G20 summit: A Greek tragedy and a grand failure

NDTV Correspondent, Updated: November 06, 2011 08:16 IST

Prime Minister George Papandreou, center, arrived to meet with the Greek president about the debt crisis.

ATHENS — Hours after the government won a crucial confidence vote that made it more likely that Greece would receive the foreign aid it desperately needs, the country’s leaders on Saturday reverted to the type of political wrangling that threw Europe and its markets into turmoil last week.

Prime Minister George Papandreou took the first steps Saturday to try to form a unity government with the opposition, which he said was necessary to steer the country out of danger. But by Saturday evening, the two sides seemed locked in position, with the prime minister making no immediate move to leave power — a key demand of the opposition — and the opposition leader reiterating his call for early elections and branding Mr. Papandreou “dangerous for the country.”

While such stands may be nothing more than clever negotiating strategies to win concessions, any sign that Greece may be headed for a poisonous stalemate is sure to rattle other European leaders — and creditors — craving stability.

The continued political upheaval comes at a time when Europe can least afford it.

The European Union wants the Greek Parliament to approve a new debt deal as quickly as possible to guarantee continued foreign support and avoid the risk of default on its debts. To the extent that the financial crisis is partly a matter of perception, any delay would be problematic. But with Italy already at risk, analysts say, further delay could be disastrous, allowing the contagion to spread there.

“It’s not just about Greece, it’s about the whole situation of overhung debt in Europe, of Italy and others which are more capable of bringing down the system,” said Ian Lesser, the executive director of the German Marshall Fund’s Brussels office.

Some of the damage has already been done.

Fears over Greece have already helped to compromise Italy’s position, pushing its borrowing costs to 6.5 percent, a record high since the country adopted the euro and a burden the country might not be able to bear for long. High borrowing costs helped tip Greece, Portugal and Ireland into deep enough trouble that they needed bailouts.

Those costs could ease on Monday. But analysts say coming up with a workable plan in Greece — or even just papering over its problems — will be necessary to buy time for Italy, which is mired in its own deep political troubles and which would be much more difficult to bail out because its economy is larger.

Charles Grant, the director of the Center for European Reform, a research institute in London, said that if Greece defaulted or prepared to leave the euro zone before the bloc could build a big enough bailout mechanism “and before there’s a credible Italian government,” it could “bring down the whole euro system.”

“That is why Merkel and Sarkozy will do anything they can to persuade whoever is running Greece to take things slowly, to follow the medicine, to carry on pretending they can pay the debt when everyone knows they can’t,” Mr. Grant said, referring to Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France.

The proposal for talks to form a unity government followed a roller-coaster week of intense brinkmanship. Mr. Papandreou proposed a referendum on Greece’s new debt deal with the European Union — roiling world markets and spooking Europe — before coercing the opposition to back the deal and just as quickly calling off the referendum plan.

But as the dust settled Saturday, it was still unclear whether Mr. Papandreou’s referendum gamble was a brilliant strategy to hasten passage of the debt deal, which is Europe’s best hope to create a firewall around Greece, or whether it achieved a short-term political gain while dooming the government’s ability to work with opponents to approve the agreement.

It dictates the approval of a series of austerity measures the government has already agreed to and imposes a permanent foreign monitoring presence. Amid growing social unrest, the Socialist government might not have the ability to pass the necessary legislation on its own, hence Mr. Papandreou’s appeal for broader consensus.

At Quickoffice, which sells software that allows users to create and edit documents on mobile devices, Alan Masarek always enjoyed getting deep into the numbers of his business — almost as if he were chief financial officer instead of chief executive.

That is because Mr. Masarek, who helped found the Plano, Tex., business in 2002, has a background in finance. “I always wore two hats in my business: the C.E.O. hat and the de facto C.F.O. hat,” he said, adding that he relied on staff accountants and a controller to help him run the everyday accounting functions of the company.

That changed in 2010, when he decided to hire a full-time chief financial officer. “Not every company needs a C.F.O.,” Mr. Masarek said. “It depends on how dynamic the business is. I needed to hire someone who could function as my business partner and allow me to step away from the books so I could manage other aspects of the business better.”

Generally, as start-ups grow, they hire outside accounting firms. Often, the accountants handle only the taxes and maybe the payroll. If the company continues to grow, and its financial reporting requirements become more complex, the chief executive might decide to bring on a full-time controller who can take charge of maintaining the business’s general ledger and bank accounts. On the other hand, the decision to bring on a finance chief is often tied to strategic decisions, like performing competitive market analysis, raising capital or securing credit.

THE TIPPING POINT A C.F.O. typically takes responsibility for financial analysis, accounting and budgets, along with overseeing insurance, banking, real estate, health insurance, accounts receivable and legal issues.

“When the C.E.O. is being distracted from critical revenue-generating activities to handle financing or similar issues, it’s time for the C.F.O. to take his place and make these things happen,” said Mike Henderson, the finance chief of Lendio, a company with annual revenue of $9.6 million that is based in South Jordan, Utah, and helps small businesses secure loans. “Once the C.E.O. starts to feel the pain, act quickly, because a good C.F.O. can provide tremendous unforeseen support and help avoid some of the growth problems companies face.”

No matter how small, any company can benefit from having a finance chief to help organize its finances and track its performance. Typically, however, hiring one does not become essential until companies reach a tipping point — often $10 million to $20 million in revenue, according to Mr. Masarek and other chief executives interviewed for this article.

The main reason companies hesitate, of course, is the cost — most finance chiefs are paid six-figure salaries. That expense becomes more palatable when the company has more revenue and the company’s numbers need to be analyzed and communicated.

“I like to say that a controller is always looking backward in their role of financial reporting and closing the books,” Mr. Masarek said. “But a C.F.O. is always looking forward, someone who will own the accounting functions but also get involved strategically in how we handle things like debt and equity and how we finance the company moving forward.”

Companies that do not have the revenue to justify paying someone a six-figure salary may consider hiring someone to play the role part time. For example, when her advisory board suggested she hire a C.F.O. after her company hit $2 million in revenue, Bibby Gignilliat, founder and chief executive of Parties That Cook, which stages hands-on cooking parties and corporate team-building events, turned to a consultant on that position.

Jeff Gustafson, whom Ms. Gignilliat pays $150 an hour for typically eight hours a month, took on several critical projects for the company, including building an extensive financial model that demonstrated the impact of expanding into new cities, hiring employees and raising prices. “It has allowed me to be the C.E.O., working on the business versus working in the business,” Ms. Gignilliat said.

DEALING WITH INVESTORS For growing companies, a common trigger can be the decision to bring on investment capital. At these companies, the finance chief often becomes the liaison charged with keeping investors updated on how the company is performing.

Paul M. Doman, chief executive of the Accurate Group in Charlotte, N.C., which provides financial services to banks and mortgage lenders, made the decision last February to hire a finance chief to help manage his relationship with Evolution Capital Partners, a private equity fund based in Cleveland.

“My expectation from a C.F.O. tends to be high,” said Brendan D. Anderson, a partner in Evolution Capital. “I almost view the C.F.O. as the next step to the C.E.O. in that they understand everything and can communicate verbally and in writing how the business is performing, how the plan is coming together and also forecasting where budgets and projects are headed.”

Forecasting performance is particularly important if a company sets its sights on an initial public offering. That is why Karen S. Camp joined VirtuOz, which is based in Emeryville, Calif., and provides companies with virtual agents for online marketing, sales and support.

So before we dive in, what exactly do I mean by “hurt” your business? Well, these credit and lending mistakes could do any of the following (this is not a complete list, of course):

• Slow your growth
• Damage your brand
• Make the difference between a profit and a loss
• Cause your business to fail

At the very least you’ll slow your growth or limit yourself from being able to handle the curve balls that are part of business life cycles. It’s also important to state the obvious, which is that we’re only talking about debt capital solutions – borrowing money. We are not going to discuss equity financing mistakes made with VCs, angels, private equity firms and so on.

The credit and lending landscape has not only shrunk from the levels we were seeing in 2005 and 2006 but has also become less consistent and is constantly changing. That means you must be prepared for a variety of factors that can be frustrating, even if you’re working with an expert individual or company in the small business finance arena.

In fact, companies like Commercial Capital Training Group and Compound Profit are capitalizing on the huge need for trusted advisors with expertise in the small business credit and lending space by offering career and training opportunities to individuals looking for a new career opportunity as a small business loan broker. There is such a need that both of these companies are swamped with new trainees.

Bottom line: If you have a proper understanding of your borrowing options, that should create realistic expectations. And if you have those two key components, then you’re halfway there.

These are the five biggest mistakes we’ve seen since the onset of the credit crisis in 2008:

1. Using Personal Credit Cards for Your Business

According to the Meredith Whitney Advisory Group, 82 percent of small business owners use credit cards as a “vital part” of their overall funding strategy. The problem is that most small business owners use their credit cards the wrong way.  They either use personal credit cards or they use business credit cards that actually report to their personal credit report.

Capital One and Discover Card are two of the most popular business credit cards that report their activity to your personal credit report. As a result, they are really no different than using personal credit cards as a funding tool for your business.  When you use personal cards instead of the right business credit card, you hurt your FICO scores, damage your credit file and miss out on the chance to separate your personal and business credit.

We have seen hundreds of small business owners in the last year who needed  extra funding to grow their business and were unable to get it for one reason: because of the impact of using personal credit cards, or the wrong business credit cards, for business.

2. Using Borrowed Funds the Wrong Way

Once you’re approved and you get your funding, as soon as you high-five the nearest person, it’s time to make sure you use the money properly.  It’s tough enough to get funding nowadays, so don’t go spending it without a plan. (We’re  talking about “working capital” funding here. If you get real estate or equipment funding, that’s great, but there’s usually no discretionary funding left on the table for you to spend.)

We talk about Revenue Generating Activities (RGA).  Make sure a good percentage of that loan or line of credit is used to generate additional revenue to grow your business. I like a combination of short-term efforts (a marketing or ad campaign or perhaps a series of trade shows to build exposure and develop key relationships), long-term efforts (building your brand, social media initiatives, building business credit, etc.) and perhaps some “my situation” needs.

An example of “my situation” needs would be to pay down personal credit cards (if you didn’t read this article in time) so you can increase your FICO scores and then obtain additional funding.  Another example would be to give yourself a small salary for a few months while you transition into a more full-time role in the business or to pay yourself back from monies you already spent on the business.

3. Pledging Excessive Collateral With Your First Loan or Line of Credit

Small business lending is constantly changing, and small business owners often think the lender is crazy for saying no, for offering a higher-than-acceptable interest rate, or for failing to live up to their expectations for any other reason. Add all this up and you’ve got a perfect storm.

As difficult as it may be when you’re not working with an experienced small business lender or consultant, try not to give the lender collateral if you don’t need to. And certainly don’t let the lender take an excessive amount of collateral, or you’ll have trouble getting the next loan when that huge, game-changing contract comes your way that will grow your business exponentially.

4. Doing Your Own Research and Getting It Wrong

My guess is that if you were charged with a serious crime you probably would not decide to represent yourself or defend yourself in court. So if the credit and lending landscape is so challenging, difficult and ever-changing then why are you trying to figure it out on your own? We learned a dangerous lesson in the days of easy mortgage money, when websites where you can choose from a long list of lenders and offers became a popular way to find mortgage loans.

The principle behind these sites is that if you talk to enough mortgage companies, you can figure out what the best loan is for your situation. Never mind that you may have no idea about hidden fees, teaser rates and the “bait and switch” tactics used by lenders and brokers, and you’ve never had any training on credit, HUD-1′s, and how to read the 50-plus page mortgage closing package. Despite all that, you’re smart enough to make the right decisions–without professional help–about the largest debt you’ll ever create. I know you’re an exception to the rule but for most “other people” that’s problematic.

Most banks approve less than 10% of the loan applications they get from small business owners. Many of the 10% don’t get as much funding as they need or must give up a lot of precious collateral in order to get their funding. You do the math. Will you be one of the very few who gets everything they need from the bank without pledging an excessive amount of collateral? Do you know where to turn to get the best possible funding after the bank says no? Most small business owners need a good advisor. Even with assistance, getting financing is still a challenge, but at least you’ll be in good hands.

5. Not Treating Your Personal Credit as the Asset it Is (or Not Making it an Asset)

It’s real simple.  You’re a small business owner so you’re going to sign on the dotted line when getting financing.  Yes, to my friends who build business credit, I have Staples cards and gas cards, and a Dell line of credit that did not require a personal guarantee, but those are exceptions and have limitations. We’re talking about the majority of loans and lines of credit that business owners are looking for.

Your personal credit is part of the underwriting criteria (always, for bank lending solutions, and often, for non-bank solutions). Your personal credit is either an asset to your business or a liability.  If it’s an asset, then preserve it and maintain it – and use it the proper way.  If it’s a liability, then do something about it. Find a credit professional who can help you. Please don’t find another mortgage flunkie who now does “credit repair” in addition to three other jobs. Find a professional who can guide you and turn that liability into an asset.

These are some common mistakes we’ve seen small business owners make. We’re all going to make mistakes, but I hope some of my mistakes and some of what I’ve seen will help you make one less bad decision and one more good decision while you take a step in the right direction to start, build or grow your business.

‘Occupy’ Protesters, Police Clash in Oakland, Dozens Arrested

By Tracy Seipel

A prominent member of Silicon Valley’s exclusive “1 percent” club is pulling his money out of Bank of America and cutting all ties with the bank — and he hopes others will follow his lead.

Mike Fox Sr., a beer magnate and well-known philanthropist, is set to announce Friday that he is divesting his long-held personal Bank of America account, which contains several hundred thousand dollars, in an effort to promote social and economic justice.

Fox said Thursday that he has also asked his executive team to move a $4 million-plus line of credit held by M.E. Fox & Co. from Bank of America to another institution. Fox’s firm is a 46-year-old wholesale distributor of beer, water, New Age beverages and Red Bull energy drink.

“I think the only way I can influence people is through my personal example,” said Fox, 75, who called the amount he was divesting “rather small compared to the egregiousness” of Bank of America’s slow response in modifying home mortgages.

Colleen Haggerty, a Bank of America spokeswoman, on Thursday declined to comment on the matter “due to customer privacy laws.” But last month she told this newspaper that the bank has made more loan modifications than any other lender and had modified more than 193,000 mortgages in California since the housing crisis began in 2008.

Bank divestiture also is a key goal of Occupy Wall Street, the nationwide protest movement against corporate greed. Its members say they represent

---

---

the “99 percent” of the U.S. population that lives under the financial thumb of the richest 1 percent.The activists are urging Americans to participate in “Bank Transfer Day” on Saturday by moving their money out of big banks into local community banks and credit unions.

Fox’s divestment is being coordinated with San Jose-based People Acting in Community Together, a multiethnic interfaith organization that champions social justice issues.

Group leaders say the nonprofit has been trying for two years to work with Bank of America to reduce the amount of principal in loan modifications but haven’t come to an agreement. They say similar efforts by PACT’s sister groups across the country with Wells Fargo and Chase also have failed.

Fox’s announcement comes a month after another PACT member, the Most Holy Trinity Catholic Church in East San Jose, decided to divest its $3 million Bank of America account.

Gina Gates, a PACT leader who belongs to the church, said the group is elated by Fox’s move.

“We have been working on this campaign for two years trying to negotiate with banks — and particularly Bank of America — to work with homeowners to keep people who can pay for their homes and give them viable modifications,” she said.

Gates believes Fox’s action will spur other customers of big banks to move their money.

Fox said he doesn’t know where he’ll take his banking business, but mentioned local banks as an alternative.

Fox said PACT talked to him about divesting a year ago, but he told them it would be too complicated and expensive. The tipping point, he said, came when “all this stuff happened with banks.”

Explained Fox: “The inability of banks to give loans to people, from small-business loans to home loans and mortgages — the banks sort of shut down, and that was an impediment to a lot of people.”

Fox said Bank of America’s recent decision to cancel its planned $5 monthly debit-card fee after weeks of customer outrage still wouldn’t persuade him to do business with Bank of America officials.

“I’d be polite with them, and I’d meet with them,” he said. “But the decision has been made.”