By Charles Kramer
It may not seem like it. We all know people who are out of work and still struggling a bit. Many of us have clients who are continually complaining that banks won’t lend money, despite overflowing reserves. Yet, the bottom line is that the bad times are behind us and America has emerged from the ashes of our own hellfire.
As the dawn of 2011 approaches, it is time for the average American to stop listening to the rhetoric of the politicians whose careers depend on convincing us that things are awry. It is time that we stop standing around wishing that partisanship would end and our elected officials would work together. The time for waiting for others to put the final touches on the recovery is past. It is time for Americans, all of us, to look around, take the time to understand some basic economics, and take the steps necessary, ourselves, to get the final job done. Those steps will be taken by others, for themselves, in 2011. Do you want to be left behind?
Politicians harp on unemployment numbers. For those who are out of work, the day to day struggle continues. However, from a nationwide perspective, the focus on the woes of the unemployed is misleading. The unbiased economist knows that unemployment is one of the LAST, not one of the first, problems to appear solved in a national recovery. It is a so-called lagging indicator. Businesses thrive in the months before they finally start expanding workforces and hiring more, because current employees stretch their hours, work harder, and increase “productivity” – output per worker. The economy booms before unemployment drops.
It is true that bank’s with available funds appear unwilling to make loans today, that they would have made as recently as five or even ten years ago. They are not willing to lend based on “market value” of property, and rather look to liquidation appraisal values in determining whether proposed collateral will support a loan. They are also not willing to lend to businesses based on an idea, rather than a proven revenue track record or other solid indications that advances can be repaid regardless of whether the new idea succeeds. However, this only means we are not “back” to where we were during the days that credit extension was getting out of hand, but are rather “back” to where we were before the runaway lending practices that got us into the mess in the first place. In other words, we are back to lending practices of twenty to thirty years ago.
This is not good news for the young family or to the business owner who has become used to depening on a loan that was always rolled over and never paid back. Young families can now only purchase a home when they have been able to save up a 20 percent down payment. New businesses have to have investor capital before bank financing. Existing businesses may have to invest additional capital as a condition of refinancing a longtime loan. These changes make life much more difficult for the individual borrower, but they are a sign of a more stable economy and a sign that people, as a whole, are doing better. If newer loans go bad, collateral will support them. We are where we should be. New banking practices are not the sign of a failed or delayed recovery, but rather of a return to more stable financing practices.
Understanding the “new rules” leads to the realization that money is available for loans today. It is just necessary for borrowers to have 20% or 25% of their own money in the project. A venture’s revenues must demonstrate an ability to make monthly payments. Is this really a sign of bank conservatism, or merely a return to rationality?
It is time for the man and woman in the street to strive to view the world objectively, and to search for and embrace the positive and the upside and recovery. When people accept the new paradigm, regain their confidence that they can prosper in this new “retro” financial world, investment will continue, money will flow, and we will all prosper.
So, what is the role of the attorney in 2011? Although many of us are business advisors, we advise on legalities and not on risk analysis or consumer confidence. It is not our role to challenge politicians’ rhetoric or to urge clients to hire more people. Or is it?
Back in the days when attorney was a profession, and much more than a career or a job, the town lawyer was a leader. He or she was an advisor. Have we drifted so far from that role that it is no longer appropriate for us to encourage people to live their lives and conduct their businesses with the confidence that is needed? In private and public dialogue, attorneys can, and should, support the fact of recovery, rather than attempt to shroud it in misdirection or darkness. Within our practices, we can respond to our client who complains about the nonlending bank by agreeing to help raise the 25% of seed money necessary to secure financing for ventures. We can work with our clients to find ways to structure expanded work forces and to put an end to overworking existing employees As both lawyers and leaders, we can reach out to clients and offer to help them evaluate, assess, and plan for 2011, to help them look for the positive aspects and capitalize on them
America not only was great once upon a time, it is great today. Don’t let China or India take that from us. America, in 2011 can, and should, lead the world in showing, once again, how things are done. 2009 and 2010 are gone. It is time to bury them.
2011 is a new day. It is a new dawn. We ARE emerging from the ashes, and we must seize our opportunities and create our own destiny. Do not stay home or in your offices waiting for prosperity to return and find you. Go out and meet it half way. 2011 WILL BE A HAPPY NEW YEAR. 2011 WILL BE A PROSPEROUS NEW YEAR. The only question is whether you will be in the game or on the sidelines.
© 2010 under analysis llc. Under analysis is a syndicated column of the Levison Group. Charles S Kramer is a principal of the St Louis Missouri based law firm Riezman Berger, PC. Comments or criticisms about this column may be sent to the Levison group c/o this paper or directly to comments@levisongroup.com
