A Rock, a Hard Place, and a Pyramid

Today I saw an interesting pair of articles. First, it seems that many of our unemployed and underemployed neighbors are starting their own businesses. That really is good news, because some small percentage of those businesses will eventually be employers. It’s really hard to run a business even in good times, and these people are to be commended for their ability to take a lemon of a situation and try to make some lemonade.

But there’s bad news. Banks have collectively pulled a thousand million dollars of funding from small businesses last November alone. Here’s a great quote, emphasis mine:

The 22 banks that got the most help from the Treasury’s bailout programs have cut their small business loan balances $12.5 billion since April, when the Treasury began requiring them to file monthly reports on the tally. The banks’ total lending has fallen 4.6% in that seven-month period, to $256.8 billion.

As Wall Street megabanks return to health — and celebrate with lavish bonuses — President Obama and his administration have been pushing financiers to help spur a Main Street recovery. Small business owners are still reporting difficulty finding banks willing to extend the credit they need to launch, run and grow their ventures.

So to review: more small businesses and less money being lent to them. That is a recipe for failure. These are not the sorts of businesses that can generally get venture capital, and these business owners certainly can’t get home equity loans right now. And frankly, all too few of us have anything in the way of savings.

But wait, there is one kind of business opportunity that doesn’t require lots of capital outlay. Start-up fees are generally small and ongoing costs modest. Some of these opportunities don’t even require the small business owner to carry inventory. I am talking about multi-level marketing, or MLM for short. I’ve been offered multiple “opportunities” in the last 6 weeks, including cold calls, so it’s heavy on my mind.

Disclaimer: my parents used to be Amway distrubutors, and I am an Independent Beachbody Coach. I will be sitting for the ACE Certified Personal Trainer exam next week, and to be honest Beachbody makes a  number of complete in-box programs that are good fits for roughly 90% of people. If you’ve considered getting into P90X or another workout program (I can help you pick one if you want guidance), I sure would appreciate if you would order through me instead of the phone number in the infomercial.

Here’s how it works. Jane Businesswoman signs up and probably gets a starter package of whatever it is that the company sells. She is encouraged to sell this product to people she knows — the bigger your sphere of influence, the better your chances. Depending on the company/product, she may place orders as she sells merchandise, she may stock popular items, she might be able to give out samples (in fact she may be encouraged to buy sample packs and give them out as a marketing tool). But the real money is in getting other people to sign up to be her “downline”. Once she has Susie and Laura Businesswoman working in the system, she gets a cut of what they sell too. Jane will even get a cut of the people Susie and Laura someday sign up. And hey, if one of those people only orders stuff for personal use, Jane still gets a piece of the action.

The only thing that keeps this from being a pyramid scheme is that there is an actual product, and to make money somebody has to be buying it. Often the product is something that gets used up — soap, vitamins supplements, etc — so theoretically Jane, Laura, and Susie should all have repeat customers who come back to buy more on a regular basis. And because they all make money on the product, they are extremely enthusiastic about it.

Most of these plans have a couple of fatal flaws in my mind, which I can encapsulate in two questions: If this product is so great, why isn’t the company trying to get it into stores? and If your business is so great, why do you want to sell it to me instead of keeping the profits for yourself?

What it boils down to is that most of these companies are offloading their marketing costs onto their family of Businessmen and Businesswomen. When is the last time you saw a TV ad for most of the companies on this list? [Notice something? At least Beachbody does marketing for me!] If you know who most of these companies are, it’s only because somebody you know tried to sell it to you. Marketing campaigns are expensive. Hiring professional salespeople and sending them to retailers to get placed in stores is expensive. Putting Jane and her friends to work hawking product isn’t just cheap, it turns an expense into income! Sure, it costs the parent company a bit of theoretical profit to run this way. But they make up for it by turning their independent contractor sales staff into zealots who will buy anything the company makes.

I won’t bore you further, but if you want to know more about how such companies work, there’s these guys.

In closing: lines for peasants but services for the rich; weird scholarships; Japan Airlines files for bankruptcy; more on job creation; is anybody really surprised that the FBI broke the law to get some phone data?; already up to 4 bank failures this year; bankers don’t get it; most of them will turn out to be insolvent; and talking to children about disasters.

Sign of the Times

Today news is circulating that right before Christmas, Foreclosure.com filed for bankruptcy. Their “dynamic team of savvy real estate visionaries and brilliant software developers” ended up with too much debt and not enough revenue, much like the people whose homes they advertise on their website. Somehow, they have overlooked putting news of their bankruptcy on the site. I don’t know how long you’ll be able to check out the actual documents, but here they are. I love that they actually had to list the $200 in petty cash and $600 in Paypal accounts.

Going forward, one concern is the effect this will have on their creditors. They owe close to $19 million to Fifth Third Bank, and another $4 million to Legacy Bank of Florida. Unfortunately for Legacy Bank of Florida, they already have $8.6 million in non-performing loans, which doesn’t seem to include money owed by Foreclosure.com.

What a shame they won’t be able to simply foreclose on Foreclosure.com.

In closing: if you haven’t read this piece on The Obama Disconnect, do!; on the intersection of banking reform and mortgage cramdown; good news for the American economy, manufacturing is picking up on demand for American made products (proof that we can make things profitably other than lattes); here’s what conservative economic policies do to for our economy (note that the Reagan Years weren’t as good as the 40s, 50s, 60s, or those bad old 70s); happy songs make happy teenagers?; Fighting Women; global warming; you didn’t actually need medical care, did you?; and health costs keep rising.

The Shorties Saga: New Moon

Merry Zappadan: It has been brought to my attention that Zappadan began last night. Felicitous greetings those who celebrate, and of course the admonition to dance like a fool and not eat yellow snow.

Can’t He Eat Dinner in the Toilet? Geez!: That is what some ignoramuses are really saying when they tell a lactating mother to go nurse in the bathroom. Get over your bad selves; the original purpose of breasts — God Given if you believe in God — is to feed babies. Why don’t you go eat dinner in the toilet?? Now that being said, most mothers try to be discreet: they nurse at home before going out, they use modesty covers, they pump. But **** you if you disagree, anyplace it’s ok for a baby to have a bottle, it’s ok for him to eat the all natural diet that was intended for him.

Banks do as they please, we pay the fees: 6 more bank failures yesterday. That brings us to 130 for the year and no sign of slowing down in 2010. But the surviving banks aren’t accountable to their customers — an obvious breach of free market thinking, wherein banks that screwed customers should be the first to fail as we take our business elsewhere. Instead, they have to be “pressured” to do the right thing, and “regulated” to keep them from screwing us harder. We can’t just take our business elsewhere because either our small local bank will fold and be sold off to Faceless Conglomerate Bank Co or our mortgages will be bundled and sold piecemeal to them. And while it’s easy to say “I’m not doing business with Chase, close my credit card account and move my checking account”, it’s hard if not impossible to control who owns your mortgage. How nice that B of A suddenly has the money to rid itself of its largest and most meddlesome investor. Since when doesn’t the Fed have the ability to regulate them anyhow?

Say goodbye to all this, and hello to oblivion: (obligatory) Escalation in Afghanistan is teh win… for the bin Laden anyway. Heaven forbid we should learn from those who tried to fight “the good war” there before us.

It’s the Jobs, Stupid: The people want to go to work. They want to work more than they are worried about the deficit or much of anything else, and that’s actually kind of smart: you see, working people pay more taxes than those who don’t work! If we don’t get these people jobs, we risk losing the middle class altogether. (Yeah, I know I swore off HuffPo, but it’s Elizabeth Warren). Here’s a handy fact sheet.

Obligatory Health Insurance Reform Roundup: Remember, if the insurance companies want it, it’s probably bad for consumers — and that’s what Forbes says! Women have unusually high stakes in this thing. Poor Aetna having to cut all those customers so they can remain fabulously profitable! And remember that when they talk about “cost controls” they aren’t talking about controlling your premiums, but rather what your doctor and hospital gets paid. Oh, and this clip, wherein Shatner wishes the Vulcan neck pinch and mind meld were real… and that Nimoy were standing behind his guest.

Why Police Confiscations Must Be Further Regulated: “We think your passenger is a hooker so we’re taking your car… Oops we’re mistaken, you owe us $1400 to get your car back!”

And Last: A handy Wall Street to English translator.