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Posts Tagged ‘Lynn Tilton’

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.

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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

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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

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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 »

Stress it or Dress it — That is the Question?

Tuesday, April 28th, 2009

I have read the white paper that serves as foundation for The Supervisory Capital Assessment Program (“SCAP”), the “bank stress tests,” and reviewed the preliminary results, but still I fail to understand where the concept of “stress” is intertwined within the Treasury and Fed efforts.  How can “stress” be defined by the average consensus on projected macroeconomic data?  Is “stress” not a multiple of loss expectations to protect against the outlier scenario?  Stress under SCAP is defined as “severe but plausible”——–but if we are to guard only to the point of plausible—why bother with such tests at all?  Insiders at Sheila Bair’s Federal Deposit Insurance Corp. have said of the stress tests performed on the nation’s 19 largest banks, “it’s a pointless exercise that’s more sizzle than steak. “   Others inside the FDIC have called it a “sham” and an “open book-take home exam” that allows for manipulation of loss and recovery information.  If we revert to the second quarter of 2008—what was the average consensus on GDP, unemployment and house pricing for the remainder of the year?  Did reality align with the “severe but plausible” consensus of credible economists?  I think not.

Such examination leads to the question why SCAP has been conveniently implemented at a time when the Government straddles two missions.  On one hand, the Administration strives to quash the fears of bank insolvency while, conversely, it attempts to comfort the American taxpayer that their bank investment dollars are watched, monitored and the results transparent.  In its quest to quell constituent complaints, we must wonder whether  the dynamic duo—Treasury and the Fed–are truly stressing bank balance sheets, under adverse economic conditions, to ensure their ability to withstand continued losses in a protracted economic recession or are they merely “dressing”  financial reality in poetic rhetoric to promote populace comfort and market optimism.  Somewhere between the two ends of this spectrum and economic specters, lies some version of the truth.

I believe that Treasury made an enormous mistake when it pumped almost $700 billion of taxpayer dollars into America’s financial institutions absent any apparent analysis, void of mandates and without limitations on usage.  Since the execution of error, the Treasury and Federal Reserve, each and together, have taken one action after the other to defend and correct their collective lapse in judgment.  The simple truth is that the same results could have been realized absent any cash infusion but simply with the combined guarantee of fiduciary deposits and interbank lending in confluence with relief on capital ratios.  Such actions when united with a 0% interest rate environment would have enabled almost all bank holding companies (“BHCs”) to earn their way out of the dark abyss of self-inflicted financial losses.  If financial institutions should be unable to pay their debts as due, and need government capital to do so, such BHCs should either be merged with others of greater strength or seized by the FDIC.   With the use of taxpayer monies come broad responsibilities to investors which government agencies have not been well prepared to provide.  I believe the stress tests are no more than broad political posturing aimed at assuaging the angst of the American taxpayer while clearly averting any damper of market sentiment.  And in the attempt to straddle the spectrum, SCAP has proven to be much ado about nothing.

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Posted in Financial Crisis, Stress Test, Treasury | 4 Comments »

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