Why Banks Don’t Like Extending Credit to Businesses

It’s the middle of March, 2009 and I’m once again, writing a new past due notice to one of my clients, a business owner based on the west coast. Mirabella, the owner of a novelty item company, is now almost a year past due on the money she owes me for work I did for her last summer.

I’ve known Mirabella for some time and we have many mutual associates to whom she also owes money. It’s almost a running joke among our circle of friends. I knew it was only a matter of time before she owed me money, too.

“But, you’re still taking a full paycheck,” I always argued when I heard her explanations on why she couldn’t pay back a loan to one of our friends.

Her excuse: “That’s personal money. It’s not the same account. It’s illegal for me to pay company debts from my own account.”

“Whatever!” I shrugged.

Last summer, I, like many before me, finally became one of Mirabella’s statistics. She now owed me money, not because I’d loaned her cash or bought groceries for her when she forgot her wallet, but because my company had done work for her company.

“Of course, you can wait to pay me,” I said. “But if you even pay a little each month, I’ll waive the late fees,” I explained. “How about $100 a month?” I suggested.

Predictably, I didn’t receive any payments, just an occasional call from Mirabella so she could explain that she couldn’t pay me because of this or that.

“I just want to kill myself. I double ordered a product from China for a client and now I have to eat it,” said Mirabella in August.

In September, there was a light at the end of the tunnel. “This retired man named Frederick is loaning me money so I can make payroll. I think he wants to date me,” said Mirabella.

In October, things were dire again. “McDonald’s is rejecting all my credit cards. I can’t even buy a sausage biscuit,” she whispered from the drive-thru as I listened to the cashier on the speaker tell her that her American Express card was denied.

In November, Mirabella had to dip into her personal money. “I had to write a huge check to my brother to buy back his investment,” she sobbed. “My family is making me do it. It’s his fault. He sucks at his job.” I found out later that her brother’s home was foreclosed upon, the one he was given by his mother. This is especially ironic since he works as a mortgage broker.

In December, things were looking up again. “My Cousin Chip came to visit me and gave me some bonds,” she said happily.

“Can you pay me, then?” I asked.

“I’m not cashing them. I’m keeping them for my retirement,” she said.

“Ah, Mirabella!” I sighed.

Finally, in early January of 2009, it seemed justice was going to be served. Mirabella called. She was angry, “The bank froze all my accounts. My personal account, too! I should sue them. They can’t do this. I’m a corporation!”

Mirabella became a small business owner so she wouldn’t have to answer to anyone but herself, pull a big paycheck to buy expensive designer clothes, and jet set across the globe. Her novelty company was founded on money given to her by her family. Although the company has brought in some money from actual sales, it primarily survives on loans from friends, mostly older men who have the extra cash, think Mirabella is sexy and cute, and enjoy her company. Mirabella’s real skill isn’t making money from sales, it’s making money from loans through her ability to win sympathy.

Mirabella had managed to make ends meet for several years the way many small business owners do. In addition to loans, she had secured several lines of bank credit and multiple company credit cards. Each month, when funds were short, she didn’t pay what she felt she didn’t have to pay; then moved money around by paying one bill with another line of credit, and so on. Her accountant, also a former boyfriend, did his best to help her company appear solvent and successful. He also continued to pay out her full paycheck, despite revenue shortfalls.

Although it’s fun to hang out with Mirabella and enjoy recreating in the illusory world she’s built around herself, I knew it would have to end someday. Seeing her fail was bittersweet. She can’t manage money, doesn’t pay anyone back, and deserves to be shut down. However, she is a friend, so I continue to feel sorry for her.

Then, one day in mid February, Mirabella called to say all was right with the world again. “Cousin Chip and I are starting a new corporation. He’s paying the start up costs and opening up a new bank account in his name.”

“What are you going to do about your old company?” I wondered.

She didn’t answer.

But, she did add: “I can’t pay you with the new company money. It’s a different corporation.”

Hmpf! This is what I get for doing business with friends, I thought to myself.

It’s now March of 2009, nearly a year since I did work for Mirabella. She called last week to say she had been skiing with an old boyfriend who is recently divorced and was now staying with him at his vacation home in Florida. Next week, she is heading to Europe with a different man who she thinks might pop the question. She needed advice on the closest spa so she could get a pedicure.

“Stop by and we can go to the spa near my house. Then, you can treat for both of us. Consider it a down payment on the money you owe me,” I suggested.

Mirabella was a no-show. Big surprise.

I have little hopes of ever collecting because Mirabella herself doesn’t owe me money, her “now old” corporation does. In her mind, it’s my loss.

In the United States of America, owners of corporations are protected from owing money their company owes. That’s one of the principal reasons you incorporate – to protect personal assets. By incorporating your business, big or small, you won’t lose your house, your car, not even your credit rating when the bill collectors come a-callin’. You become divorced from all fiscal responsibility should the company go south, despite how much your own irresponsibility led to its downfall.

In Mirabella’s case, when she ran out of money, she simply started a new corporation. If she’s unable to resurrect the old company, she can simply shut it down, cutting off any creditors. Mirabella’s big paycheck is safe. The new corporation doesn’t owe anyone any money, yet.

President Obama announced today in a press conference that he wants banks to open up the floodgates and extend credit in order to get our economy moving again. He plans to increase the amount the Small Business Administration will guarantee so that there is less risk for banks who award lines of credit to small businesses. However, there is still no increased accountability to ensure that companies will pay the money back. There is no examination of start up businesses applying for lines of credit to ensure that these are not run by people who ran another company into the ground, then hung a new shingle outside their doors in order to appear to be in good standing. (See the video of the President's speech at: The Huffington Post website.)

Lines of credit should come with plenty of strings attached. Corporations should be required to put all owner’s names on the bank loan to secure the debt. Each owner should have to pass their own credit check. If you were part owner of a corporation who failed, and the failure was not due to unforeseen circumstances, such as your company was destroyed in an earthquake, you should not be allowed to get a new loan until the old corporation's debts are fully paid.

If you receive a loan and your company fails while you continued to pay yourself, you should have to sell your Mercedes, yacht, or vacation home to pay back the bank. If you live in a multi-million dollar home while everyone else lives in an average 3 BR, 2 Bath $200,000 home, you should have to sell your expensive home and downsize in order to pay back old loans. No more of this, “protecting personal assets” bull hockey.

It’s no wonder banks are so nervous about extending lines of credit to businesses. They should be.

Calling Governor Bobby Jindal on the carpet: Where did Louisiana’s new jobs come from?

The Lousiana State budget gets over half its operating budget from grants from the Federal government. Though unlcear, this budget does not appear to include the additional continued acceptance of Federal aid which is managed by the Lousiana Recovery Authority, LRA.

President Barack Obama gave his first unofficial state of the union speech last night, inspiring hope and optimism among the citizens of the United States of America amidst the largest economic crisis since the Great Depression of the 1930’s. The speech was moving and I felt proud to be an American and proud to have elected such an intelligent leader who I am confident will help us recover from eight years of poor government management.

The Republican party chose Louisiana Governor Bobby Jindal to deliver the Republican response. The entire speech can be found on his official website.

The following morning, Governor Jindal boasted on NBC’s Today show that while the rest of the country is in an economic meltdown, his fine state of Louisiana does not need help from the federal government and that he plans to refuse millions in stimulus money intended for his state. “We are the only state last month that added jobs in this country," says Jindal. "We’ve continued to outperform the national economy. We’ve done it in part because we’ve cut taxes. We’re going to continue to do that.”

Wait a second! Let’s back up a minute.

LOUSIANA STATE GOVERNMENT GETS OVER HALF ITS REGULAR BUDGET FROM THE FEDERAL GOVERNMENT

Jindal claims that Louisiana was able to cut business taxes six times since he’s become governor. So, where is the money coming from to run the state government?

Currently, Lousiana now gets most of their operating money from the federal government.

The government for the state of Louisiana currently receives over half of its operating budget, $15,820,733,731 to be exact, of its nearly 30 billion dollar budget per year from federal grants. This amount is disclosed on the official Louisiana Treasury website.

MORE THAN KATRINA?

One of Governor Jindal’s criticisms of President Barack Obama’s stimulus package is that it costs more than the relief money spent after Hurricane Katrina. 

About $116 billion in hurricane relief had been spent by mid 2007 to aid those affected, the majority spent the first few months after the storm and $35 billion set aside for long term rebuilding projects. Although a small amount was spent in other states, the majority was spent in Louisiana. (Blueprint for Gulf Renewal, The Institute for Southern Studies report)

According to infoplease.com, the population of Louisiana is 4,468,976 and the pre-hurricane population of New Orleans was estimated at 454,863. At $116 billion, this amounts to $26,000 in relief money per every man, woman and child in the state of Louisiana.

The United States of America boasts a population of 303,824,640 as of July, 2008 according to the CIA website. This makes Obama’s stimulus plan of $787 billion seem like a bargain, costing only $2,590 per every man, woman and child in the United States of America, less than 10% of what was spent per person on Katrina relief.

LOUISIANA, A PERFECT EXAMPLE OF HOW WELL FEDERAL STIMULUS AID CAN HELP

Is Governor Bobby Jindal really claiming that Louisiana’s exponential employment growth has had nothing to do with help from the federal government? 

Not true! If anything, Louisiana is the perfect example of how the federal government can help create jobs and stimulate the economy after a crisis. Rather than pretend his state has had no help from the feds, Governor Jindal should boast about how well his state has managed stimulus money in the form of Federal disaster relief. Most of the hard work occurred before Governor Jindal took office only a year ago in January 2008.

On August 29, 2005, Hurricane Katrina plowed into the state of Louisiana. Homes and businesses were destroyed and flooded. Residents evacuated in a mass exodus. FEMA, the Federal Emergency Management Agency, swooped in to help where they could. Granted, FEMA could have done a better job. However, the State of Louisiana would now be in ruins if federal tax dollars hadn’t rescued it.

Hurricane Katrina caused a total of $89.5 billion in damage. However, by early 2006, the Bush administration had already funneled about twenty percent more than that, $105 billion in federal dollars, primarily into the state of Louisiana to rebuild (April 1, 2006 article Boston Globe) and $11 billion more for an estimated total of $116 billion since 2007 (Blueprint for Gulf Renewal report). (I was unable to find figures for money allocated after that date, but money is still coming in according to the Louisiana Recovery Authority, LRA website.) Federal money wasn’t just given to the local government. Louisiana based charities, private businesses, residents, and property owners were also given a helping hand by the government.

A quick look at the official State of Louisiana Treasury Department website is all it takes to find out how much federal government money is funneled into the formerly hurricane ravaged state. Click on Bond Commission and you will see a list of federal stimulus projects already set in place during the Bush administration.

There are the $7.9 billion “Tax-exempt private activity bonds (Gulf Opportunity Zone Bonds, or GOZA, of 2005),” which award low interest loans to qualified businesses “in order to rebuild.” GOZA allows private businesses to borrow money at cheap, tax-exempt rates of interest.”

According to a treasury report, $400 million in federally backed bonds were sold to the private sector to help cash strapped city governments and agencies in Louisiana raise capital to continue operations after hurricanes Katrina and Rita.

Federal money has also funded business grant programs headed by the State.

The Lousiana Recovery Athority, or LRA, formed in October 2005 after Hurricanes Katrina and Rita struck the state, is a government agency designed to manage Federal money intended for rebuilding after the storm. On their website, the LRA lists projects they have funded and Federal monies they have received to pay for these projects. Under “Frequently Asked Questions,” the LRA lists about $15.1 billion in Federally funded projects to rebuild or repair roads, housing, infrastructure, schools, and levees; plus debris removal and hazard mitigation.

However, the lists of projects also includes $10 billion for community development (CDBG), which in part funds economic development programs.

$350 million was given in grants and loaned to small business owners.

$27 million was given to fishermen to help the ravaged fishing industry.

In this list, only $10 million in aid has come from private donations. The rest has come from the federal government.

One of the LRA’s task forces is the “economic and workforce development” committee. The website states: In the months after Hurricane Katrina, the state saw a 766 percent increase in initial unemployment claims and paid out more than $1 billion in unemployment insurance and disaster unemployment assistance benefits to 300,000 applicants. By February 2006, the committee and LRA had developed long-term priorities to provide financial assistance for businesses by attracting qualified workers, revamping the state’s tax structure, helping to start or grow companies, and create high paying jobs.

The LRA and Economic Workforce Development committee also strives to “develop new industries that take advantage of rebuilding efforts and regional resources and create high quality jobs.”

The LRA boasts that due to their efforts, within two years of the storm, Louisiana had climbed back to within 3 percent of it’s pre-storm employment. Where did this money come from to create jobs? It didn’t fall off a truck. It came from and still comes from the federal government. Even the operating budget for the LRA appears to come from the federal government for it does not appear on the Louisiana state treasury budget.

Why, after Louisiana claims so much success, does the state of Louisiana still need to get over half their operating budget money from the federal government? Why do they need the additional funds for rebuilding funneled through the LRA? Perhaps it’s time to cut the “hurricane recovery aid” off completely.

But, is Jindal speaking out of both sides of his mouth?

From Jindal’s own speech:

“We are grateful for the support we have received from across the nation for the ongoing recovery efforts.”

Housing Stimulus Package Treats Symptoms, Not Cure

Although not completely unreasonable, Obama’s housing stimulus package won’t really solve the foreclosure crisis because it addresses the symptoms, not the root of the problem, which is continued predatory lending.

Last summer, my husband and I easily qualified for a loan in order to purchase a home in Florida. We were approved in part because houses are cheap here, and the monthly mortgage payments with insurance and taxes were estimated to be about one quarter of our combined income.

However, due to the large number of foreclosures in Florida, we also had to put up our other house as collateral. We had just moved from Washington State, and were keeping our old home in case things didn't work out and we wanted to move back.

This was my third home loan with Countrywide Home Loans. But, this time, I left the closing table feeling I’d been ripped off. My mortgage payment would be about $200 more per month than what I was quoted when I put the offer in to buy this particular house. The closing costs were also about $7,000 higher than originally quoted several months before when I was first looking into buying a home, in part because the required percentage of down payment was higher. The interest rate had also gone up over the three months I’d been looking.

“Walk away,” some might say. “Find a new lender.”

Too late. I’d lose the chance to buy the perfect house that had taken me months to find as well all my earnest money which I’d put down as a deposit on the house a month earlier.

One of the clever ways Countrywide was able to justify their miscalculation of my monthly payment was to blame it on property tax. It is true that it is difficult to calculate tax since it’s all up to the property appraiser to decide how much your home is worth after you buy your home. New tax levies are also hard to pin down. The mortgage company was off their property tax estimate by about $100 per month, $1200 per year.

The first time you buy a house in Florida, whether you’re a long term resident or have just moved from out of state, can be a real shocker. Property tax on “non-homesteaded” homes is extraordinarily high. A $250,000 home will cost a “virgin” home buyer about $6,000 in taxes per year depending on the county and city where you buy your home. That adds another $500 per month onto your mortgage payment. This can be particularly upsetting when you learn that other homeowners in your neighborhood are only paying $500 a year, not $500 a month, for basically the same house, but that’s another story.

Second, I was told at the 12th hour, literally while signing on the dotted line, that I would have to pay PMI, private mortgage insurance. Unlike home insurance, PMI does me absolutely no good. It basically gives the lender back their money I borrowed if I default on my loan. At an extra $130 per month, this greatly increased my monthly payments. I haven’t had to pay PMI since I bought my first house, many years ago, at a young age and with only a small down payment. This particular extra charge annoyed me because I chose to go with Countrywide over Wachovia because I was given the impression that I would not have to pay PMI if I got my loan through Countrywide. The representative explained that it was in the fine print.

Once again, I felt I’d been ripped off. However, what was done was done. I would move on and move into my new home, choosing to cut my losses rather than start over the house hunting process from scratch.

Last fall, a few months after buying my new Florida home, I decided to consolidate my two home loans into one to lower my payment and remove the PMI. Once again, I talked to several lenders. Once again, I picked Countrywide over another because my quoted monthly payments would be lower. However, after receiving the paperwork, I discovered that I had been misquoted my mortgage payment by about $200 per month. Once again, Countrywide blamed it on property tax. However, this time, there was no excuse. The respresentative had all the numbers in front of him: principal, interest, property tax rolls, and insurance bills. A fifth grader could have done better math.

In addition, while reviewing the cryptic paperwork, I discovered that I had been charged points to lower my interest rate from an ungodly 9% down to 7.5%. (The rates on the two loans I was consolidating were between 5% and 6%.) As a former reporter, I’m pretty good at taking accurate notes, and the Countrywide representative used the term “you qualify for a discount,” not “you are buying points.” I had no interest in “buying” down my interest rate. I feel I should qualify for a very low interest rate based on excellent credit and equity alone.

In addition, $10,000 in fees were added to the home loan. Before you assume that I must be borrowing some enormous amount of money or have low equity to be charged 9% interest and $10,000 in fees, I must explain. The amount I would be borrowing was actually LESS than the amount of the original loan on the Washington State house. Plus, I now had MORE equity because I had wisely paid down the WA State loan early.

Only because I had the misquoted payments in writing, was I able to back out of the loan with no penalty. The representative, who’s demeanor had seemed as rosy and pleasant as a sunny day in Florida, turned nasty and defensive when I called him on the carpet. I expected an apology and discounted fees. Instead, he was insulting. I guess he was upset that he would lose his hefty commission.

I told my story to a lawyer friend who’s currently representing a city government in Florida in litigation with a mortgage company. He explained that after Bush deregulated everything, there currently isn’t an agency who oversees lenders to make sure they don’t underestimate monthly mortgage payments. "Unfortunately, in your case," he said, "there’s no one to complain to who will be able to do anything."

Obama’s stimulus package includes financial help for individuals who may lose their homes because they can’t afford to pay their monthly mortgage payments. The plan allows them to refinance their homes at a lower value than what their homes were originally valued at, which results in lower payments. So, if you bought a $300,000 home and still owe $280,000 on it, but it’s now only worth $200,000, you can refinance your loan at $200,000, which results in lower payments. Taxpayers pay the difference, the $80,000 back to the bank. (Update on 2/26/09: Details of how this will actually work are unclear. One local Orlando banker predicts that banks would only receive $6,000 per loan, no matter how much is owed. This has not been confirmed by any reliable news source.)

Other than the obvious, that this plan is unfair to people who are scraping by, taking second jobs, and doing whatever they have to do to make payments on time, it also makes no sense to me. The root of the problem is that the buyer was approved for this loan in the first place. I have to assume that the buyer isn't in trouble because they were out buying a new car, clothes, vacations, and electronics or sending their kids to private schools instead of making loan payments. I also have to assume that the buyer didn't take out a home equity loan which artificially raised the value of their home. And, I have to assume that the banks approved a loan with payments higher than the buyer could realistically afford. Why were banks allowed to do this in the first place?

Who’s watching the lenders to make sure they don’t continue to take advantage of customers by roping them in with the promise of lower costs by misquoting their payments and fees, then surprising them when it comes time to close? Why aren’t fees standardized so that the costs will be about the same between lenders? Who’s watching the fine print? Who even understands the fine print?

To fix the mortgage industry, we must fix mortgage lending practices. Mortgage companies shouldn’t be able to boost interest rates in order to make a profit. If one person can get a 5% interest rate for a primary home loan, shouldn’t everyone?

Fees should be standardized so that a borrower can not only understand what they are paying, but also so that they are the same from lender to lender.

A higher fee for a person with poor credit, or a higher fee for making a “no-to-low” down payment, should also be standardized across the industry.

Rates and fees should also be locked in for one year at no extra charge, about the time it takes to find that perfect house to buy.

“This will ruin the free market economy. This is socialism!” banks will cry.

No, this is no different than any other major purchase in life. Car dealers have to list fees and prices on the sticker and can woo customers with free oil changes for life. It’s easy to back out of what looks like a bad deal: You don’t have to make a deposit before signing for the car; you aren't locked into a loan for 30 years; and you can easily go to a different dealer to find the same exact silver Chevrolet Cavalier since cars are mass produced. Even utility companies and insurance companies must go before the Florida Legislature to justify price hikes. Credit card lending terms are written on every statement. Why can't mortgage costs be standardized?

Rather than winning over home buying customers by promising lower interest rates, fees, or payments, home mortgage lenders can promise better customer service. Your bank where you have your checking account can offer you convenience in transferring payments between accounts. Independent lenders, such as Countrywide, can offer flexible payment schedules or lower late fees for late payments to woo customers, or maybe throw in a free gift card to Haynes furniture.

There should be no surprises.

Banks are not only to blame. Florida counties and cities need to commit to listing anticipated property tax on homes for sale so you know exactly how much you will have to pay, even before you put an offer in to buy a home.

PMI? What’s the point? What good did PMI do amidst all the foreclosures. That’s one extra fee that should be eliminated entirely.

In addition, the current structure of loans sets borrowers up for failure by amortizing payments. What does that mean? The first few payments you make don't pay off your loan. Instead, they are attributed to interest. In fact, over half of your mortgage payments pay interest for the first 18-1/2 years of a 30 year loan. Crazy? Huh? No wonder so many people owe more than their homes are worth. The only way to pay less interest is to make extra payments earlier than scheduled. Wouldn't it be great if instead of paying $900 towards interest and $100 towards the loan, you paid $300 towards interest and $700 towards the loan each month from day one? After one year, you'd already have paid off $8400!

Obama wants to give an $8,000 tax credit to first time home buyers to help with the cost of buying a home to offset these costs. Too bad it's too late for the rest of us. We were all first time home buyers at one time.

I would prefer that the housing stimulus money be spent on a government regulatory agency that will standardize home loan costs for everyone. That’s the only fair way to spend tax payer money. We are one country. We are one people. We all pay taxes in one way or another. Let’s all reap the benefits of “club membership” of this United States of America.

How to Not Layoff a Worker

Last week, my mother was laid off from her “very” part time job at a non-profit organization. Mom had started working there 25 years ago after the kids were nearly grown, working part-time to full-time as needed. Mom built her life around her job and made many close friends among her coworkers with whom she spent a lot of time off the job.

After many years and many budget cuts, Mom was now the only remaining person working in her department who performed her specific duties. Although she was paid to work only 12 hours a week, Mom put in an extra 12 to 20 hours per week in volunteer time doing what she truly loved. She liked to joke that she was “cheap” labor.

On top of Mom’s volunteer contributions, she also supported the non-profit financially, buying gifts for all of us at Christmas from the non-profit run shop and donating money to special programs.

Mom assumed her job would always be safe. She was sadly mistaken.

Her employer, the non-profit, held a meeting one day where they told their shocked and dismayed staff that all part-time help and some full-time help would be “separated.” Mom tried to negotiate even fewer paid hours via her supervisor, who told her that the “powers that be” were not interested. She was told to pack up her personal things and collect her last pay check.

“But, you’re welcome to continue volunteering,” said the receptionist who handed her the check. “That’s the plan – to shift most of the work to volunteers to save money,” she said.

“Humph!” said Mom as she boxed up all the materials she had purchased with her own money and not sought for reimbursement.

Mom wasn’t upset that there was no warning. She was upset that the decision to lay her off was all done out of her control; that the method seemed cold and inhuman; and more importantly, that it seemed unnecessary. She loved her company, loved her job, and would have gone right on putting in tons of hours for free if she’d felt respected. However, she felt she was being treated as a Social Security number, just another “part time” status employee sent to the slaughter house – and not treated the way she saw herself – as an intelligent and important, incremental part of the non-profit’s operation.

Mom decided she would eventually go back to volunteering, but at the competing non-profit instead.

I told my mother that her old employers are idiots.

On March 20, 2003, after several months of threats to invade Iraq and take down Saddam Hussein, President G.W. Bush ordered the “shock and awe” bombing of Iraq.  We were now going to war.

Just like so many Seattle-based businesses around me, my own business came to a screeching halt. Since I extended credit and billed my clients after the work was done, I relied on them to pay me in a reasonably timely manner so that I could pay my own businesses’ bills. Usually, there were a few stragglers: about 10% of customers on average paid late and some never paid at all and had to be sent to collections. However, in April of 2003, only 25% of my clients had paid for services provided for them from January through March. In other words, 75% were late with their payments. I began to panic.

I had always paid myself last out of whatever was left after paying my staff and the bills – it seemed the fairest way to operate. It also helped me gain the respect of my employees and those in the business world. If there was more money leftover, I stashed it away for a rainy day. When revenue fell short, I made up the difference with savings and never took out business loans, so that I had no business debt.

Despite having done everything correctly, I was now faced with a serious cash flow deficit. I sat down my employees to tell them the bad news. “We’re running out of savings. Old customers aren’t paying their bills. New customers aren’t placing orders. Due to the lack of demand for work, we’re going to have to lay off production workers if money doesn’t start rolling in very soon.”

I did not expect the amazing transformation that occurred within my own staff. Sabrina, the office assistant who was usually quite obstinate, suddenly became quite helpful and got on the phone calling customers to remind them to pay their bills. The sales staff who had whined about the bad economy suddenly began to make sales again, and also were able to personally collect many of the unpaid bills. I had tears in my eyes – I was so impressed with all of their contributions to save the business.

Sabrina later came to me. “I took another job at night so you can cut my hours if you want,” she said.

“Why would you do that? You know your job is safe,” I asked.

“Because,” she said, “I don’t want to see Mitch get laid off.” Mitch was her friend and unfortunately, the first on the chopping block due to his low seniority.

In the end, the business was saved. Everyone got to keep their job. However, Mitch and Sabrina, young and inexperienced in the work world, both left soon after since they were concerned about their job stability. The business began to do well again and flourished and prospered better than ever before as new staff members, some who were seasoned experts laid off by my competitors, filled Mitch’s and Sabrina’s former positions.

Looking back on the experience, I realize that the reason my staff rallied together to save the company was because they viewed it as their own company, not a business which I technically owned. Their pride in their jobs, their sense of ownership, their camaraderie and friendship among each other was their motivation for keeping the company intact. The long hours and hard work I invested was an example to them. My openness showed my sincerity.

I gave them the power to save their own jobs and they came through.

Foreclosures helping landlords Rentals filling with families

I assumed that when the going price for homes dropped in Seattle, I would lose my tenants who’ve been renting my four-bedroom house for a little over a year. The husband has a good, high-paying job; passed our credit check with flying colors; and says he and his wife are interested in buying a home so that they can settle permanently in Seattle near their grandkids.

Instead, my tenant asked for a long term lease. He says he is tired of moving, likes the house he’s in, and wants stability. If he does buy, he wants the prices to drop even further. I’m not complaining – he’s a good tenant.

Similarly, the area where I currently live in Central Florida has also seen a boom in rentals. Because I live in a tourist area, many of my neighbors have subdivided their homes into apartments and rent rooms to seasonal workers during the height of the summer tourist season. When two of my neighbors recently lost tenants this fall, they expected a long wait to fill the vacancies since tourism related employment is down. Such was not the case. Even my neighbor on the corner who lives next to the noisier commercial buildings, put out a sign for a studio apartment last week and had it rented by the next weekend.

The main difference in renters is that where a single person has moved out, a family has moved in. The top floor of the house to my north is a converted apartment that was vacated by a single man who took advantage of lower home prices to buy a condo. It was quickly rented by a family of four: two brothers who work in construction, one of the brother’s girlfriends from Russia, and their new baby. The vacant one-bedroom apartment in the quadraplex to the south was also quickly filled by a girlfriend and boyfriend and their new baby, along with at least two other friends. (Just in case you’re thinking what I think you’re thinking, I should mention that all of the above are white.)

Without being overly intrusive, I’ve wondered if the new renters used to own a house and were foreclosed upon, or found that they could no longer afford to each rent their own spaces. Normally, if you were to rent a place, you’d prefer to be alone. After sharing living quarters with friends all through college and sometimes many years after, there is no better statement to say you’d finally made it on your own than getting your very own apartment, or even better, buying your own condo or house.

In any case, I’m the winner here, along with my neighbors. Our neighborhood, once filled with sometimes questionable transient seasonal workers, is now filled with growing families, buzzing with laughing children, and smelling of grilled hamburgers (It was 80 degrees outside today). My neighbors have a further advantage because they qualify for Florida’s homestead property tax exemption by living in their homes (unlike apartment complexes), while making money by renting out a portion of them.

In the meantime, the newer developments sit empty with “For Sale” signs dotting the landscape. Neighborhoods are blighted with unkempt, overgrown lawns filled with weeds at foreclosed properties. City and Florida state tax coffers are drying up, since the banks won’t pay the property taxes after they kick out the would be owners.

Like Mr. Rogers said: It's a beautiful day in the neighborhood.

Budgeting by carrying only cash — An experiment in self-controlled spending

For the first time in about twenty years, I went on vacation with just cash in my pocket: $500 for 5 fun-filled days in New Orleans over the Thanksgiving holiday. I picked the amount of $100 per day arbitrarily out of a hat. I had no idea if it would be enough for both my husband and myself, and if not, if I’d be able to resist the urge to pull out the “plastic.” We had a free place to stay at my Cousin Carla’s house, so we only needed to cover meals, entertainment, and souvenirs.

I haven’t lived on a cash budget since college in the late 1980s, when I took $20 out of the ATM every week and spent it until it was gone. My boyfriend at the time took up the slack, treating us to dinner out at restaurants with his weekly allowance of $40 from his parents (I had to work for mine).

In those days, neither of us had a credit card and couldn’t have gotten one even if we wanted. Credit cards weren’t given out nearly as readily as they are now, which was a good thing. I didn’t qualify for a major card until I was out of college, working full time, and only after building my credit score by successfully managing an account from a major department store (JCPenney) for a little over a year.

The cash method is a tried and true method of budgeting, still practiced by those who don’t trust putting their money in a bank. I’ve known many a man who turns his paycheck into cash every Friday, then pays any bills that are due before blowing the rest by having fun going out over the weekend. By Monday, he’s nearly broke and living off a tuna fish, frozen vegetable and macaroni and cheese casserole until the next paycheck arrives.

My husband and I loosely follow the cash method of budgeting with our weekly lunch allowances. However, this was the first time either of us had tried to follow a budget on vacation, a time when I tend to live high on the hog, then pay the price when I return home after racking up hundreds of dollars on my credit card.

To make the budget work, we didn’t include filling up the car with gas. First, there was no telling how much gas would be since prices yo-yo up and down like a bungee jumper from day-to-day and vary from station-to-station, as well as from city-to-city and state-to-state due to locally imposed taxes. Second, we had to have gas, so running out of money to pay for it was not an option.

The first road block to staying on budget occurred on the way to Louisiana. My car overheated in Tallahassee and my husband and I and the nice man at the Costco gas station couldn’t find any busted hoses, mostly because it was raining buckets and water was everywhere. Everyone we surveyed expected that the thermostat had gone bad, a cheap fix. I had to get a tow, but expected it to be free through my new AAA membership. It wasn’t — only the first five miles were free and the rest were charged at $5 per mile.

Cha-ching! Tow at $20.

I have a reasonably new car, still under partial warranty, and only felt comfortable getting work done by a licensed dealer. The repair shop found the problem right away – critters eating the hoses, probably squirrels – no kidding! Although many gnawed hoses could wait, the one to my radiator had to be replaced. (I got to keep the old hose with the gnaw marks for proof — knowing no one would believe me.)

Cha-ching! Dealer repair at $267

Unfortunately, the repair shop didn’t keep parts in stock and had to order them. It would take a day to repair, so we had to stay overnight at a hotel where the dealer got us a discounted room.

Cha-ching! Hotel room at $44.

Including meals, we had now spent $378 of our $500 budget and we hadn’t even made it to New Orleans, yet. Bah humbug! We had no choice but to break the budget and go to the ATM for more cash, a small portion of which we would use to pay for meals on the trip back home. This left us roughly $65 per day for two fun-filled days in New Orleans.

The details of how we spent the money will completely bore you. However, the attitudes of the people around us who we informed of our “daily budget” were both surprising and unexpected.

My cousin Carla watched with amusement our regular habit of pulling out our cash to see how much we had left. It didn’t sink in that we were serious about following our budget until we were nearly out of money that first night. “I would just use plastic,” she kept saying.

“Normally we would. But, that’s what gets us into trouble,” I explained. “I just paid off the credit card with my non-FDIC insured money market, since I had to close it out anyway.” Although there was nothing to stop us from racking up the credit card again, we decided we’d rather save the “plastic” for emergencies.

My cousin’s boyfriend, Ricky, was disturbed by my husband’s public display of cash. “You’ll get robbed. I know this town,” he warned. “Promise me, you’ll never do it again.”

“Okay, I won’t,” my husband promised and agreed to count his money inside his wallet, under the table. He wasn’t used to paying with cash and is very trusting.

“I’ll pay for it. Don’t worry about it,” said Ricky.

“Save it. You’ll need money tomorrow,” said my cousin Carla.

However, our goal was to spend all our money by the end of the night. The next day, we would start fresh with our next day’s budget. I didn’t want to be a leech, but agreed to let my cousin’s boyfriend pay for dinner because he really wanted to impress us and treat us to something nice. We would make up for it by buying their drinks the rest of the night until the money ran out.

The next day, when my cousin called her boyfriend to discuss the plans for that night, we heard her sigh and say, “They’re doing the money thing again.”

The money thing? Since when is budgeting with cash considered unusual and odd?

That afternoon, we met up with one of my husband’s friends from work with his wife, also in New Orleans for the holidays. We treated for brunch at the Café du Monde, which sells an affordable small cup of coffee for $2 and a decadent pastry called a beignet. The total cost for the five of us, plus a souvenir mug, was only $25. We mentioned to Carla that we had $40 left of that day’s budget, enough to pay for her parking and for the three of us to eat dinner at a sandwich shop we’d passed the day before.

What we didn’t anticipate was that my husband’s friends, who overheard us, assumed that we are hard up for cash. “We aren’t,” my husband tried to explain. “We’re just on a budget.”

At work the next week, the friend insisted on buying lunch for my husband, still under the impression that because we are limiting our spending, we must be in financial trouble. The friend is in his mid 20s and has carried a credit card since his teens. The concept of voluntarily limiting spending has never occurred to him and his young wife, who buy nearly everything on credit.

Although our budget did cause some awkward moments, we’re laughing all the way to the bank. I just balanced my checkbook and we actually saved a small amount of money last month despite going on vacation (a challenge after grocery prices and utilities went up this summer).

I only wish I’d used the same method of paying in cash to buy Christmas presents — I’m already over budget!

Sears Sales Down? I Blame the Bad Lighting

Enter some Sears stores today, and it feels as if you’re walking into a cave. The lighting is dark and gray and makes the store feel depressing, old, out-of-date, and filthy.

The last Sears I visited in Florida was at the Volusia Mall in Daytona Beach, Florida last June. The mall itself  was built in 1974 according to Wikipedia, but was renovated as recently as 2006. The common spaces and food court are appealing.

At left: Dark utility lighting, gray walls and ceilings, and flat-finish floors shown in a Northridge, Los Angeles, CA Sears store. (AP photo by Stefano Paltera, 2006.) At right: Macy’s sports a brighter ceiling, warmer cream-toned walls, and a shinier floor in a Columbus, Ohio store . (AP photo by Kiichiro Sato, 2007).

Some of the stores, especially the Volusia Mall Macy’s with its cream colored walls and good lighting, appear pleasantly sunny, despite being indoors. The environment is the perfect backdrop for their colorful, shiny, sparkly merchandise and I rarely find myself leaving the store without at least one purchase – a new blouse, a purse, or a lovely pair of earrings. However, walk into the Sears at the other end of the mall and you feel as if you’ve suddenly entered the discount shopping center.

I imagine that Sears is trying to cut costs and be politically correct by installing low-cost energy efficient fluorescent lighting. However, the particular bulbs they have chosen seem better suited for a warehouse, parking garage, basement, or storeroom than for a retail store. Products, which should appear new, fresh, shiny, bright, and colorful look old and pre-worn. The store looks more like a dollar store than a large and important retail outlet. The floor in many Sears stores is even dirty, perhaps because the workers can’t see the dirt or because the strobing fluorescent lights give them a headache. I assume that this particular Sears store has not been renovated in sometime, but perhaps the bad lighting is fooling my perception of it.

Despite falling sales, Sears occupies the largest contiguous retail space at the Volusia Mall at 192,096 square feet, and is one of the original anchor tenants. The Sears space is larger than the more successful Macy’s at 157,530 sq. ft and JC Penney at 145,668 square feet. Dilliards occupies a larger total space when you add their three disconnected store spaces at 323,249 square feet, but each store space is still smaller than Sears. (Facts on square footage from Wikipedia).

Lighting and color can play a very large role in effecting the moods of shoppers. The study of ergonomics, man’s relationship to his environment, has shown in countless studies that a correctly lit space greatly effects the mood and production of workers. Why not shoppers, too?

In 2006, a study was published called, “The impact of light and colour on psychological mood: A cross-cultural study of indoor work environments.” Summaries of the study can be found at Informe Design, and at Cat.Insist. In the study, five scientists, Rikard Kuller, Seifeddin G. Ballal, Thorbjorn Laike, Byron Mikellides, and Graciela Tonello, found that color and good lighting improve workers’ moods. 988 workers completed the study. Mood was at its lowest when lighting was perceived as too dark and at its highest when the lighting was perceived as just right. Moods were slightly lower when spaces were perceived as too bright.

A previous study from 2002 “The importance of light for health and well-being in outdoor and indoor environments,” by the same team of scientists showed that dark environments made workers feel tired and depressed.

A study by Laike and Kuller in 1998, titled, “The impact of flicker from fluorescent lighting on well-being, performance and physiological arousal. Ergonomics,” found that the flickering from fluorescent lighting actually causes certain individuals to speed up their work, but not do their work as well and make more mistakes. The flickering actually caused measurable nervous stress in the workers when their brain waves were analyzed. When electronic high-frequency ballasts of good quality were used, the flickering of the lights decreased.

So in other words, the cheap fluorescent lighting in Sears retail stores is causing shoppers to feel stressed and want to hurry out of the store. The dark lighting makes shoppers feel depressed and tired. This doesn’t sound like a very good recipe for retail success.

I love to shop at Sears because they carry an excellent collection of my favorite sports shoes: Reeboks; have a wonderful return and warranty policy; and carry some of the best quality brand tools and appliances (Craftsman and Kenmore). They also sell very nice clothing and housewares, if you can stand being inside the store long enough to look at them.

All Sears are not so dysfunctional. I recently visited the Sears in the Ala Moana Center mall in Honolulu, Hawaii. My family and I spent two valuable hours shopping in the store and left with over $300 in new shoes, clothing, and beautiful Hawaiian shirts.

I hope that Sears re-evaluates their lighting choices. A penny saved is not always a penny earned, especially when it comes to putting customers into a buying mood.