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Good Business Needs Credit For Economy To Recover

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The Tampa Tribune

Published: February 20, 2009

A public forum in Tampa Wednesday to discuss the government's banking and economic-recovery plans revealed the local business community deeply worried about the immediate financial future.

The single issue most troubling business leaders is an accounting rule that is drying up credit for otherwise healthy companies.

The rule, known as mark-to-market, requires banks to value assets at their present value. With market values falling in the midst of foreclosures and distress sales, banks are being forced to revoke lines of credit needed to keep businesses functioning.

The Financial Accounting Standards Board is right to review how regulators should interpret and enforce the rule. Unless it is relaxed, Tampa and the nation seem to be in store for an even rougher economic ride.

David Jennis, a local attorney specializing in bankruptcy, told the crowd of about 300 that his firm is seeing people, who spent years building a business and a maintaining a good relationship with their bank, suddenly facing big trouble.

Even though a business owner has never missed a payment, his bank is now refusing to renew the loan because the market value of the company has fallen. Regulators are demanding that the bank have more capital, so all loans cannot be renewed.

Jennis said business owners are coming to him asking, "What am I going to do?"

This is a federal issue, not one that a local banker can solve. It is certainly a problem that ought not end up in bankruptcy court.

A bank's shareholders do deserve to know what their investment is worth, but if regulators could give more weight to a loan's performance rather than the current value of the borrower's assets, businesses and banks could breathe a little easier.

Forcing banks to write down losses that haven't actually happened could send the economy into an even deeper spiral and drive property values even lower, resulting in more mark-downs.

The cycle needs to be broken, and fast.

On a broader front, there is cause for hope that increased spending on roads and other infrastructure, targeted help to homeowners, and other stimulus spending will give the local economy a boost.

Better ideas are also needed. High on the list is official recognition of the financial crunch business owners are feeling. They want some evidence, such as an easing of the mark-to-market rule, that the federal government has faith in their future.

An essential first step in sending better ideas to Washington is for members of the public to discuss the challenges and build consensus on what works and what doesn't.

Local developer Don Phillips and other sponsors of the Tampa event deserve credit for hosting such a wide cross-section of the business community and for inviting every elected official.

Well-moderated forums such as the one Wednesday need to be held in every city of the county. The public knows too little about how the recession and economic-recovery spending are affecting their community.

Some of the best recovery ideas will come from people who are running businesses, buying and selling houses, and trying to create jobs.

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