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Posts Tagged ‘Financial Crisis’

Unprecedented Anger in the Face of Economic Hardship and War

Wednesday, January 6th, 2010

As we start this new decade, we face the dangers of an unprecedented anger embedded in our nation as well as in countries across the 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 and ’tis, of course, the season of 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 further angered 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 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 of which few of us understand the inherent meaning or the sacrifices necessary to follow a path that the concept defines. Truth forces us all 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 better people and to demonstrate those qualities that create light in a world gone dark. Our country’s most valuable asset is human capital, and the most potent force of nature is people standing together, moving in one direction, pure of intent and collective in consciousness. We must all be aligned in the battle of rebuilding America. This begins with acceptance of individual responsibility for our part in the current communal economic, social and spiritual malaise. 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 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 in our nation divided.

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 leadership in the battle of rebuilding America.

Tags: bank lending, banks, Economy, Financial Crisis, Lynn Tilton, patriarch partners, SME Rescue Loans, unemployment, Wall Street
Posted in Financial Crisis | 1 Comment »

Mr. Geithner—Do you hear me calling?

Friday, December 4th, 2009

Dear Mr. Geithner,

I struggle to understand why you ignore my letters and calls? I appreciate the depth and breadth of issues you face, decisions to make and responsibility to bear. Yet I came myriad times with well thought solutions to lending problems that plague our nation, built upon tactical proven business experience. I volunteered my time, my patented portfolio construction models, and designed solutions to solve the dearth of lending to small and mid-sized companies, (“SMEs”). With patriotic hat in hand, asking for nothing, I offered demonstrated solutions upon which the Patriarch platform, a $ 7 billion business has thrived over 9 years. Still my letters remain unanswered and my SME Rescue Loans Program (“RLP”) lies dormant in Treasury hands.

Joblessness is a plague upon America. Including part-time workers coveting full time employ and marginally unattached, those indelibly discouraged, almost 30 million Americans suffer under weight of unemployment. If each unemployed heads families of 4, joblessness brings suffering to 120 million Americans. I am consistent in my verse, my chorus the same for 14 months - the absence of lending to SMEs would bring rapidly rising unemployment and stall the engine of job creation. My plans, acknowledged, would have significantly reduced populace pain.

Last October, in response to a Treasury Plan to rescue large banks without mandate to lend, I purchased ads in the Washington Post and New York Times to express deep fears that TARP-infused banks would use Treasury-injected capital to heal internal wounds by selfish means, leaving SMEs without resources for recovery. I foretold middle market manufacturers, unsung heroes and hope for this nation would be rendered prime casualties and appealed for a national commitment to sustain our core economic base. I proposed a Provisional Federal Bank to lend directly to deserving businesses. http://patriarchpartners.com/Lynn_Tilton_WashPost_NYT.pdf

On February 2, I sent an open letter, covered by national press, acknowledging the unprecedented obstacles to America’s economy. I addressed the implausible challenges in form of ideas for consideration that, together, represented a multi-spoke approach to foster economic recovery. I warned measures beyond TARP programs needed immediate implementation to avoid a punishing downturn and that SMEs, the backbone of America and its largest employer, remained starved for credit. I insisted upon rapid and ineradicable acceptance that America’s future relies more heavily upon revival of industry and creation of jobs than resurrection of complex financial instruments.http://www.patriarchpartners.com/open_letter_Geithner.pdf

In late March, I published an editorial titled Tim, Why won’t “you” take a chance on lending? I suggested waiting for banks to heed your call to “take a chance on lending” made little sense and held low probability for triumph. I advised reduction of distance between problem and solution to enhance probability of success should be a lesson embraced.

I questioned your bank reliance and bank confidence, the cost and time to motivate institutions to lend. I feared millions of jobs lost while awaiting banks embark upon the lending crusade. From whence came assurances cash infused or toxic assets removed would inspire immediate lending to businesses damaged by interim starvation? I believed it time to face the harsh fact that TARP failed to revive lending. I suggested the shortest path between need to unlock credit and emergency loans available was use of Government funds. http://patriarchpartners.com/dust2diamonds/2009/03/tim-why-won’t-you-take-a-chance-on-lending/

In July, I visited Treasury to present a plan designed upon the simple premise the foremost obstacle to economic recovery was unemployment. Job losses could not be stemmed until liquidation of SMEs halted, and this feat accomplished only by enabling access to capital. In short, the most direct and rapid solution to stem job losses is to incent private enterprise to originate and monetize rescue-financing loans for struggling SMEs.

The RLP, as presented, accesses unutilized TARP funds set aside for the PPIP Legacy Securities Program. Treasury originally intended $100 billion of TARP funds be used for PPIP programs but, to date, only $30 billion has been allocated. The RLP would use $30 billion for equity and debt investments. The program’s configuration is built upon structures previously announced and requires no additional funding from Congress. The RLP would save jobs, in a manner effective and quantified, through combined private and public sector solution. Private equity would absorb entire first loss, in advance of government loans and equity, significantly reducing taxpayer risk. The RLP would be temporary and replaced with private sector and bank financing as credit markets recover. http://www.smerescueloans.com/

Mr. Geithner, perhaps you believe safety of advice lies with big names like Goldman Sachs, Blackstone and Blackrock. I suggest you revisit the history of my warnings and quality of advice. And if, sadly, you look only to safe haven, I am a self-made billionaire who has saved 150 companies from liquidation and 250,000 jobs. I believe in America. My hand remains extended to you. Please hear my call.

Sincerely,

Lynn Tilton

Tags: bailout, bank lending, banks, Barack Obama, clarion call, economic crisis, Economy, Financial Crisis, job creation, Lynn Tilton, Main Street, Obama, obama administration, patriarch partners, small business, SME Rescue Loans, Treasury, unemployment, Wall Street
Posted in Financial Crisis | 2 Comments »

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

Tags: banks, Economy, Financial Crisis, Lynn Tilton, small business, SME Rescue Loans
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.

Tags: banks, Economy, Financial Crisis, Lynn Tilton, small business, SME Rescue Loans
Posted in Economy, Financial Crisis, Obama, SME Rescue Loans, ppip, small business | 4 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.

Tags: banks, Barack Obama, Economy, Financial Crisis, Lynn Tilton, small business
Posted in Economy, Financial Crisis, Obama, SME Rescue Loans, Treasury, ppip, small business | 3 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.

Tags: bank lending, Economy, Financial Crisis, lending, Lynn Tilton, patriarch partners, small and midsize enterprises, small business
Posted in Economy, Financial Crisis, SME Rescue Loans, Treasury | 3 Comments »

Press Release on New Web Site Highlighting My Solution to High Unemployment

Thursday, August 6th, 2009

SMERescueLoans.com Launched to Support New Plan to Save American Jobs

New York, NY, August 6, 2009 — Private equity CEO Lynn Tilton today launched SMERescueLoans.com, a web site introducing a new economic proposal dedicated to saving jobs in America and slowing the rapid rise in unemployment. The program would create a public-private partnership to provide rescue loans to small and mid-sized enterprises (SMEs). The financial crisis has left a gaping hole in the capital markets. The dearth of lending to SMEs, companies that provide more than 80 percent of U.S. employment, is forcing mass layoffs and asset liquidations.

Using excess TARP funds previously set aside for the Treasury’s Public Private Investment Partnership (PPIP), the Rescue Loans Program would co-invest with pre-approved private investment managers in senior-secured, first-lien loans to SME companies that have been denied or have lost routine working capital loans necessary to operate a business in the ordinary course. The plan would share profits with the taxpayer but would protect taxpayer funds by requiring the private sector to take the first loss layer, thus bearing the bulk of risk.

“Without access to basic loans, many companies that might otherwise survive and flourish are forced to lay off workers or liquidate, driving unemployment and deepening the recession,” said Lynn Tilton. “The most direct and rapid solution to stem job losses is to motivate private enterprise to originate and monetize rescue financing loans for struggling smaller and middle-market companies.”

The new web site provides details on the plan and information about ways people can get involved, tell their stories and apply for rescue loans.

ABOUT LYNN TILTON
Lynn Tilton is a successful investor and industrialist. Ms. Tilton is dedicated to saving jobs in America through the acquisition of small and mid-sized companies that, without such investment, might otherwise liquidate. As CEO of Patriarch Partners, a $6 billion private equity fund with investments in over 70 companies that employ more than 100,000 people, Ms. Tilton has a unique perspective on the enormous challenges faced by such companies in today’s economic and lending environment.

Tags: economic crisis, Economy, Financial Crisis, ppip, Treasury, unemployment
Posted in Financial Crisis | 3 Comments »