April 25, 2009
Is he just selling Gold as means of portfolio mix, or is he on to something?
“Withholding SBIR funds from firms that accept venture capital penalizes a whole class of small businesses that are doing promising work and contributing to our economic recovery.” – Chairwoman, Nydia M. Velázquez – Committee on Small Business
(WASHINGTON, D.C.) -The nation’s economic recovery and a resumption of steady job growth will require continued advances in technology and innovation, Members of Congress heard today during a House Small Business Committee hearing. As the nation continues struggling with economic recession, entrepreneurs and representatives from government agencies described how small firms are engaged in the scientific research that can create new products and spur job growth.
“Small businesses continue to be leaders in innovation and the development of new products,” said Committee Chairwoman Nydia M. Velázquez (D-NY). “We need to promote policies that support this kind of growth and development, so that small firms keep generating the new ideas that create new jobs.”
As one of the programs that has been central to small business’ participation in the high-tech field, much of Wednesday’s hearing focused on needed changes to the Small Business Innovation Research (SBIR) program. Coordinated by the Small Business Administration (SBA), the Small Business Innovation Research program ensures that a small percentage of federal agencies’ research budgets, about 2.5%, is reserved for contracts or grants to small firms. Witnesses at today’s hearing said SBIR programs in eleven federal agencies have generated more than 84,000 patents and millions of jobs. Federal officials testifying before the Committee credited the program with advances in state of the art lithium ion batteries for hybrid engine technology, life-saving therapies and drugs, and game-changing defense systems like predatory drones, which have been utilized in both Iraq and Afghanistan.
“Over the past twenty years, the SBIR has helped spur new ideas, supported innovation and fostered small business growth,” said Velázquez. “Even with this success, the SBIR is not keeping pace with many of our most promising entrepreneurs and the program will need to be modernized to maximize its job creating potential.”
During the hearing, Members of Congress and witnesses touched on a number of ways to improve the SBIR program. Part of the discussion focused on the need to ensure that more recipients of SBIR funding produce technological advances that are commercialized and brought to market. In addition, given the difficulty that small firms and businesses encounter in acquiring capital, the hearing explored what role venture capital should be allowed to play for SBIR funding recipients.
“In this economic climate, small firms need all the help they can get raising capital,” said Velázquez. “Withholding SBIR funds from firms that accept venture capital penalizes a whole class of small businesses that are doing promising work and contributing to our economic recovery.”
Eight years have passed since the SBIR initiative was reauthorized by Congress and, although the House Small Business Committee passed legislation in the previous Congress to modernize SBIR, the Senate did not pass the bill. In March, Congress temporarily extended SBIR until the end of July.
# # #
Update: Friday April 24, 2009
Current detail statistics and formal report from the FTA will be posted regarding this story within 30 days; further analysis will follow. However, current information indicates that, over the last 10 years an average of less than 1% of Prime Contracting opportunities have been awarded to Black-Male owned businesses located and registered in the Houston Metropolitan area.
###
Thursday, 04/23/2009
Please contact us if you are, or know of, Houston-Based, Black Male-Owned business’ that have UNSUCCESSFULLY attempted to obtain a PRIME CONTRACT with Houston METRO. There is an opportunity to get you a direct audience with Executive Management.
Houston METRO President, Frank Wilson, stated at the Board meeting today that “”METRO” has a proud record of issuing Prime-Contracts to Black-Male owned businesses”. However, the numbers we have obtained from the FTA and other internal sources state otherwise. We are calling him on his statement!
This is an enormous opportunity for you, if you fall into this demographic.
Said Congresswoman Jackson Lee – “Right now, we face one of the biggest recessions our nation has seen since the depression and it pains me to see Houston METRO hindering job creation by not working with Houstonians and small local contractors on many of its initiatives. Now is the time to face our economic hardships head on and hold Houston METRO accountable for job creation and small business opportunity in Houston.”
8-PAC Political Action Committee
202.470.3257
BACKGROUND: The following is an exchange that the 8-PAC Editor had on another Blog. The context is the controversy over race-based criteria being used in the award of local contracts:
Blogger (Tx B’s) wrote - “To award any contract based on someone’s race should be illegal, just as it MUST be illegal if someone is denied a contract based on their race.
I would like to hear an explanation of why you should get a contract over me, both our qualifications being equal, because you’re a minority. And don’t use that old in the past minorities were denied those contracts. Yes I admit that happened, but this is not the past and YOU were not the person effected.”
8-PAC Editor RESPONSE:
I would like to pose a rhetorical response to your question with the following; presuming you are a white-male owned firm; “Why should you continue to get contracts over me, both our qualifications being equal, simply because you have the luxury of institutionalized favoritism on your side”? And don’t use that old “I am a good ole’ boy” and we once had a monopoly on opportunities in the grand ole south. Yes I admit that happened, but this is not the past and YOU were not the good ole’ boy who benefited.
I hope you see how this sword cuts both ways.
Yet, you and I both know that despite this being a different time and space, there is a residual effect of yesterday; just like when you turn on the gas without a flame – wait a minute, and turn it off… you still smell the gas for an extended period even though you can’t see it.
I have had too many of white-male colleagues tell me that they know the game, how to benefit from the gas having been turned on – the ethers soaked into the fabric of society and the confidence of it being invisible and virtually undetectable… except the faint smell. You know what it is…
Tx Bs, I am a proud capitalist, and would like nothing better than to compete with you mono e mono; however, you and I both know that you don’t really want that. If by chance you REALLY do, then rally with me to get more minority firms into your good ole’ boy group, come team with me on the projects that you get by virtue of your legacy connections to rural Texas – and don’t just share your veggies, give me some meat! I will reciprocate and we can all eat.
But, let’s not insult each others’ intelligence by acting like we don’t smell gas in the room… you know what it is.
- Rudy Sutherland | Entrepreneur & Small Business Evangelist
###
Q: What are your thoughts regarding “Race-based Criteria”?
Question posted in the 8-PAC Small Business Discussion Group on LinkedIn:
Q: Our firm is in the IT service field and has recently received 8(a) certification. Could anyone offer some advice on how we should identify federal agencies and best practices in sales and marketing?
A: You are in business to make money and not waste time. The following three points are vital to meeting the success imperative:
MARKET RESEARCH
My suggestion is that you first develop a market research strategy to determine a first and second tier of agencies that may use your product suite. You can perform this by creating a profile in FedBizOpps @ www.fbo.gov. Another outstanding source for this exercise is FPDS: https://www.fpds.gov/. What you want to do is search the archives for historical agency purchases of your product suite. IMPORTANT: READ THE INSTRUCTION ON HOW TO USE BOTH SITES!!!! The 1st tier are direct fits, while the 2nd tier are indirect fits. This exercise will help you capacity plan your forward curve of opportunity with the agencies, and also give you direction for your annual business plan submission to the SBA; a requirement of the 8(a) program.
TEAMING
The greatest challenge you will face is being responsive to opportunities that are not in your immediate geography. This challenge is easily surmounted by increasing your logistical capacity footprint through teaming. You can find detailed capability profiles and database querying capability in the Dynamic Small Business Search @ http://web.sba.gov/pro-net/search/dsp_dsbs.cfm .
KNOW THE Federal Acquisition Regulation (FAR)
You wouldn’t play Monopoly without knowing the rules of engagement, would you? Well, the same applies to the game of government procurement. The government “playbook” can be found, in search-able form, @ http://www.arnet.gov/far/. The FAR, in my opinion, is the MVP of information sources in the government space. The reasons will become apparent as you immerse yourself in the “game”.
FINAL NOTES
To stick with my hyperbole, government procurement is a “Contact Sport”, make sure you don’t go into the deep water unless you are primed to swim with the sharks. Until then, stay near the coastline while you refine your chops.
Click here to Join the 8-PAC Small Business Discussion Group
- Rudy Sutherland, the 8-PAC Editor
8(a) Certified Entrepreneur & Small Business Evangelist
NOTICE: Seeking Architect-Engineer, Construction, Consultant, And Other Professional Services
NOTICE: ALJUCAR LLC & Co., a management, engineering & construction logistics consortium, is currently pursing several prime contractor opportunities being solicited by the Federal Government throughout the Continental US.
In accordance with FAR in Subpart 9.6, and in review of these instruments, there is an URGENT need for us to identify qualified subcontractors in different areas of the country to perform additional services and increase our capability capacity in the following areas:
- Architect-Engineer, Construction, Consultant, and Other Professional Services
If your firm has interest, please provide the following:
- Complete Standard Forms (SF) 330
EMAIL COMPLETED SF 330s TO: info@aljucar.com or FAX BACK TO: 713.589.6826
QUALITY FIRMS, WITH SOLID PAST PERFORMANCE, NEED ONLY SUBMIT.
If you have any questions, please contact Rudy Sutherland @ 281.841.8444 or via e-mail @ rudy.sutherland@aljucar.com .
“A major new high-speed rail line will generate many thousands of construction jobs over several years, as well as permanent jobs for rail employees and increased economic activity in the destinations these trains serve. High-speed rail is long-overdue, and this plan lets American travelers know that they are not doomed to a future of long lines at the airports or jammed cars on the highways.” – President Obama
(Washington Post) Declaring that America should “make no little plans,” President Obama declared his intention to build a nationwide system of high-speed rail lines in some of the country’s most populated corridors.
Speaking at the Old Executive Office Building before a trip to Mexico and Trinidad this morning, Obama said there is no reason why the most modern transportation systems should be built in other countries.
The declaration of support for rail did not include any new proposals or money. Rather, it was a restatement of the initiative he launched in the past several months.
The stimulus package that Obama pushed through Congress includes $8 billion that the president said will be doled out to the most deserving projects. He has requested another $5 billion in his budget.
Obama said that the money would be used for two things: to improve existing rail lines so that trains on them could go 100 mph or faster; and to identify and construct new rail lines in major corridors.
Among those, according to a fact sheet put out by the White House are the following:
- – California Corridor (Bay Area, Sacramento, Los Angeles, San Diego)
- – Pacific Northwest Corridor (Eugene, Portland, Tacoma, Seattle, Vancouver BC)
- – South Central Corridor (Tulsa, Oklahoma City, Dallas/Fort Worth, Austin, San Antonio, Little Rock)
- – Gulf Coast Corridor (Houston, New Orleans, Mobile, Birmingham, Atlanta)
- – Chicago Hub Network (Chicago, Milwaukee, Twin Cities, St. Louis, Kansas City, Detroit, Toledo, Cleveland, Columbus, Cincinnati, Indianapolis, Louisville)
- – Florida Corridor (Orlando, Tampa, Miami)
- – Southeast Corridor (Washington, Richmond, Raleigh, Charlotte, Atlanta, Macon, Columbia, Savannah, Jacksonville)
- – Keystone Corridor (Philadelphia, Harrisburg, Pittsburgh)
- – Empire Corridor (New York City, Albany, Buffalo)
- –Northern New England Corridor (Boston, Montreal, Portland, Springfield, New Haven, Albany)
The fact sheet also suggests that upgrades and improvements are needed in the Northeast Corridor, including “Washington, Baltimore, Wilmington, Philadelphia, Newark, New York City, New Haven, Providence, Boston.”
In his remarks this morning, Obama confronted critics who say the plans are too expensive, don’t go far enough, or will shift resources away from the roads and airports.
He dismissed all those concerns. He said the money is needed now to put people to work and will serve as an investment for later years. He acknowledged that more money will be needed but said the billions committed now are a down-payment to get the program started. And he noted that there are billions more in the stimulus package for road and airport improvement.
OVERSIGHT PLAN OF THE COMMITTEE ON SMALL BUSINESS FOR THE ONE HUNDRED ELEVENTH CONGRESS
FROM THE DESK OF THE 8-PAC EDITOR: We here at the 8-PAC subscribe the adage, “If you can’t measure it, you can’t manage it“; this includes the congressional committees who proclaim to support the interests of the small business community of the US. Therefore, in the spirit of accountability; please find below for your download the “OVERSIGHT PLAN OF THE COMMITTEE ON SMALL BUSINESS FOR THE ONE HUNDRED ELEVENTH CONGRESS”.
As summarized in the document: “Clause 2(d)(1) of rule X of the Rules of the House of Representatives for the 111th Congress requires each standing committee, not later than February 15th of the first session to adopt an oversight plan for the 111th Congress. The oversight plan must be submitted simultaneously to the Committee on Oversight and Government Reform and the Committee on House Administration.”
Download: 111th Small Business Subcommittee Oversight Plan
We will track the progress of this plan over the 2009 annum; and grade the areas in which the Committee and its subcommittees conduct oversight during this Congress.
SBA Announces Senior Level Appointments Following Administrator Mills’ Confirmation by Senate
(WASHINGTON) – The U.S. Small Business Administration has announced the appointment of several members of the leadership and management team of Administrator Karen G. Mills, who was confirmed unanimously by the U.S. Senate on April 3.
“Small businesses are one of the key drivers of economic recovery, and the SBA has a vital role to play in helping them have access to the capital and resources they need to survive and prosper in these tough economic times,” Mills said. “I am thrilled to be working alongside a team of talented and dedicated public servants, who are committed to the mission of the SBA and to ensuring that this agency is the partner small businesses need at this critical time.”
Recently appointed members of the team include:
Meaghan Burdick is SBA’s White House liaison. Burdick was director of direct marketing for the Obama campaign, responsible for leading the daily operations and strategy for the campaign’s grassroots fundraising efforts, and later for the Presidential Inauguration Committee. Prior to working on the Obama campaign she spent many years working on grassroots marketing and online services at various Democratic committees and organizations.
Christopher Chan will serve as special assistant to the Administrator and scheduler. Chan is a former intern on Capitol Hill for Rep. Barney Frank, for the State Street Corporation, for the Democratic Senatorial Campaign Committee, and in Britain for the Co-operative Party. He worked as a scheduler for the CEO of the Democratic National Convention Committee 2008.
Darryl K. Hairston will serve as associate administrator of the Office of Management and Administration. Hairston has been and remains a career SBA employee since 1978 and was serving as acting SBA administrator prior to Ms. Mills’ confirmation. Hairston held several senior level positions in SBA including: district director of SBA’s Washington, D.C. District Office; deputy associate administrator for Investment; deputy associate deputy administrator for Government Contracting and Business Development; and more recently, acting associate administrator of Management and Administration.
Subash S. Iyer is special assistant to the Administrator. Iyer was a business analyst for McKinsey & Company, N.Y., where he worked with Fortune 500 clients to define strategies and improve operations.
Joseph G. Jordan is associate administrator of Government Contracting and Business Development. Prior to joining SBA, Jordan was an engagement manager with McKinsey & Company, a major consulting firm, where he specialized in developing purchasing and supply management strategies for businesses. He also was in the company’s public sector practice advising state governments on purchasing practices. Before entering the financial world, Jordan was an associate producer on the MSNBC news program “Hardball with Chris Matthews.”
Ginger E. Lew is the counselor to the Administrator and liaison to the National Economic Council. Lew served as COO and deputy administrator of the SBA during the Clinton Administration and was general counsel at the Department of Commerce. Lew also has had a distinguished career in law, finance and international business. She was CEO of Three Oaks Investments LLC, a private fund also specializing in management and investment consulting services to growth and emerging companies. Before that, Lew was COO, CEO and general partner with Telecommunications Development Fund, a venture capital fund making investments in early stage communications companies.
Sara D. Lipscomb is SBA’s general counsel. Lipscomb was a legal consultant to middle-market corporations and private equity firms fostering best practices in the legal, regulatory and risk management arenas. Earlier, she was senior vice president and general counsel of the Audax Group, an alternative asset investment firm, and she was counsel to the chair, and assistant general counsel at the Commodity Futures Trading Commission. She held a similar position before that at the Securities and Exchange Commission.
Ana M. Ma is the Administrator’s chief of staff. Ma has served as chief of staff to U.S. Rep. Raul Grijalva. She also served in the U.S. Department of Labor as a legislative assistant, as special assistant to the assistant secretary in the Office of Congressional and Intergovernmental Affairs, and as deputy chief of staff in the Employment and Training Administration.
Toby J.G. McGrath is associate administrator for the Office of Field Operations. Before he led President Obama’s state campaign effort in Maine, McGrath held a number of staff positions in the statehouse in Augusta, including caucus director for the House Democratic Campaign Committee and chief of staff in the Office of the House Majority Leader and the Office of the Speaker of the House.
Kimberly A. Peyser is the confidential assistant to the Administrator. Peyser worked for the Democratic National Convention Committee in 2008, and last fall for President Obama’s Campaign for Change in Virginia.
Penny K. Pickett is senior adviser to the Administrator, and acting associate administrator for the Office of Entrepreneurial Development. A former adviser to the deputy administrator of SBA in the Clinton administration, Pickett has worked as business director for the Telecommunications Development Fund and, since 2004, as president of the Washington, D.C., Technology Council.
Jonathan L. Swain is assistant administrator for Communications and Public Liaison. Prior to working as President Obama’s campaign communications director in Indiana, Swain served as press secretary to U.S. Sen. Evan Bayh and press secretary to Indiana Gov. Joe Kernan. He was also communications director for the consumer advocacy service Angie’s List and communications director for the Alliance for American Manufacturing.
Eric R. Zarnikow is associate administrator for capital access. Previously, Zarnikow held the same position in the Bush Administration, responsible for the management and oversight of SBA’s principal lending, international trade, surety bond and venture capital programs. He has more than 25 years of private sector business experience. Since 1994, he has held a number of executive positions at The ServiceMaster Company, including senior vice president, chief risk officer and treasurer.
NOTE FROM THE 8-PAC EDITOR: Small Business owners should make note of these individuals and the Executive roles that they will play in the SBA.
Federal Reserve Chairman Ben Bernanke gave a speech Tuesday afternoon at Morehouse College in Atlanta, telling the audience he is “fundamentally optimistic” about the economy and explained the Fed’s actions to ease the ongoing economic turmoil. His complete prepared remarks follow:
Chairman Ben S. Bernanke
At the Morehouse College, Atlanta, Georgia
April 14, 2009
Four Questions about the Financial Crisis
I am pleased to have the privilege of speaking today to the students and faculty of Morehouse College, the only all-male historically black institution of higher learning in the United States. It is sufficient to note that Martin Luther King, Jr., was a graduate of Morehouse. Yet a roster of distinguished alumni that also includes former Atlanta Mayor Maynard Jackson, former U.S. Surgeon General David Satcher, and filmmaker Spike Lee testifies to the success of your stated mission of “producing academically superior, morally conscious leaders for the conditions and issues of today.”
My remarks today will focus on the ongoing turmoil in financial markets and its consequence, the global economic recession. The financial crisis, the worst since the Great Depression, has severely affected the cost and availability of credit to both households and businesses. Credit is the lifeblood of market economies, and the damage to our economy resulting from the constraints on the flow of credit has already been extensive. With recent job losses exceeding half a million per month, this year’s college graduates are facing the toughest labor market in 25 years. In the communities in which you and I grew up, many families are trying to cope with lost employment and depleted savings or are facing foreclosure on their homes. Firms have shut factories and canceled construction projects. States and municipalities are scrambling to find the funding to provide critical services. And although we naturally tend to be most aware of conditions in the United States, we should not overlook the impact that the crisis is having virtually everywhere in the world, particularly on many citizens of countries that struggle economically even when the global economy is doing well.
In the midst of all of these concerns, many Americans have recently celebrated Easter or Passover. As you may know, a highlight of the traditional Passover meal occurs when the youngest child asks four questions, the answers to which tell the history of the Jews when they were slaves in Egypt and during their exodus to the Promised Land. In the spirit of the holiday, today I will pose and answer four important questions about the financial crisis. Of course, my answers will have to be brief, but we will have more time for additional questions at the conclusion of my prepared remarks.
The first question I would like to address is: How did we get here? What caused our financial and economic system to break down to the extent it has? Not surprisingly, the answer to this question is complex, and experts disagree on how much weight to give various explanations. In my view, however, to tell the story fully — and, in particular, to understand its international scope — we need to consider how global patterns of saving and investment have evolved over the past decade or more, and how those changes affected credit markets in the United States and some other countries.
It the most basic level, the role of banks and other financial institutions is to take the savings generated by households and businesses and put them to use by making loans and investments. For example, financial institutions use the funds they receive from savers to provide loans that help families buy homes or allow businesses to finance inventories and payrolls. Financial markets, such as the stock and bond markets, perform a similar function, as when a firm raises funds for a new factory by selling a bond directly to investors. When the financial system is working as it should, it allocates funds both prudently (that is, with proper attention to risk) and efficiently (to the most productive uses).
Importantly, in our global financial system, saving need not be generated in the country in which it is put to work but can come from foreign as well as domestic sources. In the past 10 to 15 years, the United States and some other industrial countries have been the recipients of a great deal of foreign saving. Much of this foreign saving came from fast-growing emerging market countries in Asia and other places where consumption has lagged behind rising incomes, as well as from oil-exporting nations that could not profitably invest all their revenue at home and thus looked abroad for investment opportunities. Indeed, the net inflow of foreign saving to the United States, which was about 1.5 percent of our national output in 1995, reached about 6 percent of national output in 2006, an amount equal to about $825 billion in today’s dollars.
Saving inflows from abroad can be beneficial if the country that receives those inflows invests them well. Unfortunately, that was not always the case in the United States and some other countries. Financial institutions reacted to the surplus of available funds by competing aggressively for borrowers, and, in the years leading up to the crisis, credit to both households and businesses became relatively cheap and easy to obtain. One important consequence was a housing boom in the United States, a boom that was fueled in large part by a rapid expansion of mortgage lending. Unfortunately, much of this lending was poorly done, involving, for example, little or no down payment by the borrower or insufficient consideration by the lender of the borrower’s ability to make the monthly payments. Lenders may have become careless because they, like many people at the time, expected that house prices would continue to rise — thereby allowing borrowers to build up equity in their homes — and that credit would remain easily available, so that borrowers would be able to refinance if necessary. Regulators did not do enough to prevent poor lending, in part because many of the worst loans were made by firms subject to little or no federal regulation.
Mortgage markets were not the only ones caught up in the credit boom. The large flows of global saving into the United States drove down the returns available on many traditional long-term investments, such as Treasury bonds, leading investors to search for alternatives. To satisfy the enormous demand for investments both perceived as safe and promising higher returns, the financial industry designed securities that combined many individual loans in complex, hard-to-understand ways. These new securities later proved to involve substantial risks — risks that neither the investors nor the firms that designed the securities adequately understood at the outset.
The credit boom began to unravel in early 2007 when problems surfaced with subprime mortgages — mortgages offered to less-creditworthy borrowers — and house prices in parts of the country began to fall. Mortgage delinquencies and defaults rose, and the downturn in house prices intensified, trends that continue today. Investors, stunned by losses on assets they had believed to be safe, began to pull back from a wide range of credit markets, and financial institutions — reeling from severe losses on mortgages and other loans — cut back their lending. The crisis deepened last September, when the failure or near-failure of several major financial firms caused many financial and credit markets to freeze up. Stock prices fell sharply as investors lost confidence in the financial sector and became gloomy about economic prospects. Declining stock values, a teetering financial system, and difficulties in obtaining credit triggered a remarkably rapid and deep contraction in global economic activity and employment, a contraction that has persisted through the first months of 2009. Both the ongoing financial crisis and economic contraction have posed major challenges to economic policymakers.
Those challenges bring me to my second question: What has the Federal Reserve been doing to address the economic and financial crisis?
The Fed’s mandate from the Congress is to promote maximum sustainable employment and stable prices. In addition, the Fed is expected to contribute to financial stability by acting to contain financial disruptions and prevent their spread outside of the financial sector. Thus, we have been serving as a first responder to the crisis.
The Fed’s basic policy tool for influencing economic activity and inflation is its ability to control very short-term interest rates — specifically, the federal funds rate, which is the rate that banks pay each other for overnight loans. Lower interest rates can be used to stimulate private-sector borrowing and spending at times like the present when the economy is suffering from a lack of demand. In September 2007, shortly after the turbulence in financial markets began and signs of economic weakness started to appear, the Federal Open Market Committee (FOMC), the body that determines the Federal Reserve’s monetary policy, began to aggressively reduce the federal funds rate. By the spring of 2008, we had cut that interest rate from 5-1/4 percent to 2 percent, a highly proactive policy that helped to cushion the economy from some of the effects of the financial turmoil. But, as I mentioned a moment ago, the intensification of the financial crisis in the fall of 2008 led to a further significant deterioration in the economic outlook. The FOMC responded with additional interest rate cuts, and since December, our policy interest rate has been essentially zero. In addition, the FOMC has made clear that it expects economic conditions to warrant holding the federal funds rate low for an extended period.
However, given the ongoing problems in credit markets, conventional monetary policy alone is not adequate to provide all the support that the economy needs. The Fed has therefore taken a number of steps to help the economy by unclogging the flow of credit to households and businesses. In doing so, we have demonstrated that the Fed’s toolkit remains potent, even though the federal funds rate is close to zero and thus cannot be reduced further.
We have taken a wide range of actions to help restore the flow of credit, of which I will only mention a few of the most important. One set of actions involves making short-term loans to banks and other financial institutions. Banks and other financial intermediaries normally make longer-term commitments — such as residential mortgages and business loans — yet rely on funding that may be relatively short-term, such as customer deposits that can be withdrawn at any time. To have the confidence to commit to longer-term loans and investments, banks must be sure that they will have ample access to funding when necessary. To give this assurance to banks, the Federal Reserve has made clear that it will provide short-term credit to sound financial institutions as needed. Indeed, serving as a lender of last resort to financial institutions is a method that central banks have used for centuries to try to calm financial crises.
To underscore our commitment to providing short-term funding to banks when they need it, we have lowered the interest rate we charge for short-term loans and extended the term of the loans to up to three months. We have also begun to auction funds to financial institutions, thereby allowing the interest rate paid to depend on the level of demand. Importantly, this lending is extremely safe from the point of view of both the Fed and the taxpayer. Not only is our lending short-term and restricted to healthy institutions, but we require that the borrowers pledge, as security, collateral whose value exceeds the amount we are lending. The Fed’s lending to financial institutions has helped to ease conditions in a number of key financial markets, reduced important benchmark interest rates (such as the London interbank offered rate, or Libor, to which payments on some mortgages and other types of loans are tied), and increased the willingness of banks to make credit available.
A second strategy the Fed has employed is to use targeted lending to help free up critical credit markets outside of the banking system. A good example of targeted lending is our efforts in the commercial paper market. Commercial paper is a form of short-term debt issued by a variety of businesses to finance their operations; paychecks and payments to suppliers can depend on it. Among the largest investors in commercial paper are money market mutual funds. At the peak of the crisis last fall, many people who had invested in money market mutual funds lost confidence in those funds and withdrew their money; this loss of funding forced money market mutual funds to reduce their own investments, which in turn caused serious problems in the commercial paper market. Through a series of lending programs, and in coordination with steps taken by the Treasury, the Federal Reserve helped restore confidence in both money market mutual funds and the commercial paper market. Over time, withdrawals from money market mutual funds have been replaced by modest net inflows, and borrowers in the commercial paper market have seen significant improvements in the cost and availability of funding.
More recently, the Federal Reserve has also initiated a lending program, with the cooperation of the Treasury, designed to free up the flow of credit to households and small businesses. Among the forms of credit on which the program is currently focused are auto loans, credit card loans, student loans, and loans guaranteed by the Small Business Administration. We are currently reviewing other types of credit for possible inclusion in this program. In all cases, we will be taking the appropriate measures to minimize the risk of loss to the Federal Reserve.
Restoring stability to the market for housing and home mortgages has been a particular area of concern. To address this problem, the Fed has employed a third type of policy tool — namely, buying securities in the open market. The FOMC has approved purchases of well over $1 trillion this year of mortgage-related securities guaranteed by the government-sponsored mortgage companies, Fannie Mae and Freddie Mac. Buying mortgage-related securities helps to drive down the interest rates that consumers pay on mortgages, and, indeed, the rate on a traditional 30-year fixed-rate mortgage has recently fallen to less than 5 percent, the lowest level since the 1940s. Certainly, the housing market remains depressed, but lower interest rates and house prices are making houses more affordable. For example, two years ago, when mortgage rates were higher than 6 percent, payments on a mortgage covering 80 percent of the cost of a $215,000 home would have been more than $1,000 per month; today, the price of that same house may have fallen to $170,000, and, at today’s mortgage interest rates, the monthly payment would be about $700. Lower mortgage rates are also helping some homeowners refinance their mortgages to reduce their monthly payments.
The Federal Reserve will continue to take the necessary steps to unclog the credit markets and strengthen the economy. We will also continue to work closely with other agencies, such as the Treasury and the Federal Deposit Insurance Corporation (FDIC), each of which has also taken a variety of actions to help stabilize financial markets, as well as with other central banks around the world.
The multifaceted policy response that I’ve described has been aggressive. I am confident that such a proactive policy response is well justified by the serious ongoing problems in financial markets and the economy. However, some have raised the third question I will address: Could the Fed’s aggressive actions to stabilize the economy today lead to an inflation problem down the road?
I mentioned earlier that the Fed’s mandate from the Congress is to foster price stability as well as maximum sustainable employment. The FOMC treats its obligation to ensure price stability extremely seriously. Price stability supports healthy economic growth, for example, by making it easier for households and businesses to plan for the future. In practice, price stability does not require that inflation be literally zero; indeed, although inflation can certainly be too high, it can also be too low. Experience suggests that inflation rates that are close to zero or even negative (corresponding to deflation, or falling prices) can at times be associated with poor economic performance. Cases in point include the United States in the 1930s and the more recent experience of Japan. In their latest quarterly projections of the economy, most members of the FOMC indicated that they would like to see an annual inflation rate of about 2 percent in the longer term. Right now, because of the weakness in economic conditions here and around the world, inflation has been running less than that, and our best forecast is that inflation will remain quite low for some time. Thus, the Fed’s proactive policy approach is not at all inconsistent with the goal of price stability in the medium term.
Although inflation seems set to be low for a while, the time will come when the economy has begun to strengthen, financial markets are healing, and the demand for goods and services, which is currently very weak, begins to increase again. At that point, the liquidity that the Fed has put into the system could begin to pose an inflationary threat unless the FOMC acts to remove some of that liquidity and raise the federal funds rate. We have a number of effective tools that will allow us to drain excess liquidity and begin to raise rates at the appropriate time; that said, unwinding or scaling down some of our special lending programs will almost certainly have to be part of our strategy for reducing policy stimulus once the recovery is under way.
We are thinking carefully about these issues; indeed, they have occupied a significant portion of recent FOMC meetings. I can assure you that monetary policy makers are fully committed to acting as needed to withdraw on a timely basis the extraordinary support now being provided to the economy, and we are confident in our ability to do so. To be sure, decisions about when and how quickly to proceed will require a careful balancing of the risk of withdrawing support before the recovery is firmly established versus the risk of allowing inflation to rise above its preferred level in the medium term. However, this delicate balancing of risks is a challenge that central banks face in the early stages of every economic recovery. I believe that we are well equipped to make those judgments appropriately. In addition, when the time comes, our ability to clearly communicate our policy goals and our assessment of the outlook will be crucial to minimizing public uncertainty about our policy decisions.
The final question is as difficult as it is important: Why did the Fed and the Treasury act to prevent the bankruptcy of some major financial firms, such as the investment bank Bear Stearns and the insurance company American International Group, or AIG? We must answer that question not only because the decisions have been controversial, but also because it bears on the steps we need to take as a country if we are to avert a repetition of the crisis.
As a general rule, my strong preference is that any firm that cannot meet its obligations should bear the consequences of the marketplace. But recent circumstances have been truly extraordinary. Consider the situation on September 16 of last year, when the insurance conglomerate AIG faced pressures that threatened to force it imminently into bankruptcy. At that time, the strains in the global financial system were unprecedented and extreme, and the confidence of financial market participants in the system was rapidly eroding. The investment bank Lehman Brothers had filed for bankruptcy the day before, and the mortgage giants Fannie Mae and Freddie Mac, after suffering losses that threatened their solvency, had effectively been taken over by the government just two weeks earlier. As waves of panic and fear washed over the markets, the Fed and the Treasury became very concerned about the stability of a number of other major financial firms.
Large, complex financial institutions tend to be highly interconnected with other firms and markets, and AIG was more interconnected than most. For example, AIG had insured many billions of dollars of loans and securities held by banks around the world, and its failure would have rendered those insurance contracts worthless, imposing large losses on the global banking system. In addition, banks had extended more than $50 billion in credit to the company, much of which would have been lost. Many other serious consequences would have followed from a default by AIG: Insurance policyholders would have faced considerable uncertainty about the status of their policies; state and local governments, which had lent more than $10 billion to AIG, would have suffered losses; workers whose 401(k) plans had purchased $40 billion of insurance from AIG against the risk of loss would have seen that insurance disappear; and holders of AIG’s substantial quantities of commercial paper would have also borne serious losses.
But much more important, the disorderly failure of AIG would have put at risk not only the company’s own customers and creditors but the entire global financial system. Historical experience shows that, once begun, a financial panic can spread rapidly and unpredictably; indeed, the failure of Lehman Brothers a day earlier, which the Fed and the Treasury unsuccessfully tried to prevent, resulted in the freezing up of a wide range of credit markets, with extremely serious consequences for the world economy. The financial and economic risks posed by a collapse of AIG would have been at least as great as those created by the demise of Lehman. In the case of AIG, financial market participants were keenly aware that many major financial institutions around the world were insured by or had lent funds to the company. The company’s failure would thus likely have led to a further sharp decline in confidence in the global banking system and possibly to the collapse of other major financial institutions. At best, the consequences of AIG’s failure would have been a significant intensification of an already severe financial crisis and a further worsening of economic conditions. Conceivably, its failure could have triggered a 1930s-style global financial and economic meltdown, with catastrophic implications for production, incomes, and jobs.
The Federal Reserve and the Treasury agreed that in the environment then prevailing, AIG’s failure would have posed unacceptable risks for the global financial system and for our economy. Accordingly, the Federal Reserve, with the full support of the Treasury, made a loan to AIG to prevent its failure. The loan imposed tough terms; in addition, senior management was replaced, and shareholders lost almost all of their investments. However, because the firm avoided a declaration of bankruptcy, creditors of AIG were protected.
In my view, preventing the failure of AIG was the best of the very bad options available, but it nevertheless involved major costs, including financial risks to the taxpayer. The American people also quite correctly see as unfair that AIG was saved from bankruptcy because of the dangers to the system that its failure would have posed, even as many other companies, including nonfinancial and smaller financial firms, have not received the same treatment. Allowing AIG to at least partly avoid the discipline of the marketplace also sets a bad precedent.
For these reasons, it is essential that we make changes to the financial rules of the game to prevent a similar episode from occurring in the future. First, we must ensure that all types of financial institutions, especially large and interconnected ones like AIG, receive strong and effective government oversight. AIG’s regulatory oversight was limited, which allowed it to take dangerous risks largely out of sight of federal regulators.
Second, the AIG experience demonstrates that federal regulators urgently need a new set of procedures for dealing with a complex, systemically important financial institution on the brink of failure. Such rules already exists for banks: If a bank approaches insolvency, the FDIC is empowered to intervene as needed to protect depositors, sell the bank’s assets, and take any necessary steps to prevent broader consequences to the financial system. However, for an insurance conglomerate like AIG, or for a large financial holding company that owns many subsidiary companies, these rules do not apply. Among other things, a good system for resolving nonbank financial institutions would allow federal regulators to unwind a failing company in ways that minimize disruptions in financial markets. An effective regime would also provide the authorities greater latitude to negotiate with creditors and to modify contracts entered into by the company, including contracts that set bonuses and other compensation for management. More generally, we need significant reforms to financial regulation and financial practices that will reduce the risk of future financial crises like the one we are currently experiencing. The Federal Reserve strongly supports such reform efforts.
The current crisis has been one of the most difficult financial and economic episodes in modern history. Recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding, and consumer spending, including sales of new motor vehicles. A leveling out of economic activity is the first step toward recovery. To be sure, we will not have a sustainable recovery without a stabilization of our financial system and credit markets. We are making progress on that front as well, and the Federal Reserve is committed to working to restore financial stability as a necessary step toward full economic recovery.
I am fundamentally optimistic about our economy. Among its many intrinsic strengths are universities and colleges like Morehouse, which help talented students gain not only a command of a body of knowledge but also the capacity to think creatively and independently. Institutions like this one train the professionals, entrepreneurs, and leaders who will shape our economy in the future. Today’s economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience, and persistence. The Federal Reserve will certainly do its part to help restore prosperity and opportunity to our economy.
(WASHINGTON) Effective March 27, 2009, small businesses that need surety bonds to compete for construction and service contracts can qualify for U.S. Small Business Administration-backed surety bonds of up to $5 million. The higher amount, a result of the Recovery Act, is more than double the previous $2 million maximum surety bond guaranteed by SBA.
Through SBA’s Surety Bond Guarantee program, SBA guarantees bid, payment and performance bonds. Surety bonds protect the project owner against financial loss if contractors default or fail to perform.
SBA partners with the surety industry to help small businesses that would otherwise be unable to obtain bonding in the traditional commercial marketplace. Under the partnership, SBA provides a guarantee to a participating surety company of between 70 and 90 percent of the bond amount.
”During these difficult economic times,” said Acting SBA Administrator Darryl K. Hairston, “these changes are particularly helpful to small and emerging contractors who need access to surety bonds so they can bid on public construction and service projects. These changes will support small and emerging businesses nationwide, particularly construction contractors who have seen their markets hurt by a poor economy and lagging construction environment.”
Additional program enhancements contained in the stimulus bill will be announced soon in the Federal Register. Among these changes is a provision that will allow SBA to guarantee a bond on a federal contract up to $10 million following certification by the contracting officer that the bond guarantee is required.
In recent years SBA has taken a number of steps to reinvigorate its Surety Bond Guarantee Program and make it easier for small businesses to obtain bonds. In 2007, SBA established a more flexible pricing structure, allowing Preferred Surety Bond Sureties to charge current state rates rather than being locked into rates that were established several years ago.
Industry associations have commended SBA for these new changes and SBA continues to encourage surety bond providers and agents to actively participate in the program.
In the past year, SBA also implemented a new electronic bond application process. Small businesses and surety companies participating in the SBA prior approval program are able to transmit application forms electronically to help expedite review and approval processes. The SBA also re-engineered the claims reimbursement process to shorten the cycle time between submission of a claim for reimbursement by a surety company and payment by the government.
SBA assistance in locating a participating surety company or agent and completing application forms is available online. For more information on SBA’s Surety Bond Guarantee Program, go online to http://www.sba.gov/osg/ or call 1-800-U ASK SBA.
“U.S. unemployment could surpass 10 percent by year’s end. The men and women who operate our businesses and create and sustain employment have assumed a defensive crouch. Confronted by dyspeptic financial markets, they are doing the best they can to preserve their margins by cutting costs (most significantly, the cost of labor), and running tight inventories, rationalizing supply lines, deferring all but the most necessary capital expenditures and, in general, avoiding risk. The result is an American economy in stasis. Nothing is being ventured, and nothing is being gained.” – Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas, at the Japan Center for Economic Research in Tokyo, Japan.
The Full Speech Follows:
Domo. Thank you. I am delighted to be here, together with my colleague Mark Wynne, who is the director of the Federal Reserve Bank of Dallas’ Globalization and Monetary Policy Institute.
I first came to Japan with President Carter for the G-7 Summit hosted by Prime Minister Ohira in June of 1979. That experience whetted my appetite for Japanese culture. So after I returned to the private sector and had established an investment management firm in Dallas, I came back with my family to reside in Tokyo under the aegis of the Japan Society for most of 1990-arriving here shortly after the Nikkei Dow reached its all-time peak of 38,915. This gave me an invaluable opportunity to simultaneously learn about your country while providing my colleagues at Fisher Capital Management in Dallas insights into a financial market reversal of epic proportions-insights gleaned from an office kindly provided me by Nomura Research as well as from the bleachers on the various baseball fields where my teenage son played for the Minato Moose team in the Tokyo Senior Boys Spring League.
Seven years later, I rejoined the government and served President Clinton as deputy U.S. trade representative in numerous bilateral negotiations with your government. I also served as cochair with Deputy Foreign Minister Haraguchi of the multiyear, joint commission set up by Prime Minister Hashimoto and President Clinton on deregulation and competition. In this commission, we wrestled with everything from laws governing retail stores to electricity distribution to bid rigging in construction to financial deregulation and even what I referred to then as “mini-micro” issues-ranging from auditing standards to regulations governing law firms. I consider it a significant accomplishment for both sides that, today, one of the few issues from that agenda that remain unresolved is the matter of providing a level playing field for private insurance companies as they seek to compete with Japan Post Life Insurance, which like the rest of the Postal Savings system is now in a 10-year process of privatization.
Today I have the honor of speaking to you in another capacity-as a representative of the central bank of the United States in my role as president of the Federal Reserve Bank of Dallas, one of the Federal Reserve’s 12 operating banks.
Each of the bank presidents participates in the Federal Open Market Committee (FOMC), the body that sets monetary policy for the United States. The tradition of the Federal Reserve is that each member of the FOMC speaks only for himself or herself. I shall adhere to that tradition today. The observations I will offer today are my own and should be interpreted as a view only from the Federal Reserve Bank of Dallas-nothing more.
I have been fortunate to see both my own country and yours from several perspectives. I have learned enough about Japan from my different experiences here and my amateur study of Japanese history and literature to know that I do not know much. The first Western interpretation of Japan that I remember taking to heart was that of Lafcadio Hearn, who wrote of “the immense difficulty of perceiving and comprehending what underlies the surface of Japanese life.” I have worked with your government on trade issues, operated an investment fund from Tokyo, watched innumerable Japanese baseball games (I confess, at great risk in this audience of likely Giants fans, to being a fan of the Yakult Swallows, and even though they haven’t won a championship since 2001, I am hoping this 40th anniversary season for their franchise will be their lucky charm), read and re-read the classic works of Western interpreters like Hearn and [Edwin] Reischauer and [Karel] van Wolferen (and, my favorite as a baseball fan, Robert Whiting!) and studied the works of literary giants like Natsume Soseki and Tanizaki Jun’ichiro. But I have barely scratched the surface of comprehending your rich and complex culture. These experiences have taught me enough, however, to be humble when addressing a Japanese audience of this distinction. So rather than prescribe policy to you, I will stick to describing the policy predicaments in which my own countrymen and women are immersed.
One of my favorite books in Japanese literature is Natsume Soseki’s Kokoro, a gorgeous novel written in 1914, two years after the death of the Emperor Meiji and two years before the author’s own death. Lafcadio Hearn offered what seems to me to be the best translation of the word kokoro-he defined it as “the heart of things.” In this lecture, I shall try to quickly get to the heart of things occurring in the U.S. economy. I will then summarize the consequences for U.S. monetary policy. And then, if you permit me, I will endeavor to answer any questions you might have. Throughout, I will do my best to achieve the stylistic simplicity that Soseki-san achieved in Kokoro, though undoubtedly without the beauty that is implicit in that novel, for there is little of apparent beauty in our current economic and financial situation.
The data from the United States are grim. Our economy contracted at an annual rate of 6.3 percent in the fourth quarter of last year. I expect that when the numbers are properly tallied, we will have contracted at a very similar rate in the quarter just ended. Unemployment is rising. We currently have roughly 13.2 million people without jobs, which equates to an unemployment rate of 8.5 percent. I expect the unemployment rate to continue rising to a level that could surpass 10 percent by year-end. Among other things, this has compounded the problem of the much-watched housing market, where many of the problems we have encountered in our financial markets germinated: The most recent release of the Case-Shiller index reveals that home price declines accelerated in the 20 metropolitan districts tracked, falling 19 percent on a year-over-year basis for the three-month period ended in January. But the problem with our economy is more pervasive. The men and women who operate our businesses and create and sustain employment have assumed a defensive crouch. Confronted by dyspeptic financial markets, they are doing the best they can to preserve their margins by cutting costs (most significantly, the cost of labor), and running tight inventories, rationalizing supply lines, deferring all but the most necessary capital expenditures and, in general, avoiding risk. The result is an American economy in stasis. Nothing is being ventured, and nothing is being gained.
Of course, not helping matters is the implosion of our export markets, which are vital to the growth of an economy positioned to sell high-value-added goods and services-as well as agricultural and other basic goods-to others. The World Bank is predicting that the global economy will contract by 1.7 percent this year, and global trade by 6.1 percent. This will be the first time since the 1940s that we have witnessed such a deep and synchronized retrenchment of global economic activity, and this makes tougher the task of growing the U.S. economy.
One of our founding fathers, James Madison, a coauthor of the Federalist Papers and considered by many to be the father of the (American) Constitution, wrote that “the circulation of confidence is better than the circulation of money.” There is presently a palpable lack of circulating confidence in the business community in America.
In light of this, the Federal Reserve has assumed a dramatically proactive and highly innovative role in seeking to restore vibrancy in the credit markets while stemming economic decline. This is an unaccustomed thing for our central bank. Ordinarily, the men and women of the Federal Reserve are the most shy and modest of economic agents. We prefer to move incrementally rather than exponentially, and we have historically treasured conducting our deliberations quietly and away from the public limelight. But confronted with a dysfunctional financial market and an implosion in our economy, in rapid order we have undertaken a series of very visible and widely broadcast initiatives. Over a period of a little more than a year, we:
- Established a lending facility for primary securities dealers, taking in new forms of collateral to secure those loans;
- Initiated so-called swap lines with the central banks of 14 of our major trading partners, ranging from the Bank of Japan to the European Central Bank and the Bank of England to the Banco de México to the Monetary Authority of Singapore and the Korean Central Bank, to provide these foreign central banks with the capacity to deliver U.S. dollar funding to financial institutions in their jurisdictions. We also have put in place swap agreements with four of our counterparts-the Bank of Japan, the European Central Bank, the Bank of England and the Swiss National Bank-to enable the Federal Reserve to provide up to 10 trillion yen, 80 billion euro, 30 billion in sterling and 40 billion in Swiss franc liquidity to U.S. financial institutions as a reciprocal prophylactic measure;
- Created facilities to backstop money market mutual funds;
- Initiated new measures in cooperation with the Treasury and the Federal Deposit Insurance Corp. to strengthen the security of certain banks;
- Undertook a major program to purchase commercial paper, a critical component of the financial system;
- Began to pay interest on bank reserves;
- Announced we stood ready to purchase up to $100 billion of the direct obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, then increased that sum to $200 billion;
- Announced we would buy $500 billion in mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, then increased that sum to $1.25 trillion;
- Announced, and just recently fleshed out, a new facility to support the issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration, a facility which we have since stated we were prepared to expand significantly to other types of securities and beyond our originally planned $200 billion to $1 trillion; and
- Began the process of purchasing up to $300 billion of longer-term Treasury securities over the next six months to help improve conditions in private credit markets.
And, in a series of steps, the FOMC reduced the fed funds rate to between zero and one-quarter of 1 percent, a process which I supported once it became clear that the immediate inflationary tide was ebbing. Simultaneously, at the request of the 12 Federal Reserve Banks, and again in a series of steps, the Board of Governors lowered the rate we charge banks to borrow from our discount windows, so as to lower the cost of credit to the economy.
All of this has meant expanding the Federal Reserve’s balance sheet. As of today, the total footings of the Federal Reserve have expanded to roughly $2 trillion-more than a twofold increase from when we started in 2008. It is clear that we will grow our balance sheet even more as we complete our programs of purchasing longer-term Treasuries, expanding our holdings of mortgage-backed paper and purchasing larger amounts and different forms of asset-backed paper.
By being so proactive in straying from our usual business of holding plain vanilla, mostly short-term Treasuries as assets and by shifting policy away from simple titrations of the fed funds rate, we have raised a few eyebrows. But these are complex, trying times. Our economy faces a tough road. We are the central bank of the largest economy in the world, and we are duty bound to apply every tool we can to clean up the mess that our financial system has become and get back on the track of sustainable economic growth with price stability.
This expansion of our balance sheet has given rise to concerns that we may be:
- Planting the seeds of future inflation;
- Setting the stage for a demise of the dollar; and
- Placing the cherished independence of the Federal Reserve at risk.
I understand these concerns. And I have actively and loudly argued during deliberations of the FOMC that these risks represent a real and present danger. But I am here to tell you that I am not alone. The committee members-from the regional bankers like me to its chairman, Ben Bernanke, and other governors-are each and every one determined not to violate the basic tenets of Federal Reserve sanctity.
Let me address each of these concerns in order.
First, with regard to the potential inflationary consequences of our actions: Our assignment is to conduct monetary policy so as to engender sustainable, noninflationary job growth. Presently, the risk is deflationary job destruction. We have undertaken measures to counter that risk. And we seek to do so in a way that will not ignite the embers of either a future destructive inflation or a debasement of our currency.
I have a reputation for being the most “hawkish” participant in the deliberations of the Federal Open Market Committee, and I have a record that substantiates that reputation, having voted five times against further accommodation during the commodity-driven price boom of 2008. I consider inflation an evil spirit that rots the core of economic prosperity and must never, ever be countenanced. But it is clear to me that in this environment, inflation is unlikely to present a serious threat given the pervasive bias in the U.S. economy toward wage cuts and freezes, rising unemployment, the widespread loss in wealth that has resulted from both the housing and equity market corrections, continually declining consumption and business investment, and the anemic condition of the banking and credit system, all of which reinforce downside price pressures in a global economy groaning with excess capacity.
For as far ahead as I trust my forecasting ability (that is to say, the next couple of years), the problem with regard to maintaining price stability most certainly is not inflation.
With regard to the fate of the dollar and the willingness of others to continue purchasing dollar-denominated debt, we realize that by purchasing Treasuries in volumes and of durations that are atypical, we are at risk of being perceived as monetizing the fiscal largesse of our Congress. And we are acutely aware that by intervening in the mortgage-backed securities and other markets that we are at risk of being perceived as blurring the lines between fiscal and monetary policy. We realize that this may give rise to some apprehension among large holders of Treasuries and agency paper such as your government and others in the Asian Pacific region.
And yet, let me remind you that over the past year since we began in earnest the process of using the new tools I have just articulated, the dollar has appreciated 17 percent against the euro and 29 percent against the British pound. Among the major currencies, the dollar has depreciated against only one currency, Japan’s, and by 2.4 percent.
Here are some numbers for you to contemplate: If a Japanese investor had purchased a three-month U.S. Treasury bill in March 2008 and rolled it over every three months until the end of this past month, the return would have been slim to none-about -1.4 percent. That is hardly inspiring. But, had that same investor purchased and rolled over a three-month euro-area central government bond, the investment would have resulted in a loss of 16 percent. A Chinese investor investing in euro bonds would have had the same experience. A Korean investor investing in the same manner would have earned a return of 21 percent in euros but would have earned a 42 percent return in won terms had he invested in three-month Treasury bills.
Certainly for the past year to date, fears of debasement of fixed-income portfolios invested in dollar-denominated public debt have proven unfounded. To be sure, an investment in comparable maturities in yen would have earned a modest positive return of 0.47 percent for a Japanese investor. But, adjusted for liquidity, that is hardly sufficient incentive for not having a predominance of the world’s most significant currency in a portfolio.
I would add that a foreign investor who moved out on the Treasury yield curve would have enjoyed superior returns to those just cited. In yen terms, 10-year sovereign Japanese paper earned a return of 2 percent from March of 2008 to March of this year. Ten-year euro sovereigns would have earned a return of negative 11.5 percent in yen terms. The equivalent return would have been a positive 10.4 percent for the Japanese investor in 10-year U.S. Treasuries. If I may paraphrase Andrew Mellon, at least for the period over which the Fed has been applying its new tools, it has been quite true that “gentlemen prefer American bonds.”
But that is in the past. As to the future, the underlying math becomes more complex: The net new supply of Treasury debt is predicted to expand by $2.5 trillion in the current fiscal year, versus $788 billion in the last fiscal year and only $145 billion in fiscal year 2007. All things being equal, this would result in a move upward in yield and downward in price, providing negative returns absent any foreign exchange factor. But all things are not equal. For starters, the problems facing the largest competitive currency, the euro, are perhaps even more substantial than those confronting the United States. I will point to Spain and Ireland as examples of euro-area economies that led the European pack on the upside and now are cascading rapidly downhill. In the case of Japan, you are as aware as anybody of the economic and fiscal and political predicament you are faced with; I will say no more. My point is that demand for Treasuries and other official paper of U.S. government issuers will be determined by their attractiveness relative to alternatives, and they may well be judged more, rather than less, attractive under most reasonable future scenarios.
Moreover, both the fate of budget imbalances and the potential for total returns earned by investing in U.S. securities depend on the efficacy of the fiscal policies Congress has advanced. These policies are designed to jump-start the economy while laying the groundwork for permanent structural reform. Time will tell if they achieve this multipurpose goal. If they do, they will engender economic growth and concomitant confidence in the fixed-income and equity markets for private securities. In addition, tax flows will be restored and confidence boosted in the path of deficit reduction envisioned by the current administration in its budget projections. If these policies don’t jump-start the economy, then I am confident that the reaction within fixed-income markets will force those with the power to tax and spend, the Congress, to readjust their fiscal policies.
I offer as evidence the revelation that came to the fiercely partisan Democratic operative James Carville during the Clinton administration. He said that were he to be reincarnated and wished to be the most powerful of all, he would come back not as a president or a pope but as the bond market, for “[the bond market] can intimidate anybody.” I suspect this respect for the power of bond markets remains true for the Obama administration and the current Congress.
As to the independence of the Federal Reserve, let me remind you that in 2013, we will celebrate our 100th anniversary as the central bank of the United States. We are not as established as an ongoing entity as the Bank of England, nor as young as institutions such as the People’s Bank of China. This is not to say we are superior or always exemplary, but we are an elder in this business. We seek to be worthy of the veneration traditionally given to an elder. To this end, we feel it necessary to guard our ongoing independence.
We have recently agreed with the U.S. Treasury to an accord to work together to support the goals of preserving both monetary and financial stability. In this endeavor, it is the Federal Reserve’s job to maintain monetary stability, while the Treasury will enable the Fed to sterilize the impacts of its lending and securities purchases on its balance sheet-and on the balance sheet of the banking system. In essence, the Federal Reserve will not monetize the growth of the assets on its balance sheet that has been, and will continue to be, necessary to jump-start the credit markets that are so essential to the recovery of the U.S. and global economies. To put it another way, the Federal Reserve is in the process of acquiring the tools to short-circuit any inflationary consequences of its balance sheet growth.
In contemplating the future of the American economy and our ability to overcome our current financial predicament, I take great comfort in knowing that we have faced far tougher tasks and have always accomplished them. It is true that we Americans often confront storms of our making. We occasionally falter and get blown off course. But we never give up. And we always come roaring back stronger, leaner and more efficient than we were before. For 233 years, the people of the United States have demonstrated that they are masters of the process of creative destruction that the economist Joseph Schumpeter articulated as the key to success for any economy. Our recent presidential election demonstrates that we are still possessed of a vibrancy and adaptability that the French social philosopher Alexis de Tocqueville found so inspiring in the early 19th century. As an American, I may be insufficiently humble, but I consider our track record and our adaptability the stuff of an eventual recovery that will take my country to new levels of prosperity. I am confident that the innovative policies being pursued by the Federal Reserve will facilitate and, indeed, expedite the recovery process.
One of the unique cultural artifacts that I found intriguing while I was here in Japan in 1990 was the senninbari. For the Western press that is here, these are the “thousand stitch cloths” that originated during the Sino-Japanese War. By tradition, they consisted of a strip of white cloth embellished with 1,000 French stitches sewn with red thread by a thousand women and given to soldiers to ward off bullets and ensure a safe return. There should be no doubt that we at the Federal Reserve, like central bankers everywhere, are subject to attack by the bullets of a severe global recession and financial turbulence. Perhaps we could use senninbari to protect us. But as symbolically and emotionally meaningful as they might have been, senninbari were no substitute for prudent maneuvering on the battlefield. As part of the team working very hard to successfully maneuver our central bank through the current financial battlefield, my colleagues and I are committed to the utmost to conducting monetary policy not only so as to ward off the bullets and other threats to our economy but to emerge from this stressful period with an American economy that is stronger and better and that plays an important role in renewing the vibrancy of the global economy.
And now, in the tradition that is the hallmark of central bankers everywhere, I will do my best to avoid answering any questions you may have.
Goseichou arigato gozaimashita. Thank you very much.
 |
About the Author
Richard W. Fisher is president and CEO of the Federal Reserve Bank of Dallas.
(San Francisco Business Times) J.P. Morgan Chase CEO Jamie Dimon says he doesn’t anticipate a profit in its huge credit card business this year as unemployment takes a toll on the business.
“We do not expect 2009 to be a good year for the credit card business. In fact, we do not expect to make any money in card services this year,” Dimon said in his 29-page letter to shareholders.
Chase (NYSE: JPM) became one of California’s largest banks last year when it acquired the failed banking operations of Washington Mutual. As part of that transaction, the bank absorbed WaMu’s credit card operations that were once the San Francisco-based Providian Financial Corp. Although Providian’s roots go back to providing credit cards to those with tarnished credit records, Dimon told the San Francisco Business Times earlier this year that he has no interest in extending credit cards to the subprime market.
In its credit card business last year, Chase enrolled 600,000 troubled borrowers into payment programs, and the bank anticipates that figure will be higher this year.
“Looking ahead, we expect losses will continue to increase from 5 percent to 9 percent, essentially tracking the rate of unemployment,” Dimon said. The bank boosted reserves for credit card losses from $3 billion to $8 billion.
But by the time Dimon got close to the end of his shareholder’s letter, he had already become more pessimistic on the outlook for credit card losses. (Perhaps not a typo but a reflection of how bankers are trying to get their arms around their loan losses as the recession persists.)
“The severity of this recession also could have a dramatic impact on credit card losses,” Dimon said. “We now expect a 9 percent unemployment rate to lead to charge-offs of higher than 9 percent.”
He noted that in the past, the bank would have expected 9 percent unemployment to trigger credit card losses of 7 percent or more. March unemployment came in at 8.5 percent, the highest level since 1983.
“The recession will ripple through and affect all of our consumer and commercial credit,” Dimon said.
###
“In this new economy, and for exit strategy purposes- business owners of all sizes benefit from understanding Fair-Value Principles” – ALJUCAR & Co.
(CFO) Straining to overcome the confusion that resulted from its recently issued fair-value proposals, the Financial Accounting Standard Board this morning approved an altered version of its proposed guidance on how to determine whether a financial market is inactive and an asset sale isn’t distressed.
Both conditions are crucial in measuring the fair value of a financial instrument under FASB’s controversial Statement No. 157, Fair Value Measurements. According to the standard, a fair value can’t be applied to an instrument sold in a distressed, or forced, transaction-like when a company has entered bankruptcy. Determining when a market is inactive is crucial, because that would make measurements derived from it less reliable under 157.
Board members have long stressed that financial statement preparers should use judgment in valuing assets in markets where there’s little hard and fast pricing information, and that principles should hold sway over rules. Somehow, however, many users of financials quickly got the impression that in FASB’s new proposed guidance, it was now favoring a more rigid approach to valuation in illiquid markets.
After a 15-day comment period that began with the speedy issuance of the proposal on March 17, the board acknowledged, in the words of one member, that it was “screwing things up” in the minds of financial statement users-especially in terms of the overall objective of the proposal.
The measure purports to guide asset holders who mark their holdings to market through a two-step process to help them decide “whether a market for a financial asset that historically was active is not active and whether a transaction is not distressed.”
In response to the comment letters, FASB reasserted that the objective of its fair-value measurement standard holds firm even in inactive markets or ones with rapidly declining volume; clarified that judgment needs to be exercised in determining when a market is inactive; required new disclosures of valuation techniques; and delayed the effective date of its guidance for issuers who don’t want to adopt it early.
In its final reporting guidance, which is expected to be out next week, the board will require that the measure will be effective for periods ending after June 15, 2009, with early application permitted for periods ending after March 15, 2009. Retrospective application will not be permitted. In its proposal, the staff had asked that the measure simply be effective for periods ending after March 15, 2009.
Over 300 letters had flooded FASB by the end of the proposal’s comment period yesterday, and many constituents wondered if the board had changed the objective of a fair-value measurement in an inactive market under FAS 157.
Under the standard, holders of financial assets recorded in fair-value must report on how they came up with their values. They must classify the measurements into three levels of assumptions, depending on how “observable” the information is. In level 1, the value of an asset or liability stems from a quoted price in an active market. In level 2, it’s based on “observable market data” other than a quoted market price.
In level 3, which often applies to asset valuations in illiquid markets or in “distressed” sales (sometimes called “fire sales”), fair value can be determined only through “unobservable inputs” and prices that could be based on internal models or estimates.
Some critics of last month’s proposed guidance on how to apply 157 and a companion proposal on other than temporary impairments (OTTI) said that the measures represent a capitulation to bankers’ demands for weaker standards-and some even saw them as a symptom of the weakening of FASB itself.
In a press conference following the meeting, a reporter asked FASB chairman Robert Herz to react to charges by the CFA Institute that the two staff positions indicated a lack of independence on the part of the board. He also asked Herz to answer the institute’s charge that the speed with which FASB came up with the proposals suggests that it was bowing to “special interests” (in this case, presumably, the banks).
The FASB chairman replied that the board had “reached out to 40 major investors in financial institutions” in addition to the CFA for input on the proposed staff positions. Unlike the institute, most of the investors, while calling for additional disclosures of fair-value measurement methods, approved of the direction in which FASB was headed, he contended, noting that that was especially true of the OTTI proposal.
Acknowledging that the two-week comment period was “accelerated and expedited,” Herz went on to say that the board engaged in “full due process” and that FASB probably got more input than it gets on proposals with three-month comment periods.
To accusations of a lack of independence by the board, Herz said, “What I don’t like really is that when you don’t agree with our end outcome you impugn our motives. That’s not fair-or appropriate.”
In letters to the board, some respondents voiced worries that the proposal on inactive markets and distressed transactions “would result in a relaxation of fair value requirements and reduce consistency and comparability in financial statements,” according to a board meeting handout.
In its proposed guidance, FASB’s staff asserted that the original objective of fair-value measurement hadn’t changed, adding that determining fair value in an inactive market “may require the use of significant judgment.”
Nevertheless, some respondents thought the board had switched gears from its requirement under 157 and was now asking for something more precise and less judgment-based. They began questioning whether the goal of fair-value measurement in an inactive market should be gauging fair value in a currently inactive market; determining what the hypothetical fair value would be in an active market; or figuring out the midpoint between the former two calculations.
Board members, asserting that they didn’t mean that reporting entities should rigidly calculate a midpoint, said that they should use a variety of inputs-but mostly their own judgments. In the guidance approved by the board at its meeting today, FASB stated that even when there’s been a significant decrease in market activity for an asset, “the fair-value objective remains the same. Fair value is the price that would be received to sell the asset in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date in the current inactive market.”
Earlier, board staffer Adrian Mills, reading from a staff handout, said that gauging fair value “in a market where there has been a significant decrease in the volume and level of activity for the asset at the measurement date is inherently complex, depends on the facts and circumstances and involves significant professional judgment.”
In another move on Wednesday, the board erased the presumption in the staff proposal “that all transactions are distressed unless proven otherwise.” FASB acknowledged that its intention wasn’t to exclude relevant transaction information or preclude the use of pricing services or brokers in a fair-value measurement.
Some respondents had believed that the presumption would have enabled reporting entities to ignore relevant market data. Other respondents were concerned about the unintended consequences that could ensue if reporting entities were “forced to dismiss quoted prices provided by pricing services or to otherwise exclude relevant market data.”
In terms of disclosure, the board will require reporting entities to reveal changes in valuation techniques resulting from the application of the new guidance and to quantify the effects of the changes, if that’s practical.
The new guidance will set up a two-step process for reporting entities to use in gauging when a market is inactive and when a financial transaction is distressed. In step 1, asset holders would assess at least seven factors in gauging whether to pronounce a market inactive. (”Those factors should not be considered all inclusive because other factors may also indicate that a market is not active,” FASB cautions.) The factors are:
- -There are few recent transactions in the market.
- -Price quotes aren’t based on current information.
- -The quotations vary heavily, either over time or among brokers.
- -Indexes that in the past were highly linked to the asset’s fair values “are demonstrably uncorrelated with recent fair values.”
- -Abnormally big liquidity risk premiums or yields on the assets.
- -Abnormally wide bid-ask spreads or big hikes in the spreads.
- -Little publicly released information.
After the asset holder does a thorough evaluation using those factors, it must “use its judgment in determining whether the market is active.” If it concludes in step 1 that the market for the asset isn’t active, then it would proceed to step 2.
In step 2, the asset holder must presume that a quoted price stems from a distressed transaction unless the asset holder can prove that there was enough time before the measurement date to allow for normal marketing activities for the asset. There would also have to be many bidders for the asset for the price to be deemed not distressed.
WILFONG’S THOUGHT OF THE DAY
IN DIRECT RESPONSE TO H.R. 1842
Words like “using the Small Business Administration entrepreneurship development programs as a catalyst for job creation for fiscal years 2009 and 2010″, as found in H.R. 1842 are pretty, and good sounding. But, we need to “get back to basics”. We need to call them what they are, and get to doing what existing laws already call for. We need to MONITOR and ENFORCE the laws currently on the books. And, we need to call “Minority Development Programs” just that. The same is true for “Woman-Owned Business Programs.”
Either Minorities and Women are discriminated against because of their race or gender, or they are not. WE know they are. Others need to fess up to it. We either meet the standards of Adarand, or we don’t. If we meet the standards of Adarand, we don’t have to worry about Rothe.
That theme is gonna be the basic one for the upcoming Spring Session of “Wilfong’s School for Advanced Small Business Studies”. We’re gonna cut through the gobbled-gook and get to the nitty-gritty. We’re gonna call them like we see them. And, we’re gonna demand Change.
We’re gonna re-establish the theme that “Small business is the engine that drives America.” As such small business establishes the monster share of new jobs created in this country. Realizing that, one understands that if you take care of small business, you take care of creating jobs. This is true in the minority community. This is true in the general community.
So, what’s the problem? Well, we kinda, sorta, lost our way. We got confused and nonplussed by The Adarand Decision, back in the mid-90s. In trying to dodge the bullets, we got away from our mission. We forgot the things we established back in 1978, when Congress enacted Public Law 95-507. We sought to go “race-neutral” in fear that The Adarand Decision would embolden those who sought to “do away with programs designed to assist Minorities”.
They can try all they want to. But, they will not succeed, not IF we’re able to establish that racial discrimination is still alive in America. If we can’t establish that fact, then we can’t have “race-based” programs to ameliorate the condition. If it is not a fact, then we don’t deserve to have the programs.
Let’s look at Adarand, and what it said. In essence Adarand said, “Look, we hear you when you say ya’ll are being discriminated against, and that discrimination is causing you not to be all that you can be, as guaranteed by the United Constitution. But, you need to establish that fact, and support the fact that this denial of your right to equal protection under the law is a compelling reason for the United States Government to provide remedial measures to correct the situation”.
DUH…If we can’t do that, then perhaps we don’t deserve the programs.
Change the Wilfong language above to legalese and see if your interpretation is any different. Basically, the Supreme Court said that strict scrutiny shall apply to those programs which provide for the use of racial or ethnic criteria as factors in determining who shall benefit from the awarding of contracts. The Court said such programs would satisfy “strict scrutiny”, if they serve a “compelling interest” and are “narrowly tailored” to the achievement of that interest.
Shortly after the Adarand decision, then, President Clinton vowed “to fight to preserve federal affirmative action programs that give preferences to Blacks, Latinos and other minorities..”. “Despite great progress, discrimination and exclusion on the basis of race and gender are still facts of life in America. I have always believed that affirmative action is needed to remedy discrimination and to create a more inclusive society.” Right on, Mr. President, we shouted. But, then he did a two-step. He yielded to the darker side of our country. And, he started looking for “race-neutral” stuff.
Contrary to Clinton’s intimation, the Court did not find that “affirmative action is not needed”. The Court just decreed that, as to minority business programs, it must be “narrowly tailored”, and established certain “predicate actions” that must be taken. Justice Sandra Day O’Connor, and the rest of the majority, required that the “strict scrutiny” standard be applied to any such programs. The Court even found that, when race-based action is necessary to further a compelling interest, it is perfectly within constitutional constraints, if it satisfies the “narrow tailoring” test, the Court has set out in previous cases. Fair enough, we can handle that.
Justice Sandra Day O’Connor said “The unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country is an unfortunate reality, and the government is not disqualified from acting in response to it.” It would have pleased us more if she had used that awareness to find it in herself to vote for us, rather than just recognizing it, and throwing the ball back into someone else’s court. But, she left the door ajar. Our elected representatives could have kicked that door wide open.
Quit playing with “race-neutral” wordage and call it like it is. Racial discrimination is still alive in America. We need to surround it, and cut its head off. We need to quit dodging the use of, and emphasize the use of language, which describes what we’re hoping to accomplish. MSB/COB- Minority Small Business/Capital Ownership Development is what P.L. 95-507 was all about. That is what the section of SBA that dealt was called, for many, many years. That’s what its name ought be changed back to.
The purpose of the 8(a) Program was to promote the competitive viability of firms owned by socially and economically disadvantaged individuals through the provision of contractual, financial and technical assistance as may be necessary. We used to do that at SBA. We knew what our mission was. And, we pursued it vigilantly.
You SBAers of today, get back to that mission. As stated above, the Supreme Court established in Adarand that race-conscious methods may be employed as long as the program in which they are used, can stand the strict scrutiny test and are based upon a compelling interest of the Government. The United States Congress did extensive fact-finding and predicate study work prior to passing Public Law 95-507. We were fortunate to have given testimony and submitted evidence in those proceedings. It was part of our finest hours.
Will these things be talked about on The Hour…..heck, yes…
###
Mr. Hank Wilfong as an editorial writer for the 8-PAC Eagle. Mr. Wilfong is one of the most prolific and impassioned independent political minds working today. The President of the National Association of Small Disadvantaged Businesses (NASDB), he is a charismatic and articulate speaker, not afraid to use the vernacular that sparked a movement by disadvantaged small business some 20+ years ago. Hank Former is a former Appointee of Governor and President Ronald Reagan; Member, Bush-Cheney Transition Team-Small Business Advisory Group; and, Co-Chair, Obama Unity Committee/Black Republicans for Obama.
THE WILFONG HOUR
EVERY MONDAY | – 1PM EST–12 NOON CST ~ Dial-in Number: (218) 339-2626 (The Participant Access Code is: 408191#)
CONTEXT: The below letter was sent by 8vsb to the Congressional Black Caucus (CBC) on September 26th, 2007. On April 3, 2009, Hank Wilfong, President of the National Association of Small Disadvantaged Business (NASDB), in his “ISSUE STATEMENT NO. 4008: GET IT DONE ..”
called for re-dress of the issue given it’s increased relevance today.
In response to Mr. Wilfong, Mr. Raul Espinosa, Founder of the Fairness in Procurement Alliance (FPA), put forth the following:
In addressing FAR 8.4… FAR 8.4 is the ‘illegal GSA Exemption’ (or one of the two ‘FAR Exemptions’) which GAO has already declared ‘illegal’ through the Delex Case.’ This ‘GSA Exemption’ has been responsible for diverting $44 Billion in contracts away from the statutory rights of small businesses. (The Foreign Exemption exempts $20 Billion.)
All GSA Schedule contracts had been excluded, illegally, from the ’set-aside provisions of the Small Business Act’ and pressure must be maintained on the FAR Council – now that both of the FAR Exemptions have been targeted for removal so that it actually happens.
Note: Congressman Wynn is no longer a member of Congress.
###
In regards to: SBA 8(a) Program
The Honorable Albert Wynn
Congressman 4th District of Maryland
Chair, CBC Minority Business Task Force
2470 Rayburn House Office Building
Washington, D.C. 20515-2004
c/o Mr. Ed Hubbard
Dear Congressman Wynn:
SUBJECT: APPEAL TO CONGRESSIONAL BLACK CAUCUS ON BEHALF OF 8(A) PROGRAM
The below outlines an issue of extreme importance to the long-term viability of minority owned small firms doing business with the Federal Government; and one which we hope is just as important to the membership of the CBC Minority Business Task Force.
Summary:
The intended benefits of the 8(a) program, as outlined in the Federal Acquisition Regulation, (FAR) – Subpart 19.8—Contracting with the Small Business Administration (The 8(a) Program), and the fundamental tools it has historically provided to assist Blacks and other minority owned businesses in competing for government contracts, is being systemically eliminated by the use of GSA Federal Supply Schedules (FSS) as outlined in (FAR) Subpart 8.4—Federal Supply Schedules. Of specific note is 8.405-5(a) and (b) Small business, which reads:
[ (a) Although the MANDATORY preference programs of Part 19 do not apply, orders placed against schedule contracts may be credited toward the ordering activity’s small business goals. For purposes of reporting an order placed with a small business schedule contractor, an ordering agency may only take credit if the awardee meets a size standard that corresponds to the work performed. Ordering activities should rely on the small business representations made by schedule contractors at the contract level.
(b) Ordering activities MAY consider socio-economic status when identifying contractor(s) for consideration or competition for award of an order or BPA. At a minimum, ordering activities should consider, if available, at least one small business, veteran-owned small business, service disabled veteran-owned small business, HUBZone small business, women-owned small business, or small disadvantaged business schedule contractor(s). GSA Advantage! and Schedules e-Library at http://www.gsa.gov/fss contain information on the small business representations of Schedule contractors. ]
ALJUCAR, and the 8vsb political action committee (8-PAC), made up of 8(a) and veteran owned businesses, is seeking the assistance of the CBC Minority Small Business Task-force to investigate through the congressional hearing process the current and historical impact of (FAR) Subpart 8.4—Federal Supply Schedules on (FAR) – Subpart 19.8—Contracting with the Small Business Administration (The 8(a) Program). A detailed explanation of this request follows.
Background:
GSA Federal Supply Schedules, as defined in (FAR) Subpart 8.4—Federal Supply Schedules:
• Allows government agencies to issue contracts, without open solicitation; to any company they choose that is listed on the schedule
• Allows government agencies to circumvent the mandatory preference programs of FAR Part 19; which is the portion of the FAR that the 8(a) program operates under (ref: FAR 8.405-5 Small business).
As you may know, the objective of the “8(a)” Program is to help eligible small firms become independently competitive.
Thus, the 8(a) program, and the fundamental tools it has historically provided to assist African American businesses in competing for government contracts, is being systemically eliminated by the use of GSA Federal Supply Schedules (FSS) as defined in (FAR) Subpart 8.4—Federal Supply Schedules. Further, my research, and interviews of GSA subject matter experts, indicates that because of the massive amount of paperwork involved, FSS serve as a barrier to entry to most 8(a) firms.
In addition, statistical analysis shows that incumbent large White-owned businesses dominate the acquisition process, with only a token amount of contracts given to Black and minority firms. This is because, as stated above, FSS Allows government agency contracting officers to subjectively issue contracts, without open solicitation; to any company they choose that is listed on the schedule. As well, because government agencies are not required to post solicitations when using GSA Federal Supply Schedules, which normally provides rich detail regarding purchasing requirements and patterns, small businesses must file a FOIA request just to understand what agencies are purchasing. And even then, they cannot compete effectively, because no solicitations are ever issued.
In short, (FAR) Subpart 8.4—Federal Supply Schedules, as currently written, serves as an exacting means of government agency contracting officers controlling who gets government contracts. This takes away the “free market dynamic” spirit intended by Title III of the Federal Property and Administrative Services Act of 1949 (41 U.S.C. 251, et seq.) and Title 40 U.S.C. 501, Services for Executive Agencies, which are the primary statutory authorities for the FSS program.
Moreover, subpart 8.405-5(a) and (b) Small business nullifies the depth, mandatory nature, and spirit of “level playing” intended by FAR) – Subpart 19 —Small Business Programs; particularly that of Subpart 19.8—Contracting with the Small Business Administration (The 8(a) Program.
Finally, as more and more government agencies begin to use of GSA Federal Supply Schedules, all of the effort given to developing Section 8(a) of the Small Business Act will be for naught. Indeed, Blacks will have suffered yet another legal and regulatory setback due to our lack of diligence in monitoring the fundamental rules by which we do business with the federal government, and the impact of changes and modifications over time. In conclusion, the 8(a) program is a commercial legacy to our civil rights victories some 30 years ago, and should not be allowed to wallow in demise without a fight.
As the Chairman of the 8vsb Political Action Committee, and owner of an 8(a) certified business, I appeal to you for action. We have members in every state of the Union, including Guam; all of whom who stand ready for mobilization at your behest.
I look forward to your response.
Sincerely,
###
Question posed on November 1, 2007: What are your thoughts in regards to the SBA 8(a) program? Is it a non-effective program that has simply become a bureaucratic haven; or does it serve a purpose that warrants it’s survival?
Legislative Initiatives Introduced in the 111th Congress to Modernize SBA’s Entrepreneurial Development Programs
H.R. 1803: The Veterans Business Center Act of 2009
Summary of H.R. 1803
H.R. 1807: Educating Entrepreneurs through Today’s Technology Act of 2009
Summary of H.R. 1807
H.R. 1834: The Native American Business Development Enhancement Act of 2009
Summary of H.R. 1834
H.R. 1838: The Women’s Business Centers Improvements Act of 2009
Summary of H.R. 1838
H.R. 1839: Retired Executives Building Better Businesses Act of 2009
Summary of H.R. 1839
H.R. 1842: The Expanding Entrepreneurship Act of 2009
Summary of H.R. 1842
H.R. 1845: The Small Business Development Centers Modernization Act of 2009
Summary of H.R. 1845
###
WASHINGTON - The U.S. Senate today confirmed by unanimous consent President Barack Obama’s nomination of Karen Gordon Mills as the 23rd Administrator of the U.S. Small Business Administration.
“Small business is the backbone of the American economy,” Mills said upon her confirmation. “The SBA has a vital role to play in supporting our nation’s small businesses so that they can be the key driver in getting our economy moving again. I look forward to leading this critical agency at this important time.
“I want to thank President Obama for this opportunity to serve as a voice for our nation’s small business owners and entrepreneurs,” Mills said. “I would also like to express my appreciation to Darryl Hairston for his leadership as Acting Administrator during this transition, along with everyone at the SBA for the hard work they are doing to implement the important programs of the Recovery Act.”
In testimony on April 1 before the Senate Committee on Small Business and Entrepreneurship, Mills discussed her hands-on experience managing and helping to grow small businesses.
“I was there on the factory floor in Arkansas and Ohio working to weather the recession of the early ’90s,” she said. “Those experiences give me a deep understanding of what our small businesses need today to survive this downturn and to prosper in the years ahead. Since then, I have helped grow companies in organic food, and women’s media, and spent time in rural Maine working with our boat builders and composite technology to help them compete throughout the globe.
“The sum of my experience is this: I am a believer in American small business. I am a believer in America’s ability to manufacture goods and services that are world class, and I am a believer in America’s spirit of entrepreneurship. This spirit is one of our country’s greatest assets and we need to cultivate it today, more than ever.”
As Administrator of the SBA, Mills will direct a federal agency with more than 2,000 full-time employees, with a leading role in helping small business owners and entrepreneurs secure financing, technical assistance and training, and federal contracts. SBA also plays a leading role in disaster recovery by making low interest loans.
Mills, of Brunswick, Maine, was president of MMP Group and has a 25-year career of investing in and growing small businesses. In 2007, she was appointed by Maine Gov. John Baldacci as chair of the state’s Council on Competitiveness and the Economy, where she focused on attracting investment in rural and regional development initiatives. She also co-authored a Brookings Institute paper on competitive clusters.
Mills is also a member of the Council on Foreign Relations and has served as vice chairman of the Harvard Overseers. She holds a degree in economics from Harvard University and an MBA from Harvard Business School, where she was a Baker Scholar. Mills and her husband Barry Mills, president of Bowdoin College in Brunswick, Maine, have three sons.
The 8-PAC News Aggregator says WELCOME to Administrator Mills!
###
WASHINGTON, D.C. – A Congressional panel today took the first step toward updating key Small Business Administration (SBA) programs that provide counseling and technical services to budding and established entrepreneurs. During a hearing of the House Small Business Committee’s Subcommittee on Rural Development, Entrepreneurship and Trade, Members of Congress said that the SBA’s Entrepreneurship Development (ED) programs are needed now, more than ever, given the economic strains that small businesses currently face.
“The Small Business Administration’s Entrepreneurial Development Programs offer services that can make the difference between whether a new venture fails or gets off the ground and creates new jobs,” said Subcommittee Chairman Heath Shuler (D-NC). “Businesses that use these services are twice as likely to succeed. The legislation we are considering today will strengthen these programs, so that entrepreneurs can access additional information and services that help them build their businesses.”
The legislative hearing examined seven pieces of legislation, each of which is designed to improve ED Programs at the SBA. The SBA’s ED Programs are administered through public-private partnerships and offer a range of services to small business owners and, in some cases, focus resources and assistance on specialized groups of entrepreneurs. The agency’s Small Business Development Centers (SBDCs) foster economic development through a network of one-stop business assistance centers that offer financial, marketing, production, planning and technical guidance. Women’s Business Centers (WBCs) target Entrepreneurial Development services to female entrepreneurs, while the SBA’s Office of Veterans Business Development provides customized assistance for veterans. It is estimated that in 2008 alone, ED programs pumped $7.2 billion into communities across the country and laid the groundwork for 73,000 new jobs.
“The SBA’s portfolio of entrepreneurial development services can assist all entrepreneurs in developing and executing business plans and spurring job growth,” Shuler noted. “These programs also help business owners with unique challenges, like veterans, Native Americans and women.”
In addition to reauthorizing and strengthening existing ED Programs at the agency, the package would create new grant programs for Native American business owners and veteran entrepreneurs. The legislation would also expand access to entrepreneurial development program materials through the use of technology. The bill would expand the use of distant learning to make it easier for business owners to remotely access entrepreneurial training content.
“In rural districts, like mine, the nearest Small Business Development Center can often be far away,” Shuler said. “The legislation the Committee examined today would harness current technology to better assist small business owners in rural and underserved areas.”
The SBA’s Entrepreneurial Development programs have not been updated since 1999, making the legislation potentially the most significant update to the SBA in a decade. The bills are expected to be marked-up in the Subcommittee following the Easter District Work Period, after which they would be considered by the entire House Small Business Committee.
###
U.S. President Barack Obama,left. smiles with Italian Prime Minister Silvio Berlusconi, centre, and Russian President Dmitry Medvedev during a group photo at the G20 Summit in the Excel centre in London, Thursday, April 2, 2009. The objective of the London Summit is to bring the world’s biggest economies together to help restore global economic growth through enhanced international coordination. (AP Photo/Kirsty Wigglesworth)
###
WASHINGTON (AP) — Will it all work? World leaders achieved the minimum at their London summit, cobbling together more resources for the International Monetary Fund and pledging to better regulate unruly financial markets. But no country would budge from its bottom line, so the biggest goals were not met.
Global markets cheered anyway, happy that the Group of 20 leaders were able to demonstrate unity in the midst of the worst financial crisis in decades.
In the end, the ability of President Barack Obama and the other leaders to paper over their differences may turn out to be the biggest achievement of all.
Despite some tough talk going into the meetings, including a threatened walkout by French President Nicolas Sarkozy if things didn’t go his way, the leaders emerged with a show of common purpose.
Their final communique even contained a pleasant surprise in the form of a tidy $1.1 trillion pledged to help make sure emerging economies like those in Eastern Europe and Latin America can tap into sufficient resources at the International Monetary Fund to withstand the current turbulence.
That pile of money was easier to obtain because it won’t force the United States or other countries to increase their deficits to supply the additional resources to the IMF. Instead, much of the increased support will come in the form of loans the major countries will agree to provide to the IMF if the agency needs more firepower.
The leaders also pledged to fill in the current gaps in financial regulation that have been laid bare by the troubles that began in subprime mortgage lending in the United States but have now spread to other types of loans not only in the U.S. but around the world.
Obama stood firm against a determined push from Sarkozy and German President Angela Merkel for creation of a global regulator to attack what the Europeans see as a U.S. brand of unfettered capitalism that brought the global economy to its knees.
In the end the U.S. argument prevailed. Instead of the more powerful global regulator, the summit called for better coordination among individual country regulators and increased transparency to provide more oversight of the so-called shadow banking system of hedge funds and other lightly regulated financial entities.
The approach adopted by the G-20 closely follows the outlines of a regulatory overhaul that U.S. Treasury Secretary Timothy Geithner unveiled last week.
Many economists believe this approach offers the best chance of repairing the flaws in the current system quickly, avoiding a long, drawn-out fight over creation of an all-powerful global overseer.
“I think the fact that the G-20 did not go for a global regulator was the right decision,” said Morris Goldstein, a former top official at the IMF and now an analyst with the Peterson Institute for International Economics in Washington. “The key agreement they did achieve was to declare that any systemically important institution, such as hedge funds, will be regulated.”
The G-20 empowered a renamed and expanded Financial Stability Board – which will now include all the member countries in the G-20 – to provide guidance and expertise in the regulatory overhaul effort. This group, formerly called the Financial Stability Forum, was created after the 1997-98 Asian currency crisis to provide a way for countries to discuss financial regulatory issues.
The G-20 also pledged an immediate effort to crack down on offshore tax havens, a loophole in the current global regulatory system that costs the United States and other nations billions of dollars in lost tax revenue each year. These offshore finance centers are also the home for many hedge fund operations.
But that effort’s success could depend heavily on whether the major economies can bring enough pressure on countries such as Monaco and the Grand Cayman Islands.
Obama and his colleagues made all the right pledges to fight political pressure at home to raise protectionist barriers to protect domestic industries. The G-20 made the same pledge at their first leaders’ summit last November in Washington. But since that time, 17 of the nations at that meeting, including the United States, have moved to protect domestic industries in the current downturn.
Even with that failure of will, analysts said, the problems would be much worse if there wasn’t a G-20 process at work to keep nations from pursing the disastrous policies that turned the stock market crash of 1929 into the Great Depression of the 1930s.
“The main benefit of the G-20 is that it demonstrates that world leaders are working together and have a high level of commitment to quelling the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com.
“They have taken a lesson from the Great Depression when countries didn’t work together and that caused the whole system to crumble,” Zandi said. “No one wants to see that happen again.”
