Business Insider Magazine - First Issue 2011

INSIDE THIS ISSUE: Understanding the ‘Buzz’ Around Online Social Media

BUSINESS Business Magazine and Blog for the Los Angeles South Bay • First Issue Issue 2011 • Volume 4, Issue 4 • www.BusinessInsider.us • Complimentary Copy

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Banking on the South Bay Classic Wisdom Prevails for Local Bankers Contrarian Economists: The “Prophets of Doom” Deliver Hope A Real Estate Pro’s Perspective Regulatory Roshambo: Overreaction Creates Absurdity in Mortgage Lending

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SUBPRIME FALLOUT - CREDIT CRUNCH - MORTGAGE MELTDOWN!

The Rules Have Changed!

Debt Structuring, Credit Management And Tax Planning Crucial in Real Estate Financing

T

housands of homeowners are learning the hard way how short-sighted mortgage opportunities can devastate their financial situation. In the current volatile mortgage market, a mortgage is no longer just a mortgage. It is a financial instrument that needs to be woven into the fabric of your short and long term financial plans.

As a Certified Mortgage Planning Specialist and Certified Liabilities Advisor, I take a financial planning approach to mortgage lending and debt management to effectively maximize tax advantage while structuring your financing with safety and liquidity in mind.

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In today’s real estate market environment, you can no longer afford to do business with anyone who’s not a tried and true seasoned professional. Do not trust one of your life’s largest financial transactions to someone that’s new, part-time or doing mortgages on the side. Likewise, make sure you deal with a Realtor that is at the top of their game and experienced in how to thrive in our current environment. For you, it may well be the difference between success and failure. The game has changed. Play to win!!

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South Bay Bankers Express Unexpected Candor This time around, we didn’t know what to expect local bankers to say about the state of the banking industry. In this “Banking on the South Bay” issue, we heard unexpected candor about the problems facing the industry. However, as the cover theme suggests, key banks that followed classic financial wisdom are surviving. Although, it would be a stretch to say they are thriving, they expect to remain viable for the foreseeable future. Since local banking operates in a closed-loop network with its fate sealed by monetary policy executed at higher levels, the fact they have successfully maneuvered around Wall Street madness and central bank oversights on an unprecedented scale, speaks volumes indeed about their deftness. Banks that were in a position to say something meaningful without shooting themselves in the foot have a few things in common.

Their key mantra is “conservatism.” All shunned fast trends that created unrealistic expectations for years leading to last year’s catastrophic fallout. They stayed capitalized beyond legal requirements just in case. And, they made sure they hooked up with solid companies, who like themselves, are likely to be around when the dust settles. Although, they are fearful the commercial real estate sector is poised to initiate the next round of fallout, these institutions are diversified enough to say they are confident they will ride this out. In the past, “Banking on the South Bay” was about letting businesses know which banks were a fit with their company. These days, it’s more about a flight to quality and security. For years, businesses were obsessed with making money via “leverage.” If this financial crisis has taught us anything, it’s the vital importance of understanding the nature of the money we both live on and use to grow the economy. The banks that got this right will be here to serve you for the long haul.

Regards, David Whitehead, Publisher

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I n This Iss u e. . .

Cover Story:

Banking on the South Bay

Classic Wisdom Prevails for Local Bankers ... 8 Publisher’s Perspective: Contrarian Economists: The “prophets of Doom” deliver hope ... 16 A Real Estate Pro’s Perspective Regulatory Roshambo: Overreaction Creates Absurdity in Mortgage Lending ... 10 Technology Insider: Understanding the ‘Buzz’ Around Social Media: Finding the Right Social Media Mix ... 6 Business Broker Insider: My Business is Worth What?: California Association of Business Brokers says know the value of your business ... 22 Community Announcements: Farmers & Merchants Bank Donates $11,000 to Long Beach Neighborhood Association ... 15 CitizensTrust Receives Recognition in Los Angeles Magazine 2011 Five Star Wealth Managers Publication ... 22

BUSINESS insider MAGAZINE The South Bay Los Angeles Business-to-Business Magazine Publisher & Editor David Whitehead Contributing Writers Baltej Gill, Ken Roberts, Brian Simon, David Whitehead Graphic Design & Production David Whitehead Copy Editing & Proofing Brian Simon, Darrel Lippman Advertising Sales Manager David Whitehead Assistant to the Publisher Alexandra C. Hart All correspondence may be emailed to: info@Businessinsider.us Or mailed to:

Business Insider Magazine P.O. Box 1032 Palos Verdes Estates, CA 90274 (310) 872-9732 www.BusinessInsider.us BUSINESS insider MAGAZINE Welcomes Input From The Community: Business Insider Magazine will consider running articles and columns from qualified business professionals on topics of interest to the South Bay business community. Although many editorial contributors advertise in Business Insider Magazine, strict guidelines are enforced to ensure topical editorial content, unless packaged as part of an advertising supplement, is objective and only includes topically relevant perspectives. Editorial contributors may not directly promote themselves or their companies except in their italicized biographies. Editorial content is not intended as a sales pitch for specific products or services represented by

the contributor. It is our goal to present relevant information local business professionals can use to run their businesses more effectively. Business Insider Magazine makes every attempt to provide business decision-makers with current and accurate information.

However, Business Insider Magazine disclaims any implied warranty about the correctness or accuracy of information published in Business Insider Magazine and www.BusinessInsider.us or its appropriateness for a particular purpose. You assume full responsibility for using the information and understand and agree that Business Insider Magazine is neither responsible nor liable for any claim, loss, or damage resulting from its use. Opinions and/ or claims of Business Insider Magazine contributing writers and advertisers do not necessarily reflect the opinions of the publisher. Š 2011 BIM Publications & BUSINESS indider MAGAZINE All Rights Reserved

TECHNOLOGY INSIDER

Understanding the ‘Buzz’ Around Social Media:

Finding the Right Social Media Mix

By Baltej Gill

Y

ou might have heard that social media can help build your brand, promote your product and services, help collect feedback from your customers, increase your website traffic and generate conversions – but if it was really that simple and it can do all sorts of magnificent things for your brand, why aren’t most businesses today leveraging this medium as part of their online marketing strategy? This article will help you understand some of the opportunities and challenges associated with social media, whether you are a small busiSearch ness that services a local town Engine or an international one that Opimization works on a global scale. Before we plunge into social media, you must know that this is not a new concept. Social media has been around for some time – but it is only now that organizations are starting to learn that there is a way to leverage this medium. But let’s take it back a notch and see how the Internet has changed over the last several years and how it eventually gave birth to social media.

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How it All Began Remember the days when we used to ‘surf ’ the Web? In today’s world, we do not surf; we search. comScore estimates there are about 250 million searches per day conducted in Google. And this number isn’t getting any smaller. With smart phones like the iPhone and Blackberry, game consoles like Xbox 360, and mobile Internet sticks you can purchase from your Internet Service Provider, we can now surf online virtually everywhere and anywhere. Remember when America Online (AOL) first launched in the United States, and with every incoming email you heard the famous “You’ve Got Mail” audio clip? Now imagine in today’s world, hearing that same “You’ve Got Mail” each time you receive an email - how annoying would that be? The Internet has changed and it is still changing today, faster than ever, and businesses need to keep up with the current trends if they want to survive online. After the dot com boom in the late 90s, most businesses jumped online and created websites, but websites back then were much different than they are now. Consider how eBay, the online auction website founded back in 1995, has progressed over the years.

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In previous years, Web users would be limited to only reading information from a website. Websites were one-dimensional and visitors needed to go back frequently to see if anything had changed. But as the Internet started to grow, it opened the door to other types of websites, like forums and newsgroups, which allowed users to post questions, share comments, conduct ratings and become part of a conversation online. Soon we started hearing about Web 2.0 and sites like Wikipedia that exploded based on user-generated content. Websites were no longer just mere pages developed within the organization, but soon became portals of public users generating content for them. After that, all sorts of Web 2.0 things emerged – like blogs, widgets and social networking sites, such as MySpace, Facebook, Twitter, and YouTube. Businesses no longer had to wait for visitors to come to their website; they could now push information directly to their customers, and in turn customers had the opportunity to contribute and share that information with their network of friends online. Social media opened the door for information to be passed quickly and naturally – leaving the opportunity for viral growth at the fingertips for marketers. But as exciting as it sounds to have raving fans promoting your business, what happens when a group of angry or frustrated customers decide to share their experience online? Let’s take a further look at some of the reasons why it is important to plunge into the social media realm.

The Importance of Going Social EMarketer predicts that 44.2% of US Internet users will visit social networking sites at least once a month in 2009, and this number is projected to increase to 51.8% in 2013.

Online businesses today need to look at other alternatives to get in front of their customers, and having a website may not be enough anymore.

Protecting Your Brand Have you ever searched for a company name, brand name or product in a search engine before you made a purchase or decided to do business with that organiza1 s t I ss u e 2 0 1 1

tion? Your online brand is extremely important to monitor and manage. Having one negative listing in the top 10 results of a search engine could be enough to steer prospects away, panic your existing customers and damage your brand to the point where business starts to go south.

Let’s take a look at United Airlines, a major United States airline that faced a public relations nightmare after an angry passenger created a music video about his guitar being broken during a trip using the airline.

The passenger, Canadian musician Dave Carroll, spent a year trying to get compensation from United Airlines. When he received no response, he proceeded to take his own actions by creating a song about how United Airlines broke his guitar. The music video became an instant hit, and has almost six million views on YouTube today.

Not only did this video go viral in nature, but even doing a search in Google for United Airlines shows the video on page one of the search engine results page. So with 5,752,254 views, 22,614 comments, 36,357 ratings, 27,567 users adding this video to their favorites, and 2,240,000 monthly searches in Google for the term United Airlines, you be the judge if this simple four-minute, 36-second video clip did any damage to the United Airlines brand.

Reserving Your Brand Much like purchasing a branded domain name, it is important that companies also register their branded names on social channels. Each social site has its own rules on registering trademarks or branded names, but there are a number of companies that

have become victims of users stealing their branded channel because the companies were not quick enough to act.

For example, Microsoft does not own http://www.youtube.com/Microsoft, a channel that has almost 20,000 views. You would think that McDonalds owns http:// www.youtube.com/McDonalds, but it is another victim of a company that had its channel name taken. The owner is in fact using the channel to promote its own line of burgers.

The Dangers of Social Media According to a survey conducted by MarketingSherpa, lack of knowledge is the number one barrier to social media adoption. This means the organizations that do try to play in the social media realm are at the risk of creating an atmosphere that can backfire on their marketing strategy if done incorrectly.

You might have heard starting a conversation online is important – but listening to what users are saying is not something that should be overlooked.

Social media is not one of those “set it and forget it” strategies. You need to monitor, listen to and participate in what users are saying about your brand, product or service.

The challenge for most organizations is finding the time to respond to every thread, every comment and every tweet. The more social networks you are on, the more resources are required for tracking the activity on those channels. A lot of organizations fear opening this channel of conversation Continued on page 20

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COV E R F E AT U R E

Banking on the South Bay Classic Wisdom Prevails for Local Bankers

By David Whitehead and Brian Simon The last time Business Insider Magazine chatted with executives from several small- to medium-sized financial institutions in the area we wanted to see how they were faring in light of what was described as the worst economic crisis since the Great Depression. We didn’t expect the news to be all hunky dory. The sub-prime collapse, subsequent real estate downturn and crippling credit crunch had already wreaked havoc on the banking industry as a whole, spurring the shocking demise of more than a few once seemingly invincible financial giants. All indicators suggested that more casualties and carnage were on the way.

So imagine our surprise to discover that the firms and agencies we approached were not only holding their own, but even profiting as a result of the ongoing woes. Part of the credit went to the South Bay itself, thanks to its appealing location and economic diversity that shields this region from more severe impacts. But the rest of the kudos went to the institutions themselves, which managed to avoid the worst of the crisis by engaging in smart lending practices and relationship-based service.

A year later much has changed, at least on the surface, with a new administration in power, economic stimulus monies flowing into the system, and Wall Street recovering nicely from its earlier losses. Both President Obama and leading economists recently declared that the recession is over, though they admit it may take some time before the ship is fully righted.

Given the recent uptick, one would expect even more rosy reports from our roster of interviewees. Yet while they remained firmly upbeat about their own prospects, they were decidedly less optimistic about the overall picture.

Citizens Business Bank Citizens Business Bank CEO Chris Myers is cautiously optimistic about what’s ahead for the economy. “Hopefully, we’re bottoming out and turning a corner,” Myers said. He expressed concerns about events in Europe but noted there are some goods things happening locally.

“Job layoffs are starting to level off,” Myers said.

“What goes on in Greece does affect what we do in California in how it affects our trading partners,” Myers said, “If we can’t export as many

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products it affects local companies involved in international trade,” Myers said this causes local decision-makers to see things as more risky.

Chris Myers “Businesses have grown risk averse.” Myers said,“I hear voices telling me money is tight. Businesses are unwilling to make substantial commitments for the future.” Leases are becoming more short term, Myers noted, adding that with real estate prices down, negotiations are being extended. However, Myers also pointed out that as prices get cheap, it fuels entrepreneurs to start businesses. “If we can lease commercial property for nine months to a year, people are more inclined to start a business,” Myers said.

“Expect to see more failed banks, but not as many as originally predicted,” Myers said, adding the market will see more consolidations that are constructive, but that will likely happen a few quarters from now. He does expect FDIC-backed mergers to become less significant.

“There is a lot of money coming off the sidelines making investments,” Myers said.

“The situation is improved from what it

was,” he added, noting that lower prices are starting to drive opportunities for both personal and business investors. Established businesses with stronger capital bases are doing better, Myers noted. “Not many 50year businesses are going out of business.”

“Necessity driven” products are doing

better, Myers said. Higher end businesses that rely on discretionary income aren’t doing as well, he added.

This is more of a cyclical problem, Myers said, pointing to correction in the real estate market we experience every 10 to15 Continued on page 12

“Businesses have grown risk averse. I hear voices telling me money is tight.

Businesses are unwilling to make substantial commitments for the future. “ Chris Myers, CEO, Citizen’s Business Bank 1 s t I ss u e 2 0 1 1

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A R E A L E S TAT E P RO ’S P E R S P E C T I V E

Regulatory Roshambo

Overreaction Creates Absurdity in Mortgage Lending

By Ken Roberts

H

ow many times do we have to hear about how the pendulum had swung too far in the “loose lending” direction and now is moving too far in the “no lending” direction? It’s no secret that banks would rather not lend money in these tough economic times. If you don’t lend any money, you can’t lose any money! Take the bail-out funds and keep them on your balance sheet. That has been the mantra repeated in banking boardrooms of late. So real estate lending is more challenging now than at any time in my 32 years in the South Bay real estate industry. Lenders are being overly vigilant in verifying every detail in a loan file. Absurd requests by loan underwriters are the norm. And to make matters worse, lending guidelines are dramatically different from bank to bank.

It used to be that virtually all lenders would underwrite to Fannie Mae and Freddie Mac guidelines. They are the nationalized secondary market for (buying) mortgages that are bundled together and purchased as mortgage-backed securities. Because there was conformity in the underwriting of these mortgages, they are called Conforming Loans. The maximum Conforming Loan Limit was $417,000, but even Jumbo Loans up to several million dollars were oftentimes underwritten to Fannie and Freddie guidelines. So every seasoned loan originator knew the guidelines and could tell a client exactly what would fly and what wouldn’t, off the top of their head, without making a phone call or looking it up.

Not so today. For Conventional and FHA loans we have Traditional Conforming (up to $417,000) and High Balance Conforming (up to $729,750 or lower based on county limits). We have Super Jumbo (loan amounts over $729,750). We have VA loans (up to $729,750 with no money down, and up to $1,094,625 with very little down). All these loans are sold in the secondary market and yet all have different guidelines. We see every institutional lender that sells their loans placing more stringent overlays on top of Fannie and Freddie guidelines. For example, Fannie and Freddie might approve a middle credit score of 620 but a lender might increase their minimum credit score requirement to 660. I know one lender that won’t make any loans on condominiums! No matter how well qualified the client, NO CONDOS!! Still other lenders won’t loan on investment properties or vacation homes. The maximum loanto-value ratios and minimum down payment requirements can be very different from bank to bank. And where most lenders once had the same types of loan product, we are now seeing wide vari10 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e

ances in product type. Some have 3, 5, 7 and 10-year fixed rate loans while others may have the 3, 5, and 7 but no 10-year. Others have 30 yr, 25 yr, 20 yr, 15 yr and 10 yr fixed while still others may only have 30 yr and 15 yr fixed.

So in this lending environment, where each bank has decided what type of business it wants, and more importantly what it doesn’t want, the consumer is at the mercy of “Russian Roulette Lending!”

You go to a big bank, fill out an application and depending on your circumstances, could easily be declined, even though you are well qualified. Because of the economic climate, every borrower has circumstances and challenges to overcome. I am constantly being referred clients who have been declined after being assured they would qualify then given the run-around for months by a bank they think they have a “relationship” with (such as the bank that has had their checking and savings account for years, or by the bank they have had their current mortgage with). They are under the mistaken assumption that their bank knows them or that their great payment history and track record means something to the bank. The sad truth is they are simply a number. You have relationships with people, not institutions – true loyalty exists only between people.

You may have established a relationship with a branch manager, but the minute you need something outside his or her department, the relationship ends. This is especially true in real estate lending. If you don’t fit in the box, you don’t get the loan – that is the reality.

But the good news is you may very well fit in someone else’s box if only you knew where to look. In the marketplace, knowing which banks do which loans is critical.

And if that weren’t difficult enough, the mortgage industry is under siege. Everyone and their brother is dead-set on fixing the problems that they think led to the real estate bubble, the credit crunch, the sub-prime meltdown, and predatory lending. I liken it to the American consumer being the patient with an illness. This patient has a number of doctors, each with their own specialty and diagnosis of the problem, and each with their own prescription for the cure. However, none of the doctors are talking to each other, or comparing notes, and they have no idea what medication is being prescribed by the others. The combined medications could very well KILL the patient! This year, between the new Home Valuation Code of Conduct (HVCC) appraisal guidelines, the Fed’s new Truth In Lending (TIL) guidelines, the new Housing and Economic Recovery Act (HERA), the new Good Faith Estimate (GFE), FHA, Fannie Mae, and Freddie Mac guideline changes, and a number of measures signed into law by Governor Schwarzenegger, we could be regulated into oblivion!

1 s t I ss u e 2 0 1 1

Some of the changes are very good. We have the formation of a national registry of loan originators and corresponding licensing requirements. It’s about time there was a master list of everyone in the country, whether banker or broker, who is originating mortgage loans. Based on the passage of H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009, there is the creation of a fiduciary relationship between a mortgage originator and the consumer which causes the originator to do what is in the client’s best interest at all times, not their own. It’s about time there was a “net tangible benefit” rule all mortgage originators must adhere to. Unfortunately, there are some very troublesome changes that are very costly to the consumer in both time and money that have some dire unintended consequences.

My pet peeve amongst these is the HVCC guidelines. Surely everyone knows what that is! After all, we voted for it during the last election….oh, that’s right….we didn’t get to vote on it. Well, certainly it was legislated into existence by our elected officials, you say.

Alas….no. It seems Andrew Cuomo, the Attorney General for the State of New York was investigating Fannie Mae and Freddie Mac. He decided to drop the investigation if they would adopt HIS appraisal guidelines. So we are burdened by “new and improved” appraisal guidelines that came about because of a plea bargain! You see Mr. Cuomo decided that the problem with the real estate market was aggressive loan officers at banks and mortgage companies, who coerced the poor appraisers into inflating property values. I mean, wasn’t it common practice for a loan originator to extract an appraisal from the appraiser at gunpoint? “Hit the right number or die” was certainly heard all over the land. And if not by gunpoint, certainly the appraiser’s wife and kids were routinely held hostage by an over zealous mortgage originator! Or at the very least the threat of “Hit the number or you will lose my business to someone who will!” And then there is always large scale fraud perpetrated by a developer, a loan officer, an appraiser and maybe a real estate agent to intentionally defraud a lender by overstating values, maybe using “straw” or fake buyers to qualify for an inflated mortgage with the sole purpose of making an illegal profit knowing full well that it would be at the expense of the lender. I make light of the former, but certainly the latter did happen on occasion. The point is, no matter how a property value got nudged higher than it should have been, I have two words for you: APPRAISAL REVIEW. Certainly since the credit crunch of August 2007, just about every loan file submitted to a lender had a Review Appraisal performed. That means a senior staff appraiser directly employed by the lender or a very senior (think 20-30 years experience) independent appraiser is hired, for the distinct purpose of reviewing that lender’s appraisals. They would pull recent comparable sales and make sure the original appraiser used properties that were the most recent sales, similar and closest to the subject property, and that the appraiser made reasonable adjustments for differences in square footage, lot size, age, room count, location, view, etc. If the review appraiser felt the value was pushed or exaggerated, he or she would cut the appraised value to whatever number he/she felt was a more accurate reflection of fair market value. The point is, there were checks and 1 s t I ss u e 2 0 1 1

So in this lending environment, where each bank has decided what type of business it wants, and more importantly what it doesn’t want, the consumer is at the mercy of “Russian Roulette Lending!” balances already in place.

We know what the intention was behind the HVCC appraisal rules – to put a firewall between the loan officer and the appraiser so that there could be no undue influence. So as of May 1st, 2009, no one who earns even $1 from the funding of a mortgage loan can have anything to do with choosing the appraiser, ordering an appraisal, or communicating with the appraiser whatsoever. Now, all appraisals have to be subcontracted with an Appraisal Management Company (AMC). AMCs usually are a national company that has an approved list of hundreds of independent appraisers. Free of the originator’s collusion, the appraisers are no longer being pressured and they can be objective. Sound good so far? Let’s see how well it’s working.

The consumer starts a loan application with a bank or broker.

Their credit card number is given to their loan officer who forwards it to the banks appraisal department who in turn orders the appraisal from the AMC. The AMC may put out an e-mail blast to all the appraisers within 200 miles of the subject property and put it up for bid. In many cases, the appraiser who responds the quickest and the cheapest gets the job. So a $450 appraisal fee was paid and the winning appraiser may do the job for $175. Who keeps the difference? The AMC, of course! The appraiser may be in San Diego and come up to the South Bay to do the appraisal in Torrance. They don’t know the Hollywood Riviera from Seaside Ranchos. They may have been an appraiser for an hour-an-a-half and have little more than a license, There is no one there to keep them honest or to even incent them to go beyond the minimum effort! Low value, high value, good job, bad job, it doesn’t matter... they get paid.

Does it matter to the poor consumer? If you are refinancing in this declining value market, being able to hit a particular value can make or break your ability to refinance. Get a low value and you have spent $400-$600 for nothing. Your recourse? Play Russian Roulette again, roll the dice, pay another appraisal fee to another lender and try again. If it still comes in low, try again! And this is somehow better than the way we used to do it? I’d call my regular appraiser of 18 years, and ask “Can you hit this value?” He would come back after reviewing the recent sales and say it looks like there is sufficient data to support the number we need, in which case, I would let them make the appointment to do the appraisal and spend the client’s money. If he came back and said “Houston, we have a problem,” I could cancel the appraisal and spare the client the expense.

In a purchase transaction, the appraiser may not be able to talk to the loan officer, but at least gets a copy of the purchase contract.

Continued on page 14 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e 1 1

B A N K I N G O N T H E S O U T H B AY

Continued from page years. “People stop building for a while and then things catch up and it starts up again,” Myers explained.

CBB focuses on relationship lending.

“Is this an entity we want to do business with for the next 20 years?” is the question Myers asks when evaluating a company for a loan. “Other banks did too many cyclical

transactional loans,” Myers asserted, noting that some banks had as much as 40% of their loans in construction. For longterm stability, a bank needs to be properly diversified and know their customers very well. “Are they looking to grow step by step?” Myers said, “If they do, that’s our businesses.”

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Farmers and Merchants Bank Holding firmly to his principles of fiscal conservatism, Farmers & Merchants Bank CEO Henry Walker pulls no punches in placing the blame for the banking crisis squarely where he thinks it belongs: On the government.

“We need business to have confidence and government is not giving confidence,” Walker asserted. He added that although confidence has waned since the Obama administration entered the White House, the destructive Henry Walker pattern of the Federal Reserve dropping interest rates to drive lending occurred during the Bush administration. He holds both parties to blame for the debacle.

“I’m not competing with banks, I’m competing with the government,” Walker said, explaining how government policy interfered with the free market in a way that gave Wall Street the ability to sell the toxic securities that caused the problem.

“It was non-traditional lending that caused the problem,” Walker said, adding that a large volume of unsound lending was created when the Fed dropped interest rates. Walker believes the layers of regulation being added to the system now aren’t helpful, but prudent lending should be enforced with existing laws.

“We have more than enough laws on the books,” Walked said, adding that more laws and regulations are going to damage banks.

1 s t I ss u e 2 0 1 1

“We need business to have confidence and government is not giving confidence.”

Henry Walker, CEO, Farmers and Merchants Bank

Although Walker believes passing more laws is not the answer, he did hold major banks accountable for pushing the limit in a way that set a dangerous tone in the industry.

“If big banks are allowed the freedom to do things that are reckless, it affects how the banking industry operates,” he said, “For us to make a profit, it influences our decisions, narrows our margins and affects everything we do,” But one thing the banking crisis has not done is force F&M to retreat from its long held position of safety and security. Walker attributes his company’s success to staying well capitalized, knowing their customers and also knowing the securities they are buying. Walker explained that by being well capitalized, F&M doesn’t have to take risks by pushing for high returns to satisfy their board. “It’s better to do the right thing and sleep at night,” he added.”

“Our customers are doing pretty good,” Walker said, “Conservative customers keep reserves. The customer that doesn’t want leverage comes here. That has been very beneficial for us.”

Walker said their prospective customer is searching for a bank that is safe. “F&M is growing organically. In this market more people are concerned about safety,” he added.

Walker’s pessimistic outlook for the economy could be described as that of an informed realist.

“Technically, economists will tell you the recession has ended,” Walker said, “But then you have to pull out the government subsidies.” Walker expects to see the 1 s t I ss u e 2 0 1 1

economy flat for the long term.

“The issue is not as much in the stability of banking as it is in the stability of the economy,” Walker said, adding that when jobs return and a confidence in government can be reestablished, businesses should start moving again. Right now he sees them in a holding pattern.

The one bright note he mentioned was the

fact first quarter industry reports indicate things are getting better as bad loans are worked out of the system. Although time will tell when they can be replaced with new loans, one thing is certain: F&M will continue to issue loans with the prudence that has kept them in business for more than a century.

Continued on page 14

LO S A NGE LE S | SOU T H B AY | OR ANGE CO UNT Y | SA N FER NAN D O VALLE Y | I N L A N D E M P I R E

South Bay Regional Office Patti A. Vollmer, Regional Vice President Brian Ishida, V.P. | Tom Buescher, V.P. 310.808.1200

A MERICAN B USINESS B ANK Member FDIC

S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e 1 3

B A N K I N G O N T H E S O U T H B AY

“A lot of banks are distracted by the issues they are dealing with,” she said.

“We don’t have those distractions, so that allows us the ability to attract the kinds of companies that maybe aren’t being treated too well.”

Patti Vollmer, Regional V.P., American Business Bank

Continued from page 13 American Business Bank Eighteen Months Ago, American Business Bank Regional Vice President Patti Vollmer was pleased to report that her institution had picked up a slew of new customers directly as a result of the credit crunch. “It’s all continued along that same route — it’s just amazing,” she said. “Since we’re a specialty bank, it shouldn’t be too surprising, but it still is. We’re continuing to grow this year.” ABB’s first quarter statistics prove that point, with 10 percent loan growth, 21 percent deposit growth and 39 percent earnings growth over the same period in 2009.

Despite the good news, Vollmer isn’t ready to credit an improving economy as the primary reason for the prosperity — although she does feel things have stabilized. “A lot of banks are distracted by the issues they are dealing with,” she said.

“We don’t have those distractions, so that allows us the ability to attract the kinds of companies that maybe aren’t being treated too well.”

Patti Vollmer With five locations and a middle market ($5 million to $100 million in revenues) emphasis, ABB has never veered from its strict underwriting standards over its 11-year history. As part of that process, it avoids real estate lending, with the exception of owner-occupied and loans to their customers, and maintains a low loan to deposit ratio. “We’re doing the same things

we’ve always done, which is to look for good companies that are very well managed,” Vollmer said. “They’re out there. We’ve always been a bit on the conservative side, but so have our customers.”

Vollmer noted that she has heard “little bits and pieces of improvement” from her customers about the economy in areas such as revenue growth and rehiring personnel. But caution still rules the day. “I think we could see things being flat in terms of things not getting worse, but not much better either,” she said. “Our customers have for the most part weathered some really difficult times and will continue to work through these challenges, but the fear of another drop-off-the-cliff event is much less than it was.”

Like many of her peers, Vollmer shares concerns that a commercial real estate downturn will hurt her industry and send some banks packing in the near future. “It could be pretty substantial if they have loans maturing in the coming years that were extended four or five years ago and now the values have dropped,” she said. “They may have difficulty refinancing unless the owner pays down the loan. I see a lot of banks unable to lend right now or have changed their underwriting criteria to become more conservative. I think we will see some of those banks go away. It’s hard to predict what difficulties banks will have that we don’t know about yet.”

And while she sees South Bay businesses doing better than in other regions, Vollmer said the retail sector here in particular is struggling. n Brian Simon is a freelance writer who lives in El Segundo. David Whitehead is the publisher of Business Insider Magazine.

Continued from page 11 Even then, we are seeing absurdly low values coming in that can kill a sale or at the very least cause the buyer to have to change lenders, lose a great rate if you were locked, and have to start over! In most cases, the problems stem from inexperience, coming from out of the area and not knowing the subtleties of the different neighborhoods. We are also seeing another cause of missed valuations: the unwillingness to go the extra mile to do the right thing, also known as laziness. If they get paid peanuts, you get a monkey!

Suddenly, the AMCs have a monopoly. The relationships loan

originators have developed with their appraisers over the last 10, 20, even 30 years are gone. With senior, professional appraisers having to work for less than half their normal fees with the same overhead, many are choosing to get out of the business. If they leave, who’s left? The young and inexperienced! And true to form, HVCC has been a well-intentioned but miserable failure. It was only implemented as of May 1, 2009 and already every loan originator I know has enough HVCC horror stories to fill an anthology.

I recommend you write your Congressman and demand the HVCC rules be repealed. A recent study done by a fiscal watchdog

14 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e

1 s t I ss u e 2 0 1 1

organization said the HVCC rules will cost consumers up to $2.8 Billion. All in the name of saving us!

Add to HVCC the MDIA which says if the Annual Percentage Rate (APR) changes more than .125% up or down during the transaction, the changes must be re-disclosed and the borrower must wait three days before signing loan documents. Imposing this three day waiting period could be costly to the borrower and virtually eliminates the ability to close a purchase escrow in 30 days. Loan officers will have to lock loan for longer periods costing their clients more money. You have to allow for disclosures, re-disclosures, appraisals, re-appraisals and “cooling off periods” that are all but guaranteed! And if your closing costs change more than $100 from what you were originally quoted, (usually from escrow or title), and you’ve already signed loan documents, either reduce the fees or redraw, re-disclose and re-sign the loan documents and maybe have

your rate lock expire! Am I the only one who right about now is saying “Please don’t save me anymore!”

So in the spirit of the season, I won’t spoil all your real estate financing surprises and will refrain from telling about what a regulatory “gift” the new Good Faith Estimate is going to be! Let’s just say a lump of coal in your stocking is looking really good right about now! Its mandatory use will begin January 1, 2010, and needless to say, it is designed to SIMPLIFY things and SAVE you money! (Regulatory speak for “Prepare to be confused” and “Reach for your wallet”). What I can say is the American consumer is getting ROSHAMBOED. And I’m not talking rock, paper, scissors here…. n Ken Roberts is a mortgage planner with over 30 years experience in the South Bay real estate market. Ken can be reached at (310) 5346200.

Farmers & Merchants Bank Donates $11,000 to Long Beach Neighborhood Association

Farmers & Merchants Bank, serving the South Bay communities with locations in Torrance and Palos Verdes, recently donated $11,000 to the Willmore City Heritage Association (WCHA) in early February. When funds were scarce for the 7th and Maine Beautification Project, F&M Chief Executive Officer Henry Walker stepped into fund a large portion of the next phase. Wilmore City is a historic district near Downtown Long Beach, a few blocks from where Farmers & Merchants Bank is headquartered.

“How do you thank somebody in a time of peril,” said Jim Danno, Community Outreach Coordinator of WCHA. “Through his kindness, he made our dream a reality.” The donation was invested in removing a large expanse of asphalt and grading the project site.

This step was critical to setting the foundation for the entire venture. The original estimate for this portion of the undertaking was valued at $33,000. However, Walker reached out to his network base to reduce the cost to $11,000.

The 7th and Maine Beautification Project is a community based program focusing on cleaning up, landscaping and beautifying an abandoned area located directly north of the intersection of West 7th Street and Maine Avenue, at the northbound 710 Freeway onramp in Long Beach. Not only is this area seen by all who leave the City of Long Beach, it will also be a gateway to the Drake/Chavez Park expansion.

“This was a neglected area with abandoned shopping carts, tumbleweeds and a collection of trash & debris. This venture has beautified our neighborhood and created a real sense of pride within the community,” said Danno.

In order to accomplish realistic goals, the WCHA volunteer committee divided the project into three phases. Phase 1 of the project was completed within five months last May. The dilapidated Maine Avenue barricades were replaced with 14 concrete planters filled with colored succulents and a seating area, creating a visually appealing and functional cul-de-sac for the residents of Maine Avenue.

The local community assisted with the cleanup and planting. Proud of their new garden, the neighbors have made certain that the plants are watered and maintained, and that the area is kept clean and graffiti free.

With the generous donation from Farmers & Merchants Bank, WCHA was able to commence Phase 2. There will be a new, low water use landscape installed with a state-of-the-art inline drip irrigation system. Blue Gecko Design is creating an urban garden oasis from the neglected and blighted exit from the City.

WCHA is grateful for the significant $11,000 Farmers & Merchants Bank donation and wonderful evidence of its commitment to the Willmore City Historic District and the City of Long Beach. n

1 s t I ss u e 2 0 1 1

S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e 1 5

PUBLISHER’S PERSPECTIVE

Contrarian Economists:

The “Profits of Doom” Deliver Hope

By David Whitehead

E

conomist Nouriel Roubini was dubbed the “prophet of doom” when he tried to warn the financial community they were building a house of cards with the Real Estate market.

He wasn’t taken seriously until 2007 when it became clear a massive asset bubble was about to cause catastrophic damage to the global economy. Today, he receives praise for his insights and is the voice Wall Street calls on the most to explain what so many insiders claimed to have missed.

However, Roubini was hardly the only notable economist pointing out that asset bubbles can be identified, tracked and their demise predicted. Leading economists from the Austrian School of Economics, who adhere to theories pioneered by the late Ludwig Von Mises nearly a century ago, have espoused this premise for decades.

In fact, Von Mises and his protégés long ago developed solid theories to explain the business cycle as articulately as Roubini while going deeper to coherently identify root causes.

The Austrian School economists have the best track record on predicting the cause and effect sequences of historical events like the Great Depression. The late professor Murray Rothbard, a student of Von Mises, exposed an astounding number of misconceptions about the era in his 1963 book titled “America’s Great Depression.”

This obscure economic historical classic shattered every myth I previously believed about what caused the Great Depression. And the parallels to our current economic crisis are striking, if not sinister.

For example, it’s widely believed (and stated erroneously by me in previous columns) the Great Depression was initiated by the Federal Reserve jacking up interest rates causing the money supply to crash. Although the Fed did jack up interest rates during this period, they never ceased in their attempt to inflate the money supply.

This is the key to identifying the historical myth and makes a strong argument for the case that history is literally repeating itself.

Rothbard asserted it was the loss of confidence in the banking system in 1932, which converted a large percentage of demand deposits into cash that destroyed the banking system’s ability to maintain a stable money supply. Banks simply didn’t have enough reserves to issue the loans necessary to keep the economy going. And on top of that, there were few fruitful endeavors at the time worthy of meaningful investment. In those days there was no Federal Deposit Insurance Corporation to protect bank deposits, no “too big to 16 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e

fail” bailouts or large-scale consumer credit available to cushion the shock. Therefore, the economy simply collapsed.

And it was interventions by the federal government that prolonged the malaise, interestingly enough first by Republican President Herbert Hoover through his actions to collectivize agriculture, initiate grandiose public works projects and regulate wages. What Hoover started was then accentuated by Democratic President Franklin D. Roosevelt, who further expanded these policies into what was later dubbed and credited to him as “The New Deal.” According to the Austrians, these interventionist actions prevented the necessary corrections that would have ended the depression much sooner.

Von Misses and his followers asserted the malaise lingered until World War II largely because the government refused to let the free market correct the imbalances in the economy.

To prove the point, Rothbard noted that a similar inflationaryincited depression righted itself quickly in the early twenties largely because then President Warren Harding and the Federal Reserve chose to stand aside and let the misplaced assets clear from failed enterprises and reallocate to more fruitful ventures. By the midtwenties, a new and grander asset bubble quickly formed — this time with the stock market. Unfortunately, the roaring twenties roared with inflationary expansions of the money supply driven by misguided Fed policy that led to the 1929 stock market crash. It was the same kind of asset bubble the nation experienced in recent years with the dot coms and the Real Estate market. It’s an old lesson no one in the financial community ever seems to learn. Or perhaps just an old scam the public never seems to pick up on.

Leading up to and following the stock market crash, Rothbard’s analysis focused on the Fed’s open market operations, which in those days involved massive purchases of acceptances connected to international trade that injected billions of dollars of inflationary money into the economy at a time when the United States was actually getting out of debt incited by its participation in World War I. Rothbard’s analysis also revealed that in the days leading up to the Great Depression, the Federal Reserve actually expanded the money supply more through its open market operations than it contracted it by raising interest rates. There was actually a net gain in money supply until the banking system collapsed, causing a de1 s t I ss u e 2 0 1 1

cade-long deflationary cycle the likes of which the nation has never experienced.

As current Fed Chairman Ben Bernanke appears to be working diligently to pull the nation out of recession by inflating the money supply, so too did his predecessors during the years between the 1929 stock market crash and the beginning of the Great Depression in 1932.

Sound Money is Cast Aside Bringing the nation out of the depression though inflationary monetary policy failed miserably during the thirties and modern day Austrian School economists like Thomas Woods and Lew Rockwell, founder of the Ludwig Von Mises Institute in Auburn Alabama, continue to preach it will fail again. However, despite the earned merits of their proven theories, the Austrian School economists, although respected as academics, are kept distant from center stage on Wall Street.

The reason is simple: The Austrian School economists are opposed to fractional reserve banking and the issuance of currency which is not fully backed by a reliable commodity, preferably bullion. In short, they believe the government should be separated from the money supply and the role of banks should be to issue notes based on their actual bullion reserves.

If fractional reserve banking were to be allowed at all, “free banking,” as Rothbard describes it, Austrian School economists believe there should be no regulation or bailouts permitted, and most importantly, it must work from a set money supply backed by a reliable commodity. This would ensure the clear and present dangers of running short on day to day banking operations would absolutely minimize the issuance of currency not backed by real reserves, if not eliminate the practice entirely. In reality, no one in their right mind would trust their deposit in a bank that practices fractional reserve banking to a significant extent in a “free banking” environment with no regulation or government bailouts possible and no mechanisms to inflate the money supply.

In practice, Austrian School economists believe the strength of a bank should be judged by its earned capital, not by a legally mandated power to leverage the system and to profit from it. The Austrians hold to this firm moral standard which, to say the least, is not popular on Wall Street, or for that matter, most of the business community indoctrinated to follow the status quo. In fact, Austrians use the term “moral hazard” to describe irresponsible practices of the modern central banking system.

It’s the issuance of currency beyond actual reserves that is the basis for profitability in modern banking as well as the availability of capital for business enterprises. Their opposition to standard practice distanced the Austrian School economists from the global financial community. For they believe the great financial system that built and supports the world as we know it will ultimately destroy economies due to the inherent unsustainablity of the system both sanctioned and enforced by not just the U.S. Government, but by every 1 s t I ss u e 2 0 1 1

government and quasi-government-economic union connected to the global economy.

Unfortunately for a global economy that relies on the Keynesian economic model, which espouses massive infusions of inflationary fiat money through a process controlled and regulated by central banks, the Austrians come across as heretics to the golden goose they have worshiped since at least the time of the Napoleonic Wars (some would say ancient Samaria, but I will try to keep it simple).

Unfortunately, these are old habits that aren’t easily discarded.

The sad truth is governments and businesses are addicted to creating money out of nothing. Everyone knows this creates inflation, which in the long run steals our wealth. But for decades business people as well as consumers have accepted the declining value of their currencies as a necessary price for the capital they need to support their lifestyles today.

For some time now, it’s been a common belief the managed economy, operating completely out of sync with genuine free market principles or actual productive output. is sustainable and the boom/bust cyclical process could continue indefinitely. People took solace in knowing no matter how bad the fallout, a new wave of prosperity was waiting just around the corner.

However, the Austrians got it right nearly a century ago and they appear to be getting it right today. Rather than concoct clever ways to seemingly yet erroneously manipulate the system to everyone’s favor, the Austrians endeavor to learn how economies actually function — or fail to as the case may be. Like Roubini, they have the insight to explain the basic dynamic, but unlike the seers courting favor from the establishment, they have mustered the courage to publicly acknowledge the most unfavorable of truths.

What is seen as righteous transparency to some comes across as indiscretion to others who believe it is more important to protect powerful interests positioned to profit from outcomes good or bad rather than to protect the integrity of the financial system we all rely upon.

However marginalized or relegated to the fringes contrarian economists may be, they get it right most of the time. Roubini is contrarian, but not dissident in comparison to the Austrian School economists and those who directly point to fatal flaws in the system itself alluding to our self-imposed financial roller coaster ride from hell.

The Way Back to Sustainable Economics One might ask, “If the damage we are doing to the financial system is so clear, why not simply change course and correct it?” Some might argue that too many powerful people profit from the system for meaningful change to be possible. And even for sincere critics of the system espousing change, it’s far easier to spot the damage we are doing to ourselves than it is to envisage a constructive solution to this economic quagmire that grows more intractable with each passing year.

Texas Republican Congressman Ron Paul is among the optimists.

Continued on page 18 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e 1 7

PUBLISHER’S PERSPECTIVE Continued from page 17 A long-time advocate of Austrian School economics whose politics are closer to pragmatic Libertarianism than contemporary Conservatism, Paul believes it’s not too late for America to return to sound money and sustainable economics, asserting that any shortterm pain we would have to endure is worth the price for restoring America’s economic independence.

“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank,” Paul wrote in a 2008 column published on mises.org.

Paul espouses abolishing the Federal Reserve and a return to the gold standard. He wants to disentangle the United States from the global financial order that keeps this nation perpetually intertwined in this world’s most insurmountable problems. In short, he believes we should fix the economic fundamentals so a genuine free market can flourish, thereby expanding prosperity to a wider range of our society. Paul adheres to Austrian School principles that assert many of the boom/boosts we experienced over the decades could be minimized or avoided all together.

The Great Ideological Disconnect “Capitalism should not be condemned, since we haven’t had capitalism,” is another of Paul’s astute observations.

I had to completely abandon the traditional left/right paradigm altogether to understand what Libertarian minded people really mean when they make these kinds of perplexing statements. Since the coming of Reaganomics, most people think we have had enormous helpings of free market capitalism. And when there is a major blowout, they vote Democratic in the mistaken belief we need to go on a diet from the free market.

What confused voters don’t understand is we never really had a free market in the first place. After copious reading on the topic, I have come to the conclusion that contrarians, including Libertarians, informed patriots and thoughtful pragmatic economists pushed to the fringes by the financial establishment and the academic community it supports through its endowments, are chronically misunderstood. It’s largely because of the left/right political smokescreen perpetuated in the popular press that the vast majority of Americans remain mystified at the daily news affecting their lives.

Interestingly enough, the semantics confuse people more than the dynamic itself. Most salient to the point is the fact “collectivization” is a dynamic — not an ideology. Most people equate collectivization with ideological concepts like socialism and communism. What they don’t realize is collectivization is the dynamic that makes both of these ideologies destructive.

Collectivization is also a major component of the corporatists version of capitalism which is at the root of the global economy of which the United States is the most powerful participant. It’s the collectivist nature of the system that makes it both unsustainable and destructive. It is also the component that makes the system a threat to liberty and freedom. Leftists, like author and radio talk 18 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e

show host Thom Hartman do a marvelous job of pointing this out.

However, the leftist solution is a state managed economy, which will only lead to an economic train wreck of another variety.

Libertarian-minded people on the other hand shun the political labels and attack the collectivist dynamic that prevents genuine free markets from keeping economies properly balanced.

Since capitalists ostensibly abhor Socialism (meaning state controlled capital), it should logically follow they should equally abhor collectivization. But this is only true for entrepreneurs who depend on a diverse free market to ensure their success.

Monopoly-driven capitalists see things differently: When enterprises reach a certain size, they find it more beneficial to cooperate than to compete with their peers. They begin to see the free market as something that makes things more expensive and difficult for them, so they use their power and position to attack the very system that put them in their exalted place.

Rothbard calls this process “cartelization.” Major banking groups and the oil industries have consolidated to the point they qualify as cartels. Starbucks actually tried to do it with coffee. Walmart has nearly destroyed merchants on Main Street U.S.A. Major investment banks press entrepreneurs to shift into “monopoly capitalism” mode when they go public. Small to medium sized banks can hardly be called cartels and many, for good reason, fear their masters who control and regulate them through the central banking process.

Sadly, the entrepreneurial banks we need most continually risk being swallowed up by major players in the cartel.

When competing businesses become cartels, production is no longer determined by the wants, needs and desires of free people. They not only use their financial muscle to decide what consumers get.

They cajole us to want what they provide. They can even influence government entities to protect their position, edge out competition and mandate their policies. The polite word for this process is “lobbying.”

This is a corruption of the free market that ultimately leads to the large scale misallocation of capital and resources. It’s identical to the dynamic that occurs in Communist countries that ultimately destroys their economies. This process leads to unsustainable booms leading to inevitable busts that destroy the stability of markets.

Powerful interests, whether they are in the public or private sectors, all need to do one thing to cultivate and maintain power: they must collectivize capital. Corporate monopolists do it in a way closer to the fascist model of collectivization while the “leftist “political establishment prefers the state-controlled Socialist model. Since the dynamic of collectivization is an objective dynamic, occurring with a consistency more like that of gravity, it tends to deliver the same destructive outcome wherever it occurs.

The fascist model always requires powerful private interests to use their influence to enjoin governments to legitimize their monopoly control of key industries as they develop close relationships with government enterprises that corrupt the free market dynamic on a large scale. Remember, the NAZIS called themselves “National Socialists,” and this was exactly how they ran their economy. They were hard core collectivists as they were fervent anti-Communists.

The term “fascist” is generally avoided because of its historical de1 s t I ss u e 2 0 1 1

monization, not because it isn’t practiced on a large scale in the Western world while masquerading as free market capitalism.

Free Markets and Free People Rothbard believed the sole role of government in this process is to serve as a “defense agency” of the free market, not as a regulator, service provider or protector of sanctioned cartels.

F.A. Hayek also asserted that since collectivism must be enforced by processes that free people would never practice on their own, it always leads to less freedom and ultimately tyrannical governmental structures. He elucidated on this topic brilliantly in his economic philosophical classic “The Road to Serfdom,” which he wrote in London during World War II. “That democratic socialism, the great utopia of the last few generations, is not only unachievable, but that to strive for it produces something so utterly different that few of those who wish it would be prepared to accept the consequences,” Hayek noted.

He astutely observed that socialists often must do what socialists don’t believe in.

So when you hear Libertarian-minded people say: “There is no fundamental difference between the two main political parties,” you now know why that’s the case and can explain it. The modern version of Liberals and Conservatives may have their differences, but they are both hard core collectivists, both in the system they defend and the policies they promote.

No Easy Answers I want to be a realist rather than an ideologue or some kind of patriotic idealist. A genuine free market economy based on the “needs, wants and desires of people” is the correct answer for both moral and pragmatic reasons. However, freeing markets hijacked long ago by collectivists of both the fascist and socialist variety is an extraordinary challenge.

I’m not convinced financial insiders who defend the financial order have actual faith in the system. They are in a position where they have no choice but to believe central banks, global financial institutions like the IMF, major financial industries and governments can manage the processes so the 1 s t I ss u e 2 0 1 1

developed world can profit from global economic activity. This is the underlying internal struggle most people connected to the system choose to avoid. And because the Austrian School economists choose to take on this issue directly, some would see them as a threat, not because they exaggerate or distort, but because they are too honest.

I want to emphasize that Austrian School economists are in no way conspiracy theorists. They don’t have to be. All they need to do is point to the actual cause and effect endemic to the modern economic system that leads directly to outcomes worse than most conspiracy theories floating around the internet. Conspiratorial or not, here is your current reality check: The national debt really is over $14 trillion as of this writing (remember a trillion equals a million million). We really do owe other nations over $2 trillion. We really couldn’t afford to buy anything if China didn’t have workers to produce consumer goods for pennies per hour in our money or if they stopped investing in treasures so we have cash to pay them anything at all.

One in four borrowers really are upside down on their mortgages. Put another way, you can say that 25% of all U.S. mortgages are bogus. This nation really does have over $110 trillion in unfunded obligations on the near horizon (yes, I did say “trillion”).

Economists really are calculating with numbers that only recently were the primary domain of astronomers (I wouldn’t be surprised if interest payments are going to be calculated in light years before long).

This isn’t science fiction or fantasy and

if you find it funny at all, consider it dark humor. This is something that is real and staring us right in the face, yet we are encouraged to look away from it. We feel comforted by any short-term positive news we can get about the economy even though none of it can escape the broader reality.

For me, this is becoming surreal.

George Orwell prophesied in his mid20th Century futuristic novel “1984” that a dystopian society could be convinced “war is peace” and “freedom is slavery.” Most people would find it unimaginable for intelligent beings to accept such absurdity. But think about this for a moment: In our time, we have been conditioned into accepting the absurd notion that “debt is prosperity” and “unlimited credit is power.” Although Orwell’s dystopian nightmare of “1984” has yet to see fruition, we are currently making rapid progress in achieving this unfortunate end with a carefully crafted variety of economic “newspeak” we dare not question or risk being labeled as dangerous extremists.

Granted, we should be leery of people who readily embrace extreme actions, but we should always welcome extreme questions. If these questions are really absurd, open debate will discredit them. If they are disturbingly relevant, they will teach us who the extremist really are. Perhaps we’ve been voting for them for years. n David Whitehead is the publisher of Business Insider Magazine.

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TECHNOLOGY INSIDER Continued from page also calls for opening a can of worms for users to post their frustrations, complaints and bad experiences. What most organizations fail to realize is if they do not start that conversation in the first place, where they do have control over what is being said, that is not going to stop anyone from creating that Facebook Group, or YouTube

Channel, or blog that focuses on the negative experience with your brand.

Now most small- to medium-sized businesses do not have to worry at such a large scale about brand protection, but remember even one website, one video, one Facebook page or one tweet can be enough to do some serious brand damage.

Myths There is a lot of information floating online that raves just about everything from how great social media is to how much of a waste of time it is. I have put together a list of common misconceptions around this topic that I often encounter when educating businesses about social media.

Don’t Believe These Five Social Media

1) Sites Like Twitter and Facebook are for Kids Fear: Businesses have a difficult time grasping the concept that the same network their children use to gossip to their friends about the party they went to over the weekend is the same channel that is going to connect businesses with their customers.

Multiple-Tenent Buildings Single Occupant Buildings Small Businesses Homeowner Associations

Fact: Yes, it is true that there are a lot of teenagers and college students that are on social networking sites. However the fastest growing demographics on Facebook are those 35 years and older (Facebook). On Twitter, 45- to 54-year-olds make up the highest indexing age group (eMetrics) and Internet users between the ages of 35-54 now account for 40.6% of MySpace visitors (comScore). So, social media is not just for kids, but a way for organizations to reach out and connect with the right people to grow their business.

2) Building Online Relationships is a Waste of Time

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Fear: There is no point of networking with people you are never going to meet. It is simply a waste of time as it will not drive me any more business.

Fact: This is far from true - social media has opened the doors where it is possible to network with your customers, clients and prospects at ease. Not all of them are going to turn into customers, but that does not mean you cannot collect valuable feedback on your product or service. In addition, building your online fan base is another way for you to promote your products and services and help keep people informed about what is happening in your organization. There is no such thing as time being 1 s t I ss u e 2 0 1 1

wasted when it comes to networking with your target audience.

3) You Cannot Measure Social Media Fear: It is not possible to measure a return on investment (ROI) on social media.

Fact: The very fact that social media is Internet-based means it can be measured.

When it comes to measuring social networking, there are typically different Key Performance Indicators (KPIs) businesses look at when determining ROI. For example, the goal of your website may be to measure the number of completed downloads, the number of items added to the shopping cart, or the number of newsletter sign-ups you receive. However, on your social media campaign, you might look at the number of fans that increased over time, the number of comments posted on your channel, the number of discussion threads on your forum, or the number of ratings your video received. All these Key Performance Indicators can be measured and analyzed to determine if the campaign was indeed successful.

There are several tools available that allow you to measure the traffic you receive from social sites, and analytic software such as Google Analytics can be used to determine which social sites brought the most conversions for your product /service. So yes, considering all this, social media can be measured.

• How do I get users to subscribe to my YouTube channel?

• How do I get people to re-tweet my message to their followers on Twitter?

• How do I get users to subscribe to my blog?

You still need the campaign, the creative and the drive to get your social media plan working for you.

5) This is Something I Can Probably Do In-House Fear: We have employees that use social networking sites on a regular basis and they are familiar with the technology, so why not use them to grow our business online?

Continued on page 23

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4) Social Media is Free Fear: I can create my own YouTube channel, or LinkedIn page, or Twitter account.

There is no cost for me to set up my network on those portals, so why am I being told it is going to cost me money to implement a social media campaign?

Fact: A lot of the technology is free, but simply creating an account on Facebook or registering your product name on Twitter is not a social media campaign. You need to ask yourself: • How do I increase the number of fans I have on my Facebook page?

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CitizensTrust Receives Recognition in Los Angeles Magazine 2011 Five Star Wealth Managers Publication CVB Financial Corp. is proud to announce that Sean Kraus, Charted Financial Analyst from CitizensTrust, Citizens Business Bank’s Wealth Management Group, was listed in Los Angeles Magazine’s 2011 Five Star Wealth Managers. Kraus is the Senior Vice President, Chief Investment Officer for CitizensTrust. Ontario-based Citizens Business Bank has a strong presence in the South Bay, with locations in El Segundo, Manhattan Beach and Torrance.

The list of the 2011 Wealth Managers is an elite group, representing less than 2 percent of the wealth managers in the Los Angeles area. Los Angeles Magazine formed a partnership with Crescendo Business Services to find which wealth managers scored highest in overall satisfaction.

Recipients representing 113,000 high-net worth households were asked to evaluate only wealth managers whom they know through personal experience and to evaluate them based upon nine criteria:

customer service, integrity, knowledge/expertise, communication, value for fee charged, meeting of financial objectives, post-sale service, quality of recommendations, and overall satisfaction.

CitizensTrust has approximately $2.0 billion in assets under administration. The firm incorporates proprietary asset management with other best-in-class money managers to build comprehensive portfolios for their select list of private clients. With a history dating back to 1912, CitizensTrust has been helping Southern California families manage their estates for nearly 100 years. CitizensTrust provides trust, investment and brokerage related services, as well as financial, estate and business succession planning. n CitizensTrust is a division of Citizens Business Bank, a $6.6 billion financial services company. Citizens Business Bank serves 42 cities with 43 business financial centers, five commercial banking centers and three Trust offices in California.

My Business is Worth What?

California Association of Business Brokers says know the value of your business Sacramento, CA — The California Association of Business Brokers (CABB- a non profit trade organization) says if you are a small business owner looking to sell your business but are waiting for the economy to turn around, use this time to start preparing. One of the most vital steps in this process is to understand what your business is worth.

Ron Hottes, president of CABB and of several Business Team Business Brokerages says that a business broker’s opinion of value can provide you with an objective view of what your business is worth and is an important piece in determining your asking price.

“A business broker’s opinion of value gives you a realistic starting point to work from and can give small business owners direction when determining the right time to sell.”

Before thinking about selling your business, CABB says there are some key things to consider: Take an objective approach: Having a business broker’s opinion of value from a CABB Certified Business Broker automatically gives you the results and creditability you need. Having this neutral party take a comprehensive look at your financial records and the current market is the best way to get an honest picture of the worth of your business.

Know what you need: Have an idea of what you need to make off the sale of the business so you can be as prepared as possible. If you are selling because of retirement, knowing what you can expect to make from the sale is an important component of your exit plan.

22 S o u t h B a y B u s i n e ss I n s i d e r M a g a z i n e

This is the starting point: A business broker’s opinion of value is only a starting point in selling a business. If the opinion of value comes back less than what you anticipated, you know you have time to do things like improve sales and review operation processes to make your business as streamlined and profitable as possible.

“What is important for business owners to know is that a down economy is just one part of the cycle we are in and an upswing will occur,” Hottes stated. “Those small business owners who take the time now to improve and prepare their businesses for sale will be the ones who will see their business sold at the best price possible.”

Get more information at www.cabb.org. n

The California Association of Business Brokers (CABB) is a professional trade association dedicated to promoting the growth and professionalism of the business brokerage community within California.

CABB is the largest organization of business brokerage and merger and acquisition specialists in the state, with more than 450 members.

Founded in 1986, CABB was organized to recognize the profession of business broker, to offer advanced educational programs to all members, to create and maintain credentials, help educate the public on the benefits of using licensed business brokers and to establish a code of ethics for all members.

Use of the information from the California Association of Business Brokers is solely for informational purposes. The opinions expressed in this document do not constitute legal or financial advice.

1 s t I ss u e 2 0 1 1

Continued from page 21 Fact: In most cases, employees are using social media for personal reasons, and use it to connect with their friends, share photos and find out what’s happening and where. But when it comes to leveraging and monetizing social media for business purposes, it is a completely different ballgame. This is where creativity, campaign ideas, and, of course, experience are key, and organizations need to turn to the experts in this field to help them put that plan in place. There is no predefined process for social media. Depending on your target audience and your product or service, the networks you participate in, the message you decide to deliver and the way you deliver it are crucial to the success of the overall campaign.

Finding the Right Social Media Mix Social media might be the question that is being discussed at the meetings in your organization, but it is not always the answer. You need to look at what the objective of the campaign is, what you consider a success, and then determine if social media is a mechanism that is going to help fulfill that plan. Social media should not be a replacement for a marketing strategy you are implementing, but should be part of the mix of activities you are executing.

Twenty-six percent of Fortune 500 companies have already started and feel that social media is an important aspect to their business strategy. So whether it is a large portion or small percentage of your overall campaign, success comes with testing, measuring and

analyzing results.

Conclusion So where do businesses start? Should they create a page on LinkedIn or MySpace? Should they start a blog or start a Twitter campaign? To answer these questions, it is important to understand that different social networks attract different types of people – so you need to match the users of your product and service to the network in which they are most likely to engage. For example, if you are selling consumer goods, Facebook might be the better area to start promoting as opposed to LinkedIn, which is a more B2B environment. Your local WSI Consultant can help put the pieces of the social media puzzle together and recommend a plan that is right for your business. Social media can be fun, drive a lot of targeted traffic, increase visibility and generate more business, but without the knowledge and experience of executing the campaign, your social strategy is going to turn, well… very unsocial. n Baltej Gill is the Search Engine Marketing Specialist at WSI. Graduating from a technical background in Computer Science, Baltej has over five oyears experience in training and educating consultants and organizations on how to leverage Internet marketing in their businesses.

He has held several Internet marketing workshops internationally and trained Internet marketing consultants on subjects such as search engine optimization, conversion architecture, social media and Web analytics.

If you have any questions, please email education@wsicorporate.com.

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