Milwaukee Biz Blog

Editor’s note: Susan Urahn, managing director of the Pew Center on the States, wrote the following Milwaukee Biz Blog in response to Thursday’s Biz Blog entry by Wisconsin Department of Administration Secretary Michael Morgan about Pew’s study, "Beyond California: States in Fiscal Peril."

Pew's report is factually accurate and fair. Wisconsin was highlighted in our report because it exhibits many of the same fiscal warning signs seen in California, as documented by widely accepted, publicly available data.

The facts are clear. Wisconsin, like California and the eight other states Pew profiled, faces serious fiscal challenges. In reaching this conclusion, Pew relied on data from respected sources including the U.S. Department of Labor Statistics, the Nelson A. Rockefeller Institute of Government, the U.S. Census Bureau and experts in both academia and government.

Our report states that California's budget problems are in a league of their own. But Wisconsin has had persistent budget shortfalls - the state has had a negative general fund balance from fiscal years 2002 to 2008, according to its own Comprehensive Annual Financial Reports. Additionally, Wisconsin has used short-term fixes to meet budget challenges, such as relying on its transportation funds to cover day-to-day operating expenses.

Prior to the 2010 fiscal year, Wisconsin faced a more than $3.2 billion budget gap - nearly a quarter of its general funds, according to the Center on Budget and Policy Priorities. During the first quarter of 2009, the state’s revenues declined by $370 million from the same quarter of the previous year, according to the U.S. Census Bureau and the Rockefeller Institute. Wisconsin’s revenues declined even further in the next quarter from the previous year, down $1.25 billion or 24.3 percent.

Wisconsin’s third-quarter unemployment rate shows job losses are moderating. However, while Wisconsin manufacturing may be performing better in the current downturn than that of some of its neighbors, such as Michigan, the job losses in this sector have been heavy. The Center on Wisconsin Strategy, based at the University of Wisconsin-Madison, reported in September that, from December 2007 to July 2009, the Badger State lost one-eighth of its manufacturing workforce.

As our report reflects, Wisconsin, like other states, has made attempts to deal with its fiscal challenges. The legislature passed the current spending plan on time, before the biennium started, for the first time in 32 years. It used $2.2 billion in federal stimulus funds to plug some budget shortfalls this year. To cover the rest of the gap, lawmakers took difficult steps such as raising taxes on the wealthy, hospitals and smokers, and cutting spending by $3 billion. But for the next biennium, which starts July 1, 2011, additional budget shortfalls of about $2 billion are expected, according to the Wisconsin Legislative Fiscal Bureau

For the report Beyond California: States in Fiscal Peril, Pew identified factors that have contributed significantly to California’s difficulties, then determined the degree to which other states are experiencing the same challenges. These factors are: (1) loss of state revenues; (2) the relative size of budget gaps; (3) increasing joblessness; (4) high foreclosure rates; (5) legal obstacles to balanced budgets—specifically, a supermajority requirement for some or all tax increases or budget bills and (6) poor money-management practices.

Pew scored all 50 states using the best available data as of July 31, 2009. The snapshot captures an important juncture: the first and second quarters of 2009, the pressure point for governors and legislatures in the throes of crafting their budgets for fiscal year 2010 (which began on July 1 in all but four states). More information on the methodology and the report in its entirety is available at www.pewcenteronthestates.org/beyondcalifornia.

Susan Urahn is the managing director of the Pew Center on the States in Washington, D.C.

The entire Wisconsin banking community is pleased that the banking regulatory system worked as designed last Friday when the Department of Financial Institutions closed Bank of Elmwood, Racine.

Importantly, depositors were protected as there was a seamless transition to Tri City National Bank of Oak Creek. Wisconsin's banking community expresses its support to the affected employees, directors and shareholders of the Bank of Elmwood. 

Until last Friday, only 16 states, including Wisconsin, hadn’t experience a bank closure since Jan. 1, 2008, which tells us two things:  The conservative lending culture of Wisconsin banks has served our state and industry well; but also that economic conditions across Wisconsin are weak and because of that fact, banks will continue to face challenging times.

Banks didn’t cause this recession as so many believe. We also were not bailed out as so many claim. We didn’t make irresponsible subprime loans to people who didn't have the capacity to repay them. We didn’t speculate in investment instruments we didn’t understand, like credit default swaps and other derivatives. And we are doing our best to meet the demand for loans to qualified borrowers.

We understand our vital role as the foundation of economic development and job growth in every corner of Wisconsin and our nation. We want to make prudent loans to businesses in the communities we serve because if those businesses don’t succeed, neither will we.

We know that many people are angry and looking for someone to blame. But targeting that anger at banks is misplaced and counterproductive toward achieving an economic recovery.

Specifically, too many elected officials are leveraging the public's confusion over who caused this crisis to attack banks and push legislative agendas that will make a bad situation worse for our industry and, ultimately for the businesses and consumers we serve.

There is already a lengthy list of obstacles beyond our control impeding our ability to do what we do best; make loans to qualified businesses and consumers. Lawmakers need to consider the consequences of adding more burdens and costs on the very institutions they need to help rebuild our nation’s economy.

Whether we are local, regional or national banks, we rise and fall together. WBA and CBW pledge to redouble our collective efforts against legislation and other regulatory proposals that are only counterproductive to the banking industry’s ability to help with an economic recovery.

This joint statement was written by Wisconsin Bankers Association president and chief executive officer Kurt Bauer and Community Bankers of Wisconsin president and CEO Daryll Lund.

We need real reform in the financial markets. This reform should include how we regulate and how we audit and enforce these regulations.

Reform will not prevent another crisis that we have just witnessed or the S&L/Mutual Savings Bank crisis some three plus decades ago or frauds such as Madoff's. But reform can catch these problems before they get out of hand, which will reduce the impact on our economy.

• First, we must restore confidence to the secondary mortgage market. Liquidity in mortgages provided by the secondary market is essential to our economy. Banks and S&Ls should not be holding mortgages for long periods of time and should have a market to which they can sell.
  Require escrow for real estate taxes and homeowners insurance for all homes where the home buyer does not have a 20-percent down payment.
• Require that the buyer have a 20-percentcash down payment or that another entity, such as a mortgage insurer, the VA, FHA or Farmers Home Loan Agency, is covering the 20-percent difference between appraisal and mortgage.
• Forbid financial institutions from lending borrowers their 20-percent down payments.
• Ensure that income and assets listed are verified.
• Ensure that appraisals are realistic
• License all appraisers and mortgage brokers nationally, or at the very least, create a standardized system for appraisers and mortgage brokers, including the personnel of any firm issuing paper to be sold on the secondary market.
• Strictly regulate mortgage insurance companies. There have been too many incidents where these firms have had conflicts of interest (using subsidiaries as collateral) or have made risky business decisions that affect their contingent liability funds.
• Require that all use the standardized underwriting and forms issued by Fannie Mae and Freddie Mac.
  Make full disclosure and other paperwork simple to understand. Reduce this paperwork to one or two pages that are understandable.
• Where possible, require that homeowners with less than a 20-percent down payment receive counseling so that they have a budget and so the mortgages they receive are fair, that charges required of them are reasonable and that the property they are buying is worth what they are paying.
• Restrict such practices as "interest only mortgages," balloon mortgages or variable mortgages with teaser rates.

In regards to regulation of the financial industry, it is important to separate the audit and enforcement functions from the influence of politics and business as much as is possible. Politics influences enforcement.

A recent example was the firing of Gary Aguirre, an Securities & Exchange Commission (SEC) attorney lauded for his excellent work. He was fired because he wanted to interview John Mack for allegedly giving inside information to Pequot, a hedge fund. (I could have used examples from both Democratic and Republican administrations).

The New York Stock Exchange, the Nasdaq, the Federal Reserve Bank and the SEC did little to go after abuses on Wall Street. For years, Eliot Spitzer was a lonely crusader against Wall Street abuses.

"Self-regulation" by the industries themselves has been not been successful. The Federal Reserve failed to stop abuses in the banking industry through its audits. Their "objective" is to protect banking, but too often this means avoiding confrontation by the few banks that control most of the country's assets.

My suggestion is to create an independent agency that has many features of an inspector general or the General Accounting Office. Fund their budget for seven years at a time. Give a single 10 or 12-year year term to its leadership. Forbid its civil servants from becoming lobbyists or working in the industries they have regulated for five years.

This will not be perfect, but it will go a long way in isolating political influence on the agency.

Furthermore, I suggest that we separate regulation and oversight by an industry's function. Credit, life, health and property-casualty insurance companies manage risk; banks, S&Ls and mutual savings banks lend money. Mutual funds and annuities deal in collective investments. Money managers, hedge funds, financial advisors and stock brokers manage money or offer advice.

Multiple and contradictory regulations need to be reduced, but there should continue to be competition in enforcement. National tests, continuing education and licensing should be national. Licensing by states based on the national model should continue.

Bob Chernow is a futurist who predicted the S&L/mutual savings bank crisis, the future of mortgage backed bonds and the recent sub-prime crisis. He works in the financial industry. His opinions are his own.

Jean-Baptise Colbert, French King Louis XIV's Minister of Finance, once quipped, "The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing."  For much of the past century, Congressional leaders have demonstrated their commitment to Colbert's maxim by taxing us in successively more opaque ways.

The first wave followed World War II, when the federal government adopted the payroll tax. After the 16th Amendment was ratified in 1913, allowing for a national income tax, Americans who paid income taxes filed a 1040 and wrote a check at tax time. Keenly aware of their tax burden, voters kept income tax rates low. But during World War II, the federal government revived an idea first experimented with during the Civil War:  income tax withholding. 

For Congressional spendthrifts, the payroll tax was a gold mine: People less aware of taxation are less likely to object to tax increases or to penalize politicians who raise taxes.  As the U.S. Treasury notes, "(withholding) greatly eased the collection of the tax for both the taxpayer and the Bureau of Internal Revenue. However, it also greatly reduced the taxpayer's awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future."

War also led to another form of hidden taxation, the corporate tax. The first corporate taxes appeared in 1909, at just 1 percent of profits. By 1918 - the last year of World War I - they had jumped to 12 percent. World War II took them to 40 percent, which is about where they have remained since. Yet, as economist Walter Williams notes, corporations are "merely tax collectors" who shift taxes to consumers in the form of higher prices.

Politicians since have excelled at the art of taxing you without your knowing it. The Alternative Minimum Tax, yearly extending to lower tax brackets, is one form. So are sales taxes - again, collected by retailers rather than paid directly by consumers. So too are taxes on gasoline, cigarettes, your utility bills, your insurance premiums, special travel taxes and more. Why do politicians add taxes to your cable bill? Because it is another way of taxing you without your knowing it. 

By far, the most innovative and cowardly forms of hidden taxation are found in deficit spending, which was used to great effect by the previous administration and is being perfected by the current. The nonprofit Peter G. Petersen Foundation pegs the value of the "real national debt" at $56.4 trillion – that's $184,000 in future taxes for each and every American.

Today congressional leaders face a new dilemma: They are running out places to find money. Foreign governments are growing increasingly skittish about lending us money, which will soon drive interest rates higher. Under the House health care proposal promoted by President Barack Obama, top income tax rates in some states could top 57 percent.  

Looking for ways to make up the difference, the federal government has already begun shifting costs to the states. Democratic and Republican governors balked at the House health bill, arguing that plan saddles them with costly new Medicaid obligations without the funds to pay for them. Republicans relied on similar unfunded mandates under President Bush: REAL ID, for example, cost the states $14 billion while allocating just $40 million to pay for the program.

Medicare has perfected the art of indirect taxation, or cost-shifting. A recent study in New Hampshire estimated that Medicare underpayments to hospitals and doctors result in a 17-percent increase in the cost of commercial health insurance rates. In other words, rather than raise taxes to pay for Medicare obligations, Congress simply underpays providers and makes the rest of us pick up the difference through our health insurance premiums. The House health bill, which does the same thing, raises even more from you indirectly by penalizing all but the smallest businesses up to 8 percent for not offering health benefits.

States have responded by issuing mandates of their own on local governments and private industry. In recent years, several states have cut state education spending on treatment for autistic spectrum disorders, shifting costs to private insurance policyholders by mandating that insurance companies pay for treatment.  Similar mandates have been issued for hearing implants and other treatments.

Recent calls on state and federal levels to tax energy company "excess" profits are another form of indirect taxation. Wisconsin's plan to tax 2.5 percent on the price of gasoline - despite Gov. Jim Doyle's claims that companies will be prohibited from passing along the cost to consumers - is one such example of indirect taxation. So too is Wisconsin's 800-percent increase in car rental fees. 

Colbert's truism about politicians has held up over the centuries. But at some point - and the United States is nearing that point - they run out of easy places to borrow or raise money. In the months to come, expect the federal government to push more mandates on the states and for states, in turn, to push them downhill to local governments and businesses.

But don't forget, some 220 years ago after the fact: The state Jean-Baptiste Colbert helped build - the home of Versailles and the "Sun King," which helped finance America's own anti-tax revolution - ultimately ended in a revolution over taxes.

Jim Burkee is an associate professor of history at Concordia University Wisconsin.

The root cause of our economic mess is commoditization. If your business can't offer its target market(s) differentiated benefits that matter, recognize that your business is stuck in a quicksand called commoditization.
Endless cost-cutting to survive the recession-magnified price discounting will only push you deeper into the muck, making it even harder to escape competing on price.

You only have three smart options:

• Redefine your business model strategy to become the lowest-cost competitor. You'll earn profits despite market commoditization.
• Redefine your business model strategy to escape commoditization and compete beyond price.
• Exit the business.

Over the last 10 years, our economy's productivity increased dramatically through industry consolidation, value chain and process redesign, outsourcing and IT investments. These changes lowered inflation, but also created pervasive commoditization.
Big banks engaged in these activities and ended up as lumbering copycats of each other, earning their returns by taking enormous risks rather than having a better value promise for business and consumer customers.
Rating agencies, AIG, former Federal Reserve Chairman Alan Greenspan's low-interest rate policies, a lack of federal regulation, Congressman Barney Frank's push for affordable housing and Asian foreign currency surpluses enabled the banks to take these risks, much as spouses and friends might enable an alcoholic partner or friend.
The housing bubble and massive credit card consumer debt emerged from the drunken dance. Consumers must bear some of the blame for our mindless enjoyment of the short-term riches.
That's my theory of what went wrong. What's yours? Until bank boards begin to demand strong strategic thinking from bank CEOs and their teams, banks will be right back at taking whatever level of risk new regulations will let them get away with.
Watch what will happen in pharmaceutical markets too. Big pharma is following the bank model, with mergers and acquisitions engaged in solely to cut costs. Pharmaceutical companies also purportedly acquire competitors to improve their new drug product portfolio, which parallels acquiring another financial institution to get better retail locations or stronger investment advisors. But the pharmaceutical mergers, I predict, will do little to improve drug discovery success and may, in the case of Genetech's acquisition by Wyeth, reduce drug discovery success.
Commoditization marches on with generic drug companies (the Walmarts of the drug industry) and inventive biotech start-ups poised to earn attractive profits. Changes in health care policy will whittle away any profits big pharma might have made in the past by bringing other companies' discoveries to market.
Are your actions as a company creating more commoditization? What are you doing to compete beyond price discounts?

Kay Plantes, Ph.D., is an MIT-trained economist, business strategy consultant, columnist and author with expertise in business model innovation, strategic leadership and smart economic policies. She resides in Madison, Wis., and Oslo, Norway. For additional information, visit www.plantescompany.com.

Wisconsin small businesses provide a strong structural framework for our economy: when they prosper, we all do. Nationally they comprise half of all private-sector employment, and they have created around 70 percent of net new jobs each year over the last decade.

Small businesses reflect the values we hold deeply in Wisconsin: hard work, entrepreneurship, innovation, and resilience. They anchor community and regional economies, circulating money locally and providing high-quality jobs for residents. They fuel Wisconsin's vision for economic growth.

Too many Wisconsin small businesses, buffeted by a brutal economic crisis, may perform well in tough times but still encounter difficulty securing the loans they traditionally counted on to meet payroll, expand inventory and grow in ways that create new jobs. 

On March 16, President Barack Obama signaled his commitment to help small businesses by announcing increased funding for Small Business Administration (SBA) programs and new tools to help, made available through the American Recovery and Reinvestment Act (ARRA). He made the announcement at the White House - the first SBA announcement held there in the agency's 56-year history. His goal: to mitigate the credit crunch for small businesses and reinvest in their shared prosperity.

The SBA figures three basic strategies will take them to that goal: pay loan fees to get businesses in the door and connected to the capital they need; put banks in the mood to lend by eliminating risk in loans; and shore up the secondary market for SBA loans.

To make the 7(a) loan more accessible for small businesses, ARRA provides $350 million to eliminate up-front borrower fees on loans approved by the SBA on or after February 17th and the SBA increases their guaranty to ninety percent. The 7(a) loans are a commonly used product to secure working capital, line of credit, or to buy a business or real estate.  By eliminating these fees (which can reach 3.75 percent for larger loans) and taking into account the loans' longer term, payments will be less than conventional loans and smaller still with fees exempted. Weekly loan volume for the 7(a) program is up 25 percent as a result of these enhancements.

The SBA just announced a new program within the 7(a) category - the Dealer Floor Plan Financing loan to help finance inventory for eligible auto, RV, boat and other dealers beginning today, July 1, 2009.
I recently visited Clemens Auto Repair in Racine and learned how the owner, Dwight Geisler, took advantage of an SBA 7(a) loan and the accompanying fee waiver to sustain operations at a critical time, and to quickly hire more employees as demand grew.  Dwight indicated that the loan prevented him from having to shut down his business after 33 years of successful operation in Racine. 

The SBA 504 program provides large, fixed-rate, long-term loans for fixed assets such as land or buildings. It is a job creation program in the end, creating roughly one job for every $65,000 lent out. ARRA enhances this program by eliminating program fees for participants on both sides of the equation, raising the cap to $10 million if it results in energy savings or if they are a manufacturing business. 
Where this program used to apply only to new construction or equipment, small businesses may now refinance fifty percent of debt used for fixed asset purchases.

Owners of the PM Sleep Center, a mattress and furniture store in Eau Claire, utilized the 504 loan program to increase their showroom space and move across town to a more visible location. In the first three months since this expansion, they have increased their workforce from five to eight and doubled their business. The SBA fee waiver saved their business $7,500.

The lending pool for SBA microloans expanded by $50 million, with an additional $24 million available to provide technical and individualized assistance and education to borrowers.  Historically, these maximum $35,000 loans reach low-income individuals, women and minorities in both rural and urban areas with their start-up or newly growing businesses. Wisconsin is well-positioned to benefit from this, with six microlenders operating across the state.

SBA Surety Bonds help small businesses that compete for construction and service contracts. With ARRA funds, these bonds more than doubled, increasing from $2 million to $5 million and, on a federal project, up to $10 million if the contracting officer indicates a guarantee is required. Under the partnership, SBA provides a guarantee to a participating surety company of between seventy and ninety percent of the bond amount.

I want all Wisconsin small business owners to be aware of a brand new SBA program, America's Recovery Capital (ARC) Business Stabilization Loans, available June 15th.  ARC is designed to help small businesses reeling in the turbulent wake of this financial crisis, those that could go under without targeted help. Through ARC, the SBA will make a business' loan payment every month for up to six months (a total not to exceed $35,000). The business then enjoys a twelve month grace period, followed by five year term to pay off the SBA loan with no interest charged. We want Wisconsin lenders and businesses to access this right away where appropriate: it will go fast. SBA projects only 10,000 of the 27 million small businesses nationwide will be able to participate before funds run out.

I will continue to partner with the SBA to promote these important programs across the state over the coming weeks. Small businesses in need of credit can learn more about these programs through their community bank, or by visiting www.sba.gov, or my website, www.ltgov.wisconsin.gov.

Barbara Lawton is the lieutenant governor of Wisconsin.

On May 20, the Securities and Exchange Commission (SEC) proposed changes to the federal proxy rules to provide shareholders (owning a specified percentage of the shares of a public company for at least a one-year period) with the right to nominate up to 25 percent of the company's board of directors and to have the nominees included in the company's proxy materials.

The rule proposal can be found at http://sec.gov/rules/proposed/2009/33-9046.pdf. 

This is the SEC's third attempt at issuing a rule proposal on this polarizing issue, having previously issued proposals in 2003 and 2007.

The current economic crisis has rejuvenated the issue of proxy access as politicians and regulators scramble to implement reforms designed to make the board of directors of public companies more accountable to shareholders and the public. Many commentators have predicted that, to borrow a slogan from the 2008 presidential campaign, "change is on the way."

The contentious nature of this issue has inhibited adoption of any rule from the SEC on prior occasions, but this time the consensus is that the only issue open for debate appears to be what the eventual changes to the federal proxy rules will look like.  

Under the existing rules, only the company's nominees for election to the board of directors are included in the company's proxy materials. If a shareholder wants to nominate opposition candidates, it ordinarily must prepare, pay for and distribute separate proxy materials. Even using the electronic proxy rules, this is a costly process that often prevents shareholders from nominating directors.

The current rule proposal would result in a dramatic change in the proxy rules by more easily facilitating the ability of certain shareholders to include in a company's proxy materials a short slate of candidates for director that it nominates in opposition to the company's candidates on a near-costless basis. The proposed rule would not apply to contests seeking a change in control of the company.

It should come as no surprise that the leading advocates favoring proxy access reform are corporate governance activists, spearheaded by labor unions, state and local government pension funds and the Council of Institutional Investors. An equaling shocking revelation is that the business community, led by the U.S. Chamber of Commerce, is vigorously opposed to the proposed rule. The business community is gearing up to challenge any SEC final rule on this issue in the courts.

There are numerous competing policy arguments both in favor of and in opposition to the proposed changes. One leading argument advanced by proponents of the SEC proposal is that the election of more shareholder-nominated directors would make boards more accountable to the shareholders who own the company and that this accountability would improve corporate governance by making companies more responsive to shareholder concerns. On the other side of the debate, there is concern that a shareholder-nominated director may be beholden to and focused solely on the concerns of that specific nominating shareholder or group, rather than on the best interest of the company and the rest of the shareholders.

The SEC's proposal, if adopted, may result in more contested elections for board seats.

Those in favor of the SEC's proposal argue that increased competition might lead companies to nominate and elect directors who are better qualified and more independent. Conversely, opponents have expressed concern that frequent contests would be costly and disruptive to companies and could discourage some qualified board candidates from agreeing to appear on a company's slate of nominees.  Some opposition groups have also taken the position that adopting the proxy access rule as proposed unlawfully usurps states' rights and represents an overreaching federal incursion into traditional areas of state corporate law.

If you feel strongly one way or the other about this proposal to revise the federal proxy rules, now is your chance to voice your opinion. The SEC has requested that interested parties comment on the rule proposal in general or on any of the more than 170 specific questions raised by the SEC therein. All comments are due by Aug. 17 and can be submitted electronically on the SEC's website at http://sec.gov/cgi-bin/ruling-comments?ruling=s71009&rule_path=/comments/s7-10-09&file_num=S7-10-09&action=Show_Form&title=Facilitating%20Shareholder%20Director%20Nominations.

Chad Wiener is an associate at Quarles & Brady LLP, Milwaukee, in the Corporate Services Practice Group.  He can be reached at chad.wiener@quarles.com.

I had occasion recently to be featured guest on "The Call," a CNBC television show hosted by economist Larry Kudlow. Like other supply-side economists, Kudlow follows Milton Friedman in assuming that the inflation rate is driven solely by monetary policy.

My topic as a talking head: Where is inflation headed in the U.S.? Inflation matters because it affects the stock market, interest rates and our real wealth and income.

I think horse racing is a good analogy for inflation predictions. A lot of people are betting on the horse called inflationary expectations: the Federal Reserve's monetary stimulus will create higher inflation rates so let's build that expectation into today's interest rates and prices.

Another horse is medical costs: pharmaceutical companies and health care providers are raising rates in anticipation pricing pressures once the Democrat's national health care policy is enacted.
Yet another horse is energy prices.

I'm betting on the horse called deflation, owing to the increasingly commodity-like economy coupled with recession-induced excess capacity. Those betting on inflationary expectations, I feel, are incorrectly assuming that the monetary stimulus will come on top of a traditional economic upturn.

What they're forgetting is that the only thing holding up the economy and prices today is stimulative spending and monetary policies of our government.

And we haven't even seen the full effects of state and local government deficits, record-high office vacancies causing bankruptcies and further bank capital problems and a growing retail bankruptcy rate.

Eddie Bauer declared bankruptcy recently. Who's next?

Kay Plantes, Ph.D., is an MIT-trained economist, business strategy consultant, columnist and author with expertise in business model innovation, strategic leadership and smart economic policies. She resides in Madison, Wis., and Oslo, Norway. For additional information, visit www.plantescompany.com.

It's not surprising that successful business people often share similar opinions about many things. However, when it comes to keeping up with the news, the business leaders I know seem to gravitate toward one of two recommendations: "Watch the news or read the paper every day" or "Never watch the news or read the paper."

As a young man, I was confounded by this contradiction, but later I came to appreciate the natural symmetry of these opposing viewpoints.

Every day, our world grows larger, more complex and more technologically advanced, so naturally it is important for all of us to stay abreast of the latest developments on Wall Street, on Main Street and of course on Capitol Hill (what street is Capitol Hill on?). Unfortunately, while we may be eager for new information, we are not always adept at filtering through it to obtain the accurate and relevant facts. Every day, we are bombarded with so much negativity that we often begin to feel not only helpless, but hopeless.

The real kicker is that most of the negative events happening in economics, politics, athletics and Hollywood aren't the complex enigmas that the media makes them out to be. The real news, which shouldn't come as a surprise to anyone, is that people are just being people, and recently people have made some bad decisions - that is the simple, painfully disappointing truth behind our current economic situation.

Many of the issues facing our economy can, at their fundamental level, be traced back to a few critical mistakes made collectively by companies and consumers alike.

First, people got greedy. Consumers want more and are willing to finance small and large purchases at unfavorable credit terms. Financial institutions add fuel to the fire when they aggressively market these lending vehicles to unqualified debtors. It's fine to want more out of life or to want your business to grow, but at what cost? Are we willing to risk "losing the war to win the battle?"

Second, people failed to plan and budget. People are emotional by nature, and as such, we tend to react to stimuli. In our personal lives as well as in our businesses, we must learn to temper our instinct to react. We need to have a long-term strategy, a short term operating plan and a budget. Missing any one of these elements exposes us to increased risk and uncertainty.

Third, people failed to monitor performance and take appropriate corrective action. Strategy, planning and budgeting are necessary elements to managing business and personal finances, but we cannot plan for every eventuality. Performance must be tracked and results reviewed on a regular basis. If the current actions are not producing the desired results, then we need to take action to correct the situation.

As we prepare for the warm summer months ahead, here are a few simple steps we can all take to weather these cold economic times:

Stop! Stop reacting to the constant negativity in the media. Businesses can still grow and be profitable even during a recession. Stop worrying about what everyone else is doing especially when it has no direct impact on your business. (Who cares if a CEO takes a private jet to a meeting or a company sends their top performers on a trip to Mexico?  How does that impact you?) Just stop.

SURF (Seek and Understand Relevant Facts). Begin filtering through the bad information and hype in order to identify and process the important, relevant and reliable information that will help you make better business decisions. By focusing on the right data and making fundamentally sound decisions you can advance your business momentum. For every business that has resigned itself to being a victim of the recession, there is a competitor who is trying to innovate, become more efficient and capture market share.

Get TAN (Timely Accurate Numbers). Know your P&L, balance sheet and cash flow backwards, forwards, inside out and upside down. If you don't have the time or don't understand them, find someone to guide you. Start looking for opportunities to better manage your expenses, but not at the expense of your business - make certain that the cuts you make don't erode your quality, customer service or capacity to meet your current demand.

Focus on the fundamentals. Take count of your current assets (especially cash) and make smart, non-reactionary decisions about your investments (Rule of thumb = buy low and sell high). Practice prudent expense management and try to ensure that your expenditures result in additional revenue and help you establish a more stable, efficient operating structure. Actively network as much as possible to share ideas, innovate and meet potential customers. Create value for your customers and suppliers, and make contributions in the community where you can.

Align incentives. Take a long-term management perspective. Your business should be a going concern; a good leader will take appropriate action to prosper in the short term, but not at the expense of long-term success. You should never prosper at the expense of your employees, customers, suppliers, or the community as a whole (no matter what state the economy is in). Reward strong performers and work to retain top talent. Create a business environment where win-win situations are the norm.

David Rockefeller said, "Success in business requires training and discipline and hard work. But if you're not frightened by these things, the opportunities are just as great today as they ever were."

With that in mind, start feeling grateful for this recession. Embrace it. Get excited about it. Stop reacting. Focus on the fundamentals. Take advantage of this opportunity to improve your business and position yourself for long-term growth and profitability.

Timothy Lantz is founder and president, Pantheon Business Council, Cudahy.

The Obama Administration is determined to employ the American Recovery and Reinvestment Act and the Small Business Administration to make a big dent in the small business credit crunch.

The goal for SBA is jump-starting job creation, re-starting lending and promoting investment in small businesses.

The Recovery Act provides SBA with $375 million to temporarily eliminate loan fees and raise guarantee limits up to 90 percent on most types of 7(a) loans. It temporarily eliminates 504 loan fees for both borrowers and lenders. SBA estimates these provisions will apply to approximately $8.7 billion in 7(a) loans and $3.6 billion in 504 loans and last through calendar year 2009.

To help small businesses compete for construction and service contracts, the Act allows  SBA to more than double the amount it can offer for SBA-backed surety bonds - from a previous $2 million maximum to $5 million.

An element already in place - SBA's Microloan program - received additional funding for up to $50 million in new loans. This capital is available today for new loans of up to $35,000 and accompanying technical assistance through SBA's nonprofit, community-based lenders.

In another step, the Treasury Department plan has committed up to $15 billion in TARP funds to help unfreeze small business lending by purchasing existing and new SBA-backed loans made by banks. This will free up capital for lenders to use for future lending, particularly benefiting small, community and non-bank lenders.

The Recovery Act authorizes the SBA to use its 504 program in various ways: to refinance existing loans for fixed assets in a business expansion project; to use its guarantee authority to establish a secondary market; and to make loans to broker-dealers who buy 504 loans from lenders.

Significant interest has been shown in a new program funded by the Act - tentatively called America's Recovery Capital, or "ARC" Stabilization Loans. Once in place, this temporary program funded to $255 million, will offer deferred-payment loans 100 percent guaranteed by SBA for up to $35,000 to viable small businesses that need help making up to six months' worth of payments on existing, qualifying, non-SBA backed loans. 

The Act also helps to make venture capital available to smaller businesses by raising the funds SBA-licensed Small Business Investment Companies can receive if they raise small business investments by five percent.

SBA staff is working hard to implement the rest of the Recovery Act's programs.  Although there are many moving parts, SBA's aim is to implement these programs quickly and effectively for as rapid an affect on small business credit markets as possible.

Let me emphasize that all of SBA's existing programs are open for business. We back new loans and provide training, technical and contracting assistance to entrepreneurs every day.

Be assured the SBA is working overtime. We know small businesses have a proven ability to create new jobs and commerce. The next phase of our economic recovery rests in their hands.
 
Eric Ness is the director of the Wisconsin District of the U.S. Small Business Administration in Milwaukee.