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Archive for the ‘Economy’ Category

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We Need Policy - Not Politics - to Rebuild America

Wednesday, August 25th, 2010

 

This week, House Republican Leader, John Boehner, called on President Obama to fire his economic team.  As recovery wanes, dissatisfaction runs deep, but this public appeal seems more the initiate of a campaign for majority House Speaker than the proffer of solution to the financial downturn that plagues our nation.  While I agree that Timothy Geithner and Lawrence Summers have not delivered on the administration’s promise of economic recovery, we need not a change of the guard and a revamp of rhetoric - we need a business plan to rebuild America.

 

Only changes in policy will ignite job creation and fuel a sustainable economic turnaround. The urgency of transformation is more about principle than people.  Infrastructure issues demand appropriate actions.  We must make a commitment to manufacturing and modify policies to support that pledge.  Many foreign countries subsidize raw materials by as much as 30% - this equates to dumping, not free trade.  Such truth belies America’s inability to compete in the global economy.  We close our eyes to what we choose not to see.  Immediate changes to policy could put Americans to work now, and place our country on the fast track to a sustained recovery.

 

The United States government should subsidize value-added jobs, and mandate their Department of Defense’s $140 billion procurement budget be spent on American manufactured goods.  To witness the wisdom of subsidized employment, we need look no farther than Germany.  Germans take pride in their industrial base; America once shared that sentiment.  Today, Germany’s unemployment rate is 7.6%, 3 million of a total workforce of 42 million.  America’s current 9.5% unemployment rate equals almost 15 million out-of-work citizens. The more accurate count of unemployed hovers at 30 million when including the discouraged workers, the part-timers who long for full-time positions and the permanently unemployed.  Germany has successfully maintained its manufacturing workforce by assisting employers through a program affectionately called “short work.”  In essence, during times of economic distress, workers are granted reduced hours by companies while the German government supports their wages up to 85% of full-time salary. In Germany, they pay their citizens to work - Americans are paid to stay home. Subsidized employment does not equate to additional government or taxpayer costs. Rather, it is the difference between an expensive band-aid and less costly value-added solution; the government contribution to workers’ paychecks is an alternative to unemployment benefits. Companies that would otherwise engage in mass layoffs or liquidate are provided with temporary support to keep workers employed. More companies survive downturns, benefits are shorter in duration and the debate on benefit abuse is eradicated. Each job saved is multiplied by at least 5 more employed as an economic effect on a town or city. Executed properly, this is a win-win.

 

Involuntary unemployment has devastating effects on American workers and families. Studies show job loss correlates to depression and despair to illness, creating a downward spiral of government costs beyond benefits.  Loss of American employment decreases household wealth, reducing consumption of locally manufactured goods and further stifling job creation.  Joblessness, homelessness and hopelessness have enveloped our nation.

 

As November’s mid-term elections approach, politicians will engage in negative debate and critique absent solutions, bringing us no closer to job creation and economic growth.  Rebuilding America must start with a plan, not politics. Subsidized employment and the sole source allocation of Department of Defense dollars to American goods must be followed by trade policies that eradicate foreign advantage.  The Department of Defense’s $140 billion procurement budget equates to revenues of General Electric, America’s second largest employer with more than 300,000 workers.  Buying American could create hundreds of thousands of new jobs.  Rather than political sparring and stonewalling, a more noble approach would be to stand shoulder to shoulder to create employment and rebuild America. A business plan to restructure our economy can be designed — the tools are within our reach.  It starts with a commitment to our nation that overshadows party loyalties and ideological preconceptions.

Posted in Economy, Financial Crisis, unemployment | 6 Comments »

Dark Days Ahead

Monday, July 12th, 2010

Last week, our nation celebrated its independence, but the liberties so carefully constructed by our founding fathers are threatened by the economic dangers that lie ahead. Freedom cannot thrive in a country so deeply divided.  Most Americans believe government no longer works for them. Under every imaginable economic scenario, this nation faces dark and humbling days ahead. The manner in which we react to this hard truth will determine who we, as a people, will become after this tenure of transformation. We can listen to the banter of partisan rhetoric: the slant, the criticism and the dichotomy of political theories or we can choose to become activists. Very few Main Street Americans can translate the argument between small and big government, for and against rising taxation and whether or not jobs can be created through trade agreements into the immediate needs of their lives. What they do know is that each Thursday the reports from the Bureau of Labor Statistics deliver more bad news proving that our beloved country is in crisis and that our people are suffering.  Most troubling to me, however, is the absence of urgency from our elected officials to provide and implement an effective action plan for job creation.

 

More than thirty million unemployed and under-employed Americans (and their family members) feel helpless, desperate and abandoned by Washington politicians who focus their partisan gamesmanship on issues other than the only one that matters most to them—their jobs.  In the past several months, the issue of unemployment has almost entirely centered on the extension of jobless benefits in Congress.  While I do believe that assistance for those in need is humanitarian and necessary, it is imperative that we accept these benefits for what they are – a temporary band-aid on a much larger systemic infrastructure problem - not the rapid job creator Speaker Pelosi claims them to be.       

 

This month, one year ago, I made my last of many visits to Treasury to present a plan designed to sustain and create jobs. I believed then, as I do now, that an economic recovery is not possible until we can curb the tide of unemployment.  Job losses cannot be stemmed until the liquidation of small and mid-sized enterprises (SMEs), which employ 80% of the American workforce, are halted.  Industry in this country must be embraced and accepted as the necessary foundation of our economy. The most direct and rapid solution to sustain and create employment is to incent private enterprise to originate and monetize rescue-financing loans for struggling SMEs and capital starved industrial companies.  We are now painfully aware that neither large banks nor community banks will provide such loans.

 

My rescue loan plan (RLP), as presented, accessed unutilized TARP funds set aside for the PPIP (Public Private Investment Program) Legacy Securities Program. Treasury originally intended $100 billion of TARP funds be used for PPIP programs but, only $30 billion was allocated and less was actually tapped for a plan that was ill conceived and underdeveloped. The RLP would have used $30 billion for equity and debt investments. The program’s blueprint was carefully designed to access structures previously announced and required no additional funding from Congress. The RLP would have saved jobs the old fashioned way, by lending money to companies that without funding would otherwise shut down and liquidate, leaving their employees without salaries and benefits .Without jobs, Americans lose the all important hope for a bright and prosperous future.

 

Unfortunately, the offer of my time and patented portfolio construction models, upon which my Patriarch platform has thrived, seemingly fell on deaf ears. At the time of my visit to Treasury in July of 2009, 1 in 3 unemployed persons were jobless for 27 weeks or more.  Less than one year later, in June of 2010, those individuals made up more than 45% of unemployed persons.  Immediate and early action to stop the bleeding and address the daunting but surmountable obstacles to job creation were overshadowed by the more politicized issues of healthcare and financial reform. 

 

Questionable Wall Street practices and synthetic financial instruments such as credit default swaps hunger for regulation.  However, at the risk of repetition in works of my recent past - the heart, soul and salvation of our nation have never, and will never, reside on Wall Street.  The disconnect between Wall Street and Main Street grows increasingly vast and any economic revival will lie in the recovery and resonance of cities and districts beyond southern Manhattan.  Immediate and aggressive action is needed from our elected officials to address the epidemic of unemployment.  It is a disease whose source must be analyzed and treated to provide long and lasting solutions.  The infrastructure of this nation has been badly injured.  Manufacturing jobs have been reduced by more than 9 million since the start of the decade.  Small and mid-sized businesses struggle to access the necessary working capital to survive.  Healing the plague upon the nation will begin with facing and addressing the truth.  We need an antidote to end the plague of joblessness and that solution rests with helping America’s struggling small and mid-sized businesses.  I hope Washington will hear our call.  America’s future depends on it.

Posted in Economy, Financial Crisis, Obama, SME Rescue Loans, Treasury, Wall Street, ppip, small business, unemployment | 1 Comment »

From Self-Reflection to Collective Prosperity

Friday, April 30th, 2010

As we start this new decade, we face dangers of an unprecedented anger and despair within our nation and across the nations of the world.

It is a time when divides widen, factions combat and violence erupts.  We try not to speak to subjects that spread fear and panic; we hunger for fairy tales, happy endings and It’s a Wonderful Life.  Staying silent and standing still in the face of economic hardship, volcanic violence and a world at war will lead only to an unprepared populace deeply depressed by perceived government apathy to setbacks ignored. There is little doubt our government is acutely aware of dangerous threats and addressing issues behind closed doors. This private policy, however, defies our nation’s hunger for truth and united leadership to command us in the battle we dare confront.

In order to assuage the anger, we must carefully analyze the issues that have inspired its eruption.  Enlightenment begins with the search for truth.  Truth is a word that we all use easily, but one which few of us understand; without comprehension of its inherent meaning, one cannot make sacrifices essential to follow a path the concept defines.  Truth forces each one of us to look at ourselves without façade; to face demons, admit frailties and acquiesce to changes of character in order to become the persons we hold ourselves to be.  Living loyal to truth requires a never-ending process of self-reflection.  This may appear off subject, with words more aligned to spiritual guidance than a pathway to a country repaired, but such would be perception, not reality.

Healing the economy, assuaging anger and rebuilding America will begin both with truth and self-reflection.  We must all strive to be a better people and demonstrate those qualities that create light in a world gone dark.  Our country’s most valuable asset is human capital; the most potent force of nature is people standing shoulder to shoulder, moving in one direction, pure of intent and united in consciousness.  We must all be aligned in the cause of rebuilding America, with shared vision, courage and perseverance.  This march forward begins with acceptance of individual responsibility for our respective roles in the economic, social and spiritual malaise pervasive in our lives and communities.  We must transcend from a culture of expectation to a nation of appreciation.  We must feel inspired to give and to help — gifts and aid must be greeted with gracious acceptance.  Jobs must be created —employment must be embraced.  Collective change begins with individual transformation.

It is difficult to ignore daily reports of violence in Afghanistan, Pakistan, Iraq, Iran and Yemen.  December also witnessed attacks on Berlusconi and the Pope in a more gentile Italy.  Christmas 2009 in the U.S. will be defined by the terrorist attack that could have been.  And lest we forget the populist anger and vengeance inspired by payment of AIG bonuses, the stampede of the Detroit hungry on lines for Federal help or the need for riot police on California campuses during tuition hikes, we would be remiss to the recognition of seething anger and despondency in our nation divided.

The SEC complaint against Goldman Sachs, that accuses executives of operating the grandest of Wall Street casinos, has inflamed a country in turmoil and highlighted a significant schism between Wall Street wealth and Main Street struggle.  Angry senators seeking humility and apology were met with complacency and apathy.  Yet, truth be told, responsibility inures to government that both supported policies and rejected regulation; leading to trillion dollar losses and to Wall Street executives using Federal funds, guarantees and bailouts to make markets for traders rather than loans to corporate America.  Ironically, in the war of words, neither side apologized, shouldered blame nor sought absolution.  With such depth of pain and loss, how could we believe there is no responsible party? Imperfection belongs to each one of us.

Witness the anger that resonates in the “comments” beneath articles posted on this site or blog commentary on others, and we can identify the mass hopelessness in our nation. Anonymity allows for courage to be demeaning, hurtful and irrelevant without any positive power for change.  Disagreement and critique with solution are constructive forces; hateful comments that assuage the writer’s own pain and insecurity merely reveal a person in desperate need of self-reflection.

Truth is cold and hard, but it is also the first step on the path of hope and salvation.  We are a nation starved for truth; for solutions to plaguing problems, alignment of Wall Street and Main Street, and for honest leadership in the rebuilding of America.

This was posted on Business Insider, 4/30/2010

Posted in Economy, Self-Reflection | 1 Comment »

My Latest Huffington Post Piece: “History May Repeat Itself, But Never Exactly”

Wednesday, November 11th, 2009

From the Huffington Post November 11, 2009

History May Repeat Itself, But Never Exactly

By Lynn Tilton

Although the jobless rate in America surprisingly soared to 10.2% with the broader measure of underemployment reaching 17.5%, heights not witnessed since the Great Depression, economists and government maintain economic recovery has commenced and enhanced employment will follow its historic lag.

In order to predict the future, one must always study the past and understand well the present circumstances evaluated. The foretelling of economic events and discharge of policy to assuage recessionary consequences relies heavily upon the study of history and the winding path to the present. And so as economists and government struggle to explain away our jobless economic recovery, they continue to grasp at historic data which demonstrate employment has always lagged as an indicator of economic revival.

The analysis of history in order to understand today or as predictor of what comes requires, above all, extrapolation.  If any one variable in the equation, or if circumstance or environment has been modified, then the resulting analysis will be altered and distinct.  I am troubled by the comparison of today’s economic data to recessions of mid-70s, early-80s and the Great Depression, absent the adjustment for changes in credit markets, interest rates, housing prices, health of banks, size of industrial base and government stimulus.  In order to contrast economic downturns, past and present, multiple variables must be compared simultaneously to discern changeability and predict behaviors.  It is shocking that we so rarely hear or read the grim reports of continued job losses explained within the context of economic elements necessary to understand well or predict accurately the timing of shift from job loss to job creation.

Main Street Americans have been battered by the perfect storm of falling employment, plummeting home prices and inability to access credit. And the storm has left so many homeless, jobless and hopeless.  But we are called upon to be patient and to forbear as history foreshadows that GDP growth leads to job creation and therefore help is near. In support of that request for patience, President Obama signed into law Friday temporary measures to alleviate the pain for Main Street unemployed in form of extensions of benefits and tax credits for home buyers.  It frightens me that we treat the symptoms of joblessness with provisional programs while the epidemic left unaddressed may rapidly create a populace of the permanently unemployed.

In recession, job losses, while painful, are anticipated.  Economic downturns cull weak companies, creating room for the strongest and most innovative to thrive.  The process of creative destruction is perceived as integral to free market economies.  However, this economic collapse is by no means similar to past recessions.  Too many job losses spring from changes in bank lending strategies and too many are casualties of small business liquidations.  The massacre of small business is best manifested in the broad variance in job loss numbers reported by the establishment survey, in contrast to the household survey that seeks to determine whether or not people are working by asking individuals their job status, rather than querying the larger companies that employ them.  During September and October, reported job losses were 263,000 and 785,000 and 190,000 and 585,000 for establishment and household surveys, respectively.  Over the course of 60 days, the differential exceeds 900,000 incremental job losses reflecting, in large part, destruction of very small businesses and the self-employed who are excluded from establishment census. The economy is not in a process of cyclical creative destruction, but rather in the deadly grasp of secular, irreparable economic devastation

As financially impaired banks retrenched from traditional secured lending to small and middle-market enterprises (SMEs) to preserve capital and repair balance sheets, a gaping hole in our financing economy was shaped. The sudden dearth of capital has forced companies that might otherwise rationalize and survive the current economic downturn to radically reduce workforce — layoffs that are permanent as, without capital, companies have no choice but to liquidate.

As we forecast employment, we cannot embrace history without adjustment for the unique economic character of this Great Recession that began in December 2007.  Not since the Great Depression have Americans endured this damaging confluence of events — dearth of credit and bank failures, mass liquidations of businesses, plunging real estate values and high unemployment.  The recessions of mid-70s and early-80s were not equally marred by so many threats. Most troubling to me, however, is that exit from this Great Recession will be the first in history where Americans could not turn to a broad industrial base or to small businesses for the requisite foundation for economic renaissance and job creation.  Manufacturing job losses accelerated in October with 61,000 compared to 45,000 in September. Since 2000, the U.S. has lost over 8 million manufacturing jobs, and since the start of the recession nearly 40% of all job losses have been casualties of a frail and dwindling industrial base. Adding insult to injury, in all previous post-war recoveries, it has been small businesses that fueled job recovery. In this recession, credit remains woefully unavailable to SMEs, impairing not only growth potential but interim survival.  I fear we have ignored the permanence that defines the recent contraction of American jobs and that if rebuilding America’s industrial base and providing capital to SMEs is not quickly addressed, more and more Americans will fill the rank and file of permanently unemployed.  Every great empire in recent times has been built upon a manufacturing economy. The fall of those great empires has been the failure to remember that one fundamental fact.

Follow Lynn Tilton on Twitter: www.twitter.com/lynntilton

Read this at the Huffington Post

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Posted in Economy, Financial Crisis, small business, unemployment | No Comments »

TheStreet.com on My Plan for Small Business Lending

Tuesday, November 3rd, 2009

In an article today on small business lending, TheStreet.com discusses my call for greater efforts to support lending to small and middle market companies:

While banks are asking those questions, others are already stepping up to the job.
Lynn Tilton, founder and CEO of the private-equity firm Patriarch Partners, has been voicing her concern about a dearth of small-business credit since the beginning of the crisis. She has placed advertisements in the New York Times and Washington Post issuing a “clarion call to rebuild America” through the creation of a federal bank that issues loans directly to capital-starved companies. She has also proposed a public-private partnership that would leverage funds from other rescue programs to do the same.

In the meantime, she’s invested billions of dollars in dozens of small businesses.
“When these companies are gone, they’re gone forever,” says Tilton. “We can’t get their business model back; they can’t get their workers back; they can’t get their production lines back.”

Though banks aren’t interested in lending to these companies, says Tilton: “We turn dust to diamonds every day.”

Read the full story here.

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Posted in Economy, Financial Crisis, Obama, SME Rescue Loans, ppip, small business | 4 Comments »

A Year Later — My Clarion Call to America Left Unanswered

Tuesday, November 3rd, 2009

From the Huffington Post (Nov. 2, 2009)

A Year Later — My Clarion Call to America Left Unanswered

By Lynn Tilton

One year ago, in response to a Treasury Plan to rescue large banks without mandate for lending, I rose defiantly from my comfort zone below the radar screen to speak my mind and deliver “truth” to America.  My fears, unfortunately since confirmed, was that Tarp-infused banks would use Treasury-injected capital to heal internal wounds left by lax controls, leverage upon leverage and abuse of synthetic instruments, leaving small and middle market businesses  without resources for recovery.

I argued that financial engineering had long distorted the value of our markets and seduced Americans into a false security of increasing GDP, dismissing the need for value creation through production of goods and delivery of services. I foretold that middle market manufacturers, the unsung heroes and hope for this nation, would be rendered prime casualties of the credit crisis and appealed for a national commitment to sustain the nation’s core economic base.  At the time, I had proposed a Provisional Federal Bank to lend directly to deserving businesses.  My call was early, my premise sound, my concerns verified but my solution ideologically rebuffed.  As such, unemployment became the defining force of our nation leaving the engine of job creation without fuel for production.

Amidst the unraveling of the American dream in its sudden transcendence to nightmare of foreclosures, layoffs and the destruction of our financial institutions, never once did I witness the direct delivery of truth to Americans. The potential damage to Main Street and warnings of expected job losses were quashed under the guise of containing fear. Truth, albeit cold and hard, is the starting point on the path to recovery and renewal.  With truth, the unknown vanishes, panic and fear subside and the long journey home can begin.  In contrast, Americans were left to believe that they could sit back confident of receiving the trickle-down benefits of financial institution salvation and stability. But banks never lent, much of our SME community did not survive and 26 million Americans are unemployed. Many Americans remain shocked and stunned by the precipitous unraveling of their family lives—no clarion call was sounded for them.

On Thursday of this week, the markets and the White House celebrated the end of the worst recession since World War II. The American government reported that GDP, a broad measure of the U.S. economy, had risen 3.5% on an annualized basis in the third quarter of 2009.  However, any analysis of the variables readily highlights the potency of temporary government stimulus in that growth, with largest components of spending strength reflected in car purchases and new home building, two agendas broadly supported by federal programs.  But before we commence any celebration, it should be clearly noted that consumer confidence declined in October and that unemployment continues its rise with no anticipated immediacy of relief. Christine Romer, lead White House Economic advisor, warned on Thursday that unemployment will remain “severely elevated” throughout 2010.

Main Street Americans remain confused by the conflicting data, seeking answers to the timing and type of recovery that brings relief to their despairing lives.  It is impossible for Main Street to unravel the data, signs of recovery or actions best taken to share in the relief that envelops Wall Street and corporate America.  And so I return to my entreating treatise of last year and ask again, when will we deliver truth to Americans?  When will we accept that people are paralyzed by the “unknown” and seek to fully understand the dichotomy between the recovery they hear and desolation they recognize?

We are living in “interesting times” and the road to resurgence will be long and fraught with obstacles.  A plan for economic recovery that comforts and assuage fears will necessitate focus on job creation and available credit to small and mid-sized enterprises. To bridge the great divide- the casualty of last year’s TARP focus- we will need honest assessment of damage, executable solutions that defy political objections and a clarion call for patience and discipline among Americans who must slowly rebuild their lives.  This passage starts with delivery of “truth” so that jobless and hopeless Americans clearly understand their long hard journey just now begins.

This country has long been a meritocracy founded upon education and work ethic, a nation in which each one of us could overcome the circumstance of birth to live the American dream. This is not a time in our nation’s history for panic, self-pity, entitlement or complacency; it is a time for discipline, hard work and cooperation. But it is also a time for truth, change and recognition that we cannot leave Main Street America behind.

In the words of Winston Churchill, “In war as in life, it is often necessary when some cherished scheme has failed, to take up the best alternative open, and if so, it is folly not to work for it with all your might.” We must never forget the inextricable link between great power and great responsibility; when much is given, much is expected. The path to economic recovery begins with truth.

To read the Clarion Call……http://www.patriarchpartners.com/Lynn_Tilton_WashPost_NYT.pdf

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Posted in Economy, Financial Crisis, Obama, SME Rescue Loans, Treasury, ppip, small business | No Comments »

Obama’s Small Business Plan: Recognition of the Problem is a Critical First Step, But Much More is Needed

Tuesday, November 3rd, 2009

From the Huffington Post, October 27, 2009

Obama’s Small Business Plan: Recognition of the Problem is a Critical First Step, But Much More is Needed

By Lynn Tilton

The plan announced last week by President Obama to encourage lending to small businesses, in its recognition of the severity of the problem, is a noble first step. However, if we are truly committed to the salvation and revival of America’s small and mid-sized businesses and to saving and creating jobs, a more comprehensive plan is required. The Obama plan, while well intentioned, places the onus, in its entirety, on community banks to restart lending.  In theory and political pacification, this might make sense, but in practice, it will never work. And we are out of time. The plan we place forth now must offer an immediate and effective solution or permanent unemployment will plague us for decades.

Community banks have not been able to ride the full force and effect of TARP and other government programs. They struggle under the weight of large non-performing home loan mortgage and commercial real estate portfolios, with the rates of defaults showing no sign of deceleration.  Most community banks fight for their own survival, and regardless of incentives, are in no position to provide resources or inure the detriment of risks inherent to lending to small businesses, many in liquidity crises. Moreover, many community banks will be wary to accept the reporting requirements and conditions attached to TARP funds. The Independent Community Bankers of America, its primary trade association, immediately expressed concerns following Obama’s announcement.  “It’s uncertain how many community banks will use the program given the current examination environment and the conditions Congress has imposed on TARP funds,” Cam Fine, president and CEO of the ICBA said in the release.

We need a plan that is designed to ensure funds will reach small and mid-sized enterprises (SMEs) directly and with requisite sense of urgency. More than 70% of America’s work force is housed in SMEs and the liquidation of these businesses continue daily because they have no access to the basic working capital loans needed to operate their businesses. SMEs are the backbone of our economy, and they are in desperate need of support. Permanent unemployment will reach epidemic levels if finding a solution to continued job loss is not our nation’s priority. The SME Rescue Loan Program (RLP), my proposal to address this crisis, provides a qualitative and tactical plan founded in a patented quantitative solution that protects taxpayer dollars. For more information, see www.smerescueloans.com.

Earlier this summer, I proposed the RLP as a natural expansion to the Public–Private Investment Partnership (PPIP) under TARP. The existing PPIP, announced a year ago, was established by Treasury to purchase toxic assets from bank balance sheets. With time, it has grown evident toxic assets are neither the major danger to our economy or obstacle to new lending.

The RLP is designed to address the current threat to our economy within the construct of Treasury’s original plan. The RLP is drafted to support origination of new loans to those SMEs that cannot access traditional bank lending.  Because it is based on an existing program, the RLP can be implemented with rapidity.  And by reliance on private investment managers, who demonstrate the risk profile for troubled credits, rather than community banks, probability for success is exponentially enhanced.

A year ago, the implosion of credit markets began as a Wall Street crisis but rapidly spread to Main Street, paving a path of destruction. Credit markets seized and the global economy appeared to stand on the precipice of collapse.  Governments intervened with myriad programs designed to slow the pace of damage.  These programs succeeded, to varying degrees. Although grave risk of impending financial collapse may be behind us, the economy remains fragile. The fall-out from the crisis of last autumn has given way to new and dangerous threats of extremely high unemployment and permanent job losses, a prospect more frightening than others to Main Street Americans.  Absent an immediate rescue, unemployment could peak in excess of 12 percent with underemployment levels approaching 20 percent, exacerbating demand destruction and further economic deterioration.

With each passing day, the schism between Wall Street, Washington and Main Street widens. The American people grow increasingly incredulous with the complacency of Washington leadership.  Spreading optimism, in the face of Main Street hopelessness, is an affront that will no longer be borne. Wall Street buoyancy adds insult to injury, and Americans will not accept Wall Street bailouts founded upon taxpayer dollars with no meaningful action to save American jobs. We have a plan that initiates rescue financing and saves jobs in a manner that can be immediately effective by means of a combined private and public sector solution. The time to act is now.

Click here for more by Lynn Tilton at the Huffington Post.

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Posted in Economy, Financial Crisis, Obama, SME Rescue Loans, Treasury, ppip, small business | 3 Comments »

My New Piece for the Huffington Post: “Ending Joblessness in America”

Saturday, October 24th, 2009

Huffington Post: Lynn Tilton — “Ending Joblessness in America”

Although considered a woman of Wall Street, I have long seen the world from a perspective quite distinct. With over 73 companies, all of which we purchased on the precipice of destruction, and over 100,000 employees, I have a view and vision of this country that cannot be seen from a trader’s window. I fear that America will soon be a country characterized by a populace of the permanently unemployed. Every day, the disconnect between Wall Street, Washington and Main Street deepens. While the stock market continues to rise towards alternate realities and Washington remains comfortably insulated with robust government spending, Main Street Americans are suffering under the weight of job losses, home foreclosures and hopelessness. Rising unemployment numbers and the duration and permanence of that joblessness are ignored as irrelevant. And, moreover, the numbers being released by Washington do not represent fairly the depth and breadth of America’s jobless reality. In truth, today, one out of every 5 Americans is unemployed.

In September, the Bureau of Labor Statistics (BLS) reported that, since the start of the recession, unemployed persons in America had increased by 7.6 million to 15.1 million, and that the unemployment rate had doubled to 9.8%. But if we turn to the household survey that seeks to determine whether or not people are working by asking individuals their job status, rather than querying the companies that employ them, the September job loss figure is not 263,000 but instead closer to 785,000. Adding insult to injury, household net worth has declined by 14 trillion dollars since the onset of the recession and household financial distress is further exacerbated by diminishing employment. And the cycle of destruction continues. Underemployment, U-6, which includes both part-time workers who lust for full time employment and discouraged workers, “the marginally unattached,” reached staggering new heights at 17%. Alan Abelson quantified well the situation in an October 5, Barrons column: if we add 9.2 million of involuntary part time workers to the 2.2 million of the marginally unattached and the 15.1 million of reported unemployed, the equation sums to 26 million Americans out of work.

Until job loss turns to job creation, we have little chance for a true economic recovery. Absent job creation, little else matters. Consumers cannot spend, businesses will not invest and government budgets cannot balance. I believe employment is the leading indicator of our economy, and I take umbrage to the blind claim of laggard. Jobs are not created by big businesses that house under 20% of America’s labor force, but rather by SMEs - small and mid-sized companies. These companies, the backbone of the American economy, have lost access to the traditional working capital loans upon which they depend to manage their businesses. As a consequence of the sudden dearth of capital available in this market, companies that might otherwise rationalize and survive the current economic downturn are laying off workers — layoffs that will result in permanent job losses as, without access to capital, these companies have no choice but to liquidate. This phenomenon is driving not only permanent job losses, but also the eclipse of technology and the destruction of transferable industrial knowledge.

Our firm, Patriarch Partners, is built upon the premise that making money and making the world a better place are not mutually exclusive options. Since 2001, Patriarch has saved over 150 companies from liquidation and almost 250,000 jobs. And because this is what we do, we have a unique perspective on the number of companies that are on a desperate quest for capital in order to survive. As we do our diligence on these companies, we are touring America and the small towns whose livelihoods are deeply dependent on these companies and their survival. Let me touch on some of my most recent visits and what I see - in Little Falls, Minnesota, a third generation boat manufacturing town, employment sits well below 50% of 2008 levels and the town’s restaurants and shops are shuttered because boat production is off by 70%. In Detroit, where we are in the process of a large automotive acquisition, unemployment nears 30% and the average home price has fallen from $90k in 2007 to $8,000 today because automotive suppliers have walked a quiet path towards forced liquidations and consolidation.

Job losses will not be stemmed until the liquidation of SMEs is stopped. This feat can be accomplished only by enabling access to capital. Lenders and borrowers face challenging credit conditions due to the economic downturn, while dealing with diminished revenues and depreciating collateral values. As such, in the face of this perfect storm, the most direct and rapid solution to stem job losses must be to incent private enterprise to originate and monetize rescue-financing loans for struggling SMEs. I have a plan: The SME Rescue Loan Program (”RLP”) will access unused TARP funds already set aside for the PPIP Legacy Securities Program. Treasury originally intended that $75-$100 billion of TARP funds be used for PPIP programs to purchase toxic loan assets from bank balance sheets. Yet, as of today, only $30 billion has been allocated for use.

The PPIP Rescue Loan Program will initially use $30 billion for equity and debt investments. The RLP will be structured based upon similar constructions to those announced in the existing PPIP programs. Pre-selected investment managers will raise a minimum of $150 million in equity capital, which will then be used along with $50 million of equity contributed by the Treasury. Private sector equity capital will serve as the first loss layer to both the loans and equity capital provided by the taxpayer. While the taxpayer will share in the returns, private investors — not the taxpayers — will bear the majority of the risk. Additional leverage, of up to four times equity, will then be provided by TARP funds. It will be required that at least $15 million (or 10%) of equity in the Rescue Loan Investment Partnership (RLIP) originates from direct investment by the investment manager’s firm or partnership.

The RLP will be available to companies who have been turned down by banks, whose loans are in default with banks, whose reserves on loans have increased over 10% in the last 12 months, or companies who require debtor- in-possession financing during bankruptcy restructuring. All loans will need to be senior secured, pay current interest and stand first in right of payment.

In short, the RLP will function under the existing PPIP. The program’s configuration will be built upon structures previously announced in the existing PPIP Legacy Securities Program. The program will require no additional funding from Congress. The RLP will save jobs, in a manner that can be immediately effective and quantified, by means of a combined private and public sector solution. The private sector equity will absorb the entire first loss, in advance of both the government loans and the government equity contribution, significantly reducing taxpayer risk. The government program will be temporary and will be replaced with both private sector and bank financing as the credit markets recover.

As a woman who walks and talks Main Street, I fear that we will grow complacent and rationalize high unemployment as status quo and the new norm. It is and will forever be unacceptable and will serve only to weaken our nation. We must end joblessness in America now.

More information available at: www.smerescueloans.com

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Posted in Economy, Financial Crisis, SME Rescue Loans | 2 Comments »

The Lending Gap Pierces a Hole in Heart of America’s Economy

Monday, October 19th, 2009

The Federal Reserve’s recent upbeat policy statement missed a major threat to the economy that small and middle market businesses across the country understand well: banks are not lending. Despite easy credit and trillions in bailouts, there still remains a vast divide between the “haves” of Wall Street and corporate America who have benefited from the spoils of taxpayer largess and the “have-nots” of small and midsize enterprises (“SMEs”) that have long been the source of a majority of American jobs. As the CEO of a distressed private equity firm, each week I review the requests of dozens of SMEs that are unable to attain loans. Without access to capital, many companies that might otherwise survive have had no choice but to liquidate. As this progression evolves, jobs are lost, technology and tribal knowledge are destroyed and America’s depressed industrial base erodes further.

Last month marked the tenth straight month of declines in commercial lending. Since the crisis commenced, commercial lending has plummeted by 12% — this equates to an average of 1% each month. Never before during the post-war era have we witnessed a retrenchment in commercial lending so sustained and so severe. By some estimates, lending has contracted at the most rapid rate since the Great Depression. And it’s getting worse. Last month marked the largest one-month drop in lending in half-a-century and September’s outlook is little better. In the first two weeks of September, commercial lending has already declined almost one full percent. The latest Congressional Oversight Panel TARP report, released last month, too, does not portend well for our future. That report illustrates a nose-dive of 43% in new commitments for commercial and industrial lending at large infused institutions during the months between October 2008 and this summer.

Small and middle market companies, especially those that are “the maker of things,” depend on working capital loans from banks to operate their businesses in the ordinary course — to finance inventory purchases and to fund payroll and other operating expenses. In every business there are timing differences between the spend of capital to manufacture and deliver a product or service and the payment for those goods or services by customers. Battered by a perfect storm of declining revenues and a dearth of credit, companies that in previous recessions would have achieved workout solutions and forbearance from banks, or rescue financing from alternative lenders, are shutting their doors and terminating workers.

Alarmingly, with more than thirty bailout programs offered by Washington since the crisis began, not one addresses directly the dearth of lending to SMEs. Policymakers have found comfort in their delusion that an artificially supported Wall Street will transcend to magical solutions for the rest of the economy. We have spent trillions of taxpayer dollars to execute that chosen strategy, and yet, one year later, the financial crisis continues to gorge a gaping hole in the heart of our economy. Until we face the undeniable truth that the conventional banking system remains too damaged to resume its rightful role as the lubricant of commerce, a real recovery has no chance to take root.

The good news is that this problem is easily addressed. We already have a construct for a public-private program intended to purchase toxic assets from the balance sheets of banks. The model that Treasury established for the Legacy Securities Public-Private Investment Partnership could easily be modified to encourage private investment managers to originate new loans to SMEs. The program would target only those companies that have been unable to access traditional bank lending and would be a temporary measure to plug the lending gap while injured banks recover. The program could be more than fully financed with unused funds already set aside for public-private investment programs. As such, the plan will require no additional appropriations from Congress. In fact, the plan I propose is carefully constructed to deliver investment returns to taxpayers at very low risk.

Unlike the public-private programs for toxic assets, already hampered by unyielding banks with little motivation to sell, there is no shortage of SMEs in desperate need of loans. With access to low-cost government financing, private investment managers, carefully screened through a transparent and thorough process, will be anxious to participate.

America’s small and midsize companies, those still suffering under the burden of Wall Street mistakes, are the very same businesses that have long played by the rules and operated as the engine of job-creation and economic growth in America. A government program to support lending would both foster the rebuilding of this country’s manufacturing base and facilitate the historical role of SMEs to create and sustain jobs and to afford the opportunity to a workforce to earn its living with dignity.

More information is available at www.SMERescueLoans.com.

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Posted in Economy, Financial Crisis, SME Rescue Loans, Treasury | 3 Comments »

WHITE PAPER: PPIP Rescue Loans Program

Tuesday, July 28th, 2009

PPIP Rescue Loans Program
A Public-Private Program to Sustain and Create Employment through Incentives for Private Rescue Lending

Summary
As financially impaired banks have retrenched from traditional secured lending to middle-market companies to preserve capital and repair balance sheets, a gaping hole in our financing economy has been shaped. More than eighty percent of this country’s work force is housed in companies with fewer than 500 employees.  Middle-market and smaller companies, the backbone of the American economy, have lost access to the traditional working capital loans upon which they have long depended for managing businesses in the ordinary course.  As a consequence to this sudden dearth of capital available in this market, companies that might otherwise rationalize and survive the current economic downturn are laying off workers — layoffs that will result in permanent job losses as, without access to capital, these companies have no choice but to liquidate.  This phenomenon is driving not only permanent job losses, but also the eclipse of technology and the destruction of transferable industrial knowledge, causing irreparable damage to the American economy.  The Rescue Loans Program (PPIP-RLP) would exploit unused TARP funding intended for the Public Private Investment Partnership (PPIP) to incentivize qualified private investors to provide rescue financing to companies unable to access the bank loan or credit markets, temporarily filling the lending/financing void left by banks, hedge funds and collateral debt obligations (CDOs).  Access to rescue financing will save many companies that might otherwise liquidate — with a direct and immediately quantifiable sustainment of employment — and will simultaneously assuage the immediate and overwhelming threat to our economy, rising unemployment.

  • The PPIP-RLP would function under the existing PPIP.
  • The program’s configuration would be built upon structures already announced in the existing PPIP Legacy Securities Program and the PPIP Legacy Loans Program.
  • The program would require no additional funding from Congress.
  • The RLP would save jobs, in a manner that can be immediately effective and quantified, through a combined private and public sector solution.
  • The private sector equity will absorb the entire first loss, ahead of both the government loans and the government equity contribution, significantly reducing taxpayer risk.
  • The government program will be temporary and will be replaced with private sector and bank financing as the credit markets recover.

Read the full white paper:  PPIP Rescue Loans Program (pdf)

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Posted in Economy, Financial Crisis, Treasury, ppip | 1 Comment »

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