Banks Don't Belong in the Student Loan Business

Since I arrived in Washington, I've been looking at every line item in the budget of the U.S. Department of Education with two questions in mind: Is this program helping students learn? And is it a good use of taxpayer money? In the case of the Federal Family Education Loan (FFEL) program, the answer to both questions is no.

Under the current FFEL program, banks make loans to students. While those students remain in school, the federal government pays the interest on their loans; otherwise the interest accrues. Once the borrowers leave school or graduate, the lending agency collects on the loans. But if the student defaults, my department pays back the loan—plus the interest owed. The FFEL program, in short, is a great deal for bankers but a terrible one for taxpayers.

Over the next decade, according to the Congressional Budget Office, the Education Department is slated to subsidize banks to the tune of $87 billion to enable them to make federal student loans. All of this money would be put to better use providing financial aid directly to millions of needy students who want a college education. The Education Department will be able to accommodate the new loans through an existing federal public-private partnership, Through that partnership, the federal government makes loans directly to students and uses companies that will provide better service to borrowers at a lower cost to taxpayers

Critics contend that the government is trying to nationalize a private industry and do away with competition. Our real aim is to simply stop using banks as the middle man for student loans.

The banking industry would continue to compete in the marketplace to finance mortgages, business start-ups, and other forms of credit. But we are intent on stopping subsidies to bankers who make student loans at no risk because they know the federal government will bail them out in case of default.

By working with private sector companies with expertise in the field, we are prepared to initiate all new student loans in the existing federal Direct Loan program. Right now, the Education Department already owns and services 80% of the student loans made last year. It owns such a high volume of loans chiefly because it had to take emergency action in 2008 to ensure students had access to loans when lending in the nation's credit markets was frozen.

Our experience handling the bulk of student loans makes me confident in our capability. This year alone, an additional 500 colleges and universities joined the Direct Loan program. Just last month, the department's independent inspector general's office issued a report documenting that the Education Department had taken the right management steps so that all loans can be serviced by the Direct Loan program.

In a recent survey by the National Association of Student Financial Aid Administrators, schools that have made the switch to direct lending overwhelmingly reported the conversion was easy and quick. That is just one reason why that association of financial aid experts, along with organizations representing the nation's largest public and private universities, community colleges and college students, support the department's Direct Loan proposal.

The private sector would continue to play an important role in servicing loans. Last summer, the department's Federal Student Aid Office awarded contracts to four companies to service federal student loans, following an intense competition among the best companies in the loan servicing business. These companies are paid more when borrowers are in good standing, and those that keep defaults down and provide the best customer service will be given the most work.

We are preparing to make the switch to direct loans as easy as possible for colleges and universities. We appreciate their feedback, and their ideas will help us transition smoothly from FFEL to direct loans once Congress has passed a bill authorizing the switch to 100% direct loans

As for the $87 billion we'll save from ending the troubled FFEL program, the administration seeks to use that money for important programs that will improve our economic future. We propose to substantially increase scholarships in the Pell Grant program and other financial aid for low-income students. We would start new programs to raise college graduation rates and strengthen our community colleges. We will expand our investment in early childhood education. Plus, $10 billion would be set aside to reduce the deficit.

Now is the time to allocate resources to students—not to banks—so they have access to college and other educational opportunities. We cannot in good conscience let $87 billion in subsidies go to banks when our students desperately need financial help to realize the dream of getting a college education.

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Small Business and Health

“Bristling at Health Plan to Cover Early Retirees” (“The Work-Up” series, news article, Sept. 9) pegs health care coverage for early retirees as exclusively a labor issue. In fact, this is an issue for all Americans.

Small Business Majority, a national nonprofit, is working for America’s 27 million small businesses and small-business owners.

Today, small businesses provide 75 percent of all net new jobs and employ 52 percent of the private-sector work force. What hurts small businesses hurts America’s economy. Not only are the majority of small-business owners between 55 and 64 years old — a precarious window for personal health care coverage — but they also face skyrocketing health care costs, which is hindering their ability to provide high-quality coverage to their employees.

Our research has shown that an average of 86 percent of small-business owners cite affordability as the reason they do not offer health care to their employees, while an average of 68 percent of small-business owners believe that health care reform is needed to help fix the economy.

The biggest problem facing America’s small businesses and America’s economy is unavailable, unaffordable health care. Emphasis on health care coverage for people between 55 and 64 is not just good for labor, it’s good for the economy.

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How should my business market itself with Facebook?

How should my business market itself with Facebook?

Facebook is growing by 700,000 new members every day and is the third-most-trafficked site on the Web. Your business should be making the most of this marketing opportunity.

The most important thing to remember is that you’re there to build relationships with customers and prospects. Connecting in an authentic manner means approaching the world of social networking as a person and not necessarily as a brand.

You should actually start with your personal profile — if you’re not already on Facebook, sign up (it’s free), add a photo and a little information about yourself, find some friends on the site and begin to interact. Then, and only then, should you set up a business page with your logo.

After all, you wouldn’t start a sales call with a trial close — you’d get to know your prospects first and give them a chance to know you.

There are some distinct differences between personal profiles and pages. With personal profiles, people must request to become your friend in order to see your information, and you confirm these friendships manually. With pages, however, anyone can become a fan of your business page. Even better, all of their friends will see that they’re a fan and can join them; now you’re leveraging the viral power of the Internet to make new connections.

Content of your page and posts should be of service to the reader. Consider including reviews, tips, helpful hints, related articles you’ve found, relevant discussions, events and photos.

Next steps: Facebook ads may be purchased. These work similarly to Google AdWords.

Response provided by John Addessi, a consultant with the Kansas Small Business Development Center at Johnson County Community College. ...Read More ! ⇒

Finance Chief to Tackle Japan's Economic Woes

TOKYO -- Japan's newly appointed finance minister, Hirohisa Fujii, will focus on fixing the country's economy, even if that means it will take longer to reduce Japan's massive public debt and possibly prompt more new-debt issuance.

In an interview this week, the 77-year-old Mr. Fujii said he would prioritize economic growth over fiscal overhaul. "If you allow me to make the story short, while fiscal rehabilitation is important, it comes after economic growth," he said. "There's no question that unless the economy recovers to some extent ... our country's fiscal state will get even worse."

He also hinted that the Democratic Party of Japan government may come up with new stimulus steps if the economy weakens, even if that would require a further issuance of bonds.

"We certainly must keep in mind the possibility of [the Japanese economy entering] a second round of sharp contraction," said Mr. Fujii, who was named finance minister Wednesday by new Prime Minister Yukio Hatoyama.

While exports to China and India are rebounding, Japanese business investment remains weak, and "wage and employment conditions are considered to be in the worst shape in the postwar era ... which will surely ricochet against consumer spending," he said.

Mr. Hatoyama has insisted that the DPJ's promised economic-support measures will be financed without floating more debt, but Mr. Fujii's remarks suggest the government's focus will be ensuring that the economy doesn't deteriorate further.

Should the economy demand more money, "it is possible" the government will sell more bonds to raise cash, Mr. Fujii said, despite worries about how that could worsen Japan's poor fiscal state. The country's public debt stands at 170% of gross domestic product -- the worst ratio in the industrialized world -- and the Organization for Economic Cooperation and Development expects the figure to hit around 200% next year.

The DPJ government could also support the economy by redirecting trillions of yen it plans to save through scrapping steps it considers ineffective in the previous government's last stimulus package, valued at 15.4 trillion yen, or $169 billion.

Mr. Fujii's immediate task is to work with Naoto Kan, a top DPJ officials who Wednesday was formally named minister in charge of the new National Strategy Bureau. The bureau is expected to set guidelines on key policies such as the national budget. Mr. Kan is expected to determine the priorities and outline of the budget, while Mr. Fujii will finalize details and make ends meet as tax revenue shrinks due to the economic slump.

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Obama to give speech on financial crisis Monday

WASHINGTON (Reuters) - U.S. President Barack Obama will give a speech about the financial crisis on Monday in New York, marking the anniversary of the collapse of Lehman Brothers, the White House said on Thursday.

The fall of Lehman last year triggered a worldwide financial crisis and accelerated Obama's race to the presidency as the Democrat's cool reaction to the country's economic problems contrasted with a more scattered response from his Republican opponent, Senator John McCain.

Obama made financial regulatory reform a key platform of his candidacy and is trying to push through Congress legislative measures on the issue as president.

"He will discuss the aggressive steps the administration has taken to bring the economy back from the brink (and) the commitment to winding down the government's role in the financial sector," the White House said in a statement about the speech.

Actions the United States and other nations around the world must take to prevent "a crisis like this from ever happening again" would also feature in the speech, the statement said.

Lehman, once the fourth-largest U.S. investment bank, filed for bankruptcy protection on September 15, 2008, in the largest U.S. bankruptcy filing in history.

Obama's speech will take place at midday in New York City's Federal Hall.

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High hopes: Small business is becoming optimistic

Small business owners are joining consumers and investors in showing some cautious optimism about the economy.

An index that measures owners' optimism rose last month, boosted by expectations that business conditions will improve in the future. And there's anecdotal evidence from owners in a variety of industries who say they have reasons to feel a little more upbeat.

The National Federation of Independent Business, which surveys its members each month, said its index of business owner optimism rose 2.1 points to 88.6 in August, an increase that NFIB chief economist William Dunkelberg called "a big gain." The optimism, though, is about the future, as owners still have a dim view of current economic conditions. Dunkelberg noted that small businesses generally aren't planning big capital expenditures or to start hiring again.

"First you have to feel better before you'll spend your money," Dunkelberg said.

Dunkelberg makes the same caveats that other economists do: If consumer spending doesn't pick up, the budding optimism is likely to wither. But, he said, having watched decades of economic cycles, "every recovery begins with an improvement in the feel good stuff, and that's followed by an improvement in the hard spending numbers."

Several small business owners interviewed by The Associated Press reported that their own optimism, as well as that of their clients and customers, has started to improve recently.

"It's still tough, but people are at least starting to speak in normal terms again," said Michael Frenkel, president of New York-based M Frenkel Communications Inc.

Like many other public relations firms, Frenkel's business was hurt when clients slashed their marketing budgets, often the first casualties when companies cut costs. Now, he said, with his hotel and real estate clients putting their budgets together, "things are looking a bit looser for the fourth quarter and they're looking even looser for the beginning of 2010."

But Frenkel said business owners have been forced to adapt to a new reality: The booming economy of two and three years ago, when a company like his could find business almost anywhere, isn't likely to return soon. So, he said, "you just try to go out there and make it happen."

Ian Ford, whose company sells discount tickets to Orlando, Fla., tourist attractions, has become more optimistic as his sales, which dropped off last September and fell as much as 20 percent, started to rebound this summer. Part of the improvement followed Walt Disney World's discontinuing some of its deep discounts, which in turn lifted demand for the tickets sold by Ford's company, Undercover Tourist. Also, more people are willing to travel now.

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Now, Credit Crisis Is a Big Draw for Finance Museum

The Museum of American Finance was faced with an awkward situation recently: some of the corporate sponsors of the museum — dedicated to glories of free markets — had, well, failed.


Lee Kjelleren, the museum president, said the purpose of the exhibit was to illustrate the “forces that affected everybody’s lives.”

Rather than fretting, the museum tapped its own entrepreneurial spirit and mounted an exhibit — “Tracking the Credit Crisis” — that reveals what the museum’s president, Lee Kjelleren, calls the “greed, recklessness and arrogance” of Wall Street.

Probably not what Lehman Brothers, Merrill Lynch or the American International Group had in mind when they donated money to the museum.

But in the wake of the financial crisis, attendance at the museum — located at 48 Wall Street, near the epicenter of last year’s market collapse — has risen to about 200 visitors a day, nearly double its tally last summer. (The Metropolitan Museum of Art averages that many visitors almost every 90 seconds.)

And where else can you buy a poster for just $12 chronicling the lowlights of the credit crisis — so many, in fact, that it’s a five-poster set?

Among the biggest attractions for visitors? The morbid curiosity of a financial train wreck.

“This is about the market crashing,” said Lizzie McNeely, 26, a high school teacher from Toronto, as she wandered around the museum one recent afternoon. “I am interested in how they are going to represent that.”

For the $8 price of admission (or free Tuesday to Saturday from 10 to 11 a.m. through October), visitors who have seen enough van Goghs at the Met and Pollocks at the Museum of Modern Art can get a detailed look at the events that brought the global economy to its knees.

The most popular sections of the exhibit, Mr. Kjelleren said, describe so-called toxic assets and how these were exported from America around the world — “As if the rest of the world didn’t already love America enough!” — as well as the dubious role of the ratings agencies in concealing the riskiness of subprime mortgages and the securities based on their values.

A film about the crisis includes a still photograph of Richard S. Fuld Jr., the vilified former chief executive of Lehman Brothers, being harangued by an angry crowd, including a person holding a sign with the word “Crook” scrawled across it.

In curating the installation, Mr. Kjelleren said one of the things he wanted to capture was how “dumb” the banks had been about investment vehicles like credit-default swaps. “It was dumb, it was more than dumb, and it was occasionally reckless and irresponsible,” he said.

He pointed significantly to a section of the exhibit that discussed the so-called Lehman weekend last September, and the government’s decision to allow Lehman Brothers to fail, which Mr. Kjelleren characterized as a big mistake.

But he reminded visitors that the museum was all about learning from past mistakes.

One group striding by — five bankers from Goldman Sachs — seemed more focused on avoiding the educational experience of the exhibit devoted to the credit crisis.

John Cirincion, 60, one of the museum’s volunteer guides, beckoned to them to take a closer look, but the bankers shook their heads.

“We lived it!” one said, as the group headed instead for an exhibit titled “Women in Finance.”

The museum presents the global financial crisis employing a video and a dense timeline that catalogues what Mr. Kjelleren breathlessly describes as what may have been “the most challenging man-made calamity in modern experience,” excluding wars.

The color-coded timeline depicts crucial events from February 2007 through March 2009 in presenting an overview of the crisis, and provides definitions for important financial terms like subprime mortgage.

Mr. Kjelleren, a former banker for JPMorgan, said, “The idea was to create an awareness of the nature of the driving forces that affected everybody’s lives.”

One of the best measures of the scale of the crisis is not on display, but can be found in museum literature detailing its corporate sponsorships.

Goldman Sachs, Citigroup, Morgan Stanley and Wells Fargo generously opened their wallets here a year ago, long before they became part of Exhibit A in a display on the financial crisis.

And Lehman Brothers and Merrill Lynch are effectively gone, and American International Group is a shadow of its former self. The government owns nearly 80 percent of that company.

Alina Sichevaya, an 11-year-old whose father works for Credit Suisse, had just completed a weeklong finance camp for children at a Camp Millionaire program in her hometown of Cary, N.C. She strode into the gilded halls of the museum and made a beeline for the credit exhibit, staring intently at the giant panels of color-coded cards.

Though she had just learned at camp about complicated concepts like taxes and depreciating assets, Ms. Sichevaya said she found the exhibit “kind of confusing.”

“It’s a lot of information,” she added, as she and her mother, Olga, headed off to catch a sightseeing tour of the Brooklyn Bridge.

Even in the best of times, it was never going to be easy to curate an homage to high finance.

Correction: An earlier version of this article misstated the address of the Museum of American Finance.
Source: NYTIMES
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SBA to host downtown small-business fair -Thursday

The U.S. Small Business Administration will host a resource fair in downtown Denver on Thursday, Aug. 20, for those who own a business or are thinking of starting one.

The free "Small Business Resource Fair" will be held at 10:15 a.m. to 3:45 p.m. at the Denver Public Library's Central Library at Civic Center, in the level B2 conference room. The library is co-hosting the event.
No advance registration is required.

On hand will be representatives from commercial lenders, federal prime contractors, business assistance organizations, local chambers of commerce and state and federal agencies.

The fair is intended "to answer questions relating to all aspects of starting, operating and growing a business. Small business owners will also learn how they can take advantage of the various programs initiated by the American Recovery and Reinvestment Act," SBA said in a statement.

Source: Bizjournals.com ...Read More ! ⇒

Treasury announces energy tax credits

The U.S. Department of the Treasury and the Department of Energy today announced more than $2 billion in tax credits for energy manufacturers available through the stimulus.

The 30 percent tax credit will be provided to qualifying manufacturers of wind, solar, geothermal energy equipment, fuel cells, microturbines, batteries, electric cars and electric grids that support renewable energy transmission, plus energy conservation technologies and carbon sequestration equipment.
“This program will help encourage innovation in design of clean energy technologies,” said Treasury Secretary Tim Geithner.

The Bay Area is home to many cleantech companies including those that manufacture renewable energy equipment, batteries and electric cars. ...Read More ! ⇒

In Pursuit of Small Business Loans !

At a recent meeting with Frank Burke, right foreground, who was representing Senator Frank R. Lautenberg’s office, South Orange business leaders discussed the need for credit. From left, Carole Anzalone-Newman of Main Street South Orange; Brian Boele of Bonte; Terrence Brooks of Vision Barber Salon; and Evelyn Lee, a reporter from NJbiz.com.


Joanna D’Angelo knows that starting a new business is no small accomplishment. Dealing in fine organic tea and jams from France, Ms. D’Angelo set up Tea Together, her storefront in Millburn, last November.

“We felt it was an up-and-coming area, and it was right for us,” Ms. D’Angelo said.

Business has not been bad, but she needed a small loan to keep momentum going until the busy season. While shopping for loans last month, Ms. D’Angelo walked into Chase, a preferred lender of loans backed by the federal Small Business Administration, and walked out a short time later — minus any money.

“We tried a few other banks, but they all had impossible conditions,” she said. “We did not qualify for an S.B.A. loan, something they were very adamant about.”
According to Ms. D’Angelo, Tea Together failed to qualify at Chase because the business was fewer than three years old, though she did not know if that was the Small Business Administration’s or Chase’s rule.

Ms. D’Angelo joins other owners of small local businesses who are finding credit hard to come by, even with the help of federal stimulus money directed to help. The dearth of small business loans nationally described in The Times’s article on Thursday seems to be playing out locally as well. So far in South Orange, only four S.B.A. loans have been approved from Oct. 1, 2008, through the end of June 2009, according to federal statistics. This is down from eight loans in the last financial year, from Oct. 1, 2007, and Sept. 30, 2008.
An S.B.A.-backed loan is intended for small businesses that might not qualify for a commercial loan. After being rejected, a small businesses can apply, often at the same bank, for an S.B.A.-backed loan.

Since the financial crisis began in September, the credit market dried up, hitting small businesses hard. In response, $730 million from the federal stimulus package was funneled to increase the guarantee on S.B.A. loans to 90 percent. However, even with the guarantee, loans can be hard to come by.

But who is responsible for the bottleneck? Is it the S.B.A., where mountains of paperwork are required? Or are the banks not wanting to go the extra mile to assist small businesses? Or perhaps, are small businesses considered a poor investment?

From the eyes of the banking industry, the problem centers around the red tape that entangles all areas of the S.B.A. loan process.

Sheila Spangler, who worked in the banking industry for more than 20 years and is now a business strategy coach, said she believed that banks are not lending because of the excessive paperwork required for an S.B.A. loan. Banks and the S.B.A. have their own qualifications, and both apply when a small business wants a loan.

“Just because the S.B.A. may be willing to guarantee the loan, the bank may not necessarily want to make the loan,” said Ms. Spangler, who calls herself a proponent of the federal agency.

She explained the S.B.A. guarantee is not real money. It is available only if the borrower defaults, so the bank must initially provide its own money for the loan. And when it comes to receiving the guarantee, from her own experience and from being in constant contact with bank managers, Ms. Spangler said it can take one or two years.

“It is a long, drawn-out process,” she said.

Furthermore, if the borrower defaults, there is also a chance that banks will not get their money back from the S.B.A.

“If the bank does make the S.B.A. loan, the package has to be done perfectly, or the bank risks not being able to exercise the government guarantee,” Ms. Spangler said.

Jonathan Swain, a spokesman for the Small Business Administration in Washington, countered that it did not take terribly long for a loan to receive a guarantee.

“We have made a commitment to lenders to turn their application around in 45 days or less,” Mr. Swain said, referring to the amount of time it takes banks to receive the guaranteed amount for a defaulted loan. He said the S.B.A. averages a 30-day turnaround, and that 95 percent of the guarantees on default loans are paid to banks.

Mr. Swain also noted the low default rate on S.B.A. loans in the first place.

“Our default rate is about 5 percent,” he said, “which is more than what it was historically. However, that is what you would expect in this economic time.”

A new initiative of the S.B.A., America’s Recovery Capital Loan Program, is also causing confusion for some would-be lenders. Operating for less than two months, this program provides $35,000 in short-term relief to struggling small businesses. Like in a standard S.B.A. loan, the business must be eligible by the standards of both the S.B.A. and the commercial lender.

“Over 1,000 A.R.C. loans have been offered across the country,” Mr. Swain said. “We feel good about where it is, and we expect to see those numbers go up.”

But so far, only four of those loans have been in New Jersey through the lenders JPMorgan Chase & Company, PNC Bank and Woori Bank. (They tend to head to businesses in Minnesota, Wisconsin and Iowa, according to The Boss blog.)

While there are 190 banks in New Jersey that partner with the S.B.A., some are part of the preferred or certified lenders program, and are able to get an accelerated application process for loans they approve. Here is a list of those banks [pdf].

Ms. Spangler said A.R.C. provides little incentive for commercial lenders to administer the loan.

“The mound of paperwork and knowledge is the same as for a million-dollar loan,” she said of the relatively small A.R.C. loans.

Mr. Swain said this was necessary to prove that the business was viable and still a good investment.

Elizabeth Boele, co-owner with her husband, Brian, of Bonte, a cafe and waffle shop on South Orange Avenue, was not granted an A.R.C. loan because she could not demonstrate financial difficulty on paper, a qualification for the loan. Instead, the business had been cutting back in other areas to avoid defaulting on other loans.

“If we had not been making our repayments, we would have been better off,” Mrs. Boele said she told an S.B.A. representative recently.

Mr. Swain encouraged business owners like this to speak with the New Jersey S.B.A. office, as options still might be available to them.

There are some who argue that market forces, not the government, should determine who stays in business. While the S.B.A. loans may be helpful, are they keeping people afloat who simply should sink?

“Small business that are barely making it should not get a loan,” said Mary Anne Spencer, from the Tenth Muse Gallery in Maplewood, who was able to use her own equity to start her business. “People are going in with no business plan, no demographic study … what are you going to give them a small business loan for?”

Ms. Spencer was concerned for those small businesses that were barely breaking even, operating under false hopes that the economy will suddenly improve, and taking on the added burden of new debt.

“People’s spending has changed, and it is going to stay that way for some time,” she said.

When this thought was posed to Mr. Swain, he said he believed that many of the businesses the S.B.A. supports have been profitable businesses that need an extra hand.

“There are a lot of good, viable small businesses who do not have access to the capital that they would have had in good economic times,” he said. Mr. Swain said S.B.A. loans were useful to businesses that were in the “maybe stack” of getting a commercial loan, and he stressed the loans were not there for businesses that are not viable.

Mr. Swain did have some good news for small business regarding the dollar amount of S.B.A. loans recently. Since February, “we have actually seen our loan volume increase 50 percent,” he said. “July was the highest months in terms of volume since last September.”
Source: NYTimes
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Finance Site Mint.com Raises $14M in New Funding

Personal finance site Mint.com has raised $14 million in its latest round of venture funding, which was led by DAG Ventures.

The Mountain View, Calif.-based startup said this week that it secured financing from The Founder's Fund, current investors Benchmark Capital, Shasta Ventures, First Round Capital and Sherpalo.
The company did not disclose its current valuation. Since its launch in September 2007, the company has raised $31 million through three rounds of funding and a seed round.

Mint said it will use the funding to hire more engineers and to speed up product upgrades and partnership launches that are planned for the next six to 12 months.

Mint, which has more than 1.4 million registered users, is also set to roll out upgraded features on its site next week. These will mostly relate to Mint.com's budgeting functions, which let users see how they spend and save their money.

Source: NYTIMES ...Read More ! ⇒