Losing my Jewelry Business To Vampires and a Sink
In late November, of 2009, I got a call from Bill Jackson (name changed). Bill was an Executive VP at Charter Bank, a small, locally owned establishment with a few offices in Santa Fe and Albuquerque.
For seven years, Charter was one of two banks financing my company with a line of credit. Charter’s was based on the equity of my home and Bill wanted to start our loan process early this year.
We were in our 14th year of business. Adjusting to the downturn economy was like a punch in the stomach. We needed a loan early in the year because the first half of the year was always slower than the second half.
I did not anticipate any problems. We had a solid balance sheet and we were covering expenses. Little did I know that the loan game had totally changed. Over the next two months, I was about to lose my business literally because of a sink and vampires.
The Good Banker
These days, just about everyone hate banks and bankers—even more than the US Congress. When ever I read another article about the profitability of Goldman Sachs, Chase and other companies “too big to fail” in their game of socializing risk and privatizing profit, I assure myself that not all bankers are evil and not all banks are vampires. I know this is true because of Bill Jackson.
He was the sort of small town, pro-business local banker that this country was built upon, a genuinely kind, smart, community oriented person who was involved in a wide range of civic activities. Some people called him one of the best bankers in the state.
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We had met in 2001, when we were attempting to purchase our building on Baca Street, which currently houses our business. At the time, our company was in a phase of rapid growth.
Our current local bank at the time, where we had our commercial account, would not give us a fixed loan for the building. We had been growing too fast. But Bill came over to my house, which is where we were operating at the time — 7 employees scattered in an outbuilding, a studio and an apartment. It was obvious we had out grown our space.
Bill, Helen Chantler (my business partner and wife) and I sat down at a picnic table under our grape arbor. He described the options, including working with the SBA. Charter would assume part of the loan, and the rest would go to the SBA. There were a lot of hoops to jump through working with the SBA, and it would be expensive as they would tack on monthly fees, but he was willing to help us out.
Before we started our business, I was a school teacher and Helen was a self taught, bench jeweler. Bill seemed to like what we had achieved.
“Many small business owners end up making more money on their real estate than their business,” he pointed out when he gave us the loan.
We moved into a new plant in January, 2002, after a $75,000 remodel that we paid out of our cash flow. Bill attended our opening, and celebrated our achievement with the folks from SBA and SCORE. He also was the first to shake my hand after our company was awarded Santa Fe’s 5 to 20 employee Small Business of the year award at a Chamber of Commerce banquet in 2008.
If I ever can afford retirement, it will be because of the rental income earned off the commercial building that Bill was willing to finance. Our loan was split in two—one with Charter and the other with the SBA. We paid off Bill’s loan within five years.
The Loss Of The Good Banker
In January 2010, I sat down with Bill in his office. The visits would begin with discussing a wide range of issues. I was always interested in his take on current events. When we drilled down to what was happening with my company, I always knew he was on my side.
This time, he explained to me that he could not simply renew the line of credit as he had in the past. Federal regulators had imposed strict oversight over all his actions.
“Is Charter Bank in trouble?” I asked.
“No,” he replied. Charter had not been speculative. They stuck to what they did well: real estate and business loans. Few of their loans were in default.
Bill assured me that the new rules that made my reapplication challenging were due to federal oversight imposed after the banking crisis. To qualify for a loan, inventory and receivables were no longer adequate. You had to prove cash flow.
Ironic, I thought to myself. I needed to renew my line as I had been doing for the past several years because of my weak cash flow during the first half of the year when business is slowest.
Yet Bill could no longer make the loan decisions he used to. His expertise and judgment built up over decades had been deemed mostly irrelevant by Federal regulators. Clearly he seemed distressed and frustrated.
At first I could not quite get the magnitude of the current shift. Obama and the Congress were at every opportunity talking about how they support small business. Yet, over the next several months, I was to learn, first hand, how in fact their policy goals in context to money supply are exactly opposite: to totally undermine the small businesses, which provide about 85% of the US economy. Despite all the double talk coming out of Washington claiming support for companies like my own, small town bankers can no longer independently loan to even a solid small business because of being under the magnifying glass of the Feds.
After reviewing our financial records, Bill suggested we should re-mortgage our house right away.
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Helen and I had bought our house in 1990. The old adobe on nearly a half acre of land was the second cheapest house sold on the real-estate market that year. It was in such rough shape that contractor friend suggested we level it and start over.
Instead, even though we did not even know what a carpenter’s square is, we started a three year process of replacing the windows, roof, electric, heating and plumbing. During much of the time, we lived like squatters, without running water or electricity. Miraculously, our marriage survived and we ended up with a real home that we’ve lived in for twenty years.
Because of our sweat equity, we were never that far in debt. Even during the good years, our life style continued to remain as it was before we started our company. Our goal was to always pay off the mortgage, which we did, 19 years after we started, in 2009.
It felt liberating to us, but it was a bad business move. We had assets but little cash on hand.
Brother, Can You Spare A Dime?
Now, in order to receive our loan to refinance, we had to prove we were credit worthy. Midway through 2009, in order to save jobs and not cause hardship to our employees who all had their own mortgages, Helen and I had stopped taking salary.
I explained to Bill how in 2008, we reinvested large amounts of savings into our company to create a redesigned website and new product line.
“These two initiatives were expensive.” I explained. “We’ve been paying ourselves back that money to save taxes. We’re trying to find every way possible to avoid having to lay people off.”
After fourteen years in business, we had developed an excellent team of coworkers. Most had purchased homes while working for us. Providing good jobs to great employees was one of the most meaningful parts of my work life—particularly because we worked wholesale within a sector where almost everything is made in China, India or Thailand
Manufacturing jobs in the US are on the endangered species list and less than five percent of our business was in Santa Fe. We had survived through the internet business, niche marketing and pioneering efforts in fair trade jewelry production. We produced beautiful designs with recycled precious metal and fair trade gems that our customers all over the country deeply appreciated.
Bill started brain storming. He said that the home lending program which was specifically for the self employed had been scrapped by the federal government, but he was not 100% sure. Home finance was not his department.
I went back to my office to consider possibilities. Friends, family, credit cards. Brother, can you spare a dime?
However, later I learned from Bill that we could probably get away with using my 2008 federal tax returns as a basis for the loan.
Reflective Images would live to see another day. Besides, even as our savings drained away, I took comfort in the fact that I’d had a good fall hunt. The freezer was full of elk.
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The Dreaded Credit Report
We decided to go with Charter Bank for our mortgage. The office was just down the hall from Bill’s. I met with the loan officer and signed a paper which gave him permission to pull my credit report.
Frankly, I had never paid much attention to credit scores. They reminded me too much of S.A.Ts which I took in high school. I had always sucked at standardized tests.
I met the loan officer later to review the bad news. My scores turned out to be so low that I was considered a credit risk. This did not make sense. How could this be?
I looked at the document. My life appeared before me as it does to the banking financial system: cold, hard and rational numbers in grid form. Flesh, blood, community, all that I hold dear and beautiful, an entire life—nothing. I was a statistical commodity. To the vampires, either I was full of nourishing blood or I was dead flesh. Nothing other than money mattered.
Actually, Vampire might not be the right adjective to describe large banks that these days make massive profits while Main Street is letting blood. The right metaphor for large banks these days might be, “Slum Lord.”
The New Yorker Magazine published an article by John Cassidy entitled, “What Good Is Wall Street” in which the chairman of Britain’s top financial watchdog, Lord Adair Turner, described much of what happens on Wall Street and in other financial centers as “socially useless activity. It is possible for financial activity to extract rents from the real economy rather than to deliver economic value.”
Cassidy deflates the argument of large banks creating benefit by financing new businesses by pointing out that their main profit driving activity is buying and selling securities. He writes, “In the first nine months of this year, sales and trading accounted for thirty-six per cent of Morgan Stanley’s revenues and a much higher proportion of profits. Traditional investment banking—the business of raising money for companies and advising them on deals—contributed less than fifteen per cent of the firm’s revenue. Goldman Sachs is even more reliant on trading. Between July and September of this year, trading accounted for sixty-three per cent of its revenue, and corporate finance just thirteen per cent.”
Cassidy concludes, “A clear implication of his argument is that many people in the City and on Wall Street are the financial equivalent of slumlords or toll collectors in pin-striped suits. If they retired to their beach houses en masse, the rest of the economy would be fine, or perhaps even healthier.”
One of the most profitable channels for banks these days is the credit card business. In my attempt to get a loan, one particular credit card issue seriously bringing me down, making me terrible “risky”– a no pay on a debt. I left his office and immediately met with the financial officer of our company. She had been working for us for almost ten years and rarely made mistakes.
Apparently, Chase had charged us $78 dollars as an annual fee for a card that we did not want. She had refused to pay the fee. This went on for nearly 18 months, until she relented and paid the $78. Nevertheless, Chase had nailed my credit report.
“Chase,” I said, astonished. “But that’s where we have our Southwest Visa card.”
My Southwest Card had nearly a $50,000 limit. Annually, I would put my entire cost of goods– precious metal purchases, supplies, etc, on my card, averaging about $200,000 of business a year to Chase.
Yet despite repeated calls, Chase bank would not budge. Besides, it would take weeks for a credit rating to adjust and we needed the money immediately because the loan was coming up for renewal.
The officer said that we could still probably qualify, but we would probably have higher interest rate. We were not “prime.”
I cut him a $500 check for the appraisal.
The Appraisal
A week later, the appraiser was at our house. He walked around our house with great appreciation for what we had created. But a few days after he left, we got a call from our loan officer.
“We could not be issued an appraisal,” I was told. Our house was illegal.
We had one too many sinks and were in violation of a city ordinance. Therefore, we could not qualify.
He suggested that we contact the city. We could put in some application and plead our case in front of a variance board in order to keep our extra sink.
Through numerous building projects, we had first hand experience in the bureaucratic quicksand of the City of Santa Fe. Posting public notices, the appearance before a zoning board – it could easily take a half a year it not longer.
I called up the loan officer. Trying to hide my panic, I said, meekly, “The appraiser has not contacted the city, has he?”
I assured myself. I had my elk rifle, and prepaid legal service. Too bad if my employees and their families, the five who bought houses while working for me, would lose their job and their homes and be on the street.
Before those fascist capitalist vampires who constructed this nefarious web throw me into some federal prison with the rapists, murders and marijuana growers for life because of my extra sink, it will be hari kari.
“The city doesn’t know,” said the officer.
“Pull the appraisal!” I said, breathing a sigh of relief. “We don’t want the loan.”
I rushed home, ritually filled the sink with hot water and poured tea into it, intent on starting a new political movement. I’m going to call it, The Sink Party. Just need some funding. Anyone know the phone number for George Soros?
The Monday After
The Monday after we made this decision to defend our right to have an extra sink, the Feds closed Charter bank, or rather, sold it on the cheap to some giant bank in Texas.
Whether it was right to close Charter or not, what is clear is that the vampire banks were bailed out and now are fatter than factory farmed pigs too big to ever be slaughtered. They are in a perfect position to increase their domination and grow even fatter. Pity the small banks that played it safe and supported their local business community—they cannot easily loan it to small businesses because of new vampire legislation.
Many small businesses with no resources or lobbyist have already gone out of business, and they don’t show up in the unemployment stats because they were self employed. Ten percent of home owners are behind in their mortgage payment. That is only going to increase.
Those business owners like myself with small piggy banks, resisting the Feds and vampires attempting to drive wages down, are doing everything they can to keep their companies alive. Want to start a new business and need financing? Forget about it, unless you have some new penis medical device for aging baby boomers.
We contacted the new (name unchanged) Charter Bank to get our $500 appraisal money back. Our loan officer was there. He suggested we apply from the FDIC website. As of now, six month later, we have still not received our “insured” money back.
I pondered how we could possibly come up with the money to keep our company going. We would had to come up with something quick.
That’s when I got a phone call.
“Does so and so work for you,” the voice asked.
“Yes,” I replied.
“How long?”
“So and so joined our company about 6 months ago,” I said.
“Why do you ask?”
“She’s applying for a loan to purchase a house.”
“Absolutely,” I said. “Give her the loan.”
Epilogue
A few weeks later I contacted Joe Justice, who runs a non-profit loan fund in New Mexico. I had met him while giving a presentation on alternative business models for Santa Fe Alliance.
After a thorough review of our financial records, he explained that he usually doesn’t give loans to companies that are so well established and solid. We were too low risk, but this helped balance out some of his riskier ventures.
Like a good Norman Rockwell type small town banker that exist only in our imagination and in non-profit funds, he gave me a loan.
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FJA is a forum open to a diversity of opinions in support of it’s mission. Any editorial expressed in this article represents the opinion of the author, and not necessarily the views of Fair Jewelry Action members.
