dodd-Frank? The new law is more sweeping, more pilloried and more complicated. It is concentrated on one industry, which allows for a more unified opposition. Importantly, a round of perp walks and prison terms didn’t accompany the law. Quite the contrary, the people responsible for the greatest economic collapse since 1929 have all danced away untouched.

But for all of the criticisms of Dodd-Frank, there has been a societal change in our views. Few can sustain an argument in favor of a gigantic, self-serving and rapacious financial sector. Some kind of financial reform law was — and still is — needed.

If lawmakers don’t gut Dodd-Frank, then 10 years from now we just might be reflecting on how safe our financial system is.


Credit-Card Debt Surging. Now Stands at $2.498 Trillion!!!

U.S. credit-card debt posted the second solid increase in a row during December, an indication Americans stuck with meager wage gains borrowed to pay for their holiday celebrations.

The increase helped raise the level of consumer credit outstanding by a whopping $19.31 billion to $2.498 trillion, Federal Reserve data Tuesday said. Economists surveyed by Dow Jones Newswires had forecast a $7.5-billion increase.

Revolving credit, which includes credit-card debt, increased in December by $2.76 billion, to $800.98 billion. November revolving credit rose $5.58 billion, the biggest increase since March 2008.

Nonrevolving credit rose $16.55 billion, to $1.697 trillion. The increase, which followed a big surge in November and was the largest since November 2001, was driven by federal student loans and has been increasing a lot over the past year – -a sign high joblessness in the U.S. has led many people to go back to school.

The consumer-credit report doesn’t include numbers on home mortgages and other real-estate secured loans. But the Fed data are important for the clues to behavior by consumers, whose spending helps propel the economy.

The economy is recovering slowly from a long recession that ended in mid-2009. Growth slowed sharply about a year ago, picked up late in 2011, and is expected to moderate a little early this year.

High unemployment and falling housing prices have restrained consumer spending. Job openings in the U.S. rose way up in December, according to a Labor Department report that economists said was consistent with an underlying trend that job openings have been rising faster than hiring. “This suggests that factors such as mismatched skills continue to be frictions in the labor market,” Barclays Capital analyst Cooper Howessaid.

The December increase in overall consumer credit followed a surge of $20.38 billion during November.

Rising credit can be a sign people are more comfortable with the economy. Or it can suggest people are being forced to finance essential purchases, such as food and gasoline. The two solid gains in revolving credit during November and December came during the holidays — a sign consumers pulled out credit cards to buy gifts and make other seasonal purchases.

Consumer spending, like the overall economy that it drives, is growing only modestly. While worker earnings haven’t been growing much, government data a week ago showed incomes of Americans posted a solid rise in December. Yet instead of spending, people chose to squirrel their money away, pushing the saving rate at the fastest pace in four months.

Fed Chairman Ben Bernanke appeared on Capitol Hill Tuesday and repeated a warning to lawmakers that the European sovereign debt crisis continues to slow global growth and could pose risks to the U.S. economy.


All Eyes on Dissident States as US Mortgage Deal Nears.

New York postpones planned announcement, California AG office has no comment on Tuesday, Delaware banking commissioner, AG at odds and Oklahoma formally declines settlement offer.

A broad settlement with major banks over mortgage servicing abuses that would bring relief to distressed U.S. homeowners could be announced as early Thursday, two people familiar with the matter said.

Negotiators said a federal-state mortgage servicing settlement already has the backing of over 40 states but so far lacks the support of a handful of critical states, including California and New York.

The size of the settlement is estimated at up to $25 billion, but that could drop if a number of states stay on the sidelines.

New York Attorney General Eric Schneiderman had planned an announcement late Tuesday about the settlement but postponed it “indefinitely” without explanation.

Last Friday New York filed a lawsuit that conflicted with part of the settlement. His office has been in discussions with bank lawyers to move forward with both the lawsuit and the settlement, according to two other sources familiar with the matter.

According to another person familiar with Schneiderman’s thinking, the tenuous nature of the talks caused the postponement. Schneiderman still is a holdout, that person said.

A decision from California Attorney General Kamala Harris also remained elusive, and her office had no comment on Tuesday.

Florida Attorney General Pam Bondi, who has been on the team of states negotiating the deal, has also not confirmed her participation in the deal.

“Florida is active on the negotiating committee, and when we are able to speak publicly about the matter we will,” Bondi told Reuters on Tuesday.

One state, Oklahoma, has officially declined to participate, according to one of the persons who said a national settlement could come as early as Thursday. Representatives of the state’s Republican attorney general, E. Scott Pruitt, did not respond to requests for comment.

Some hard-hit states did make their support public on Tuesday. Michigan Attorney General Bill Schuette, for example, said in a statement he was joining the settlement.

Michigan expects to receive around $500 million in benefits under the deal, including $101 million that will go directly to the state to fund housing and foreclosure prevention efforts, he said.

TOO LENIENT TOWARD THE BANKS

Under the settlement, which state and federal officials have spent more than one year negotiating, top U.S. banks would resolve civil government claims about improper foreclosures and abuses in originating and servicing mortgage loans.

In exchange, the banks — Bank of America, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup and Ally Financial Inc — would pay up to $25 billion, much in the form of cutting mortgage debt for distressed homeowners.

States — including California, New York and Delaware — and several activist groups have criticized the terms of the proposed deal as too lenient toward the banks.

Two top concerns have been whether the settlement would prohibit state lawsuits that either had been already launched or were being considering, and whether attorneys general would get relief tailored to their state’s needs.

Delaware’s banking commissioner has come out in support of the deal, while the state’s attorney general remains on the sidelines, for now.

Delaware stands to leave up to $40 million in homeowner relief on the table if it does not join the settlement, according to a letter from the state’s banking commissioner seen by Reuters on Tuesday.

PRESERVING LAWSUITS

Delaware Attorney General Beau Biden, who is the son of U.S. Vice President Joe Biden, has said he opposes the settlement as it is drafted, and wants to make sure he can preserve his lawsuit against MERS, the banks’ mortgage electronic registry, which he filed last year.

MERS is not a party to the settlement, but the proposed deal is expected in part to resolve claims against the banks for their use of MERS.

In a statement provided to Reuters on Tuesday, Biden’s office said he “continues to consider the terms of the settlement and advocate for improvements that address his concerns.”

New York’s Schneiderman also sued three of the banks last week accusing them of fraud in their use of MERS. That lawsuit is based on claims expected to be resolved in the settlement.

State attorneys general faced a Monday deadline to report whether they planned to support the settlement, but key states have not yet arrived at a decision.

Under a draft of the settlement, the banks would provide $17 billion in loan modifications for delinquent borrowers; $3 billion in refinancing for homeowners who are current on their payments but unable to refinance because they owe more than their homes are worth; and around $1.5 billion in direct payments of up to $2,000 each to borrowers who lost their homes to foreclosure, according to the Delaware letter. Really?

Participating states will also receive a total of $2.5 billion for housing programs.


Why We Should Help Veterans Start Their Own Businesses.

Successful entrepreneurs are hard-working, dedicated, disciplined, multi-skilled, and self-sufficient.

They are problem solvers who aren’t afraid to get their hands dirty, and who stop at nothing until goals are reached. They are bold risk-takers, and they are passionate, strong-willed individuals who put the mission before the man. While all of these characteristics describe entrepreneurs, they also apply to many members of another very capable group: America’s young veterans of the military.

Despite boasting all of these attributes, today’s young vets are far more likely than average to be unemployed. While the overall unemployment rate is currently a bit over 8%, over 30% of the youngest American veterans (ages 18 to 24) were unemployed as of October, up from 18.4% the previous October. There are efforts to help veterans find employment when their days in the service end, but most focus on improving skills to find and apply for jobs (think: polishing resumes, rehearsing for job interviews). Considering how few traditional job openings are out there these days around the U.S., though, and considering the extraordinary abilities and character traits of this generation of veterans, an obvious question must be posed: Instead of helping veterans to seek jobs, why aren’t we helping vets to create them?

Many veterans lack a college degree, the absence of which is a non-starter for tons of employers. So why are we asking veterans to work strictly within the system that is largely stacked against them? Why are we telling them to join the frustrated masses in the ailing job market? Perhaps, it would be wiser to encourage veterans to actively aid in the job market’s recovery—and lead the way in its redefinition.

In these uncertain times, it is a faulty strategy—and a huge missed opportunity—to rely so heavily on promoting the “traditional job” of a fading yesteryear as the only mainstream fix to chronic veteran unemployment. America’s military veterans have a long and glorious history as entrepreneurs. According to one census report, three million vet-preneurs owned some part or all of a business as of 2002, and 811,000 of those businesses employed other people. Overall, 14.5% of those owning business interests in the census survey were veterans, while well below 10% of the overall U.S. population are veterans. Chris Hale, president of the National Veteran-Owned Business Association, claims that one in seven veterans owns a business, and that vets are twice as likely as non-vets to own businesses.

I certainly support the government measures that have been taken to increase veteran employment, such as the VOW to Hire Heroes Act, which offers tax credits to businesses that hire veterans. But for the most part, measures such as these have focused primarily on incentives to hire veterans, rather than supporting vets in efforts to hire themselves. In order to truly move the veteran unemployment needle, more innovative government and private sector solutions will be needed to put vets on the road to business ownership en masse.

One way to get started could be through the creation of something along the lines of a GI Franchise Bill. The GI Bill put millions of veterans through college, thereby giving them a leg up in the job market. Given today’s realities of high unemployment among recent college graduates, why not create a complementary option that would help veterans get into the franchising business? A GI Franchise Bill would consist of a franchise fund or franchise bank loan of sorts that allowed vets to invest monies into franchise ownership instead of collegiate education. No new spending would be needed; it would just be a reallocation of funds.

Instead of just giving tax credits to businesses that hire veterans, why not pass legislation such as the Help Veterans Own Franchises Act? The bill offers tax incentives to franchises that provide veterans with access to discounted business units, “work-to-own” business unit programs or private franchise loan funds. In certain instances, startup franchise fees might be waived altogether for veterans. All of these measures are meant to encourage companies to engage vets as potential franchise owners and assist them in financing franchise purchases.

Efforts could also be taken to expand access to entrepreneurship education and mentorship to enlisted service members and veterans. “Graduation” from entrepreneurial training could be tied to funding initiatives such as the SBA Patriot Express Loan Program, offering veterans easier access to capital. Entrepreneurship and mentorship organizations such as SCORE and the Young Entrepreneur Council could be called upon to help prepare veterans for business ownership, easing the worries traditional lenders have with supporting vet-preneurship endeavors.

Bottom line: The unemployment rate for young veterans is simply unacceptable. In order for real change to happen, it’s time we treat these heroes as the courageous, intelligent people they are. We need to get real about the state of the job market, and get real about who veterans are and what they’re capable of—fast. Sprucing up resumes and attending job fairs are not solutions.

 


Greece Should Take the Money and Run!

It looks like the European Central Bank has crumbled with respect to the Greek rescue, making it increasingly likely Greece will get the long delayed wedge of international loans.

Ironically, once it does get the money, Greece has a strong incentive to default and exit the euro. 

The ECB looks to be backing down on expecting full repayment at par on its holdings of Greek debt — some deal will be struck so that the ECB isn’t seen to be taking losses — and private holders of Greek debt will also be taking hefty losses in the order of 70% or more on the face value of Greek debt.

Nonetheless, even after a deal is struck, Greece will be left with several big problems.

One, according to IMF projections, the Greek economy will contract by 3% this year and be broadly flat next. Bear in mind, the IMF has been over-optimistic with respect to Greek growth, so expect an even bigger drop this year and more recession next.

Two, even after its debt restructuring, Greece faces a debt to GDP ratio of around 120% by the end of the decade, a barely manageable debt load.

Three, austerity is causing ever more public disturbance and could well be rejected outright by the Greek population, which means austerity-supporting politicians will join the ranks of Greek unemployed after the April parliamentary elections.

And austerity is in the cards for a lot longer. Greece had an 8.4% current account deficit last year and will continue to have large deficits for the coming years, suggesting that the economy remains and is likely to stay deeply uncompetitive.

But there are two very interesting bright spots for the Greeks. For the Greeks; NOT for Europe.

One, the IMF expects the government’s finances to have returned to a primary surplus during the first half of this year. In other words, ignoring debt repayments, the Greek government is broadly funding its spending out of tax receipts.

And two, Greece’s gross external debt stands at 193% of GDP, three quarters of that public sector debt and a quarter of that private.

Were Greece to default and withdraw from the euro once it gets the latest chunk of euro-zone cash, it could renege on its external debts, public and private, lifting an enormous burden off its people’s shoulders. What would YOU do?

It wouldn’t need access to international markets once it didn’t have to worry about debt. A devaluation of the new drachma would make the economy instantly competitive, allowing it to eliminate its current account deficit.

What’s the downside? A bunch of irate Germans. And, the rest of Europe (are we listening Italy, Spain, Ireland and Portugal?) will not get any slack from that quarter ever again. 


‘Greece Should Default Instantly’, Economics Professor Says.

Finally, someone says it.

The euro is rallying on fresh hopes that Greek politicians can agree to austerity measures that could secure them a much-needed second bailout from their euro zone peers.

Today, political parties in Greece were again going to try to agree on tough reforms needed to obtain a second bailout which would help the country avoid a messy default.

But according to one Greek Economics Professor, the country should simply default as soon as possible to provide some kind of relief to the region’s debt crisis.

“This bailout is certainly not the answer for anyone, for Greece, for the euro zone, for the world,” Yanis Varoufakis, Professor of Economics at University of Athens, told CNBC. “Greece should default instantly, immediately, without any talk of leaving the euro.

“Here we have a typical bankruptcy problem which we’ve had for two years now,” Varoufakis said.

According to him, Greece’s first bailout back in May 2010 was not the illiquidity problem leaders perceived and they should stop “throwing good money after bad,” ballooning Greece’s deficit and “destroying the economy” thereby leaving it incapable creating income to repay its debt.

“Why can’t we (Greece) default within the euro zone?” Varoufakis said, noting that the country has already been frozen out of the money markets.

“The only reason for taking on more loans is if we think that by doing that then we can repay them. We can’t and everybody knows that. The ECB knows that. The IMF knows that,” he said.

The ECB and members of the euro zone must decide to “end the political lunacy” and be willing to accept the inevitable Greek bankruptcy and not “push it under the carpet like children trying to avoid a spanking,” Varoufakis said, adding that this won’t happen and another bailout is inevitable.

“Greece is going to go further into the coma in which it finds itself and the euro zone crisis is going to escalate and reach an even more advanced stage of disintegration,” he said.

Varoufakis likened the situation to the 1929 Wall Street crash where the “common currency of the era”—the gold standard—“simply disintegrates and then very soon after that you have a Hobbesian war of all against all.”


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