You’ve seen it. Sales are down. The immediate response is for corporations to cut costs by laying off workers. The layoffs force workers to scramble to find a job, any job, often having to accept a fraction of their prior income. The unemployed or under employed no longer have any disposable income with which to buy products. Sales drop lower.  And the layoff cycle begins again.

Let’s take a closer look at the problem. The apparent cause of these harmful reactions is a lack of vision. Company decisions are made as a reaction to short-term pressures instead of long-term planning. Cost accounting has supplanted management in the bulk of American corporations.

In the “good old days” a lack of sales was analyzed to find the root cause. Employees were considered a valuable asset to the company and efforts were made to retain them. If the problem was high production costs, the first response was to find ways to increase production per unit cost. If the problem was lagging quality, the effort was to examine the process to correct the quality problem. If the problem was reduced market share, research was done in ways to produce an advanced, higher-quality product to recapture market share.

Today, the prevalent cost accounting systems identify workers as a numeric resource. No value is placed on a person’s experience. When sales drop, no effort is made to identify and correct problems. No effort is made to keep the experienced and knowledgeable employees whose efforts have helped to build the company. The first action management normally makes is to improve the bottom line by eliminating employees. This elimination is usually done by one of two ways.

One way is to layoff a number of employees with the expectation that the remaining employees will work harder to keep production levels high. This has two major effects. The first effect is to demoralize the remaining employees. The second effect is that the overworked employees make more mistakes and quality suffers.

The other way companies often respond is to open  or contract with a facility overseas and close a corresponding facility in the United States. This results in a large indiscriminant layoff which may devastate entire communities. In recent years corporations have exported American jobs on a wholesale basis.

The cost accounting systems fail to consider that American’s consume about 25% of the world’s production and more than 75% of America’s production. By discarding employees without any effort to increase productivity, quality or innovation, the corporations are “shooting themselves in the foot.” The reckless abandon with which corporate management casts off employees is, in reality, reducing the customer base of American corporations in order to pad the bonuses of their executives.

Considering that many countries protect their industries by making it difficult for their companies to export jobs, the time has come for the United States to protect American jobs. Corporate executives should not be allowed to receive astronomical bonuses for destroying American jobs.

Richard T. Moolick

Richard’s Business Sense

A Call 4 Action

The Negative Equity Buyout

The real estate crash has put the American Dream of home ownership in jeopardy. Starting in 2002, the housing market began overheating. Financial institutions took advantage of the soaring home market with the proliferation of sub-prime loans and interest-only loans. With the bursting of the real estate “bubble” in 2007, homeowners were plunged into a nightmare. Anyone who bought their home during this period or refinanced their home suddenly found they owed more for their home than it’s worth. This has resulted in a massive number of foreclosures and short sales.

I propose that the 2002 appraised values of the homes be used as a baseline for the negative equity buyout. Homeowners whose mortgages exceed the values of their homes would be eligible to apply for this program. This would reduce the balance on primary residences to 2002 values, dramatically reducing monthly payments and stabilizing the real estate market. If a home did not exist in 2002, the baseline will be the 2002 value of a similar home in the same area. The program would apply to mortgages and home-equity instruments. Low-interest debt-consolidation loans would be made available to stave off the impending credit crisis caused by defaulting credit card debts.

Here’s how this economic recovery works.

First

The negative equity buyout program only applies to the mortgage(s) on a person’s primary residence. Speculators or others with multiple housing units (single-family homes, condominium’s or apartments) could only apply for their primary residence and not for any additional housing units. Since speculation and house-flipping have triggered the real estate crisis, these properties would be exempted from eligibility.

Second

The homeowner, who applies for the negative equity buyout, will have the principle on his/her mortgage(s) reduced to 2002 value. The financial organization owning the mortgage(s) would be paid the difference between the home’s mortgage value and the 2002 value with the requirement that the resulting equity be available for special low-interest debt consolidation loans. The homeowner will pay the new, reduced mortgage at the fixed rate equal to the current market mortgage rate. The duration of the mortgage will not be changed.

Third

The funds released by the negative equity buyout will become available for low-interest debt consolidation loans. These loans will be available to homeowners with more than $15,000 in unsecured debt and to non-homeowners with more than $10,000 in unsecured debt. The loans will have a five-year fixed rate. Participation in the debt consolidation program will have the following structure.

• Fixed Interest Rate – The debt consolidation loan will have a five-year fixed rate. For homeowners the rate will be ½% above the current market mortgage rate. For other individuals, the rate will be 1 ½% above the current market mortgage rate. This program is not available to corporations, partnerships, trusts or other such tax and liability structures.
• New Debt Acquisition – Any participant in this program may not acquire any new unsecured debt such as credit cards, signature loans or similar debts for a period of one year following the debt consolidation loan. Student loans and credit card purchases paid-in-full within one billing cycle are exempt from this restriction. Engaging new unsecured debt during the first year of participation in this program will cancel the fixed rate clause of the loan.

This debt consolidation program will prevent most of the predicted massive wave of credit card defaults. By preventing these defaults, this program will help prevent the crippling crisis and potential bank failures that follow a collapse of the credit card systems.

The use of the above negative equity program and the accompanying debt consolidation will help to stabilize the economy of the United States by strengthening the banking system and restoring financial liquidity to the American people.

Richard Moolick

Call 4 Action

Please contact your Senators and Representatives and ask them to sponsor this program.

Thanks,
Richard