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.”
Invest like a girl
This article was originally published by USA Today in the fall 2011 issue of Men's Health Magazine.
By Katherine Reynolds Lewis
Given how the world of high finances is dominated by men, you'd be forgiven for thinking that they make better investors than women. But the fact is piles of research show that it's men's better halves who produce better returns.
Female hedge fund managers achieve higher returns than their male counterparts, according to industry tracker Hedge Fund Research. During the 2008 financial collapse, men were more likely to abandon equities, missing out on the stock market's rally since then, according to Vanguard. And University of California researchers studying 35,000 households over six years found that men traded 45 percent more frequently than women, reducing their net returns.
So it might be time to buck up and figure out what women are doing right. Read the full article.
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 5 Best and 5 Worst Regulations in Dodd-Frank
This article was originally published by the Fiscal Times on Tuesday, July 19, 2011.
By Katherine Reynolds Lewis, The Fiscal Times
Next to health care reform, no other recent legislation has caught as much heat as financial regulation. Born of the subprime housing mortgage scandal and financial meltdown three years ago, the Dodd-Frank legislation provokes either glowing praise from consumers and reformists or angry diatribes from industry officials and Republican lawmakers.
In the year since President Obama signed the financial regulatory overhaul into law, the debate has largely shifted from the halls of Congress to the offices of the regulators who are writing some 250 new rules and delivering reports and guidance ordered by the law.
But Republicans and their industry allies are still pressing for changes to dilute the impact of the legislation. Their opposition forced Obama over the weekend to abandon plans to nominate former Harvard professor Elizabeth Warren, a harsh critic of the financial industry and darling of liberal groups, to head a new Consumer Financial Protection Bureau, and instead choose former Ohio attorney general Richard Cordray.
As the new financial regulatory landscape begins to take shape, supporters of the legislation crafted by former Sen. Christopher Dodd, D-Conn, and Rep. Barney Frank D-Mass., say the government and industry are better positioned to withstand a new crisis. "The reforms put in place in Dodd-Frank will help to provide for a more resilient and strong financial system that can help to grow the economy and create jobs," said Michael S. Barr, law professor at the University of Michigan.
Detractors claim the measure actually hurts the already troubled economy and job growth, leaving the financial system less stable than it was in 2008. "While it may have increased transparency, it has increased the amount of uncertainty. We've created a new cost of capital, called regulatory risk," said Rep. Randy Neugebauer, R-Tex., chairman of the House Financial Services Subcommittee on Oversight and Investigations.
With Dodd-Frank's one-year anniversary this Thursday, The Fiscal Times assessed the best and worst effects of the landmark law, for consumers and business .
The 5 Best According to Consumer and Reform Advocates
7 Myths That Could Wreck Your Retirement Savings
This article was originally published by the Fiscal Times on Tuesday, July 19, 2011.
By Katherine Reynolds Lewis, The Fiscal Times
Despite the sluggish recovery, Americans are starting to feel a little better about their prospects. But that may not be good news for retirement savings. While the recession shocked us into boosting our near-zero savings levels, we’re already being less frugal.
After climbing to 7.2 percent in the second quarter of 2009, the U.S. savings rate dipped to 5.1 percent in the first quarter of this year, the lowest level since the financial meltdown, according to the Bureau of Economic Analysis. Meanwhile, the average 401(k) balance hit $74,900, according to Fidelity Investments. That’s only enough to cover about three years of retirement expenses.
Are you ready for retirement? Investment advisers like to trot out handy rules for savings plan. But some of this conventional wisdom makes it easy to slide off the thrifty path. Here are seven myths about retirement that can trip you up.
Myth No. 1: Max out your 401(k) contribution and you’re set.
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."
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.
Whistleblower Rule: Business Leaders Want it Changed
This article was originally published by the Fiscal Times on Monday, Feb. 7, 2011.
The SEC will soon issue a rule giving corporate whistleblowers the chance to collect big money for reporting securities violations, but the business community fears a wave of frivolous claims.
By Katherine Reynolds Lewis
In his continuing outreach to business leaders, President Obama spoke at the U.S. Chamber of Commerce this morning about global competition, technological innovation and the outdated or unnecessary government regulations. But a major concern of many corporate leaders is a proposed federal rule giving corporate whistleblowers an opportunity to collect hundreds of thousands of dollars for reporting securities law violations. The rule has alarmed the business community, which argues that the plan would encourage frivolous claims and undermine a decade of work to provide safe reporting channels for whistleblowers.
By April 17, the Securities and Exchange Commission must give final approval to the rule, which Congress ordered as part of the Dodd-Frank financial overhaul law aiming to prevent a repeat of the 2008 financial crisis.
Corporate lawyers and lobbyists have asked the SEC to require whistleblowers to report problems internally before going to the government, to limit the people eligible to collect a bounty and to extend the time a company has to correct violations. On the other side, lawyers who represent whistleblowers say the provisions the SEC proposed are needed to protect tipsters from retaliation and prevent corporate cover-ups.
The rulemaking is the latest in a series of government attempts to encourage corporate employees with knowledge of fraud or other violations to come forward. The Sarbanes-Oxley Act of 2002 — which Congress passed in response to accounting fraud at Enron, WorldCom and other corporate giants — required companies to establish internal reporting programs and made boards of directors and top executives personally liable for neglecting to investigate fraud complaints. In both 2001 and 2008, scandals over the activities of publicly traded companies quickly spread from the stock market to the broader economy, affecting everyday Americans as well as shareholders.
"This is one of the most explosive issues that has come up in a while for such a broad group of companies," said Alice Joe, a senior director at the U.S. Chamber of Commerce, which represents more than three million businesses. "Our companies have spent millions of dollars over the past 10 years trying to build up these compliance programs. Now you've got a rule that the SEC has proposed that is going to incentivize whistleblowers to completely bypass these systems."
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.
Financial Advisors: New Rules Protect Consumers
This article was originally published by the Fiscal Times on Friday, Nov. 5, 2010
With more than 100 professional designations for financial-services providers, it can be hard to figure out who you can trust with your with your money. New government regulations may change that.
By Katherine Reynolds Lewis
Wondering whether to jump back into the market after the Federal Reserve's plan to pump $600 billion into the economy sent stocks to their highest level since September 2008, but worried about the uncertain outlook? People looking for good financial advice can have a hard time.
There are no federal rules for the training or conduct of someone who hangs a shingle as a financial planner. “Certified” financial service providers include more than 100 professional designations, with acronyms like CFP, CFM, CIMA, CFA, CLU, CPA, EA and PFC, representing everything from a single self-study course to years of education, professional training, continuing education, testing and ethics.
Adela Pena, 63, thought she was being responsible when she took early retirement from a telecommunications company in 1998 and invested a $400,000 lump sum pension payment in an annuity recommended by a financial adviser. She watched the value of her portfolio plummet and the adviser stopped returning phone calls. By 2008, she had only $49,000 left.
“Now all I’m living off is my Social Security and the generosity of my children,” she said in an interview from her San Jose, Calif., home. “It’s not like I spend my money foolishly. My children and I never really went on vacation because I wanted to make sure I had some money in my old age so they wouldn’t have to worry about me.”
New Government Oversight
Now, for the first time, financial planners could be subject to government oversight and broker-dealers could be required to act in their customers’ best interests, after two landmark reviews ordered by Congress in this summer's financial regulatory overhaul. The initiatives could reshape the marketplace for financial and investment advice. Policymakers hope new rules will restore some of the confidence shaken by the global financial crisis and stock market collapse in 2008, and better protect investors for the future.
“If I go to someone who markets himself as a doctor or a lawyer, I know that person has passed an exam and that person is subject to a code of professional conduct,” said Marilyn Mohrman-Gillis, managing director for public policy at the Certified Financial Planner Board of Standards, the organization that grants the CFP designation. “It’s easier to be a financial planner than it is to be a cosmetologist.”
Study Harder
This article was originally published by Financial Planning magazine in October 2010.
The Dodd-Frank legislation calls for studies of fiduciary duty and financial planning oversight. What they find could change the industry.
By Katherine Reynolds Lewis
The buzz of activity in Washington over financial regulatory reform hasn't died since Congress passed the sweeping Dodd-Frank legislation and President Barack Obama signed it into law on July 21; it's merely moved from the halls of Congress to the regulatory agencies. For planners, the legislation kick-started two major initiatives that could transform the way financial advice is regulated and for the first time subject financial planning to explicit regulatory oversight.
The first is a study by the SEC about the obligations of brokers, dealers and investment advisors toward their clients. This study is likely to result in new rules imposing a fiduciary duty on all professionals who provide personalized investment advice, given SEC Chair Mary Schapiro's support for a uniform fiduciary standard. The second is a study by the Government Accountability Office (GAO) on the oversight of financial planning, which will result in recommendations to Congress of any legislation needed to close regulatory gaps and protect investors. Both studies are due in six months.
"It's very significant. Many major policy initiatives grow from government studies," says Marilyn Mohrman-Gillis, managing director of public policy for the CFP Board of Standards. "This regulatory reform bill provides a golden opportunity to start important change in the industry."
The Other Real Estate Crisis — Commercial Property
This article was originally published by the Fiscal Times on Saturday, Sept. 18, 2010 and the Washington Post on Sunday, Sept. 19, 2010.
The landmark Mayflower Hotel in Washington, D.C. has been a watering hole for presidents and pundits alike. But like other commercial real estate properties throughout the country affected by the mortgage crisis, the Mayflower is under water.
By Katherine Reynolds Lewis and Jonathan O'Connell
It was dubbed Washington's second best address by Harry S. Truman, and it has hosted events for every presidential inauguration since Calvin Coolidge. Franklin Roosevelt used it as a retreat to work on his 1933 inaugural address. And FBI Director J. Edgar Hoover was a lunchtime regular.
The elegant Renaissance Mayflower Hotel, a Washington landmark since 1925, was considered a hot property when Rockwood Capital of San Francisco acquired it for $260 million in March 2007. Then, practically overnight, the real estate market collapsed and credit evaporated in a historic global financial meltdown. The new hotel owners, saddled with $200 million in debt, watched as the value of the property tumbled. By August, credit agency Realpoint estimated its value at $128 million.
The Mayflower loan was underwater, the plight of hundreds of billions of dollars' worth of commercial properties across the nation that are worth less than their mortgages. If the hotel's owner couldn't find a way to restructure the debt, it could lose the property.
A staggering $1.4 trillion of commercial real estate loans will come due nationwide in the next four years, forcing borrowers such as Rockwood to refinance or default on their obligations. Trouble lingers even at doorsteps in Washington, one of the strongest markets in the country thanks to a broad employment base, a sound infrastructure and a massive government presence.
This is happening at a time when the capacity to absorb such debt has been slashed, following the bankruptcies of financial firms such as Lehman Brothers and the collapse of the commercial mortgage-backed securities issuance down to a tenth of its peak size. The thought of a string of commercial real estate defaults walloping the barely recovering economy and jeopardizing the stability of still-tottering banks is enough to keep analysts up at night.
"It's a very tricky time right now," said Geoffrey DiMeglio, director of consulting at Market Outlook, a consulting firm. "Even in a weak recovery, I don't see employment improving the fundamentals in real estate fast enough to get these properties out of default."
