Thursday, October 30, 2008

Protecting a business in hard times

Apparently someone stole a check of ours on its way to the Staedtler Company, a supplier of rulers and technical supplies. Big deal. Well, it’s turning into a big deal and could have been a business disaster, except we were lucky. Here is a story of how we’re changing our business to protect ourselves in hard times. You might consider how you can protect yourself.
The depression is affecting all banks, even the strong ones. One effect we discovered is the rising tide of fraud. Our one missing check has turned up in three separate frauds and a lot of people are getting hurt.
That missing Staedtler check for 8 thousand dollars was washed. Staedtler’s name came off and a thief deposited the check in a Chase bank. The bank suspected foul play and Chase and our bank T.D. Bank North caught the fraud, but that was only the first.
The thieves sold or gave our routing number to counterfeiters who manufactured checks with a new name, but with our routing number. They sent these checks to people as prizes for winning a make believe contest.
The plan was for the “winners” to deposit the check (our check) into their bank accounts and mail the thief a few hundred of their money to get the second half of their award. For some reason the new checks kept our Portland address and two “winners” found us. We closed the account and so far Artist and Craftsman have lost no money, but I imagine some “winners” are “losers”.
Last night my comptroller called me to announce bogus credit card charges were appearing on our closed account. This morning lots of restaurants and merchants are victims of chargeback’s. The third fraud was against these merchants.

Here is our response.
We will have three bank accounts. The first will be our checking account that will issue checks. After each check run we will deposit in that account enough money to cover the checks, but little more.
The second bank account will be our savings account where we will have our assets. Our line of credit will be attached but our savings account will have no outside contact. Routing from the savings to the checking account will be internal and secure.
A third bank account will be our receiving account where credit card and store deposits will be received. Money from this account will be transferred to the savings account periodically.
To lessen the danger of checks being intercepted in the mail, checks will no longer mail in check like envelopes. Electronic transfer of funds will be preferred and we have signed up for bank monitoring programs which allows us to spot fraud the same day, not at the end of the month as is the case today.
So I welcome you to the future.


Friday, October 24, 2008

In The Recession Hole

Here are the realities as I see it.
The captains of industry are not stupid but they have been affected by the same short term interests that affect all American society. The manufacturers of SUV’s were not stupid; it was mere short term self interest. Profits were fat.
Those fat profits paid heavy union wages and benefits. They could let the Japanese seek short margins. The profits lasted for generations, but the bosses and the workers knew it would end some day. It’s ending now.
And we borrowed a lot to keep the image afloat.
There will be a shrinking of the economy as we retrench to what we can afford. This will be complicated by two factors: 1. paying off debt and 2. Insecurity in the credit market.
I think paying off debt will be easy. We’ll print lots of money but so will other so called advanced societies. It will be a race to the bottom as governments cheapen currency so as to pay back loans with cheap money.
Who is the money owed to? Well not you and I because we never saved and loaned (invested.) In the short haul I think it will be the Chinese and Arabs who get shafted. I think.
But no one in your generation will trust the greenback, perhaps not the Pound and Euro.
And that brings us to the more difficult issue- trust in the markets. That is what upsets me as I glance at the dow.
The markets control huge parts of the economy. I believe layoffs and mortgage defaults will be more affected by Wall Street than Main Street, I’m sorry to say.
So in a nutshell, The best cure is an orderly retreat on Wall Street down to realistic levels. If our economy was measured at the peak at 14 thousand, I expect the dow will continue to settle till 6 or 7 thousand.
Then things should stabilize and life will go on, poorer but O.K.
Forget about national debt. They can always print on toilet paper.