Download NACM TEXAS – Since 1906, the Association of Business Credit

NACM TEXAS – Since 1906, the Association of Business Credit Executives
Business Credit News
CREDIT REPORTS 210-225-7106
COLLECTION
210-225-7106
E-MAIL:
[email protected]
FAX SERVICES
210-225-1777
WEB SITE: www.nacmtx.com
National Association of Credit
Management of Texas, Inc
4407 Walzem Rd #205
San Antonio, TX 78218
JULY 2012 Chairman: Terry Ludzenski
Holt Cat
“Recession, Depression, Does It Matter?”
Those who don’t know history are doomed to repeat it. Edmund Burke, 1729 – 1797
Those who cannot remember the past are condemned to repeat it. George Santayana, 1863 – 1952
Much has been written about the present financial crises, recession, and or depression, whatever it is called today, that we have been
wallowing in for almost six years. There has been finger pointing, misleading information, and a distortion of “facts” reported by
politicians, news readers, and the self proclaimed “experts” who claim to know the causes that led us into our current financial
crises and the remedies. The fact is the reason that we are in the present financial state is because of our failure, as a world society,
to learn from our previous mistakes. The term “financial crisis” is often applied broadly to situations where some financial
institutions or assets suddenly lose a major portion of their value. Since the 19th century, many financial crisis have been attributed
to bank or monetary failures that, like falling dominos, resulted in either recessions or depressions not only in the United States but
worldwide. A “financial crisis” is usually defined as a direct result of a loss in paper wealth and unless there is a resulting recession
or depression does not change the real economy.
Although the world economists have offered numerous theories about how financial crises develop and how they could be
prevented, they have yet to agree on any one particular theory or method of prevention. And so financial crises remain a regular
occurrence around the world and all we have to assist us is to look at the past and hope that we don’t repeat our mistakes, again.
The Panic of 1873
There are those who have stated and written that the United States and also the world is in the worst financial crises in history today.
That is not correct. The Panic of 1873, caused a severe international economic depression in both the United States and Europe that
lasted for almost twenty years. The Panic of 1873 was often known as the Great Depression until the 1930’s and is now referred to
as the Long Depression. It lasted fourteen years longer than the Great Depression of the 1930’s.
The Panic of 1873 was caused by an over expansion of the railroad industry and the Coinage Act of 1873 that affected the silver
market. Contributing events were the infamous Chicago Fire, the outbreak of equine influenza, President Grants’ monetary policies
(that increased interest rates while driving down the money supply), and the failure of Jay Cooke & Company (read Lehman
Brothers). During the period of 1873 to 1875, the New York Stock Exchange was closed for ten days; 89 of the country’s railroads
filed bankruptcy; 18,000 businesses closed and the unemployment rate rose from 3% to 14%. Construction work stopped, wages
were cut, real estate prices fell and corporate profits vanished at a time when only corporations paid income taxes. In Europe the
Vienna Stock Exchange crashed causing several bank failures and the Berlin Railway went out of business. In the United Kingdom
the long depression resulted in bankruptcies, unemployment, the stoppage of all public work projects, and caused a major trade
slump that lasted until 1897. The British net national product ratio fell from 11.5% to almost half, 6%. France like the UK also
suffered a period of stagnation until 1897. During this period the countries of the world including the U. S. began creating
protective tariffs for both its agricultural and industrial products.
The Panic of 1893
Just as the United States and the world began to recover from the Panic of 1873 the U. S. experienced the most serious economic
depression it had ever encountered. The Panic of 1893 was caused by continuing railroad and bank failures compounded by a “run”
on the banks and the United States gold supply. In 1890 Congress had passed the Sherman Silver Purchase Act in response to the
agricultural growers lobby who wanted to repay their debts in silver which would provide them cheaper dollars than gold backed
currencies. The Act required the U. S. Government to buy millions of ounces of silver which contributed to the emerging silver
mining industry as it drove up the price of precious metal. People then attempted to redeem silver notes for gold causing the
statutory limit for the minimum amount of gold in federal reserves to be attained at which point U.S. notes could no longer be
successfully redeemed for gold. President Cleveland, after his election convinced Congress to repeal the Sherman Silver Purchase
Act thinking that this would solve the monetary problem. Instead U.S. citizens withdrew their money from the banks demanding
payment in gold and created a financial panic in the UK where investors sold their American investments so they could purchase
American currency backed by gold.
Along with a series of bank failures, the Northern Pacific Railway, the Union Pacific Railroad and the Atchison, Topeka & Santa Fe
Railroad all failed. Over 16,000 companies and 500 banks closed their doors forever. Unemployment rose to 19% causing middleclass families the inability to meet their mortgage obligations. Many families walked away from recently built homes having lost
their life savings when their bank was shuttered. The Panic of 1893 saw the first populist march on Washington, known as “Coxey’s
Army” (read Tea Party) where unemployed workers from all states came to the Capitol to demand a federal jobs program. During
the six years between 1893 and 1899 unemployment remained at an average 14%.
The Panic of 1907
The Panic of 1907 was a financial crisis that occurred in the U. S. when the New York Stock Exchange lost almost half of its value
from the previous year. The “panic” occurred during a period of economic recession and there were many “runs” on both banks and
trust companies. Although the “panic” began in New York it eventually spread throughout the country and caused many state and
local banks to close their doors. In addition, many businesses filed for bankruptcy protection. The 1907 panic only lasted 13 months
but during that period the following occurred:
• The American stock market lost 18% of its capitalization,
• The copper market collapsed,
• The Standard Oil Company was fined $29 million for antitrust violations,
• Banking runs occurred in Egypt, Japan, Hamburg, and Chile,
• On October 24, eleven bank and trust companies closed their doors in New York City,
• A failed attempt to control the copper market resulted in the shares of the United Copper Company falling to under $10 a
share from a high of $60 in a single day,
• A bankruptcy filing by the City of New York was averted when J P Morgan purchased
• $30 million in New York City bonds,
• The failure of 50 stock exchanges in New York City was averted with a loan of $19 million dollars from J P Morgan,
• Teddy Roosevelt, approved the sale of the Tennessee Coal, Iron & Railroad Company to
• U. S. Steel, a company controlled by J P Morgan, despite anti-trust concerns. This was significant because Roosevelt had a
reputation as being a “monopoly buster” and it was, until now, a cornerstone of his presidency.
The Panic of 1907 is most significant because it ultimately led to the creation of the Federal Reserve Act that Congress passed and
President Wilson signed into law on the same day, December 23, 1913.
1930 “The Great Depression”
For many, 1930 is the most recognized worldwide economic failure. Although it is most remembered and thought of as the “worst”
of all depressions it only lasted for 4 years and 5 months. Two and a half years less than the average length of a depression. The
depression originated in the U. S. after the stock market crash in October 1929. Most other countries did not begin to suffer until
1930 when Congress passed the Smoot-Hawley Tariff bill in June that led to a 50% reduction in international trade. The average
duty paid on imports between the years 1921-1928 was 25.9%. After the passage of Smoot-Hawley the tariff increased to 50%
between the years 1931-1935. Many believe that an ordinary recession grew into the Great Depression not only because of SmootHawley but also because of the actions taken by the Federal Reserve to regulate interest rates, curtail bank failures, and control the
money supply. Prior to the stock market crash in 1929, margin requirements were only 10% of deposits. Brokerage firms would
therefore lend $9 for every $1 dollar an investor had deposited with them. When the market began to decline brokers called in these
loans, which the investors could not pay back. Britain’s decision to return to the Gold Standard is also considered a contributing
factor although Britain quickly abandoned the gold standard in 1931. Every major currency left the gold standard during the Great
Depression but not at the same time. Countries that left the gold standard early recovered more quickly than those that did so later
on.
The administration of President Hoover initiated several programs to turn unemployment around and restore the economy quickly.
Among the programs were the National Credit Corporation (a consortium of banks organized to lend money), the Federal Home
Loan Bank (a government program designed to re-vitalize new home construction and financing), The Emergency Relief Act and
the Reconstruction Finance Corporation (government programs created to provide funds for public works, financial institutions,
railroads, and farmers). All of these programs were failures and did nothing to restore the economy, in fact, the economy worsened
after these programs were enacted. Interestingly, under the Roosevelt Administration, these programs after being renamed and
packaged into the “New Deal” and the “Second New Deal” prospered and were given credit for playing a critical role in ending the
depression.
After the panic of 1929 and during the first 10 months of 1930, 744 U.S. banks closed their doors. Prior to Franklin Roosevelt’s
election in 1932, 5,000 banks failed and eventually another 4,000 banks would fail before 1939, bringing the total number of
depression era bank failures to 9,000. Many are of the opinion that had the Federal Reserve requested “emergency powers” instead
of doing nothing while the large New York banks failed, the Great Depression may never have come about. However, because the
Federal Reserve did not have the sufficient amount of gold on hand that was required at the time, (40%), to back the outstanding
issued Federal Reserve Notes, the Fed was powerless to do anything as the banks began to fail. It was not until 1933, when
President Roosevelt signed an Executive Order making the private ownership of gold illegal, did the Federal Reserve have sufficient
gold on hand to rescue the remaining troubled banks. The Bank Act of 1935, that raised reserve requirements, was also a factor in
the Fed’s effort to rescue the U. S. banks. Between 1929 and 1933 unemployment in the U. S. was as high as 25% and 33% in
Europe. By the mid-1930’s the economy began to recover due to the various programs in President Franklin Roosevelt’s “New
Deal” such as public works and farm subsidiaries. Full recovery, however, was not realized until the start of World War Two and it
is believed that because Roosevelt continued trying to balance the U. S. budget, during the depression, he never allocated enough
money necessary to bring about a full recovery.
Recessions and Depressions
Recessions and depressions are not new to the U. S. and the world nor do they happen infrequently. Since the Continental Congress
of 1776 the U.S. has gone through 42 recessions and 5 depressions. The average recession has lasted 17 months while a depression
has lasted no longer than 5 years. It has yet to be determined if the Panic of 2007 is a recession or a depression. What is known is
that the U. S. and the world has yet to recover and it has lasted longer than either the Panic of 1893 or the Great Depression of 1930.
During the first six months of 2012:
•
The United States GDP has decreased to 1.9% (Bloomberg News),
•
The Bank of Spain has reported 66.2 billion euros ($82 billon dollars) has been transferred from the Spanish banking
system to other countries by worried depositors (Reuters),
• Greece has reported that retail sales have declined 16.2% and continue to do so (Financial Times),
• There are rumors coming out of China that they are experiencing the beginning of a recession (British Guardian),
• 71% of small business owners in the U.S. do not believe the recession is over (Business Week).
• In May 2012, 20,000 people applied for 877 new jobs at the Hyundai Motors Manufacturing plant in Montgomery,
Alabama forcing the company to suspend the application process. (USA Today)
• During the past five years 40% of working adults in the U.S. have seen their employer paid benefits reduced or eliminated
entirely. (USA Today).
Looking back through history, the periods of financial crises appear to occur whenever government interferes with commerce,
whether through the enactment of laws, regulations, or monetary policies. We also know that every election year we continue to
nominate and often elect the least qualified candidates to lead our countries.
If we fail to pay attention to the writings of Burke and Santayana, we will end up where we are today, again!
David Balovich is a certified credit consultant specializing in commercial credit. He is a proud member of NACM Texas and can be contacted
[email protected]
*************************************
JULY 2012 *************************************
Day
Date
Group
Location
Time
Tues
3
Austin Construction
Texas Land & Cattle, 6007 N IH 35 & Hwy 290, Austin TX
11:30
Tues 10
Coastal Bend
Holt Cat, 1325 South Padre Island Dr, Corpus Christi TX
11:30
Wed
11
Rio Grande Valley
Victoria Palms Resort, 602 N. Victoria Rd. Donna TX
11:30
Thurs 12
SW Food Credit Group Las Palapas, 4802 Walzem Rd, San Antonio TX
11:00
Tues 17
Austin Construction
Texas Land & Cattle, 6007 N IH 35 & Hwy 290, Austin, TX
11:30
Wed
18
Victoria Credit Group Sky Restaurant, 236 Foster Field, Victoria TX
11:30
Thurs 19
HVAC Credit Group
Texas Air Products, 11122 Gordon Rd, San Antonio TX
11:30
Thurs 19
Austin Ad Media
Santa Rita Tex Mex, 1206 W38th St. Austin TX
11:30
Fri
20
SA Ad Media
Teleconference Meeting 1-800-791-2345
10:00
Tues 24
SA Construction
Las Palapas, 4802 Walzem Rd, San Antonio TX
11:30
Wed
25
Fuel & Lube/Heavy Eq. Teleconference Meeting 1-800-791-2345
2:30
Wed
25
Laredo Credit Group
Laredo Country Club, Laredo TX
11;30
Fri
27
SW Electrical Group
Onion Creek Country Club, 2510 Onion Creek Pkwy, Austin TX 11:30
***************************************************************************************************
CREDIT REPORTS……
INDUSTRY CREDIT GROUPS…….
COLLECTION RECOVERY……..
A company with financial problems does not acquire them overnight. It has usually experienced one to three years of
surfaced difficulty. The earlier these warning signals are identified and analyzed the greater the chance of effective correction
action.
Are you using NACM Credit Reports and Industry Group Meetings to help you identify and analyze? Are you using NACM
Collection Recovery for the past due account(s)? Call NACM, your Association for all your credit needs and service at (210)
225-7106 or 800-256-5306.
REFERRALS! Have you talked to a company lately that’s not a member of NACM? Help NACM and your
industry group grow by e-mailing, faxing, or calling to NACM any new prospects.
WHY IS IT BENEFICIAL TO PARTICIPATE IN NACM’S CREDIT INDUSTRY GROUPS:
Networking of credit associates you can use as a resource for establishing credit.
Monthly information on customers you may have concern with.
Timely information on customers who may be credit risk or HMAs (high maintenance accounts).
New business that may be coming into the area.
General discussions on how to handle NSF check, credit applications, COD’s, etc.
Insightful data on current problems in the area.
Last, but no least, is the fact that is takes just one bit of information from your credit meeting, that you were
not informed about, that could save your company thousands of dollars.
These are not all the benefits for going to your credit groups, but again, if you only came and gathered information on
one company that helped save your company a PAL (write off) at the end of the year, IT’S WORTH IT! So, get
involved with your industry group, give us a call at (210)225-7106 and we may be able to find a group or start one for
you.
1.
2.
3.
4.
5.
6.
7.