Trade show talk
Discussions at recent regional trade shows revealed that the parts and service industry is doing quite well in the face of a brewing economic slowdown. In fact, total sales of tools and equipment, for instance, have been surging for at least the last two quarters as the industry steps up to face technological and market challenges.
As noted here before, the industry may no longer be called recession proof, but it is certainly recession resistant as long as businesses are customer-driven and strive to improve professionalism. Much, however, depends on the relative well-being of your customers. Whatever helps the average consumer and enhances an individual's or family's budget will benefit small businesses and their suppliers and should be supported.
Pin the tail on the donkey
It was, however, dismaying to hear some at the trade shows with whom we discussed the subprime/credit bubble collapse blame only the mortgage borrowers and not the financial institutions and agencies. It's the institutions, not the individuals, who bear the bigger responsibility.
First and foremost, at fault is the Greenspan-led Federal Reserve's irresponsible low-interest-rate monetary policy, which produced if not promoted the housing boom. Also included are regulators at the state and federal level who tolerated obvious abuses in the mortgage industry. There were many who encouraged low- and moderate-income families to buy in the middle of a housing bubble because of asset appreciation.
Then there were the financial analysts, blind to a looming $8 trillion housing bubble. But instigation of financial adventurism came from banking and financial institutions seeking mortgages to securitize into derivatives.
Institutions, not just individuals, at fault
Evidently, securitized, subprime mortgage instruments were a bad idea, and big-time financial professionals who knew better crossed the line to fraud and financial adventurism, and somebody should pay. It should not, however, be the general public, the small-business community, and the economy that pays.
It is well past time that the notion of responsibility should be freed from the superficial, abstract discussion of subprime mortgage borrowers and placed with the financial institutions who aimed to make money, literally, by packaging and selling securities, using bundled mortgages to create its own money supply through derivatives.
During the Great Depression, in 1933, the Glass Steagall Act separated commercial banking from the securities business. It prevented securities speculation from destroying bank capital and subsequent bank failures. In 1999, Congress and President Clinton repealed the Glass-Steagall Act.
The repeal was driven by a hunger for profit and a regulatory-free environment in the banking industry. Congress ignored the warnings of the General Accounting Office that the banks needed to build up their capital levels before being permitted to enter a broad range of securities businesses and that there were no regulatory structures in place to monitor the new financial networks that would result from removing the wall between commercial and investment banking.
Small-business owners know when they are conducting business outside their balance sheet. So do bankers. Like all black market activities, the intent is to make money and avoid taxes and regulations. When it comes time, remember that it was the institutions, not just the individuals, at the root of this problem.
