Today, banks have a 95% share of business lending, despite a significant drop-off in lending to small businesses.  Last year, banks rejected 60% of small business loan applications, and they reduced small business loans by 20% during the last recession.  On the other side, credit unions increased loans by 40% during the last recession, but their lending has been capped by an outdated law that suppresses small business access to capital and deters smaller credit unions from serving these businesses. 

To improve small business access to capital, Congress has proposed to increase the current credit union lending cap from 12.25% to 27.5% of assets.  For small businesses, which typically account for 60-65% of job growth in an economic recovery, increasing access to capital would mean investment and growth.  In fact, the proposed change would generate $13 billion in investments and create 140,000 new jobs, as well as indirect economic benefit.  On the other hand, keeping the cap in place maintains an economic barrier to entry that protects near-monopoly status for banks that collectively control the small business lending market. 

Warren Stephens is right in that we need public policies that encourage competition.  In this case, we need to remove market entry barriers that suppress small business lending.  Ending these market barriers would increase competition and stimulate economic investment, and do so without increasing government spending. 

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, an educational and research organization.

Phoebe:  “Grandpa?”

Me:  “What do you need, hon?”

Phoebe:  “I need an iPad like Grandma’s.”

In silence, I pretended to focus on our shopping list, hoping the 5-year-old’s attention span would let the request lapse quickly.

Phoebe:  “I really, really need an iPad, pleeeease.”

Me:  “But you have a Wii and you’re good on Guitar Hero and the other games.”

Phoebe:  “Grandma’s iPad has better games.”

Me:  “Which games does she have?”

Phoebe:  “Angry Birds and Water and she lets me download other ones.”

Me:  “Grandma said she’d help you use Khan Academy.”

Phoebe:  “Grandma says her games help me learn.”

In silence, I recall that Mossberg said to wait until fall to buy any laptop or PC since by then Windows 8 will be out and new PC’s will have touch screen technology.  PCs are better bang for the buck; faster, more storage, and more durable – a compelling argument.   But, on second thought, do I really want Phoebe exposed to the malware and privacy loss typical on Internet Explorer?  I’m left without a better idea, but I avoid mentioning a laptop or desktop anyway.

Phoebe:  “I can read some of the games.”

Me:  “Well, iPads might break easily.”

Phoebe:  “I play with Grandma’s iPad when I sit in her big comfy chair.  I don’t take it outside.”

Me:  “Yeah, but all the really cool kids want cellphones – not those iPads.”

Phoebe:  “Nuh-uh, no one of my friends has a cell phone.”

More silence, while I pick up grocery items pretending to be focused, but really just lacking argument ideas except for the outrageous cost of iPads.

Phoebe:  “Donny says old people don’t understand iPads.”

Me:  “Oh hey – look over there, the checkout line is really short.   Here’s our list – check that everything on it is in our basket.”

Phoebe:  “If I got an iPad, I could teach you how to use it.”

Alan Daley is a retired businessman living in Colorado following public policy from the consumer’s perspective and learning to not underestimate grandchildren.

One of the more interesting features of the bill is the allowing of crowdfunding. Previously, companies or entrepreneurs that wanted to raise capital from a large amount of small dollar investors had to deal with complicated SEC regulations, including having their investors be accredited, and the company having to register with the SEC, depending on certain funding thresholds. Because of the JOBS Act, many of the regulatory hurdles are being are being taken down or loosened. This will allow for crowdfunding by entrepreneurs and small businesses.

So what exactly is crowdfunding? It’s exactly as it sounds. It’s a gathering of a group of small dollar investors to help fund a company, in exchange for stock or issuance of debt. In the digital age, we’re seeing crowdfunding in many different areas—crowdfunding of non-profits, art projects, one-off products—even Groupon’s business model might be considered some form of crowdfunding. But until today, the SEC’s regulations have stopped small business owners from being able to be funded the same way.

Crowdfunding has been enormously successful in these other areas. Kickstarter is a company that was formed to help artists, filmmakers, authors, or other creative professions find funding for their projects. There have been many success stories, even helping some businesses get off the ground by selling their first product on the site, rather than selling stock in the company. In 2010, a designer named Scott Wilson put his concept for a new product on Kickstarter. It was for a wristband that would hold your iPod Nano on your wrist, in effect turning your Nano into a wristwatch. If you pledged $25 or more, you would receive a finished product in the mail. The product exploded, raising over $900,000, allowing Wilson to put his product into production and put his new company on it’s way to designing more products.

Think about the ideas that could be funded or the jobs that could be created using this model. It’s a democratization of the venture capital band banking industry. No longer would an entrepreneur with an idea be forced to find funding through hunting down a millionaire angel investor or pitching a room full of venture capitalists. An entrepreneur could post his idea on a website, put a link to it on his Facebook page, and have 2,000 of his closest friends invest $50 each for a share in his new company. The JOBS Act has the potential to unleash a wave of job creation and innovation.

Because of this democratization, many Wall Street firms may not be happy. This could be viewed as the beginning of taking business away from the large banks and brokerages who usually handle this business. As Tim Carney at the Washington Examiner points out:

“Liberal critics attack the bill as a pro-Wall Street deregulation, but the measure actually helps ordinary Americans bypass big banks, investment brokerages and large investors — which might be why some senators weakened the bill, inserting regulations that protect the big guys from new competition. A top lobbyist for large investors successfully pushed restrictions on how much money entrepreneurs can raise through crowdfunding.”

Criticism of the JOBS Act has come not only from the banks worried about their foothold, but also from some in the financial journalist and political community. Their worry is that the new law may allow for rampant fraud. What’s to stop hucksters and con-artists from setting up fake companies to bilk investors out of their money? Without the accreditation process, these scams could be much easier to deploy on an unsuspecting investor community, excited about new opportunities. Steve Case, the founder of AOL and one of the boosters of the bill, tells Andrew Ross Sorkin that, of course there will be some fraud—there always is. He told Sorkin, “I don’t want to sound flip about this, but you don’t have to be an accredited gambler to go to Las Vegas. Anyone can walk into a casino and lose an unlimited amount of money. I’d rather they invest that money.” And as Darrell Delamaide at Marketwatch points out, could it be any worse than the financial disaster the banks found themselves (and their clients) in during the financial crisis these past few years?

The JOBS Act could unleash the next wave of innovation we see on the Internet. As the democratization of the investment apparatus continues, we could see more and more small businesses opening up shop, and more and more jobs being created in the process.

• First, consumers want to know why Google, the dominant online company who has shown little regard for online privacy protections is not at today’s hearing to speak on this critical issue?  They, more than anyone, have questions to answer.
• What does the FTC plan to do about Google’s new radical and confusing privacy policy which retroactively merges all data the advertising giant has collected on a consumer into one user-profile for the purposes of selling ads?  A policy that led 36 state attorneys general – on both sides of the aisle – as well as members of Congress and regulators in the United States and across the globe to raise serious questions about this new policy.
• After settling with the FTC for violating privacy protections with Google Buzz and settling with state attorneys general over the collection of unauthorized data in Google Spy-Fi, what steps are being taken to ensure that Google no longer flouts our privacy laws?
• It was widely reported that Google created special computer code designed to ignore a user’s privacy settings in Apple’s Safari web browser which allowed the internet giant to track a consumer’s browsing behavior without their knowledge.  What steps will be taken by the FTC to ensure Google will not release similar computer code on the web to spy on an unsuspecting users in the future?

Google’s lack of interest in consumer privacy is becoming an even larger concern as the company gains a greater foothold in providing government solutions, making American citizens subject to their lax privacy commitment without their knowledge.  Congress is making important strides in examining the protection of consumer privacy and we hope today’s hearing is only the beginning, and that it leads to more specific hearings into Google’s harmful privacy practices and utter disregard for consumer privacy.

]]> http://www.theamericanconsumer.org/2012/03/29/aci-statement-regarding-todays-house-energy-and-commerce-committees-privacy-and-innovation-hearing/feed/ 1 http://www.theamericanconsumer.org/2012/03/16/aci-sends-letters-to-congress-calling-for-hearings-on-the-next-generation-television-marketplace-act/ http://www.theamericanconsumer.org/2012/03/16/aci-sends-letters-to-congress-calling-for-hearings-on-the-next-generation-television-marketplace-act/#comments Fri, 16 Mar 2012 12:58:18 +0000 editor http://www.theamericanconsumer.org/?p=4015 Click on the following links to read the letters:

• Letter to Chairman Rockerfeller
• Letter to Chairman Upton

The table below shows major sources of consumer income, the number of Americans receiving payments from the source, and the average annual payment to recipients.   

Sources notes: Employee compensation is from 2011 BEA National Income.  Proprietor, interest, rents, and dividend income are from 2009 IRS Statistics.  Social Security and Medicare headcounts are from 2011 SSA and Kaiser Family Health, respectively, while their dollar totals are from BEA National Income.  Medicaid dollars are from BEA National Income and the headcount is from a CNN Money estimate.  Unemployment insurance dollars are from BEA National Income, and headcount is from Dept of Labor.  Supplemental Nutrition Assistance Program (SNAP, aka Food Stamps) is from USDA.

In 2011, employee salary, wages, and benefits were $8.4 trillion and proprietor income was $1.1 trillion in 2009.   The number of employees grew by 1.5 million to 140.8 million at year end 2011.  The number of proprietors was 25.2 million at the end of 2009.    Unemployment has dropped from more than 10% to 8.4% but 5 million people left the labor force during the Oct. 2007 to Dec. 2011 period and 8 million work part-time because they cannot find fulltime work.  

Many retirees worked hard to accumulate assets that could produce retirement income, rather than rely entirely on government for income.  As a result, the average retiree is neither a 1%-er nor destitute, but somewhere in the middle.  The net worth of all retirees (median value in 2002) was $455,000 with $125,000 tied up in home equity, leaving $330,000 for income and other assets.  But in the last 3 years, the interest yields from annuities, CDs, muni- and investment-grade bonds did not match retirement plan expectations.   Most had to reallocate their portfolios to riskier assets; dividend producing stocks and junk bonds.  The income from rents, interest, and dividends claimed on IRS 1040 returns by 9 million, 21 million, and 15 million people resp. often goes to small business owners and moderate income retirees, and not just to the rich that our populist politicians vilify.     

Employee and proprietor compensation, rents, capital gains, dividends and interest are the easy pickings that politicians will seize for government tax revenues.  The President’s Fiscal Year 2013 Budget Proposal, calls for more limits on personal deductions and higher marginal rates.  The budget shows annual personal income tax receipts increasing by 103% or 7.4% compound growth in the decade FY 2013 to FY 2022.  In that decade, corporate income taxes increase 78%, or 6.0% compound growth.   The steep personal tax ramp is at odds with any assertion that only those earning above $200,000 (singles) or $250,000 (couples) will see tax increases.  In the President’s plan for personal income tax:

• Capital gains tax would jump from 15% to 20%
• Dividend taxes jump from 15% to ordinary income tax rates (up to 39.6%)
• Medicare contributions double to 3.8% of income
• For those in 33% and above tax brackets, the tax benefit of deductions reduces by 20% for home mortgage interest, charitable contributions, tax-exempt interest on municipal bonds, employer payments for health insurance, contributions to 401(k) accounts, traditional IRAs, and health savings accounts.

A decade of 7.4% increases in personal tax payments would be harsh, but mitigated if income increased at the same pace.  No one that we can find is suggesting that.  During 2011, wage rates grew by 2.7% for production and non-supervisory workers.  And, long term income growth and inflation are likely to offset each other to produce a 0.8% real income growth – which means the annual 7.4% tax increase will be painful.   

Fidelity Investments assessed how likely it is that the President’s proposed tax hikes will be imposed.  It concluded that both parties know passage is unlikely in the short run and ultimately it depends on who controls the Congress and White House after the election.   Any consumer who wants some control over his or her income security has a big stake in that outcome.

Alan Daley is a retired businessman living in Colorado.  He follows public policy from the consumer’s perspective.