'Bottom up' recovery is not working

More than 300 small businesses a day are going bankrupt, the businesses that are supposed to lead us to recovery.

www.usatoday.com...

Small businesses vital to economic recovery go bankrupt

By Christine Dugas, USA TODAY

Entrepreneurship and new small businesses are supposed to lead us out of the recession, just as they have in prior downturns, right?

Sure. Your neighbor's grand idea will persuade a bank to lend her start-up money; she'll open for business in six weeks; and money will immediately flow from customers to her to her employees. Taxes will be paid, and the national economic engine will hum effortlessly in no time.

If only.

Today shows a different reality: Commercial bankruptcies are surging. Fewer people are starting small businesses, and firms already open are struggling under changing consumer habits, a lack of funding options and tougher bankruptcy laws. If a nationwide trend seen since January holds true, more than 300 businesses will file for bankruptcy — today alone.

Cafe Boulevard, for 12 years a popular European-style restaurant in Dayton, Ohio, hasn't been able to endure the downturn.

Rising gas and food prices, increased competition and an ill-timed expansion cut profits. Local unemployment made matters worse, because the regulars no longer showed up. In April, the restaurant's owner, Eva Christian, was one of 8,149 U.S. business owners who filed for bankruptcy-court protection.

She didn't close the cafe. Instead, Christian is trying to retain her employees while she works with creditors.

"When I decided to file for Chapter 11 bankruptcy, I felt crushed," Christian says. "But my attorney said that Donald Trump did it, and GM did it, and Delta did it. It gives people the opportunity to bounce back."

The first five months of this year have shown a 52% increase in the total number of commercial bankruptcy filings (36,106) compared with the same period last year (23,829), according to the Automated Access to Court Electronic Records. On average thus far in 2009, some 350 commercial enterprises file for bankruptcy daily — an increase of 240% from 2006, the first year after the bankruptcy law was changed.

Small companies hardest hit

Major corporate failures, like GM and Chrysler, flash across front pages and websites. But the vast majority of commercial bankruptcies, which are not separated by size of firm by data keepers, are filed by entrepreneurs and small-business owners, says Robert Lawless, professor of law at University of Illinois.

Troubling for the economy, say Lawless and Todd McCracken, president of the National Small Business Association, is the double-whammy of fewer start-ups and increasing bankruptcies.

"There is always this dynamism in the small-business community: Businesses are always dying, and new businesses are always getting started," McCracken says. "Usually more start than fail, but my sense is that now it has flip-flopped. And it's alarming."

Lawless agrees.

"In the past, small-business formation increased in a recession because people had self-employment thrust upon them," he says. "One avenue out of economic hard times — self-employment — has become less attractive, because the bankruptcy law is less forgiving" and there are fewer options for those entrepreneurs to get bank loans or to find funding elsewhere....

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reply to post by Dbriefed


great article

We all knew throwing more money on the fire wouldn't put out the flames but alas the government likes to think it knew better.

What's upsetting is the complete lack of accounting on the part of the financial institutions. They refuse to show their books. Red flags galore and yet the people pedal on in blissful ignorance.

Originally posted by warrenb
reply to post by Dbriefed

 

great article

We all knew throwing more money on the fire wouldn't put out the flames but alas the government likes to think it knew better.

What's upsetting is the complete lack of accounting on the part of the financial institutions. They refuse to show their books. Red flags galore and yet the people pedal on in blissful ignorance.

What difference would it make. New rules the Obama Administration put into place for lenders allow them to not even disclose 35% of there losses in the housing market. Bank of America posts a fake profit, the stock goes up. Everybody is happy.

The problem here is that Obama never instituted any sort of "bottom up" recovery plan. The horse's ass was quick to bad mouth Reagan's "Trickle Down" theories (which showed alot more promise in turning around the Carter recession than these phantom "green shoots" we hear about today), yet immediately upon taking office he not only injected massive amounts of money into the highest levels of corporations, but then he pushed for legislation, laws, and mandatory agreements that essentially sealed all the penthouse floors air tight to ensure none of the money could drip down to the people, let alone trickle down.

We still have no clue whether a bottom's up stimulus effort and economic plan would help small businesses and, in turn, end this recession... because none has been even remotely attempted. In fact, rather than cutting those small businesses even a small break, Obama has pushed for legislations that would further cripple them and give the big guys and even larger advantage. He has castrated every attempt to push meaningful "Buy American" rules that would bring about significant business for the little guys. He has conveniently marked his tax threshold at a low enough level to ensure that the vast majority of small business owners are in the higher brackets and have more money stolen from them. He has pushed for a health care package that would essentially penalize the small businesses the most by forcing them to provide health coverage for their employees... especially ignorant considering many small business owners can't afford to carry insurance on themselves, let alone their employees. Don't even get me started on his cap and trade idea that demonstrates a complete lack of understanding or sympathy for the country he alleges to represent (dare I say believes he leads?)

reply to post by Dbriefed


That articles statistics are way off. Just in this state alone 300-500 small family owned business are closing their doors EVERY MONTH. Our downtown is starting to look like we'll have our 'First Annual Boarded Up Building Festival!!! I'm talking about some of these families have been in business and doing well for 20-30 years and in the last 8 months have managed to become bankrupt!

Zindo

[edit on 7/1/2009 by ZindoDoone]

A couple examples of the "bottom up" plan:

Pass cap and trade that would dramatically raise energy prices, which hurt the poor the most, while opening the door to Al Gore and other elites billions of dollars of profit in trading carbon derivatives.

Inject billions of dollars into large financial institutions that had a large part in contributing to the current financial mess.

This "bottom up" plan is really a plan to expand the ranks of the poor, not create an environment for prosperity.