Tag Archives: bank failures

The recession is ruining your business!

Turn on you local news, pick up a newspaper, read any blog or even listen to President Obama, the economy is in a serious recession and your business is likely to decline and possibly fail.  Prepare yourself, cut your expenses, trim your staff and pray you can make it.  Is this how you feel each and every day?  I know I have and I’m starting to resent it.  Unfortunately, much of the financial crisis we’re experiencing is nothing more than a self-fulfilling prophecy.

I’m reminded of a fable I heard a very long time ago.

Mr. Battaglia had a flourishing hot dog stand on Rt. 38 on the edge of a very busy shopping center near Lombard.  He had signs extending every few miles from Chicago to Geneva.  They read:   Stop at Battaglia’s!  We Serve the Best and Largest Hot Dogs in the Midwest, Tasty Char-Grilled Franks with a Sauce from a Cherished Family Recipe.  He ran ads in the newspapers and handed out circulars in the cities around him.  His hot dogs and service were good and his business was BOOMING.  Things could not have been better. 

He decided to expand.  He met with a financial consultant who had an MBA from one of the larger business schools.  The consultant, after hearing Mr. Battaglia’s expansion plans, said “All of the financial writers and even Washington say that the business outlook isn’t bright.  We’re on the brink of a serious recession, there is double digit inflation, money is tight and expensive, there is an energy crisis and people won’t drive to your hot dog stands.  It would probably be wiser to think in terms of a holding action and even a cut back in expenses.”

Mr. Battaglia, who didn’t have a great deal of formal education, respected the learned counsel of his advisor.  He went back to his hot dog stand and tried to think of ways to cut costs to prepare for the oncoming recession.  What to cut?  Not the hot dog and bun orders —  he needed those for his present business.  He decided one of the expenses he could cut immediately would be the newspaper advertising and the circulars.  He stopped these services immediately.  He realized that the consultant’s advice was sound because within four weeks his sales began to drop.  He thought to himself, “The consultant and financial forecasters are really smart.  The recession is beginning.”

To cut expenses even more, he decided to take down half the signs which would cut his sign maintenance costs.  At the end of two months his business was down 40%.  “This recession is really serious,”  he told his family, “but I’m going to give it one last try.”  He took his diminishing capital and put the road signs back up, began advertising in the newspaper and passing out circulars again.  At the end of three months his business was once more booming.  He was thankful that the recession was so short-lived and that he survived it.

What part of your financial difficulties could be answered in a simple fable?

Mortgage Business After the 2009 Economic Stimulus Package

President Obama signed the American Recovery and Reinvestment Act of 2009 into law.  So what does that mean for your mortgage business?  Whether you’re in favor of the package or not, one thing is certain, the American public knows nothing about this $787 billion dollar debt.  The average American knows our economy is in trouble, knows this is the largest debt ever created in our history and hopes our elected officials are taking the right steps.

So as the media continues to report on job loss statistics and our politicians are promoting this legislation with doomsday comparisons to the Great Depression, consumer confidence continues to fall.  Unfortunately, confidence is what drives our business.  Borrowers must have confidence in the real estate market, confidence in their personal financial situation and confidence in the growth and direction of the country.  So how do we deal with all the negative economic news and continue to build our business?  It seems almost insurmountable.  So I thought you should have s0me real economic numbers to see.  Numbers that fly in the face of Obama’s continued references to the Great Depression.  Numbers that may help your borrowers make sound financial decisions based on facts not political fear mongering.

The 2008, the annualized Gross Domestic Product (GDP) decline was 3.8%  a significant decline, but nothing compared to 1930, the beginning of the Great Depression, when the GDP declined 9%.  According to President Obama, American’s lost 3.4 million jobs last year.  That’s a large job loss number, but only represents 2.2% of the American workforce.  In 1930 jobs declined by 4.8%, then 6.5% in 1931 and over 7% in 1932.  In fact during our last big recession of 1981-1982, the job loss was 2.2%.  Today’s unemployment rate stands at 7.6%, considerably higher than we have seen in recent years, but a far cry from the height of the Great Depression when uemployment was at 25%.

During 2008 we saw the loss of a few dozen banks and politicians tried to scare us with the notion of a total melt down of our financial institutions.  Doesn’t anyone remember the Savings and Loan failures of 1987-1988 that saw over 3,000 financial institutions fail?  Comparing the few bank failures of 2008 to the Great Depression, that saw over 10,000 banks fail, is completely misguided and used either to foster fear or is being talked about by politicians that haven’t bothered to read history.  Either way this promotes a loss of consumer confidence.

You can’t out talk the politicians, but you can help your customer base understand the true facts.  Understand that the “sky’s falling” mentality helps politicians promote their agenda, but each person needs to assess their own circumstance and make appropriate financial decisions.  Today’s interest rates and real estate market offer great opportunities for many people, but as they are fed an ongoing diet of bad news and promotion of fear by media outlets and politicians, they become paralyzed and avoid making a sound financial decision.

You need to promote the facts and offer your customers an insight they will not get from our self-serving politicians.