Why Some Business Owners Think Now Is the Time to Sell
This article was originally published by the New York Times on Wed., Dec. 21, 2011.
By Katherine Reynolds Lewis
Looking back, Cyndi Finkle wishes she had sold her craft services company, Sunday Night Dinner, early in 2008 when the economy was booming. With a track record of 30 to 50 percent annual growth for each of the previous five years, it could have been a compelling transaction.
At the time, however, she was not emotionally ready to part with a business she had started in 1997 and built into one of the largest suppliers of services to television crews and casts in Los Angeles. When her husband suggested selling, “I burst into tears and looked at him as if he were telling me to cut off my arm,” Ms. Finkle said. “Then everything changed, and I realized he was right.”
But the recession hit, and Ms. Finkle’s annual revenue dropped sharply along with declining television advertising and production budgets — making it impossible for her to sell. “I’ve had to work really hard the last three years to save my company and get it back, a lot of times working for free,” she said. “It was no longer about building it, it was about keeping it going until things got better.”
D.C. area housing market feels the pinch from lower jumbo mortgage limits
This article was first published on Saturday, November 5, by the Washington Post.
By Katherine Reynolds Lewis
Srinivasan Soundararajan and Jennifer Nordin have been thinking about selling their Potomac townhouse and moving into a detached house for some time. With two small children, 1 and 3 years old, they are beginning to outgrow their three-bedroom house.
This past summer, the couple stayed out of the market because of Congress’s gridlock over the U.S. debt ceiling; they feared that a spike in interest rates could disrupt a pending house purchase. Once lawmakers agreed to raise the ceiling, they started looking at houses again.
Now that they’re close to making an offer on a property, a change in federal housing policy has hampered their plans.
On Oct. 1, Fannie Mae and Freddie Mac lowered the maximum size of so-called jumbo mortgages that they would back to $625,500. Before Oct. 1, Washington-area mortgages as big as $729,750 could be purchased by Fannie and Freddie and repackaged to sell to bond investors, or guaranteed by the Federal Housing Administration. The change was the result of a law Congress passed in 2008 to stimulate the housing market in the depths of the crisis.
As a result, the upper end of the Washington real estate market is feeling the pain as buyers have fewer options to finance the purchase of a house. And sellers, like Soundararajan and Nordin, feel the change constrains the pool of potential buyers for their townhouse, which they expect to list at $725,000.
“It would definitely affect the ability of someone to buy our house,” said Soundararajan, a 43-year-old attorney, noting that his sale price equals the new cap plus a down payment of $100,000. “That’s not a first-time buyer. We’re going to lose that market.”
How short-staffed companies are saving vacation this summer
With thin staffs and a slowly improving job market, employers can't just let employees take vacation whenever they want, but they also can't risk damaging morale. This summer, a few firms are getting creative.
This article was originally published by Fortune.com on Thursday, July 21, 2011.
By Katherine Reynolds Lewis, contributor
FORTUNE -- This summer, most of the outdoorsy employees at ski manufacturer Epic Planks will be getting their hands dirty in the shop, where they compress fiberglass and plastic into custom-made skis, with nary a vacation day.
But rather than cursing the Grand Rapids, Mich.-based company for their dearth of long-weekend camping trips, they're gleefully anticipating taking extra time off in the winter.
That's because founder Bill Wanrooy and his partner will double up to two weeks of vacation time that workers decide not to take in the summer, which is Epic Planks' busy time for building skis and snowboards to be sold in the fall.
Those who accepted the offer will instead enjoy up to four weeks of vacation in the winter. The idea stemmed from last summer's experience, when last-minute vacation requests left the small business so short-staffed that Wanrooy and his co-founder had to work 12-hour days, 6 or 7 days a week, to keep up with production demand.
"For all of our employees, skiing and snowboarding is their passion, so that allows them to maybe sacrifice a little bit now, but the rewards pay off later," says Wanrooy. "This is our first summer of doing it, but the reception has been great. Everybody loves it."
Epic Planks isn't the only company getting creative with summer staffing. Companies are asking employees to plan their own vacation coverage, requesting that vacationers send out memos to avoid any unwanted surprises, says Michael Erwin, senior career adviser for CareerBuilder.com. They're also cross-training employees to cover for their colleagues during time off, and bringing in temporary staff when needed.
Financial regulation lags after Dodd-Frank
It's been a year since Congress passed and President Barack Obama signed into law the most sweeping financial reform since the Great Depression. But as of the Dodd-Frank Act's July 21 anniversary, regulators had completed only 49 of the hundreds of rules mandated by the 2,000-plus page law.
This article was originally published by Bankrate.com on Thursday, July 21, 2011.
By Katherine Reynolds Lewis • Bankrate.com
Are you any better off now than before new financial regulations became law? When it was signed into law, Dodd-Frank drew a line in the sand on mortgage abuses, predatory lending, credit information and other vital issues for consumers. But since then, the dozen-plus regulators writing the rules under the new FinReg law have struggled to work out most of the specifics. The law sets more than 240 deadlines for 22 different regulators to write rules, issue recommendations and write reports in the implementation of Dodd-Frank. Most deadlines must be met by only 10 regulators.
"In one sense, everything's different because financial institutions know what's coming, so they're already anticipating and making business changes," says Margaret Tahyar, a partner at Davis Polk & Wardwell, a New York law firm tracking Dodd-Frank for its clients. "In another sense, there's still a great deal of uncertainty."
As for the handful of rules that have been written, here is a closer look at the financial regulations that have been implemented and how they affect you.
A new consumer watchdog
The Dodd-Frank Act created a new federal agency to protect consumers who use a range of financial products. The agency is financed out of the federal budget. FinReg advocates hail that as an important development because the regulator won't be as beholden to the private sector as other agencies that rely on institutions they regulate for their budget.
On July 21, the Consumer Financial Protection Bureau received responsibility for enforcing laws meant to regulate consumer finance in the following areas:
The ‘Warren Report’ - GOP Attacks Consumer Agency
This article was originally published by the Fiscal Times on Thursday, May 19, 2011.
By Katherine Reynolds Lewis
Even before it formally opens its doors this summer, the new federal agency created to protect consumers from unscrupulous financial industry practices is coming under withering attack by Wall Street and Republican lawmakers. And despite a months-long charm offensive by Elizabeth Warren, the former Harvard professor and chief architect of the new agency, Warren has been unable to win over many of her critics on Wall Street and within the GOP.
Bills pending in the House would curb the power of the Consumer Financial Protection Bureau, while 44 Republican senators have promised to block confirmation of a director for the new agency unless those restrictive measures are approved.
With Democrats in control of the White House and the Senate, but not of the House, the legislation is unlikely to become law. But between the Senate GOP ultimatum and financial industry criticism of Warren, few believe she could be confirmed if President Obama nominates her as the director.
As a result, Obama may have little choice but to name Warren as director during a congressional recess in order for the agency to have someone at the helm when it begins to wield regulatory power this summer. Warren currently is overseeing the creation of the consumer protection bureau as a special assistant to the president. If she is made director through a recess appointment that would all but assure a politically bumpy future for the agency.
The Senate GOP pledge "creates a climate that is ugly. That is an in-your-face kind of attack that I haven't seen in 20 years in Washington," said Ed Mierzwinski, director of the consumer program at the advocacy organization U.S. PIRG. "Elizabeth Warren wants to come in and make that marketplace fair. Wall Street would prefer to decide on their own how to make money."
What if you had to buy American?
This article was originally published by MSN Money on Thursday, May 12, 2011.
It might be supremely patriotic to stop purchasing imports, but the consequences for US consumers and the economy would be devastating.
By Katherine Reynolds Lewis
Legions of patriotic Americans look for "made in USA" stickers before buying products, out of a desire to support the country's economy.
But what if we all were restricted to purchasing only those goods that were made in America?
Our homes would be stripped virtually bare of telephones, televisions, toasters and other electronics, and many of our favorite foods and toys would be gone, too. Say goodbye to your coffee or tea, and forget about slicing bananas into your breakfast cereal -- all three would become prohibitively expensive if we relied on only Hawaii to grow tropical crops.
We'd have to trash our beloved Apple products because the iPod, iPad and MacBook aren't made in the U.S. Gasoline would double or triple in price, given that we now import more than 60% of our oil. And you couldn't propose to your true love with a diamond ring: There are no working diamond mines in the U.S.
Moreover, a complete end to imports would actually hurt the U.S. economy, because consumers and domestic companies would lose access to cheap goods. Trade protections, whether through tariffs or quotas, cost the economy roughly $2 for every $1 in additional profit for domestic producers, said Mark Perry, an economics professor at the University of Michigan-Flint and a visiting scholar at the American Enterprise Institute, a conservative think tank.
"If we restricted trade to just the 50 states, what would happen immediately -- and would increase over time -- would be a huge reduction in our standard of living, because we wouldn't have access to the cheap goods we get from other countries," Perry said. "We also wouldn't have any export markets, so companies like Caterpillar and Microsoft would have a huge reduction in sales and workforce." (Microsoft is the publisher of MSN Money.)
Unpaid jobs: The new normal?
While businesses are generally wary of the risks of using unpaid labor, companies that have used free workers say it can pay off when done right.
This article was originally published by Fortune.com on Friday, March 25, 2011.
By Katherine Reynolds Lewis
With nearly 14 million unemployed workers in America, many have gotten so desperate that they're willing to work for free. While some businesses are wary of the legal risks and supervision such an arrangement might require, companies that have used free workers say it can pay off when done right.
"People who work for free are far hungrier than anybody who has a salary, so they're going to outperform, they're going to try to please, they're going to be creative," says Kelly Fallis, chief executive of Remote Stylist, a Toronto and New York-based startup that provides Web-based interior design services. "From a cost savings perspective, to get something off the ground, it's huge. Especially if you're a small business."
In the last three years, Fallis has used about 50 unpaid interns for duties in marketing, editorial, advertising, sales, account management and public relations. She's convinced it's the wave of the future in human resources. "Ten years from now, this is going to be the norm," she says.
Economy Grows, But Jobs Don’t
This article was originally published by the Fiscal Times on Thursday, March 24, 2011.
By Katherine Reynolds Lewis
Of all the woes of the Great Recession, one anomaly is the most troubling: How can the economy be growing while unemployment remains so high? The breakdown in the historic relationship between GDP growth and jobs has confounded experts ranging from White House Chief Economist Austan Goolsbee to Cato Institute scholar Mark Calabria.
Under the principle known as Okun's law, named for Arthur M. Okun, an economist who worked for Presidents John F. Kennedy and Lyndon Johnson, a 3 percent increase in U.S. gross domestic product should lead to a 1 percent drop in the unemployment rate. Yet as the U.S. economy rebounds from the latest downturn, the jobless rate remains stubbornly high — as much as 2 percentage points higher than economic theory predicted. Possible explanations include overly cautious employers, a lack of worker mobility and simple measurement error.
Investors Beware: Return to Stocks May Be Too Late
This article was originally published by the Fiscal Times on Monday, March 7, 2011.
By Katherine Reynolds Lewis
Investors are worried about the federal deficit, still-high unemployment and rising oil prices, which are raising the specter of inflation. But they’re buying stocks, afraid of being left out as major indexes rise to their highest levels in nearly three years. They may be too late.
Individuals tend to sell out of the market near the bottom and buy back close to the top — realizing their losses and missing out on potential gains, experts say. After the flash crash in May 2010, massive amounts of money flowed out of stock mutual funds: $82.3 billion in the eight following months, according to Chicago-based research firm Morningstar. The Standard & Poor’s 500 index went on to double from its low in March 2009, the fastest such increase in the index's history.
The financial crisis and Great Recession shook Americans' confidence in the markets, and investors withdrew $216 billion from stock mutual funds from 2007 through 2010, according to Morningstar. "This was fundamentally different from past bear markets," said Morningstar analyst Kevin McDevitt. "There are a lot of people who felt they didn’t want to play this game anymore and felt the whole system was rigged against them." The S&P is still down about 5 percent from the start of 2007.
Sentiment started to change this January, when $15.8 billion flowed into U.S. equity funds, the biggest January since 2004, though small relative to the $3.5 trillion in overall assets held in the funds. A new Wells Fargo-Gallup poll found that retail investors remain wary of investing in stocks, but the market's climb is pulling many back in. The federal budget deficit — tied with unemployment — is the top worry of individual investors, a concern for 71 percent of those surveyed.
"It's shocking to me that the federal budget deficit would rank ahead of energy prices, ahead of access to credit, ahead of the questions that have dominated the media," said David M. Carroll, a senior executive vice president at Wells Fargo. "It's food for thought for our representatives in Washington."
State Debt Crisis: Preview of Federal Pain to Come
This article was originally published by the Fiscal Times on Monday, Feb. 28, 2011.
By Katherine Reynolds Lewis
As Illinois lawmakers wrestle with a $13 billion budget deficit – the equivalent of half the overall budget for the year – they are finding that simply keeping up with the interest payments on the debt is an onerous task. This year’s price tag: a crippling penalty of more than a half-billion dollars on debt issued in 2010.
Nevada, California and Texas are struggling with deficits as large as 44 percent, 29 percent and 32 percent, respectively, and these and other states will feel the impact of rising borrowing costs. So far, the solutions from both Democratic and Republican governors, including proposals for sharp cuts in government workers' benefits and a scaling back of bargaining rights, have sparked protests in Wisconsin and Ohio.
Beyond the grim implications for cash-strapped states, this scenario offers a preview of the pain that might befall the federal government if investors in U.S. Treasuries start to demand a premium because of uncertainty over the federal fiscal situation. Already, the Obama administration's budget proposal for 2012 projects that interest payments on the national debt will quadruple over the next decade, from $207 billion in 2011to $844 billion in 2021. Interest on debt held by the public is estimated to climb from 7.7 percent of total federal outlays in 2011, to 15.8 percent in 2016. If interest rates rise, those debt costs will climb even higher.
"If we don’t get a handle on our fiscal situation, investors will grow more nervous and demand a higher interest rate to buy our debt," said Mark Zandi, chief economist at Moody's Economy.com. "That, combined with deficits, will start to gobble up our budget and resources and ultimately will swamp us, much like rising interest payments swamped a number of European countries."
Homeowners Exhale as Fed Reverses Course on Mortgages
This article was originally published by the Fiscal Times on Tuesday, Feb. 15, 2011.
By Katherine Reynolds Lewis
Millions of homeowners facing foreclosure dodged a bullet when the Federal Reserve Board changed course on proposed changes to mortgage rules, instead deferring to the nascent Consumer Financial Protection Bureau in the first skirmish over regulatory authority under last year’s sweeping financial reform legislation.
A coalition of consumer groups took the unprecedented step of asking the Fed to withdraw two sets of rule proposals on consumer mortgages and turn them over to the new bureau created by the Dodd-Frank Act. In a brief statement this month, the Fed cited more than 5,000 comments received on the matter and said it plans to wait for the bureau, which will take over authority on consumer mortgage rules in July 2011.
If the Fed had finalized the rule proposals, it would have eliminated a longtime consumer right to void a mortgage under certain circumstances, one of the best tools homeowners have to halt foreclosure. Consumer advocates say the rule also would have opened the door to risky reverse mortgages, and would allow changes in advertising that would permit false statements.
Nearly 11 million Americans owe more on their homes than the properties are worth, and 3.4 million homes have been lost to foreclosure since the recession began, according to CoreLogic. The foreclosure crisis has spawned accusations that lenders used improper documentation and procedures to seize homes, prompting investigations by state attorneys general and members of Congress, as well as lawsuits estimated to end up costing banks as much as $52 billion.
The Fed’s proposed rules "would have been disastrous for homeowners … At the time of the worst foreclosure crisis in anyone's memory, they were pulling the rug out from the most vulnerable consumers this law intended to protect," said Nina Simon, director of litigation at the Center for Responsible Lending, which filed joint comments with the National Consumer Law Center, the National Fair Housing Alliance, Consumers Union, the National Community Reinvestment Coalition and other consumer groups.
Treasury Plan to Wind Down Fannie and Freddie
This article was originally published by the Fiscal Times on Friday, Feb. 11, 2011.
The Obama administration released a white paper proposing the gradual winding down of Fannie Mae and Freddie Mac and overhauling the mortgage securities market.
By Katherine Reynolds Lewis
The Obama administration Friday laid out an ambitious vision for U.S. housing finance reform, in which the government gradually diminishes its role and private investors return to the mortgage securities market.
But the plan doesn't specify how to overhaul or eliminate Fannie Mae and Freddie Mac, instead setting out three possible options for the mortgage giants, which have been operating under government conservatorship since September 2008. Under the landmark Dodd-Frank financial overhaul legislation approved last year, the Treasury Department was supposed to present to Congress by Jan. 31 a report on the government-sponsored enterprises (GSEs) to help lawmakers write legislation to reform the agencies.
"This is a plan for fundamental reform — to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it," said Treasury Secretary Timothy Geithner in a statement. "We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."
At stake are the health of the real estate market, economic growth and, some argue, the future of the 30-year fixed-rate mortgage. The challenge for policymakers is to attract private investors back into the mortgage market while retaining the benefits that Fannie and Freddie established — a liquid secondary mortgage market and greater access to homeownership. The administration and lawmakers are also attempting to prevent a repeat of the excessive risk-taking and inadequate supervision of the housing market that led to the 2008 financial crisis, while reassuring foreign investors in housing bonds and U.S. government debt.
Reforming Fannie and Freddie: a $6 Trillion Dollar Problem
This article was originally published by the Fiscal Times on Sunday, Jan. 23, 2011.
As the administration prepares its proposals for overhauling Fannie Mae and Freddie Mac, the housing industry and public interest groups are floating ideas of their own.
By Katherine Reynolds Lewis
As the Obama administration struggles to draft a report to Congress on how best to overhaul Fannie Mae and Freddie Mac, industry and public interest groups are promoting plans of their own for the two mortgage giants.
The proposals range from replacing Fannie and Freddie with new, chartered private firms to gradually shrinking and privatizing them. After the housing bubble burst, leading to the worst recession since the Depression, the government stepped in to secure the companies’ $6 trillion worth of U.S. mortgages in order to avoid an even worse financial calamity.
The Treasury faces a Jan. 31 deadline under the Dodd-Frank law to make recommendations on the future of Fannie and Freddie, although the Fiscal Times reported last week that they may miss the deadline because of sharp divisions within the administration. The stakes are high: Economic growth, return of private capital to the housing market, resilience in the event of future crises and continued consumer access to 30-year fixed-rate mortgages all hinge on the right strategy.
Most interested parties agree on the basic outline of a new structure that would divide the functions of Fannie and Freddie between government and the private sector in order to shift the mortgage securities market back to private investors while ensuring Americans' access to affordable housing and credit.
Administration Split Over Fannie Freddie Strategy
This article was originally published by the Fiscal Times on Thursday, Jan. 20, 2011.
With a Jan. 31 deadline looming for making recommendations, the Obama administration is badly divided over how to reform Fannie Mae and Freddie Mac, the financially strapped and controversial mortgage giants.
By Katherine Reynolds Lewis
The Obama administration is sorely divided over how to reform Fannie Mae and Freddie Mac, the controversial mortgage giants. Sources familiar with the discussions raise the possibility that the White House will miss its statutory deadline for submitting recommendations to Congress.
The dispute pits White House economic advisers, who favor merely offering lawmakers a menu of possible next steps without committing to a specific direction, against officials at the Treasury and Department of Housing and Urban Development, who want to endorse an explicit federal guarantee for the mortgage companies and throw the administration's support behind it, the sources said.
The controversy is as much over strategy as substance. White House advisers aren’t certain whether going out on a limb with a specific plan will drive reforms of the federal housing finance program in a constructive way, or present an easy target for opponents. Administration officials who object to offering an explicit guarantee so early in the process say it would make it harder to negotiate a compromise. Instead, they argue, the administration would be better off laying out a range of options, to give them maximum flexibility in talks with Democratic and Republican lawmakers and industry officials.
The government currently supports 97 percent of the mortgage market, and the two entities own or guarantee nearly three quarters of that amount, or $6 trillion in debt, which policy experts and stakeholders agree can’t be indefinitely sustained.
Rough Unemployment Road for Men Could Be Ending
This article was originally published by the Fiscal Times on Thursday, Dec. 23, 2010.
While women fared much better than men throughout the recession, the gap in the unemployment rates between men and women is beginning to narrow as more and more men are going back to work.
By Katherine Reynolds Lewis
Nearly two years after being laid off from his information technology sales job, Alan Yellowitz of Fairfax, Va. finally landed a job. He's making less than half of the $200,000 to $300,000 a year he once earned, but it's enough to keep the lights on, pay the mortgage and feed his family of four. "After 22 months of unemployment, we feel like we can breathe again," said the 47-year-old Yellowitz. "It's still somewhat rough. We’re still digging out of a hole. But getting a regular paycheck every two weeks feels amazing."
Yellowitz was a casualty of what some call the “mancession", more than two years of rampant unemployment that disproportionately hurt men more than women. Men did so poorly because far more of them worked in industries hit hard by the economic downturn – particularly manufacturing, construction and financial services. Women, by contrast, are disproportionately represented in sectors that are more resistant to economic cycles, such as health care and education.
With the recession officially over and the job market slowly improving, long-time unemployed workers like Yellowitz are beginning to find work. While the unemployment rate for men dropped by nearly a full percentage point to 10.6 percent in November from its 11.4 percent high last October, the female unemployment rate is holding steady near its 8.8 percent high of October 2009. Even though the uptick in employment for men is still relatively small the data suggest that the jobs now opening up are going to men more than to women.
"Men's unemployment rose faster and further than women's, but it has since recovered somewhat. In contrast, women's unemployment, while having peaked lower, hasn't actually come down," Betsey Stevenson, the chief economist at the Department of Labor, said in an interview with The Fiscal Times. "It does seem like the recovery has been more beneficial to men at this point. Some of this has to do with where the cuts [were] the deepest and where we [have] been able to add some jobs back."
One important question yet to be answered is whether males are merely bouncing back from the extreme job losses suffered during the Great Recession, or whether we are seeing the long-predicted turning point in the labor market in favor of women. Women hold an edge in the job market in part because they hold the majority of advanced degrees, and some experts believe that employers will hire and promote women to higher levels as a result. Thus far, the average woman still earns less than a comparable man, even when adjusted for hours worked and time out of the labor force.
