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They Are Murdering Small Business: The Percentage Of Self-Employed Americans Is At A Record Low
The percentage of Americans that are working for themselves has never been lower in the history of the United States. Once upon a time, the United States was a paradise for entrepreneurs and small businesses, but now the control freak bureaucrats that dominate our society have created a system that absolutely eviscerates them. This is very unfortunate, because by murdering small business, the bureaucrats are destroying the primary engine of job growth in this country. One of the big reasons why there are not enough jobs in America today is because small business creation is way down. As I mentioned yesterday, entrepreneurs and small businesses are being absolutely devastated by rules, regulations, red tape and by oppressive levels of taxation. If anyone doubts that small business in the United States is dying, just look at the charts below. Sadly, this is what the bureaucrats that run things want. They don’t want us to be independent of the system. Instead, they are much more comfortable when as many of us as possible are heavily dependent on the system in one way or another. If all of us have to go running to the government or to one of the big corporations for a job, then we are much easier to control. But as the control freaks continue to construct their bureaucratic utopia, they are also killing off what once made the U.S. economy so great.
The other day I came across the following two charts in an article by Charles Hugh Smith, and I was absolutely stunned by what I saw. This first chart shows that the number of unincorporated self-employed Americans has dropped back to levels that we have not seen since the mid-1980s even though our population has increased by tens of millions of people since that time…
As you can see, from 1970 to the mid-1990s the number of unincorporated self-employed Americans rose steadily. But in the mid-1990s it began to level off and now it is falling rapidly.
This next chart shows the percentage of self-employed Americans as a share of non-farm employment. In other words, those that work on farms are excluded from this chart. The percentage of self-employed Americans was fairly stable between 1970 and 1990, but since 1990 it has been steadily eroding and it has now reached a level never seen before…
At this point, only about 7 percent of non-farm workers are self-employed. That is depressingly low. That means that an overwhelming majority of those that are employed in America are working for the system in one capacity or another.
But isn’t that what we pound into the heads of our children these days? We teach them to work hard in school so that they can “get a good job” when they grow up. From a very early age we train our children to plug themselves into the system.
Not that working for someone else is wrong. Of course not. It is just that we are not fostering a spirit of entrepreneurship in America today. In fact, we seem to be doing everything that we can to kill it off.
In a previous article, I detailed how the number of new businesses (and the number of jobs those businesses create) has been steadily declining. In particular, this decline has accelerated dramatically under the Obama administration. According to an analysis of U.S. Department of Labor data performed by economist Tim Kane, the following is how the decline in the number of startup jobs per 1000 Americans breaks down by presidential administration…
Bush Sr.: 11.3
Clinton: 11.2
Bush Jr.: 10.8
Obama: 7.8
Is that a good trend or a bad trend?
It doesn’t take an advanced degree in economics to figure out where things are going.
Kane speculated about why we are witnessing such a decline in his paper…
There is anecdotal evidence that the U.S. policy environment has become inadvertently hostile to entrepreneurial employment. At the federal level, high taxes and higher uncertainty about taxes are undoubtedly inhibiting entrepreneurship, but to what degree is unknown. The dominant factor may be new regulations on labor. The passage of the Affordable Care Act is creating a sweeping alteration of the regulatory environment that directly changes how employers engage their workforces, and it will be some time until those changes are understood by employers or scholars. Separately, there has been a federal crackdown since 2009 by the Internal Revenue Service on U.S. employers that hire U.S. workers as independent contractors rather than employees, raising the question of mandatory benefits. New firms tend to use part-time and contract staffing rather than full-time employees during the startup stage. According to Labor Department data, the typical American today only takes home 70 percent of compensation as pay, while the rest is absorbed by the spiraling cost of benefits (e.g., health insurance). The dilemma for U.S. policy is that an American entrepreneur has zero tax or regulatory burden when hiring a consultant/contractor who resides abroad. But that same employer is subject to paperwork, taxation, and possible IRS harassment if employing U.S.-based contractors. Finally, there has been a steady barrier erected to entrepreneurs at the local policy level. Brink Lindsey points out in his book Human Capitalism that the rise of occupational licensing is destroying startup opportunities for poor and middle class Americans.
In my previous article, I also pointed out some of the other statistics that show that small business in America is dying…
-According to the U.S. Census Bureau, the U.S. economy lost more than 220,000 small businesses during the last recession.
-As a share of the population, the percentage of Americans that are self-employed fell by more than 20 percent between 1991 and 2010.
-As a share of the population, the percentage of “new entrepreneurs and business owners” dropped by a staggering 53 percent between 1977 and 2010.
Unfortunately, this is a crisis that has taken decades to develop and that there are not any easy solutions for. But there are certain factors that should be addressed immediately. The following are some of the things that are contributing to the murder of self-employment and small business in America…
#1 Taxes: The IRS seems to especially enjoy tormenting entrepreneurs and small businesses. In fact, things have gotten so bad that even late night talk show hosts are joking about it. Recently, NBC Tonight Show host Jay Leno joked that if Barack Obama really wanted to close down Guantanamo Bay, he should “do what he always does: declare it a small business and tax it out of existence”
#2 Ridiculous Regulations: If you have ever tried to start a small business, you probably know how frustrating it can be dealing with government red tape. In particular, the federal government has burdened our small businesses with gigantic mountains of rules and regulations and it gets worse with each passing day.
#3 State Governments That Are Openly Hostile To Business: A perfect example of this is the state of California. In 2011, the state of California ranked 50th out of all 50 states in new business creation, and yet they just continue to pass more legislation that hurts small businesses.
#4 Obamacare: Our broken healthcare system is a tremendous burden on small businesses, and Obamacare is going to make things much worse.
#5 The One World Trade Agenda: In many industries, U.S. small businesses simply cannot compete against products made by workers that are being paid slave labor wages on the other side of the globe.
#6 Predator Corporations: Time after time we have seen corporate giants extract huge tax breaks and other enormous concessions from local officials which give them an overwhelming advantage. But once the corporate giant moves into town, many of the existing small businesses find that they cannot compete and are forced to shut down.
#7 Our Corrupt Political System: On the national level, elections are almost always won by the politician that raises the most money. Our politicians know that their careers depend on raising money, so they tend to be very good to those that they get big money from. There is a reason why big corporations spend billions of dollars on campaign contributions and lobbying. They do it because it works. Over the decades, the big corporations have been able to shift the rules of the game massively in their favor, and this has been to the detriment of entrepreneurs and small businesses.
Can you think of any other factors that you would add to this list? Please feel free to share your opinion by leaving a comment below…
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Other • The Decline of Self-Employment and Small Business
The Decline of Self-Employment and Small Business
April 22, 2013
Small business is the incubator of employment. As it declines, so too do opportunities for first jobs, second chances and economic independence.
Self-employment and small business are two sides of a single economic coin: financial independence. The Bureau of Labor Statistics (BLS) counts two types of self-employed, the unincorporated and the incorporated. The unincorporated may have employees, but typically do not, i.e. they are sole proprietors. The incorporated have employees, starting with the owner, as the BLS counts the incorporated self-employed as employees of their own corporation.
I know that’s confusing, but it’s important to separate the sole proprietors from those "self-employed" incorporated businesses that have employees: law firms, doctors’ offices, accountants, etc.
When we speak of "small business," we’re referring in large part to the incorporated self-employed: people who establish corporations as the legal structure for their enterprise.
Nothing is simple when it comes to parsing all the data, of course, but the BLS has a paper that explains the basic categories: Self-employment in the United States (Bureau of Labor Statistics).
The BLS attributes the decline in unincorporated self-employment from 1950 to 1970 to the consolidation of agriculture. As agriculture became more mechanized, small farms were no longer viable and farming required less labor. As a result, many self-employed farmers and laborers became employees or moved to other sectors.
The trajectory of self-employment from 1970 to the mid-2000s tracked general economic growth, which was weak in the 1970s but began a 30-year boom in the early 1980s. Things changed in the recession, as the self-employed ranks have lost 1.6 million from the peak in 2007. The number of self-employed has fallen to early 1980s levels: (All FRED charts courtesy of frequent contributor B.C.)
This chart displays the self-employed as a share of total non-farm employment. The first chart showed a strong rise in self-employment from 1970, but this chart shows that employment rose even faster: the self-employed share of all those employed has been declining for 30 years:
We can attribute this trend to the rise of global Corporate America and government employment. The workforce expanded, and relatively more people became employees of corporations or the government than became self-employed.
It’s important to note here that the BLS does not break down the income of unincorporated self-employed: if millions of self-employed saw their net incomes slashed in the recession, the BLS still counts them as self-employed. So a consultant who earned $100,000 prior to the recession and now scrambles to net $10,000 is still self-employed.
This is the statistical equivalent of 6 million people losing full-time jobs and then 4 million of those people getting part-time jobs. Did employment truly recover most of the losses?
This chart displays total non-farm employment (blue) and the incorporated self-employed. Unsurprisingly, the rise and decline of the incorporated self-employed tracks the general economy and total employment.
But once again we have to note the limitations of the data. As B.C. observed, some of the recent rise in incorporated self-employed is the result of tax policies favoring corporations; the newly incorporated may well not have any employees, i.e. they are simply sole proprietors who incorporated for the tax benefits:
Historically, in order for incorporated self-employment to grow, it requires an increasing share of the population that is inclined to, or capable of, first becoming unincorporated self-employed. A growing share of the incorporated self-employed since the ’00s are one-person S corporations (to take advantage of favorable tax treatment) or limited partnerships (LPs) and limited liability corporations (LLCs) in real estate for pass-through purposes that hire few, if any, employees.
Consider that the US employment base is disproportionately dependent upon the viability of as few as 4% of the labor force and fewer than 2% of the population as the primary "job creators", i.e., incorporated self-employed.
After a brief increase in 2012, the self-employed as a share of total employment is falling off a cliff:
United States’ new business formation rate continues dropping steadily
Spend some time walking through Silicon Valley or New York City, and you’ll likely leave under the impression that entrepreneurship is alive and well in the United States. But spend some time wading through some of the latest census data, and you may come away with a very different impression.
This trend is reflected in the decline of small business in general:
Although many analysts claim most employment growth now comes from corporations, once again we have to look beneath the surface and ask what kind of jobs are corporations creating? More part-time fast-food positions?
Small business plays two critically important and often unrecognized roles. One, it tends to give new workers their first employment experience. The corporate human resources departments are not so forgiving–have you had your third interview yet? Only two more to go….
Two, small business tends to train workers who are then able to move up the job ladder to better paying corporate jobs, having learned the ropes at a small business. If you talk to corporate insiders, they will admit (in private) that their own job training efforts are limited: it’s faster and more productive to poach your new hires from a competitor than invest years bringing up new talent.
Corporations may point to their intern program as "job training," but this is all too often a PR facade for unpaid slave labor. How many interns learned anything remotely useful? How many end up with full-time jobs at the company? The typical answer is: very few.
Small business is the incubator of employment. As it declines, so too do opportunities for first jobs, second chances and economic independence.
http://www.oftwominds.com/blog.html
Statistics: Posted by yoda — Mon Apr 22, 2013 12:07 am
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American • Explosion at West Fertilizer Plant Grim Day for a Small Town
A Grim Day for a Small Town
Explosion at West Fertilizer Plant Registers as Magnitude 2.1 Earthquake
http://online.wsj.com/article/SB1000142 … NewsSecond
By ANN ZIMMERMAN, SHELLY BANJO and NATHAN KOPPEL
A massive explosion at a fertilizer plant here has left up to 15 people dead, a figure that may rise, said local police officials. More than 150 people have been treated for injuries. Miguel Bustillo has the latest.
Annotated Map of the Site
A massive explosion at a fertilizer plant at West Fertilizer Co. in the small north-central town of West, Texas, left between five and 15 people dead, a figure that is expected to rise.
View Graphics
Photos: Plant Explosion
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WEST, Texas—This small town just off I-35, known in central Texas as a good place to pull off the highway for Czech pastries, spent Thursday coming to grips with a landscape of flattened homes and diminishing hopes that friends and neighbors will be found alive in the aftermath of a devastating explosion.
The blast Wednesday night at a fertilizer plant here has left more than a dozen dead, and 150 injured. It destroyed a school and 75 or so homes—damaging a sizable portion of a tightknit town of 2,800 with a Czech heritage that stretches back generations.
Firefighters conduct a search-and-rescue mission on Thursday at an apartment destroyed by the explosion at the West Fertilizer Co. plant in West, Texas, on Wednesday evening. The blast followed a fire at the facility.
The majority of the dead are believed to be first responders, who had raced to the scene to try to tame a fire at the plant, not knowing the mammoth blast was coming. The explosion had the force of a 2.1 magnitude earthquake, seismologists said.
Law-enforcement officials are still sifting through the rubble in search of survivors, but none are expected, said Tommy Muska, the town’s mayor. Mr. Muska, who lost his own home on Wednesday, is a volunteer firefighter himself—as well as an insurance agent in town.
"Our town is definitely hurting," he said. His office was flooded with insurance claims.
On Thursday, Texas Gov. Rick Perry said he asked the federal government for a disaster declaration to mobilize help for the town, about 80 miles south of Dallas. Gov. Perry said he had spoken with President Barack Obama, who was on his way to Boston for a memorial service for victims of Monday’s bombing at the Boston Marathon.
The incident began with a fire at the West Fertilizer Co., a small privately owned plant on the edge of town, around 6 p.m. Wednesday. Volunteer firefighters tried to extinguish the blaze. About two hours later, a thunderous explosion ripped through the plant, sending a column of smoke hundreds of feet into the air and damaging buildings in a five-block radius.
What’s the likely cause of the massive fireball responsible for up to 15 deaths in West, Texas? What is anhydrous ammonia and how is it made? WSJ’s Jason Bellini has "The Short Answer." Image: Erick Perez via Associated Press
Texas Fertilizer Plant Explosion Caught on Video
The slender town of West stretches only 20 blocks or so along the interstate. At its widest spot, it is about 10 blocks across.
The Bureau of Alcohol, Tobacco, Firearms and Explosives said it would send investigators to determine if the fire and explosion was "accidental or criminal," spokesman George Semonick said. The U.S. Chemical Safety Board said that it was sending a "large investigation team" to the scene. State officials have set up air monitoring nearby.
Sgt. William Patrick Swanton, a Waco police spokesman who is helping out the city’s smaller neighbor, said Thursday there is no indication the blast was anything other than an industrial accident. The Texas Department of Public Safety said it could take up to six months to determine the cause of the fire.
The worst ever industrial accident in the U.S. was also caused by an explosion of ammonium nitrate, as was possibly the case here, and also took place in Texas. In that blast, in 1947, some 581 people died aboard a ship docked near Texas City.
Dan Halyburton, a spokesman for the American Red Cross who toured West, described the damage around town as unlike anything he had seen before. "It wasn’t like a tornado or hurricane. It looked more like someone had taken a grinding wheel and just chewed up walls and roofs." When people return to their homes, he said, "It’s going to be really traumatic."
Among those killed was Captain Kenny Harris of the Dallas Fire-Rescue service. He lived in West and was trying to lend a hand at the time of the explosion, the service said.
Arthur Garland, owner of a West car-restoration business, said his sons played sports with Mr. Harris’s three boys, who were considered some of the best athletes in a town that centered on baseball.
Mr. Harris was about to retire, Mr. Garland said, and had bought a boat on which he had planned to spend a lot of time.
"This is a great community and I don’t have any doubt in my mind we will pull together," Mr. Garland said. "But we lost some good people."
Other confirmed dead included five West volunteer firefighters and four volunteer emergency medical technicians, according to the mayor.
"It makes me feel very sick," said Mr. Muska.
He said the local firefighters had never specifically prepared to battle a fertilizer-plant fire. "Every town in a rural area has one," he said. "It is a ticking time bomb that went off yesterday."
The former cotton-farming community has come through hard times before, but nothing like this, residents said. The community drew Czech immigrants, who kept their heritage alive through the generations with an annual festival and a bakery that specializes in traditional pastries. On Thursday, the Czech ambassador to the U.S. was on his way to West to offer support.
For decades, the fertilizer plant in West has been a local fixture. As the town grew, homes and schools were built in closer proximity. A park is right across the street.
"It was always just there. You never thought about it," said Brian Sykora, who was raised in West.
He had just finished mowing his lawn in the evening calm when, he said, he felt a sudden whoosh of force. He looked north, he said, "and saw a huge mushroom cloud" over near his parents’ house.
Mr. Sykora and his wife leapt into their truck and drove toward the cloud. His parents and brother were standing in their front yard, unharmed, watching their neighborhood burn. The windows of their home had been blown out. Pieces of their ceiling had fallen. Nearby, the school was ablaze, its gym roof collapsed.
"It is just numbing," said Mr. Sykora.
Zak Covar, executive director of the Texas Commission on Environmental Quality, said the facility had been in West since 1962. In 2004, it was required to receive two air-emissions permits. "In 2004, they were supposed to come in and get reauthorized," Mr. Covar said. "They failed to do so, and I hate to speculate why."
In 2006, an odor complaint was received by the environmental-quality commission. When it investigated, the state learned that West Fertilizer hadn’t applied for the required permits, according to the commission. The issue was resolved when the facility applied for, and received, the permits. "The permit was the resolution," Mr. Covar said, and no fine was issued.
The difference between life and death came down to luck and timing, residents said. The mayor, Mr. Muska, was on his way to help his fellow volunteer firefighters, but wasn’t there yet when the plant exploded. His wife, Lisa, was planting flowers at church; she returned to find their house leveled.
Many residents displaced from their homes gathered in the pews at the West Church of Christ, trading escape stories and sharing details about the whereabouts of friends, family and neighbors.
"Cellphones don’t work so the only way to find out what happened to people is to ask folks around town," said Gary Parma, 50, who came to the church with his wife, Diane. The Parmas, who own Al’s Cleaners in West, were on the deck of their home when they suddenly saw the house of a neighbor two doors down go up in smoke. Clad in their polka-dot and plaid pajamas, the Parmas grabbed their dog, Boo, and fled. They said they don’t know whether their neighbors are alive or dead.
—Miguel Bustillo, Daniel Gilbert, Erica E. Phillips and Tamara Audi contributed to this article.
Write to Shelly Banjo at shelly.banjo@wsj.com, Ann Zimmerman at ann.zimmerman@wsj.com and Miguel Bustillo at miguel.bustillo@wsj.com
Statistics: Posted by DIGGER DAN — Fri Apr 19, 2013 5:35 am
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Investigative Reporters Tackle the Small Business Administration
Tad DeHaven
When it comes to reporting on the Small Business Administration, it seems to me that most journalists simply assume that if a government agency exists to “help” small businesses then it must be good. So I was pleased to read a weekend piece from two investigative journalists with the Dayton Daily News that challenges the conventional wisdom on the SBA.
As the reporters explain, the SBA’s main job is to back loans issued by private lenders to small businesses that couldn’t get financing on market terms. The result is that taxpayers end up holding the bag when these naturally riskier loans go bad.
And quite a few go bad as this Cato essay on the Small Business Administration explains.
Lenders have little skin in the game so for them it’s heads they win, tails they win. Thus it was shocking – absolutely shocking – that a representative from the SBA and the head of the Ohio Bankers Association provided the reporters with the most favorable quotes.
The entire piece is worth reading, but the authors did a particularly good job of turning the spotlight on the racket that exists between the SBA, lenders, and national franchisors:
Franchises are major consumers of SBA loans, according to the Daily News analysis — and sub sandwich franchises top the list. Subway and Quiznos franchises dominated the list of businesses borrowing the government guaranteed loans. Subway franchises took out at least 4,649 of the 7(a) loans since the beginning of 1990, the data show, while Quiznos took out 2,586.
But the battle of the sub shops went in drastically different directions, according to the loan data. While Subway borrowed more than 2,000 more loans than Quiznos, its loan failure rate was about one-fifth of Quiznos restaurants. Only 4.8 percent of Subway franchise SBA loans were charged off as of the end of February, while almost a quarter — 23.4 percent — of Quiznos franchise loans ended in failure and were discharged to the Treasury.
Quiznos also led all franchises with $43.5 million in defaulted loan guarantees that SBA had to pay the lending banks. Cold Stone Creamery was second with $29.6 million, followed by Days Inn with $16.9 million and Ramada Inn with $14.3 million.
The sub shops also dominate the nine-county Dayton region in numbers of SBA loans, but the disparity is even more stark. While Subway franchises took out more than twice as many 7(a) loans as Quiznos (35 to 16), only one Subway loan (2.9 percent) failed and was charged off compared to six (37.5 percent) of the Quiznos loans.
Nationwide, the 50 franchises that cost the SBA the most totaled more than $411 million in discharged loans.
Corporate franchisors such as Quiznos and Subway contract with individual owners to operate the business, but some corporations take a bigger share of the profits than others.
Quiznos’ cut from its operators makes it harder for them to be profitable, said Robert Purvin, chief executive officer for the American Association of Franchises and Dealers.
“My bet is lurking behind every failure there is price gouging to the franchisee,” said Purvin. “We’ve been after SBA for years to make no loans to franchisors that are bad players.”
He said the SBA is essentially subsidizing these big corporate franchisors because the loan money is often used to pay the franchise fees, royalties and sometimes payments on leases controlled by the franchisor.
What does it say about the state of American capitalism that federal policymakers think it is necessary and proper for the government to subsidize the creation of more Subway shops?
The defaults and wasted capital aside, it is a quote from the Ohio chapter of the National Federation of Independent Business that gets to the fundamental problem with government-backed lending:
“Many small business owners see this as an unnecessary program of government intrusion, of picking winners and losers,” said Roger Geiger, Ohio chapter executive director of the National Federation of Independent Business. “They most certainly wonder how equitable it is when it’s their tax dollars being used to fund what could potentially be a competing business.”
As former Sen. Scott Brown (R-MA) demonstrated a couple of years ago, the average policymaker doesn’t grasp that there are major problems with the federal government picking winners and losers in the market.
Or else they just don’t care.
The inconvenient truth is that from the SBA’s inception it has existed for politicians to show that they “care” about small businesses. For politicians who support economic policies that are destructive to businesses small and large, demonstrating support for the SBA allows them to pretend otherwise.
View full post on Cato @ Liberty
Sequestration Is a Small Victory for Budget Hawks
Christopher A. Preble
The budget battles in Washington, D.C., are far from over. President Obama’s attempt to break the stalemate by reaching across the aisle and dining with GOP members two days in a row seems more about show than substance.
The apparent lack of urgency to undo the cuts underscores what we knew all along: the world did not end under sequestration. Most of the cuts will be phased in over the next few months. The defense cuts amount to just 6.5 percent of total spending on national security (Pentagon base budget plus war costs). This is a pittance, and spending will still dwarf what we spent before 9/11. Those who claim that the cuts will undermine American security should explain how we managed to win the Cold War while spending much less, on average. (To learn more about proposals that would maintain a highly capable, but less costly, military, attend our event on March 14th.)
There is still the possibility that most of this year’s cuts, or the caps on planned spending over the next decade, may not materialize. Congress could reverse the cuts in the future as part of a grand bargain. Or they could simply punt without one. Meanwhile, legislation is moving along that would allow the Pentagon and other agencies to implement the cuts with greater discretion across department programs. This is a good thing, potentially. Smarter cuts are desirable, but we should be on the lookout to ensure that Congress doesn’t simply legislate away any cuts, dumb or otherwise.
Nonetheless, the fact that military spending actually declined is a small victory. But how will future battles play out? Are the neocons and their supporters in retreat? In a piece running today at Foreign Policy, I offer a cautionary note. Just because the fiscal hawks won this time doesn’t mean that they’ll win the next one, or the one after that:
The defense contractors and special interests still have enormous firepower in Washington, and they’ve turned their attention to the “continuing resolution” that will fund the government for the remainder of the year. Meanwhile, the neoconservatives are single-minded and relentless. Their tenacity paid off in their bid to launch a war in Iraq and depose Saddam Hussein, but failed to stop Chuck Hagel’s nomination and eventual confirmation as secretary of defense.
The budget fight matters even more. A $470 billion military is more than sufficient to fight the wars the United States truly needs to fight, but not the wars that the neocons want to fight. The next phase in the fight over the Pentagon’s budget should focus less on how much the United States spends on defense, but rather why it spends so much. If we are going to give our military less than it expected to have three or four years ago, we need to think about asking it to do less.
View full post on Cato @ Liberty
American • The Death of Small Banks in the US
The Death of Small Banks in the US
By Chris Mayer | 02/28/13
The US government is going to kill the small banking industry in the US. The irony is hard to miss. It was not the small banks that threatened the financial system in the crisis of 2008. Yet they will bear the brunt of the regulatory costs imposed in its wake. The end result will be that US banking assets will collect into the hands of even larger banks.
It is a shame. Yet the death of the lamb is the life of the wolf, as an old saying has it. In other words, it is not all bad for everybody, as I’ll explain below.
First, let me begin with a piece of anecdotal evidence from the departing CEO of Third Street Bancshares, based in Marietta, Ohio. His name is James Meagle Jr., and he had been in banking for 40 years.
A CEO leaves some company somewhere every day. That, in itself, is not news. But few CEOs depart by saying that the company he’s leaving might not survive. Citing tremendous changes in regulatory costs and compliance issues, Meagle said he “didn’t have the patience anymore.” His old bank will have to spend about $100,000 to meet new demands from regulators. For a little bank with one branch, $100,000 is a lot of money. I bet it is a big chunk of the money it makes in a year. Third Street is privately held, so we can’t know for sure.
“I don’t know how we’re going to be able to make it,” Meagle tells SNL Financial. “We can [survive], but we’re just spending so much time and energy complying with these new regulations.”
“Absolutely ludicrous,” is how he described the regulators’ level of scrutiny.
What’s this bank to do? Merge.
“We’ve been able to hold our earnings up and we’re still well capitalized,” Meagle continues “but what I see coming in the future is not pretty. We really do not want to sell, but we may have no other options.”
It’s a story I’ve heard often from banking industry executives, as well as from professional investors in the banking sector. The small banks will have to sell out to larger banks, which can spread out those costs over a larger asset base.
Some more color to the backdrop may help you focus in here. Let us consider the US banking system. What does it look like? Well, the top 20 banks hold nearly 80% of the industry’s assets today. Take a look at the nearby chart.
The question naturally arises: How big do you have to be to earn an attractive return as a banking franchise in the US of A?
It’s an unsettled question, even among industry insiders. What’s nearly certain is that the 2,490 banks on the bottom are toast. Those are the Third Street Bancshares of the world. Way too small to even make a go of it, like a 9-year-old trying to block linebacker Ray Lewis.
The next level up will probably have to sellout as well. These are the 4,000-plus banks with assets up to $1 billion. In fact, regulatory costs, as well as banks’ net profit margins (from low interest rates), put pressure on the next block up to consolidate.
Now here is the opportunity — and more irony.
For good banks, buyouts occur at premiums to book value. Yet many healthy small banks trade below book value. In fact, in a recent issue of Mayer’s Special Situations, I urged my subscribers to invest in three specific small banks. Each of them trades below book value. Each of them has plenty of capital. And my bet is that at least one of them — and maybe all of them — gets bought out at a premium to book value in the next five years.
I expect we’ll see many of the smaller banks combining over the next several years, like droplets of water forming with other droplets of water to make bigger and bigger drops of waters. As investors, you gain by owning the undervalued, small banks.
But you can also play the acquirers. Here, you want to own the healthy predators, such as Republic Bancorp (NASDAQ:RBCAA), which has picked up a couple of failed banks in the last couple of years. It is a consolidator of banks and will grow as a result of the acquisitions.
Investors benefit from consolidation because larger banks get a better multiple.
Some months ago, I spoke with John Palmer at PL Capital, an outstanding investor in bank stocks. As John explained, “The larger the bank, the better they tend to trade off of book value.” Typically, a $3 billion bank will have a higher trading multiple than a $1 billion bank. And a $1 billion bank will have a higher trading multiple than a $500 million bank. So by moving up the food chain, a bank can actually increase its trading value based on asset size.
“That’s why these companies are looking to buy other banks and get bigger,” John said. “If they can move from $1.5 billion to $3 billion and get some cost savings out of it, they are going to get a higher trading value. If they can go from $3 billion to $5 billion, they are going to get a higher trading value again.”
The unfortunate part is that the industry consolidation underway will mean the death of the small community bank. The consequence of all those new rules and regulations is that the US banking system will become even more top-heavy. Banks will get even bigger. Banking assets will concentrate in fewer hands. And while I expect there will be lots of foot-dragging and resistance from entrenched boards and management teams, I think the deals will get done. There is too much money at stake.
The eventual death of small banks ought to mean good returns over the next few years as these dynamics play out. For investors in bank stocks, the irony is profitable.
Regards,
Chris Mayer
for The Daily Reckoning
Read more: The Death of Small Banks in the US http://dailyreckoning.com/the-death-of- … z2MEFpROOs – See more at: http://dailyreckoning.com/the-death-of- … Ml59D.dpuf
http://dailyreckoning.com/the-death-of- … in-the-us/
Statistics: Posted by yoda — Thu Feb 28, 2013 2:48 pm
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Canadian • Alberta schools, small towns feel ‘pressured’ by PC
Alberta schools, small towns feel ‘pressured’ to use taxpayer money to make donations to PC party, Wildrose MLA says
Jen Gerson | Feb 1, 2013
Leah Hennel / Postmedia NewsCritics say thousands of dollars in illegal donations from towns, cities and schools to Alberta Premier Alison Redford’s party are proof of institutionalized political corruption and kickbacks.
Few examples highlight the fuzzy overlap between government and partisan politics in Alberta than an email sent out for the Progressive Conservative party by Ron Boisvert.
At the time, he was chief administrative officer of the small town of St. Paul and treasurer of the local PC constituency association.
Two years ago, a CBC investigation uncovered an email Mr. Boisvert sent to just about everybody who mattered in the town, using his municipal address. It called on recipients to join the PC party and support Alison Redford or Doug Horner in their bids to become party leader. All this in order to keep the local MLA, Ray Danyluk, in cabinet.
“It is imperative for future funding that Ray remains in a powerful position,” Mr. Boisvert wrote.
Mr. Boisvert and the town’s mayor were also found to have used municipal money to attend a PC fundraiser, just one example of taxpayer funds being used to stuff local party coffers. Many more such examples soon followed.
Local media were quickly on the case and before long, Alberta’s Chief Electoral Officer uncovered 85 cases of “prohibited corporations” cutting cheques to the long-governing party.
After a change to the law during last fall’s legislature session, Brian Fjeldheim, the electoral officer, was allowed to identify the offenders for the first time Thursday.
They include mostly small municipalities and schools, such as the towns of Whitecourt and Rimbey, and Bow Valley College. The amounts range from a few hundred dollars to a few thousand, usually to buy tickets for fundraisers, all for the PCs.
Most of the corporations received small fines and the Tories have returned more than $17,000.
The law was amended to allow for only three years worth of disclosure; the 45 cases revealed Thursday account for about half the known investigations, the rest of which stretch back as far as 2004, when the government made it illegal for taxpayer-funded entities to use taxpayer money to fund partisan politics.
Previous research by media and the opposition Wildrose Party found donations as large as $10,000 from several post-secondary educational institutions. Those donations were made before 2009 and therefore could not be disclosed under the amended law.
You’ve got the government doing this function and the party doing this function, and you’ve got to keep these two things separate
Most of the offences are for piddling amounts and many of the donations were made in apparent ignorance of the law, rather than any overt attempt to pork-barrel the system.
But critics contend they’re a clear sign of danger. Schools and small towns no longer distinguish between party and government, and municipalities feel pressured to stay on the good side of local MLAs.
“It’s a PC government, so it’s the conservatives and that’s the party, and boy, that gets kind of grey sometimes for many people,” Mr. Fjeldheim said.
“You’ve got the government doing this function and the party doing this function, and you’ve got to keep these two things separate. That gets blurred sometimes.”
During his investigations, the elections officer said he had many surprises. The party, municipalities and schools involved had been cooperative. Most didn’t seem to know they had broken any laws.
That was the case in St. Paul, said Mayor Glenn Andersen, who conceded it was wrong for Mr. Boisvert to send out the email soliciting party memberships.
“That was an error in his judgment,” he said.
Like many small towns in Alberta, municipal politicians in St. Paul aren’t full-time employees. Most have second jobs. They study the Municipal Government Act when they come into office, but most don’t have time to start picking through the Elections Act as well.
Further, Mr. Andersen saw the fundraisers as a chance to network and meet people from other communities.
“We can’t afford to hire these $80,000 people to do economic development. The councillors are economic development,” he said.
Still, St. Paul paid the fine when it discovered it had gone astray. Mr. Andersen said his town was now well-versed in the regulations and the mistake won’t be made again.
In the future, however, it’s more than just the law that has to change, said Shane Saskiw, a Wildrose MLA who now represents the riding that includes St. Paul.
“We’ve had a government in power for 41 years. They’ve established a culture where there appears to be a quid pro quo. It’s expected that you donate money to the governing party in return for influence, grants and so forth,” he said.
“There’s a huge amount of pressure on municipalities to make these types of donations to the PCs.”
http://news.nationalpost.com/2013/02/01 … berta-pcs/
Statistics: Posted by yoda — Fri Feb 01, 2013 1:17 am
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How Cash for Clunkers Hurt Both the Poor and Small Business People
I am a big fan of used cars generally. I just can’t bring myself to buy a new one given the immediate depreciation which occurs once I wave goodbye to the salesman. It’s just too painful for me. I prefer to buy my cars used.
The secondary market is also important for those who can’t afford a new car. Given that 2013 autos average over $25,000, that’s true for a good number of American families. The total amount paid of course, depending on the interest rate, is in the end a whole lot more than $25K too. The used car market is a key (but often overlooked) part of the economy, and a vital resource for millions of people.
Cash for Clunkers decimated this market because it took many functioning (and paid for) older cars off the road, while at the same time it encouraged people to take on heaps of debt in the midst of the worst recession in 70 years.
Sadly this brilliant scheme didn’t work so well and many people who bought new cars could not actually afford them. To boot, the good used vehicles which remained in the market rose significantly in cost. Many Americans found themselves with a repo man in their driveway and suddenly priced out of a once affordable market.
I suppose if people wait it out enough repossessions will hit the street eventually that used car prices will again edge down. But it sure seems like a lot of pain to get nowhere, and way too much time on the bus.
(From TriCities.com)
First, the program destroyed approximately 750,000 working vehicles. They were crushed and sold for scrap metal, primarily to China. This created a severe shortage of affordable, reliable cars for folks like my customers who cannot afford newer, expensive cars. For independent dealers like me, the availability of used cars to resell diminished drastically, while prices skyrocketed.
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Big Business CEOs Say – Raise Taxes On Small Businesses and Individuals to Avert the “Fiscal Cliff.”
Easy for you to say Mr. CEO.
Yesterday, I wrote about General Electric’s chief Jeff Imelt and his assertion that “state run communism…works.” Now we learn that at a closed door meeting with the president last week the Business Roundtable blessed the idea of raising taxes on small business and individuals. Anything to keep this president happy it appears. It makes one wonder what business schools these guys went to. Remember free enterprise guys? Perhaps, many of them would prefer to forget it. Mr. Imelt has.
The National Federation of Independent Businesses had something to say about the Business Roundtable’s revenue raising idea-
“It’s unfortunate that some business leaders are so cavalier in asking the government to raise taxes on someone else — namely, on small business — while protecting corporate profits and Wall Street,”
And the NFIB is right. That is exactly what is going on.
This administration would rather deal with a small number of large businesses which it can corral and compel, than the large number of small businesses which have traditionally been the engine of the American economy. Big business is comparatively easy to co-opt with regs, reg forgiveness and subsidies. Small business, on the other hand, is much scrappier and much harder to control. So, big business and this administration increasingly play ball with one another. Small business is marginalized for the benefit of both the president and big business.
But this is what happens when crony capitalism becomes more and more entrenched. Big businesses stop being businesses and start becoming semi-political entities.
The post Big Business CEOs Say – Raise Taxes On Small Businesses and Individuals to Avert the “Fiscal Cliff.” appeared first on AgainstCronyCapitalism.org.
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Business • We Are Witnessing The Death Of Small Business In America
We Are Witnessing The Death Of Small Business In America
By Michael, on December 13th, 2012
Historically, small businesses have been the primary engine of new job creation in the United States. If the economy was getting healthy, we would expect to see the number of jobs at new businesses rise. Instead, we are witnessing just the opposite. We are told that the economy is supposed to be "recovering", but the number of "startup jobs" at new businesses has fallen for five years in a row. According to an analysis of U.S. Department of Labor data performed by economist Tim Kane, there were almost 12 startup jobs per 1000 Americans back in the year 2006. By 2011, that figure had fallen to less than 8 startup jobs per 1000 Americans. According to Kane, the number of jobs in the United States at businesses that are less than one year old has fallen from 4.1 million in 1994 to 2.5 million in 2010. Overall, the number of "new entrepreneurs and business owners" has fallen by more than 50 percent as a percentage of the population since 1977. The United States was once known as "the land of opportunity", but now that is fundamentally changing. At this point we truly do have a "crisis of entrepreneurship" in this country, and that is a huge reason why America is in decline. We are witnessing the slow death of the small business in America, and that is incredibly bad news for all of us.
Unfortunately, the problems that small businesses are experiencing right now have been building up for decades. The economic environment for small businesses in America has become incredibly toxic. Sadly, we can see this in the numbers. According to Kane, the following is how the decline in the number of startup jobs per 1000 Americans breaks down by presidential administration…
Bush Sr.: 11.3
Clinton: 11.2
Bush Jr.: 10.8
Obama: 7.8
Obviously, we are headed very much in the wrong direction. Kane speculates about why this may be happening in his paper…
There is anecdotal evidence that the U.S. policy environment has become inadvertently hostile to entrepreneurial employment. At the federal level, high taxes and higher uncertainty about taxes are undoubtedly inhibiting entrepreneurship, but to what degree is unknown. The dominant factor may be new regulations on labor. The passage of the Affordable Care Act is creating a sweeping alteration of the regulatory environment that directly changes how employers engage their workforces, and it will be some time until those changes are understood by employers or scholars. Separately, there has been a federal crackdown since 2009 by the Internal Revenue Service on U.S. employers that hire U.S. workers as independent contractors rather than employees, raising the question of mandatory benefits. New firms tend to use part-time and contract staffing rather than full-time employees during the startup stage. According to Labor Department data, the typical American today only takes home 70 percent of compensation as pay, while the rest is absorbed by the spiraling cost of benefits (e.g., health insurance). The dilemma for U.S. policy is that an American entrepreneur has zero tax or regulatory burden when hiring a consultant/contractor who resides abroad. But that same employer is subject to paperwork, taxation, and possible IRS harassment if employing U.S.-based contractors. Finally, there has been a steady barrier erected to entrepreneurs at the local policy level. Brink Lindsey points out in his book Human Capitalism that the rise of occupational licensing is destroying startup opportunities for poor and middle class Americans.
Kane raises some very good points in his analysis. Without a doubt, small businesses in the United States are being taxed into oblivion. If you doubt this, just read this article.
And the regulatory environment for small businesses is more suffocating than it has ever been before. Unfortunately, our politicians never seem to learn that lesson. During his first term, Obama piled on mountains of new regulations, and now that he has won a second term he is preparing to unleash another massive wave of new regulations.
But many times the worst offenders are politicians on the state and local level. There are some areas of the country (such as California) that have created absolutely nightmarish conditions for small businesses. California had the worst "small business failure rate" in the country in 2010. It was 69 percent higher than the national average. And in 2011, the state of California ranked 50th out of all 50 states in new business creation.
Yet the politicians in California just continue to pile on even more regulations and even more taxes.
Sadly, this kind of thing is happening from coast to coast and it is killing off hordes of small businesses. Just consider the following statistics…
-According to the U.S. Census Bureau, the U.S. economy lost more than 220,000 small businesses during the last recession.
-As a share of the population, the percentage of Americans that are self-employed fell by more than 20 percent between 1991 and 2010.
-As a share of the population, the percentage of "new entrepreneurs and business owners" dropped by a staggering 53 percent between 1977 and 2010.
-The average pay for self-employed Americans declined by $3,721 between 2006 and 2010.
So what needs to be done?
Well, first of all, the tax burden and the regulatory burden on small businesses both need to be greatly reduced.
Secondly, the balance of power in our nation needs to be dramatically shifted. Conservatives run around talking about the need to reduce the power of government and liberals run around talking about the need to reduce the power of corporations, and actually both of them are right.
Our founding fathers intended to establish a Republic where power would never be concentrated in the hands of just a few. That is why they tried to strictly limit the power of the federal government in the U.S. Constitution, and that is why they greatly restricted the size and scope of corporations in early America. For much more on this, please see this article: "Corporatism Is Not Capitalism: 7 Things About The Monolithic Predator Corporations That Dominate Our Economy That Every American Should Know".
Our founding fathers wanted to empower individual citizens and small businesses. They never intended for us to have a system where big government and big corporations dominate everything and crush the "little guy" at every opportunity.
Even as we witness the death of the small business in America, corporations are absolutely thriving. The following chart shows how corporate profits after tax have exploded to new record highs in recent years…
So has this been good for workers? No, it has not translated into more jobs and higher wages. In fact, wages and salaries as a percentage of GDP are now at an all-time low…
That is why it is imperative that we change "the rules of the game" so that the balance of power is shifted back in the direction of individual citizens and small businesses. We desperately need to turn back to the principles that this nation was founded upon.
If nothing is done, these trends are going to get even worse. Barack Obama certainly has no plans to reduce the size and the power of the government. Since he was elected, an average of 101 new federal employees have been added to the government payroll every single day…
In the 1,420 days since he took the oath of office, the federal government has daily hired on average 101 new employees. Every day. Seven days a week. All 202 weeks. That makes 143,000 more federal workers than when Obama talked forever on that cold day in January of 2009.
And if nothing is done, the monolithic predator corporations that dominate our economy will just get even larger and even more powerful. Meanwhile, hundreds of thousands more small businesses will close up shop all over the country.
Unfortunately, most Americans seem totally apathetic about these issues. They seem content to wear "meggings", watch "Honey Boo Boo" on television and let our government and corporate overlords run everything. Most of them have even been brainwashed into believing that this is the American way of doing things.
So where do we go from here?
Well, this nation will probably continue to keep doing the same things that it has been doing, and it will continue to get the same results.
The death of small business in America is happening right in front of our eyes, and everybody can see it happening, but very few people are doing anything to stop it.
http://theeconomiccollapseblog.com/arch … in-america
Statistics: Posted by yoda — Thu Dec 13, 2012 11:05 pm
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