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Sum2’s Hamilton Plan Gets Some Scholarly Attention

The following research paper on The Hamilton Plan was written by Deepak Verma, a business student at Baruch College.  To our knowledge it is the first scholarly research that incorporates the Hamilton Plans theme of a focus on SME manufacturing.

ISSUES MANAGEMENT PROJECT
Prof. Michael Kirk Stauffer

DEEPAK VERMA
The Societal and Governmental Environment of Business
Baruch College, the City University of New York
December 16, 2009

Table of Content

Topic Page No
1. Executive Summary 2
2. The Issue: Shrinking Manufacturing Base 3-4
3. The Origin of the Issue and Solution 4-5
4. Small & Medium Enterprises; Catalyst of Sustainable Growth 6
5. Initiative for Development of SMEs 7-8
6. Future of SME and SMEs in USA 9
7. Appendix : References 10

EXECUTIVE SUMMARY
Living beyond means is not sustainable. One of the primary reasons of prolonged Economic and Credit Crisis in United States is its low manufacturing base and American way of consuming more than what is produced. This research paper will examine issue of shrinking manufacturing base of USA, unfair and unethical business practices adopted by countries such as China to boost export thereby causing trade deficit to USA, reasons for low manufacturing base and role of small and medium enterprise (SME) manufacturers in developing a sustainable manufacturing base of the US economy.

Prior to coming at Baruch College for pursuing MBA in finance and investments, I worked for over 10 years with Small Industries Development Bank of India (SIDBI), an apex financial institution of India engaged in the development and financing of SMEs and micro financial institutions. Having worked with this financial institution, I realized the importance of SMEs in bringing sustainable economic development and employment creation, particularly in a mixed economy like India.

The paper will discuss on public-private initiative in USA for development of SMEs, their efforts and capital investment for empowerment and financing of SMEs. Various initiatives taken by private and public sector will be analyzed. Efforts have been made to forecast future of SMEs vis a vis manufacturing sector, role of community development financial institutions (CDFIs), and flow of commercial bank credit and private equity investment in SMEs in the United States.

THE ISSUE: SHRINKING MANUFACTURING BASE
Why should shrinking manufacturing base be an issue in a market driven service oriented economy like US? Federal Reserve Chairman Ben Bernanke stated on Feb. 28, 2007, “I would say that our economy needs machines and new factories and new buildings and so forth in order for us to have a strong and growing economy.” Strong Manufacturing base is the only solution to rising trade deficit and industrial job loss. Manufacturing promotes innovation which leads to investments in equipment and people, research and development, improved products and processes and increase in productivity and higher standards of living. Increase in manufacturing leads to increase in demand for raw materials and other commercial services.

United States has transitioned from an agricultural economy to Industrial economy to a service economy. Over a period of this transition US has lost its manufacturing base substantially and has been importing goods from around the world which has resulted into huge trade deficit and industrial job losses. IMF has categorized the US current account deficit as unsustainable. Warren Buffet also once commented “The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them.”

Since the United States joined the WTO, US trade deficit has risen from $150.6 billion in 1994 to $817.3 billion in 2006. US reliance on imports ranges from electronic items to apparels and other consumables. For example, electronic items sold in United States are developed by companies such as Philips, Toshiba, Sony, Hitachi, Samsung and Sharp. We have lost significant market share in Auto Industry also. Toyota has surpassed General Motors to become leading auto manufacturer in terms of global sales. Ironically, items such as clothing and apparel where USA had its dominance are also being imported from foreign countries. Over 90 percent of clothing and shoes sold in the United States are made in foreign countries. US economy has thrived on consumerism which has led to increase in demand for goods over the years but production of domestically manufactured goods has been declining, thereby giving rise to imports from foreign countries and loss of industrial jobs.

Critics of the argument say it is the increase in production efficiencies, resulted from technological innovation and advancement that has resulted in loss of jobs. Additionally, it is the increase in consumption which is the root cause of import deficit rather than shrinking manufacturing base. Undoubtedly long term data indicates an increase in US manufacturing, but the way we are loosing our manufacturing share from last 2 decades and if we continue shrinking, we will soon have no choice but to consume whatever is dumped in our market and will be on the mercy of foreign imported goods. Increase in manufacturing has not kept pace with global growth in manufacturing in USA. Since 2000 global manufacturing growth has been 47%, whereas USA has recorded a growth rate of only 19%.

ORIGIN OF THE ISSUE & SOLUTION
What is causing shrinking manufacturing base in the United States? Is it purely competitive and cheaper products manufactured in Asia and Europe or some other factors are also responsible? Undoubtedly competitive global business environment has severely affected domestic production in the United States, this crisis in large arises due to unfair and unethical business practices adopted by its trading partners mainly China. Some of those practices are significant government subsidies, currency manipulation, large-scale dumping in the U.S. market, and other market-distorting practices. Additionally, unfavorable govt. policies, tax structure, increase in cost involved in healthcare, litigation, and regulation has significantly affected the bottom line. Increase in cost and strict regulation forced manufacturing units to move their facilities to other countries where companies do not face those kinds of impediments. Companies operating in the U.S. started outsourcing low-value tasks like simple assembly or circuit-board stuffing, but lower cost of outsourcing and shrinking margin lured them to continue outsourcing sophisticated engineering and manufacturing capabilities that are crucial for innovation in a wide range of products. As a result, the U.S. has lost or is in the process of losing the knowledge, skilled people, and supplier infrastructure needed to manufacture many of the cutting-edge products it invented.

Is there any way to bring back our manufacturing base? The view that the U.S. should focus on R&D and services is completely flawed. Manufacturing is part of the innovation process and United States has to expand its manufacturing base to remain a world leader.

Following may be suggested to address the issue:

(1) Increase the tariffs on foreign goods so that they are more expensive than domestic goods.
(2) Demand the same level of quality in all foreign goods as American goods.
(3) Diplomatic measures should be taken to create pressure on foreign countries particularly China to stop manipulating their currencies.

Efforts should be made to open up foreign consumption markets adequately to U.S. producers so as to increase export and minimize trade deficit and should endeavor to combat predatory foreign trade practices aimed at undermining U.S. producers in their home market. Next big step is to promote small and medium enterprises to set-up manufacturing units.

SMALL & MEDIUM ENTERPRISES (SMEs); CATALYST OF SUSTAINABLE GROWTH
The issue of shrinking manufacturing base in the United States has been discussed by economist, policymakers, industrialists, and think tanks since economic integration and various measures to improve domestic manufacturing base have been suggested. But considering our free market dominance no sincere efforts were made to expand manufacturing base. Alarming rise in trade deficit and current economic and credit crisis which resulted in to massive industrial job loss has called for immediate intervention of private-public participation to protect and develop domestic manufacturing base for long term sustainable economic growth of United States. It is this time only that the role of SME manufacturers was felt inevitable to address this alarming issue.

President Obama during an interview said “We’ve got to make sure that we’re cultivating small businesses and entrepreneurs who are going to be driving employment growth,” the President said, “so that 20 years from now we can look back and we can say, ‘This was the pivot point, this is where we started to turn the corner.”

US need to change course at this point of time and need to develop a network of small and medium enterprises focusing on cleaner and green technology. The U.S. can explore strategies used in emerging markets for development of SMEs. According to Hau L. Lee, a professor at Stanford Graduate School of Business, “America needs large industrial zones devoted to specific industries–similar to zones in Taiwan, Singapore, Malaysia, and much of China. Such areas offer tax breaks, cheap or free land, workforce training, plenty of water and power, and agencies that serve as one-stop shops for all of the necessary permits and regulatory approvals.” A national level specialized financial institution may be created to provide low cost credit to newly setup SMEs in the manufacturing sector. US strength lies in high end technology, innovation, R&D, robust infrastructure, and know-how.

INITIATIVE FOR DEVELOPMENT OF SMEs

US govt. runs a number of programs for providing technological know-how, contracting opportunities, counseling and assistance, financing, and R&D facilities to small and medium enterprises. Some of the prominent programs run by US department of commerce are Manufacturing Extension Program, Advanced Technology Program, Technology Transfer, and Small Business Innovation Research (SBIR) Program. State govt. and number of govt. agencies are deployed for implementation of these schemes across the United States. SBA provides technical and financial assistance to SMEs through its partner lending institutions.

On November 17, 2009 The Goldman Sachs Group, Inc. launched 10,000 Small Businesses — a $500 million initiative for development of 10,000 small businesses across the United States. The plan envisaged to provide greater access to business education, mentors and networks, and financial capital to small businesses. Lloyd C. Blankfein, Chairman and CEO of Goldman Sachs quoted “Small businesses play a vital role in creating jobs and growth in America’s economy.” Warren Buffett, CEO of Berkshire Hathaway also mentioned “Our recovery is dependent on hard working small business owners across America who will create the jobs that America needs. I’m proud to be a part of this innovative program which provides greater access to know-how and capital – two ingredients critical to success.”

Sum2 LLC, a firm which assists SMEs in implementing sound business practices by offering a series of programs and products, announced The Hamilton Plan on Labor Day. The Hamilton Plan is a ten point program to foster the development of manufacturing in the United States by tapping the entrepreneurial energy of small and mid-size enterprises (SME). The Hamilton Plan requires concerted focus of investment capital to fund development and establishment of an SME Development Bank (SDB) which will focus, manage and administer capital formation initiatives to incubate and develop SME manufactures.

I contacted James McCallum, CEO of Sum2llc to discuss the issue of shrinking manufacturing base and how SMEs can help in restoring manufacturing base in the United States. In response to my comment here is what he stated “It is pretty amazing that the United States has not done more to specifically encourage and address the unique needs of this critical economic driver. Many Asian countries are miles ahead of the US in SME banking and capital formation. These banks have extensive portfolios of finance products and technical assistance they provide to SME’s. The reasons that the US lacks focus in this area are many. US commitment to free market forces has badly warped our economic infrastructure. SMEs in the US have primarily relied on community banks for financing. Most of which went for real estate and construction projects. SME manufactures have just about disappeared from the economic landscape of the US. The credit crash and the economic malaise are awakening our understanding of the critical nature of SMEs and our need to manufacture products. Goldman’s 10,000 Businesses Initiative coalesces nicely with the Hamilton Plan we developed in 2008.”

USA MANUFACTURING & SMEs IN YEAR 2030

With the concerted government efforts for promotion and development of SMEs and private sector initiatives such as “10,000 Small Businesses plan” by Goldman, SMEs will be largely benefited having access to innovative financial products and services from a network of financial institutions. Ten point program suggested in Hamilton plan, if implemented, will bring cluster based development of SME manufacturers. Cleaner and green technology will drive long term sustainable growth, increase national income and result in employment creation. Healthy SMEs will be focusing on export of goods thereby reducing the trade deficit and offer a new market for commercial banking sector. High-tech growth oriented SMEs will also have access to private equity investments and will offer a new avenue of diversification to private equity industry.

But the task of SME development is a challenging task and requires strong will on the part of different stakeholders. SMEs are considered to be the riskiest segment of borrowers from a financial institution’s perspective and thus struggle for timely and adequate credit. Access to technical and market information, financial assistance and trained and educated workers is the biggest challenge for SMEs. Future SMEs require sound business practices such as corporate governance, risk management, stakeholder communications and regulatory compliance.

I believe that SMEs are sine qua non for manufacturing sector & I can foresee a bigger space for SMEs in next 20 years from now. I am so intrigued with the idea of SMEs development and their contribution in the economic growth that in the long run I wish to work as a freelancer offering consultancy and advisory services on financial and strategic matters to SMEs. I would work with a network of financial institutions, venture capitalists, engineers, environmentalists, social workers, suppliers, and policy makers so as to offer SMEs a comprehensive set of services.

APPENDIX: REFERENCES

U.S. Needs to Return to Its Manufacturing Base
http://seekingalpha.com/article/119136-u-s-needs-to-return-to-its-manufacturing-base

Securing America’s Future: The Case for a Strong Manufacturing Base, A Study by Joel Popkin and Company, Washington, D.C. June 2003, Prepared for the NAM Council of Manufacturing Associations

http://www.pmihome.org/Popkin_Study_3-03.pdf

President predicts it will take decades to revive declining U.S. manufacturing base?

http://www.sodahead.com/united-states/president-predicts-it-will-take-decades-to-revive-declining-us-manufacturing-base/question-637119/

Manufacturing & Investment Around The World: An International Survey Of Factors Affecting Growth & Performance, ISR Publications, revised 2nd edition, 2002. ISBN 978-0-906321-25-6.

Economy Watch: Economy, Investment & Finance Report

http://www.economywatch.com/world_economy/usa/export-import.html

USA Manufacturing output continues to increase (over the long run), Curious cat, Investing and economics blog

http://investing.curiouscatblog.net/2008/12/02/usa-manufacturing-output-continues-to-increase-over-the-long-term/

Alliance for American Manufacturers http://www.americanmanufacturing.org/issues/manufacturing/the-us-manufacturing-crisis-and-its-disproportionate-effects-on-minorities/

Can the future be built in America? http://proquest.umi.com.remote.baruch.cuny.edu/pqdweb?index=28&did=1860761601&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1259505905&clientId=8851

TO SAVE AMERICAN MANUFACTURING: USBIC’S PLAN FOR AMERICAN INDUSTRIAL RENEWAL BY Kevin L. Kearns, Alan Tonelson, and William Hawkins

http://americaneconomicalert.org/USBIC_Save_American_Manufacturing_Jobs_Plan.pdf

Goldman Sachs Launches 10,000 Small Businesses Initiative

http://www2.goldmansachs.com/our-firm/press/press-releases/current/10-k-business.html

Goldman Sachs as Social Entrepreneur http://sum2llc.wordpress.com/

Hamilton Plan by Sum2llc http://sum2llc.wordpress.com/2008/09/03/sme-development-bank/

You Tube Video: Isley Brothers, Work to Do

Risk: SME, manufacturing, economic revitalization, social wealth

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February 3, 2010 Posted by | business, commerce, economics, Hamilton Plan, manufacturing, recession, SME | , , , , , , , , , , , , , , , , , , , | Leave a comment

Goldman Sachs as Social Entrepreneur

Goldman Sachs’ CEO Lloyd Blankfein and his largest investor, The Wizard of Omaha, Warren Buffett , descended from the mystical heights of Valhalla with some startling news.  They were bearing a new mythical golden ring.  As they held the ring aloft they made a bold proclamation.  They would embark on one of the grandest social entrepreneurial programs of all time by offering some of the rings precious power, about $500 million worth, to capital starved small and mid-size enterprises (SMEs).  The 10,000 Small Businesses Initiative will distribute $100 million per year over the next five years to SMEs through Community Development Financial Institutions.

These lords of commerce have heard the cries from endangered SMEs.  In their infinite wisdom Blankfein and Buffet understand that the real economy needs to resuscitate and incubate the critical SME segment as an absolute prerequisite to a vibrant economic recovery.    The buzz about this news in the marketplace ranged from cynical suspicion at one extreme to puzzled bemusement and  ecstatic aplomb at the other.

What motivated Goldman to announce this initiative is an interesting question.  Was it guilt, greed or a sense of corporate social responsibility?  Some suggest it is a master PR move to counter a growing public perception that Goldman Sachs,  the poster child of government favoritism and bailout largess,  has leveraged its unfair advantage to achieve historic levels of profitability.  Thus enabling management to pay obscene bonuses to company employees.  But capital has no psyche,  and half a billion dollars is a tall bill to underwrite absolution for some phantom form of guilt.  True to its nature, capital always  seeks a place where it will find its greatest return.  Goldman and Buffett are casting some major bread on the receding waters of a distressed economy.  As its foretold in the Good Book , doing God’s work will produce a tenfold return.  If the Bible’s math is correct, thats a lot of manna that will rain down from heaven for the shareholders of Goldman Sachs and Berkshire Hathaway.  Looks like our modern day version of Moses and Aaron have done it again.  Leading their investors across the dangerous waters of the global economy to live in the promised land of happy shareholders.

As one of the world’s preeminent investment banks and purveyor of capitalist virtues,  company shareholders must be questioning how Goldman’s managers will realize a return on this investment?  Has management examined the potential corporate and societal moral hazards surrounding the program?  Surely shareholders have asked when they expect to be compensated for this significant outlay of capital.   The desire to realize gain is a more plausible motivator and makes more sense for an enterprise like Goldman and the storied investment Wizard from Omaha.

Its wise to ascribe the best intentions and virtuous motivations to actions that we may not fully understand.  This program should be viewed as a seminal event in the history of corporate social responsibility and social entrepreneurship.  Its important to understand that institutions that practice corporate social responsibility do not engage it solely as a philanthropic  endeavor.  Indeed, the benefits of good corporate citizenship pays multidimensional dividends.  All ultimately accrue to the benefit of company shareholders and the larger community of corporate stakeholders.

Goldman’s  move to walk the point of a capital formation initiative for SMEs seeks to mitigate macroeconomic risk factors that are prolonging the recession and pressuring Goldman’s business.   Goldman needs a vibrant US economy if it is to sustain its profitability,  long term growth and global competitiveness.  Goldman needs a strong regional and local banking sector to support its securitization, investment banking and corporate finance business units.   Healthy SMEs are a critical component to a healthy commercial banking sector.  Goldman recent chartering as an FDIC bank holding company may also be a factor to consider.  This SME lending initiative will provide interesting insights into the dynamics of a market space and potential lines of business that are relatively new to Goldman Sachs.  This initiative might presage a community banking acquisition program by Goldman.  At the very least the community banking sector is plagued with over capacity is in dire need of rationalization.  Goldman’s crack team of corporate finance and M&A professionals expertise would be put to good use here.

Goldman’s action to finance SMEs will also serve to incubate a new class of High Net Worth (HNW) investors.  Flush with cash from successful entrepreneurial endeavors, the nouveau riche will be eager to deploy excess capital into equities and bonds, hedge funds and private equity partnerships.  Healthy equity markets and a growing Alternative Investment Management  market is key to a healthy Goldman business franchise.

Community banks, principal lenders to SMEs are  still reeling from the credit crisis are concerned about troubled assets on their balance sheets.  Bankers can’t afford more write downs on non-performing loans and remain highly risk adverse to credit default exposures.  Local banks have responded by drastically reducing credit risk to SMEs by curtailing new lending activity.  The strain of a two-year recession and limited credit access has taking its toll on SMEs.  The recession has hurt sales growth across all market segments causing SMEs to layoff employees or shut down driving unemployment rates ever higher.  Access to this sector would boost Goldman’s securitization and restructuring advisory businesses positioning it to deepen its participation in the PPIP and TALF programs.

The financial condition of commercial and regional banks are expected to remain stressed for the foreseeable future.  Community banks have large credit exposures to SME and local commercial real estate.  Consumer credit woes and high unemployment rates will generate continued losses from credit cards and auto loans.  Losses from commercial real estate loans due to high vacancy rates are expected to create significant losses for the sector.

Reduced revenue, protracted softness in the business cycle and closed credit channels are creating perfect storm conditions for SME’s. Bank’s reluctance to lend and the high cost of capital from other alternative credit channels coupled with weak cash flows from declining sales are creating liquidity problems for many SMEs.   Its a growing contagion of financial distress.  This contagion could infect Goldman and would have a profound impact on the company’s financial health.

The 10,000 Businesses  initiative will strengthen the free flow of investment capital to finance national economic development and empower SMEs.  It strengthens free market capitalism and has the potential to pool, unleash and focus investment capital into a strategic market segment that has no access to public equity and curtailed lines of traditional bank credit. The 10,000 Businesses initiative  will encourage wider participation by banking and private equity funds.  In the aggregate, this will help to achieve strategic objectives, build wealth and realize broader goals to assure sustainable growth and global competitiveness.  All to the benefit of Goldman Sachs’ shareholders and it global investment banking franchise.

Sum2 believes that corporate social responsibility is a key tenet of a sound practice program. Goldman Sach’s has always been a market leader.  We salute Goldman Sachs’ initiative and welcome its success.

In  September of 2008,  Sum2 announced The Hamilton Plan calling for the founding of an SME Development Bank (SDB).  The SDB would serve as an aggregator of capital from numerous stakeholders to focus capital investment for SME manufactures.   More on the Hamilton Plan can be read here: SME Development Bank.

Risk:  SME, bank, recession, unemployment, credit, private equity

You Tube Music: 10,000 Manaics, Natalie Merchant: Dust Bowl

November 20, 2009 Posted by | banking, corporate social responsibility, Hamilton Plan, hedge funds, investments, off shore, PPIP, private equity, Profit|Optimizer, recession, reputation, reputational risk, SME, sound practices, Sum2, TALF, unemployment | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

The Cost of Banking Goes Up

screamThe severity of the banking crisis is evident in the 95 banks the FDIC has closed during 2009. The inordinate amount of bank failures has placed a significant strain on the FDIC insurance fund. The FDIC insurance fund protects bank customers from losing their deposits when the FDIC closes an insolvent bank.

The depletion of the FDIC Insurance fund is accelerating at an alarming rate. At the close of the first quarter, the FDIC bank rescue fund had a balance of $13 billion. Since that time three major bank failures, BankUnited Financial Corp, Colonial BancGroup and Guaranty Financial Group depleted the fund by almost $11 billion. In addition to these three large failures over 50 banks have been closed during the past six months. Total assets in the fund are at its lowest level since the close of the S&L Crisis in 1992. Bank analysts research suggests that FDIC may require $100 billion from the insurance fund to cover the expense of an additional 150 to 200 bank failures they estimate will occur through 2013. This will require massive capital infusions into the FDIC insurance fund. The FDIC’s goal of maintaining confidence in functioning credit markets and a sound banking system may yet face its sternest test.

FDIC Chairwoman Sheila Bair is considering a number of options to recapitalize the fund. The US Treasury has a $100 billion line of credit available to the fund. Ms. Bair is also considering a special assessment on bank capital and may ask banks to prepay FDIC premiums through 2012. The prepay option would raise about $45 billion. The FDIC is also exploring capital infusions from foreign banking institutions, Sovereign Wealth Funds and traditional private equity channels.

Requiring banks to prepay its FDIC insurance premiums will drain economic capital from the industry. The removal of $45 billion dollars may not seem like a large amount but it is a considerable amount of capital that banks will need to withdraw from the credit markets with the prepay option. Think of the impact a targeted lending program of $45 billion to SME’s could achieve to incubate and restore economic growth. Sum2 advocates the establishment of an SME Development Bank to encourage capital formation for SMEs to achieve economic growth.

Adding stress to the industry, banks remain obligated to repay TARP funds they received when the program was enacted last year. To date only a fraction of TARP funds have been repaid. Banks also remain under enormous pressure to curtail overdraft, late payment fees and reduce usurious credit card interest rates. All these factors will place added pressures on banks financial performance. Though historic low interest rates and cost of capital will help to buttress bank profitability, high write offs for bad debt, lower fee income and decreased loan origination will test the patience of bank shareholders. Management will surely respond with a new pallet of transaction and penalty fees to maintain a positive P&L statement. Its like a double taxation for citizens. Consumers saddled with additional tax liabilities to maintain a solvent banking system will also face higher fees  charged y their banks so they can repay the loans extended by the US Treasury to assure a well functioning financial system for the benefit of the republic’s citizenry.

You Tube Music Video: The 5th Dimension, Up Up and Away

Risk: bank failures, regulatory, profitability, political, recession, economic recovery, SME

September 30, 2009 Posted by | banking, business, commerce, economics, government, Hamilton Plan, private equity, regulatory, SME, sovereign wealth funds, TARP, Treasury | , , , , , , , , , , , , , , , , , , , | 2 Comments

Whats Good for GM

I always thought the quote “Whats good for General Motors is good for America.” was a vile admission that the rights and interests of individual citizens was subservient to the vested interests of corporations. I always thought this was uttered by Calvin Coolidge or Herbert Hoover, the historical poster boys of an out of touch presidency intellectually immune and emotionally removed from the pain and troubles of the working class. Happily ignorant or seemingly unconcerned of a country slipping into a paralyzing depression while they whistled past the grave yard.

More recently the voices of average citizens have again been raised to decry the power and privilege of special corporate interests. They buy access and favor through the deft abilities of well compensated lobbyists and generous financial contributions by the monied interests to encourage politicians to adopt their world view. America’s economic and political history is a sometimes sordid, sometimes splendid tale of the restive relationship of labor and capital and how their respective political interests are made manifest in our laws, policies and programs that emanate from Capitol Hill.

Since at least the beginning of this year we have been barraged with prognostications of a catastrophic economic collapse. The Federal Reserve and Treasury Department have moved with dispatch to bolster bank capital to assure that liquidity and confidence in the banking system is protected. The EESA and TARP responded to the capital formation needs of banks. Most legislators supported EESA even though it only had tepid support by taxpayers. But the deal went through because we were told that if we failed to pass the bailout legislation for banks our nation would be swallowed by an economic black hole. Paulson’s defense of the TARP and its strategic transformation will be covered in subsequent posts but this authors skepticism of the TARP and Paulson’s intention is on record. The TARP and EESA are temporary short term liquidity fixes to frozen credit and capital markets. Supporting and protecting manufacturing is how the US will transition its bankrupt merchant capitalism to an economy based on the manufacture of value capable of long term sustainable growth.

So today we go on record in support of a Federally mandated capital infusion and formation initiative for the automotive industry. As we have previously stated the dismantling of our countries manufacturing infrastructure lies at the root of our current economic dilemma. We advocate acceptance of The Hamilton Plan to address economic recovery and long term sustainability of the US economy. Manufacturing is the bedrock of recovery and the Federal Government needs to encourage the formation of capital clusters of all stakeholders to incubate support structures that will accelerate the recovery of manufactures. The support program is not about writing a blank check to an industry that is badly managed. The automotive recovery plan needs to recognize, aggregate and focus all forms of capital to address this rapid deterioration of our ability to create value through manufactures.

The Hamilton Plan advocates that the Treasury Department form an SME Development Bank to encourage manage and administer the capital formation required to address a GM turnaround. The recovery proscription will need capital, cooperation and political will from all parties. Those include, government, business, labor, social service and academic institutions. The need to support manufacturing is paramount if we hope to recover from structural economic malaise. The failure of GM would have a profound impact on the fiscal, physical and psychological health of the US economy and its citizens. In this instance what is good for GM is not only good for America but it is vital for its survival.

We will offer a more detailed outline in future posts.

You Tube Music Video: James Cotton, Rocket 88

Risk: manufacturing, recession, unemployment, sustainability

November 13, 2008 Posted by | blues, Bush, manufacturing, recession, TARP, unions | , , , , , , , , | Leave a comment

Job Loss Up / Economy Down

The erosion of jobs continues as the economic malaise seemingly deepens in the United States.

Today the Labor Department issued its employment report for August and it points to a weakening economy and an unemployment rate at a 5 year high.

We cannot detect any sector recovery drivers in the US economy. Global drivers are also slowing down as demand from the worlds largest market continues to abate.

One silver lining of the global economic downturn is the slowing of inflationary pressures. This might provide the impetus for the Treasury to send out another round of tax rebate checks. Don’t count on it though.

Hedge funds are deleveraging market positions and raising cash. This may impact market liquidity and contribute to extended market softness.

Yesterday on CNBC Bill Gross, CEO of PIMCO indicated that banks need additional $400 B infusion by the Fed to maintain sufficient capital levels to assure credit availability and market liquidity. Hedge funds and SWF’s are waiting for this demonstrated commitment by the Fed before they can feel confident about a strengthening economy and a more favorable investment environment.

The Hamilton Plan outlines a program to reignite economic growth for a moribund economy.

Music: Stevie Ray Vaughan and Jeff Beck: I’m Goin Down

Risk: recession, banking, unemployment, credit crisis, banking

September 5, 2008 Posted by | blues, Hamilton Plan, recession, unemployment | , , , , , , , , | Leave a comment

Manufacturing Job Loss Continues

ADP has just released its National Employment Report for August 2008 indicates that nonfarm private employment decreased 33,000 from July to August 2008. The report bears out the continued weakness in the US economy.

Employment fell in the manufacturing sector for the 24th consecutive month and large business employment declined by 28,000 jobs.

Offsetting these losses, small business added 20,000 jobs during the month while the service providing sector added 45,000 jobs.

The report confirms the pressing need for a concerted program for job creation. Sum2 advocates the adoption of The Hamilton Plan; which outlines a program to foster the development of SME manufactures to strengthen the United States economy and position it for sustainable growth.

Highlights of the ADP National Employment Report include:

This month’s employment loss was driven by the goods-producing sector which declined 78,000 during August, its twenty-first consecutive monthly decline. The manufacturing sector marked its twenty-fourth consecutive monthly decline, losing 56,000 jobs. These losses were somewhat offset by employment gains in the service-providing sector of the economy which advanced by 45,000.

Large businesses, defined as those with 500 or more workers, saw employment decline 28,000, while medium-size companies with between 50 and 499 workers declined by 25,000.

Employment among small-size businesses, defined as those with fewer than 50 workers, advanced 20,000 during the month, after posting a stronger gain of 46,000 in July.

Two sectors of the economy hit hardest by recent problems in mortgage markets have been residential construction and financial activities related to home sales and mortgage lending.

Today’s report suggests little lessening of the recent strain on employment in these industries. In August, construction employment dropped 25,000. This was its twenty-first consecutive monthly decline, and brings the total decline in construction jobs since the peak in August of 2006 to 377,000. Employment in financial activities declined 2,000 during the month.

Song: Devo, Workin in a Coal Mine.

Risk: Unemployment, manufacturing, labor unions, sustainable growth

September 4, 2008 Posted by | manufacturing, pop, recession, unemployment | , , , , , , | Leave a comment

SME Development Bank

Over the Labor Day Weekend Sum2 announced The Hamilton Plan. The Hamilton Plan is a ten point program to foster the development of manufacturing in the United States by tapping the entrepreneurial energy of small and mid-size enterprises (SME). The plan’s 10 points address sustainable business models, GRC best practices, capital formation initiatives, SME banking, labor union stakeholder empowerment, association syndication, cooperative formation, support for public education and cooperative learning.

This is an introduction to The Hamilton Plan, why it’s needed and the call for the creation of an SME Development Bank (SDB) to facilitate capital formation to achieve the goals of the program.

The Hamilton Plan, named after the first Secretary of the Treasury of the United States, proposes a ten point program to develop small and mid-size enterprise (SME) manufactures. The Hamilton Plan invites business owners and executives, industry associations, chambers of commerce, banks, capital market participants, labor unions, academia, non-profit organizations and governmental institutions to join forces in a concerted effort to support the reestablishment of the manufacturing infrastructure of the United States.

The vital national interest can be served by institutions representing business, labor, local communities and government to join together to foster optimal conditions to incubate and develop SME manufactures. SMEs are a natural strength of the US economy. SME represent largest most vibrant sector of the economy and by combining the entrepreneurial drive and creative energy of SME’s with the pressing need for innovative manufactures; America can reestablish its ascendancy as a preeminent power in the global economy. The Hamilton Plan is designed to provide incentives and encourage the formation of support clusters to develop SME manufacturing.

The Hamilton Plan:

1. Adoption of World Business Council Standards for Sustainable Business

2. Establish Incubators for Targeted Growth Industries

3. Adopt Sound Governance, Risk, Compliance Practices (GRC)

4. Formation of SME Development Bank / Capital Formation Initiatives

5. Partnership Lyceums for Government / Business / Academic Institutions

6. Labor Unions as Preferred Stakeholder / Association Syndication Unions

7. Establish Cooperatives for Technology / Licensing / Commodities / Energy

8. Superfund for Progressive Tax Code / Universal Health & Benefits

Infrastructure Investment / Brownfield Remediation and Reclamation

9. Expand Public Education Funding & SME COOP Program

10. Support Millennium Development Goals

Capital Formation Key to Success

The Hamilton Plan in its entirety is designed to respond to the compounding economic and political crisis that is confronting the United States. The credit crisis, energy dependence, industrial stasis, trade deficits, geo-political instabilities, aging infrastructure and climate change are the result of long term systemic problems that government and industry has failed to address effectively. The Hamilton Plan advocates the adoption of the program to squarely address these pressing issues with the full understanding that it will require the concerted cooperation of all stakeholders to assure the continued development, security and prosperity of America.

The Hamilton Plan requires concerted focus of investment capital to fund development and to make sure that assets are allocated to channels that will assure optimal returns and that equity participation of stakeholders is protected and rewarded. The establishment of an SME Development Bank (SDB) is a structured investment vehicle and corporate institution that will focus, manage and administer capital formation initiatives to incubate and develop SME manufactures.

At its core, The Hamilton Plan seeks to preserve the free flow of investment capital to finance national economic development and empower SME manufactures. The Hamilton Plan is not a substitution nor in any way seeks to supplant the American free market system. The Plan is designed to unleash, pool and focus investment capital. The Plan leverages regulatory capital, compliance and governance. The Plan seeks to achieve strategic economic goals, build wealth and prosperity in US and realize broader goals and objectives to assure sustainable economic growth, nurture innovation,  ecological balance and global competitiveness.

SME Development Bank (SDB)

The SDB would be chartered to assure that capital is deployed to meet appropriate program projects and assure effective stewardship of shareholders capital. The SDB would be the repository for economic and regulatory capital. It would maintain capital adequacy ratios in conformance with Basel II directives. The SDB would serve as a fiduciary to distribute capital through local community banking channels. SDB governance would assure that program objectives, ownership equity, credit requirements, capital allocations, shareholder rights and income distributions are made to SDB shareholders.

Government funding of the SDB would consist of share purchases financed by capital from a national development Superfund. The Superfund would receive tax receipts from a progressive national tax program, budget allocations, licensing and royalty receipts, dividend reinvestment’s and capital gains proceeds from the sale of assets.

Shareholders in the SDB would be community banks, institutional fund managers, state/local/federal government, private equity firms, business owners, company management, associations, labor unions, employees, academic institutions, non-profits organizations. Different forms of capital would be recognized and used to purchase shares in the SDB. For example, local governments can purchase shares in the SDB with tax credits or land grants or infrastructure improvement projects; labor can purchase shares with sweat equity, academic institutions with intellectual capital etc.

Securitization of SDB shares can be created to trade on public exchanges. Any secondary market listings would occur after underlying assets have been properly seasoned. Shares in the SDB would offer terms of extended time frames for investment lockup and share redemption.

Community Bankers as Risk Managers and Distribution Conduits

Community Banks have a critical role as an SDB equity partner. The community bank is the primary channel by which equity and credit capital is provided to the SME. They are front line risk managers and advisors for portfolio companies. Community banks are astute relationship managers. Community banks understand local market conditions and can link assets and service providers to build support clusters and expanded value chains for SMEs. Community bankers will help SMEs focus on capital allocation strategies and support efforts in encourage growth and profitability.

They will provide help in the following areas:

Corporate Governance
Risk Management
Business Promotion, Acceleration and Development
Corporate Advisory Services
Information Services
Performance Evaluation Services

Community banks will be offered regulatory capital relief through its equity participation in the SDB. Community banks will form a joint back office (JBO) to address regulatory capital requirements for its participation and share ownership in the SDB. Community banks must continue fulfill capital requirements for retail banking and other lines of business in accordance with regulatory requirements of its governing agency. State regulatory agencies relating to SME banking regulation, enforcement and inspection would conform to a unified national banking regulatory agency.

Community banks will share in the equity appreciation of the SME and any distributions, dividends or corporate actions the Board of the SDB effects. The differentiation of credit and equity capital participation will be accounted for at the SDB level. Administrators for hedge funds and other Alternative Investment Vehicles have developed sophisticated partnership and shareholding accounting capabilities that can address questions of share class ownership, tranche construction and attributes, asset valuation, distributions and returns.

The community bank in working in conjunction with the SDB will help SME’s effectively manage risk, improve stakeholder communication, implement effective corporate governance that create sustainable business practices to assure long term profitability and growth.

The Hamilton Plan lays the foundation for SMEs to seize market opportunities. SMEs in partnership with community bankers must assess products and markets, business functions and critical success factors. Sufficiently capitalized by the SDB, the SME and local bankers will execute an action plan to support the corporate mission in line with the larger goals of The Hamilton Plan to build wealth for its shareholders and assure the future prosperity of America.

Song: Average White Band: Work To Do

Risk: manufacturing, small and mid-size business, global competitiveness, middle class, national prosperity

September 3, 2008 Posted by | Hamilton Plan, hedge funds, manufacturing, Millennium Development Goals, pop, recession, SME | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 2 Comments

The Hamilton Plan: Reindustrialization of America

Photograph By Anthony Augustine



Sum2 Announces

The Hamilton Plan:

A Ten Point Program to Develop

Small and Mid-Size Enterprise (SME) Manufactures

Great Falls Festival

Paterson NJ, Labor Day 2008

Sum2 is proud to be participating again in this year’s historic Great Falls Festival and is pleased to announce The Hamilton Plan, a ten point program to develop small and mid-size enterprise (SME) manufactures. The Paterson Great Falls Festival is the perfect opportunity for Sum2 to invite business owners and executives, industry associations, chambers of commerce, banks, capital market participants, labor unions, academia, non-profit organizations and governmental institutions to join forces in a concerted effort to support the reestablishment of the manufacturing infrastructure of the United States.

“Many of the economic, political and cultural challenges confronting the United States can be traced back to the dismantling of our industrial and manufacturing base” stated James McCallum President of Sum2. “Since the 1980’s America’s economic infrastructure has dramatically changed. The evolution of our economy to service oriented businesses has seriously eroded the manufacturing capabilities and industrial capacity of our country. This has produced a decline of higher wage paying jobs, the disincentive to develop innovative manufacturing methods and practices, deteriorating support infrastructure and the impairment of ancillary support businesses.

It’s in the vital national interest for institutions representing business, labor, communities and government cooperate to foster optimal conditions to incubate and develop SME manufactures. The SME segment is the largest most vibrant sector of our economy and by combining the entrepreneurial drive and creative energy of SME’s with our pressing need for innovative manufactures; America can reestablish its ascendancy as a preeminent power in the global economy. Sum2’s Hamilton Plan is designed to encourage the formation of support clusters to develop SME manufacturing.

The Hamilton Plan

1. WBC Standards for Sustainable Business Model
2. Establish Incubators for Targeted Growth Industries
3. Adopt Sound Governance, Risk, Compliance Practices (GRC)
4. Form SME Development Bank / Private Equity Capital Formation Initiatives
5. Partnership Lyceums for Government / Business / Academic Institutions
6. Labor Unions as Preferred Stakeholder / Association Syndication Unions
7. Establish Cooperatives for Technology / Licensing / Commodity / Energy
8. Superfund for Progressive Tax Code / Universal Health & Benefits /
Infrastructure / Brownfield Remediation and Reclamation
9. Expand Public Education Funding & SME COOP Program
10. Support Millennium Development Goals

Historical Significance of Paterson’s Great Falls

Paterson’s Great Falls Festival is an ideal venue to announce the Hamilton Plan. The Friends of the Great Falls website writes that in 1791, Alexander Hamilton and a group of investors created the S.U.M., the Society for Establishing Useful Manufactures, to harness the tremendous power of the Passaic Great Falls. It was the boldest private enterprise ever conceived in the early days of the United States. Hamilton envisioned an industrialized America and the creation of this raceway system was his ambitious example of how corporations could be organized to develop manufacturing on a large scale. With this enterprise, along with the law, finance and incentives he put in place as the nation’s first Secretary of the Treasurer, Hamilton forged the basis of American capitalism. The planned industrialization of this historic place is the realization of the Hamiltonian vision of an industrialized America. This is truly a founding father’s site.

Sum2 Sound Practice Thought Leader

Sum2’s announcement of the Hamilton Plan is in response to the compounding economic and political crisis that is confronting the United States. The credit and energy crisis, inflation pressures, trade deficits, geo-political instabilities, global warming and ecological degradation are the result of long term systemic problems that government and industry has failed to address effectively. Sum2 advocates the adoption of the program to squarely address these pressing issues with the full understanding that it will require the concerted cooperation of all stakeholders to assure the continued development, security and prosperity of America.

Sum2 offers a series of products and services to help SME’s effectively manage risk, improve stakeholder communication, implement effective corporate governance that create sustainable business practices to assure long term profitability and growth.

At last years Great Falls Festival, Sum2 announced its new product series the SMB|360°. Since that announcement the series has expended to include, the Profit|Optimizer and a soon to be announced premium product that that will expand the breath and depth of the SMB|360° product series.

The Profit|Optimizer is a qualitative risk assessment and opportunity discover tool. It assists SME’s to identify and score business vulnerabilities and opportunities. The Profit|Optimizer conducts over 200 assessments encompassing products and markets, business functions and critical success factors. The Profit|Optimizer aggregates assessment scores and presents initiatives on a series of dashboards that allows business managers to decide what action items mitigates the greatest risk and produces the greatest return. Managers can make informed capital allocation decisions to build profitability and maintain business growth.

The Profit|Optimizer demonstrates to shareholders, bankers and other stakeholders that company management are effective risk managers that are committed to practicing corporate governance excellence.

Sum2 also offers the award winning PACO™ (Patriot Act Compliance Officer). PACO™ helps financial services companies comply with the anti-money laundering provision of the Patriot Act.

About Sum2

Sum2 was founded in 2002 to promote the commercial application of sound practice programs. Sum2’s sound practice program addresses risk management, corporate governance, shareholder communications and regulatory compliance. Sum2’s objective is to assist businesses and industries to implement corporate sound practices that add exponential value for stakeholders, employees, customers and to be exemplary citizens within the communities in which they operate and serve.

Sum2 manufactures, aggregates, packages and distributes innovative digital data content products to selected channels and markets.

Music: Billy Joels Allentown

Risk: unemployment, urban decay, global competitiveness, national security, protection of middle class

August 30, 2008 Posted by | Hamilton Plan, manufacturing, pop, recession, SME, Sum2 | , , , , , , , , , , , | 4 Comments