The Financial Stability Plan

Confusing, Empty Language – The Financial Stability Plan

The Financial Stability Plan is the latest proposal from the President and Congress on how best the government can intervene in the economy to get us all out of the recession. Despite the fact that every previous government intervention has, at best, done nothing and, at worst, only made matters worse, this new plan will supposedly save the nation from the damage caused by the politicians and the banks.

The fact sheet (PDF) on the new plan is a prime example of how the government distorts language and uses metaphors and fancy turns of phrase to say virtually nothing at all. The very first line of the plan states, “The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts.” This begs the question, our full arsenal of what? A war metaphor used to describe the actions the government plans to take to fix the economy is hardly reassuring, especially in the wake of how the government has handled previous acts of aggression and war like Vietnam, Afghanistan, and Iraq.

Especially if the nation “faces the most severe financial crisis since the Great Depression,” unleashing an arsenal to attack the nonexistent credit crisis seems to be a destructive path to take. But the government answers its own question of what weapons will be used to attack the crisis with even metaphors and empty phrases: “the Financial Stability Plan is designed to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem.” In other words, the government will use its tools of taxing, borrowing, and printing money to do whatever it takes to force banks to… to do what, exactly? What defines success of the program?

Well, the government answers that question with another round of empty words that readers are free to pour their own meanings into. “To be successful, we must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans.” This one sentence sounds like the central planners know exactly what they are doing and have grand ideas to spend us all back to prosperity but it also has a lot of meaning missing in it, so it should be looked at piece by piece.

“We must address the uncertainty,…” The uncertainty has been caused by banks extending loans to borrowers who could not pay the money back, and by issuing securities on packages of these loans to investors around the world. The government has done exactly the opposite of what is necessary (liquidating these bad assets) and has instead tried to prop up values or paper over the losses by printing money and trading it for bad assets. It can not keep sacrificing the value of the dollar for the value of bad mortgage assets, as this impoverishes us all and transfers uncertainty of CDO and MBS and ABS values to the value of the nation’s currency itself.

“…troubled assets…” This is what the Troubled Assets Relief Program was supposed to be about — not the Financial Stability Plan. But half of the TARP money was simply handed out to the banks with no accountability or tracking of what the funds were spent on. Of course, the original idea of having the US government buy up bad assets in exchange for newly printed money was just as bad of an idea.

Furthermore, if by troubled assets, the government means propping up the housing market, this is another mistake. Home prices rocketed upwards by double-digit percentages for years and money was so easy that even people without jobs could qualify for mortgages. The banks and government artificially pumped real estate markets full of easy money in order to score easy profits and easy property tax increases. But it was an illusion, and prices will now have to fall for buyers to be able to purchase homes at affordable prices.

“…and capital constraints of our financial institutions…” Financial institutions and the government are the two parties most responsible for the erosion of capital production in the country. People work for corporations. Corporations pay people for their work. People deposit their pay with the big banks. Big banks offer corporations loans to relocate jobs overseas. People finance their own joblessness. Governments put all of the pieces in place to facilitate this system by keeping taxes high in this country and lowering interest rates artificially to make moving overseas more profitable to corporations.

“…as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans.” The problem, of course, is that Americans already have too many loans and need to pay some of them off before they can more out. People will need to stop spending on their credit cards and begin saving again in order to facilitate a real economic recovery. The government’s idea that simply printing more money so we can borrow it and spend it and be rich is ludicrous. Also, credit markets are not frozen for people and businesses that have the ability to pay back their loans.

These are just the first two paragraphs of the fact sheet for the Financial Stability Plan, and paragraph #3 is just as loaded with vacuous inanities. The rest of the plan’s language is just as vague and nondescript as these sections have been. Once again, high-sounding fancy language is being used to cover up the government’s stunning lack of any real plan and as an excuse to take more money from Americans to hand over to banks and corporations. Or, as the government puts it, “bringing the full force and full range of financial tools available to cleaning up lingering problems in our banking system, opening up credit and beginning the process of financial recovery.”

Posted in Uncategorized | Comments Off

How to Attain Financial Stability in Your Business

How to Attain Financial Stability in Your Business

Frankly, financial stability is what every businessman desires. The growth of any business is greatly determined by finance. This means that the business has customers and each month it achieves a certain amount of sales that enables it to survive. Without customers a business will not achieve financial stability, it cannot pay its expenses.

You should always pay yourself first from the profits your business earns. Differentiate the money that belongs to the business from your personal money. It is advisable to have a separate account; your personal account should be different from business account.

I was really thinking and I concluded that no business can do without finance. Finance is the lifeblood of any business. Funds are required for various purposes like buying stock, paying employees etc. Let me define what finance is before we go into details and here I quote Wheeler,

Business finance is defined as that business activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of business enterprise.

From this definition, securing of funds is not the only objective of a business enterprise but it also includes the best utilization of funds. No wastage of capital funds. If you want the funds secured to be utilized in the best possible manner in your business, then you should practice some of the ways that have led some businesses to attain financial stability.

Five Important Tips Towards Financial Stability

1.) Budget: Have a detailed budget on how you’re going to spend the funds. You’ll always make money and spend it. You’ll manage finances effectively if only you have approximated the amount required and listed all the expenditure items. A budget creates a clear picture on how much money your business has and the amount of money required to fund the deficit if at all it is there. Avoid guesswork by budgeting always.

2.) Expenses: If there are unnecessary costs in your business, the best thing to do is to trim them. You only come to note these costs after you have analyzed your budget. Do away with unnecessary expenditures for your business to be stable financially.

3.) Free from Debts: Some people say that there is no business operating without debts. Yes, I don’t disagree with this but too many debts may make your business to become insolvent. Before you finance your business through borrowed money, it is better to be sure that the profit you’re currently earning is sufficient enough to pay the loan and in additional leaving you with sufficient amount of money to pay yourself first. Don’t just borrow money blindly; there should be a viable project to finance. Never allow your business to accumulate debts. Always pay your bills and your creditors at the beginning of every month.

4.) Saving: At the end of the fiscal year, you should save part of the profits earned. The savings will assists you to expand your business and also for taking care of uncertainty risks. Ploughing back of profits is the less painful way of financing your business compared to bank loans that charge high interest rates.

5.) Diversifying: Don’t let your business to have only one of way of generating income. Instead, diversify your business by investing profits earned in viable projects. This ensures financial stability for your business throughout. If one of your projects is running at a loss, then the rest of the projects will sustain it. First, do research to ascertain the viability of the projects before investing on them so that you don’t end up losing funds.

Posted in Uncategorized | Comments Off

12 Things to Know to Be in Your World of Financial Stability

12 Things to Know to Be in Your World of Financial Stability

Let what you do be your money-spinner. If you are a singer, let your songs take you to the realm of financial stability. If you are a writer, let your articles, poems, books and essays bring the cash that will take you to your world of constant cash flow. If you are a comedian, let your jokes be the instrument that will make you financially OK. Whatever thing you do, no matter how big or small it is, let it be the vehicle that will take you to the world of your steady cash flow.

The moneyed classes have laws they obey, principles they keep, and secrets they know. Here are the 12 secrets they know.

Secret #1

Money should not be seen as a king, it is a slave. It should not use you, but you have to use it effectively, and direct it towards making the system that drives the progress of humanity better. Money is not the root of all evils, but lack of it is.

Secret #2

Own no man. Pay all men their dues. Ten percent of your income belongs to God don’t own him; it is in your best interest, for your own good and for your financial security for financial stability.

Secret #3

New place and business to invest your money to get something more in return and increase your earnings should be in view. Invest wisely; increase your investment and come of age in your investment.

Secret #4

Earn more than you invest. Stop losing money in the financial and investing world. Apply the right management skill and gain more return from the right investments you made.

Secret #5

Yearn for more earnings as you learn more about money. Be in the know on how to increase your cash flow. As you learn more about becoming financially stable, don’t just store up the knowledge, but use it effectively, apply it passionately as you skillfully earn more money.

Secret #6

Jack-of-all-trades, though master of none, will sooner or later become earner-of-all-trades. Apart from being in the business of what you are great at doing, look out for other businesses you can make your investment and increase your income.

Secret #7

Organize your business. An organized business directs and makes good use of resources at hand. What you have should be used positively to get the money you want.

Secret #8

Understand that role of money and use it effectively. Use your money to bring your profitable goals to a happy issue. Enhance your potent asset and get the right thing for your business.

Secret #9

Register your business with the right authorities and leave a mark in your business niche and locality

Secret #10

Neglect nefarious offers or activities that may ruin your business. Don’t negotiate with any group that may destroy your investments and business.

Secret #11

Examine your business monthly to know how well you are doing. Keep a good record of your income and expenditures. Make sure you abstain from frivolous expenditure.

Secret #12

You have all it takes to be in the right business for yourself. You have all it takes to be in your world of financial stability. Be in the right company and get connected to the right people. Be moneyed as you enjoy the income of your business.

Posted in Uncategorized | Comments Off

Importance of Financial Stability Ratios

Importance of Financial Stability Ratios

Common ratios to judge the financial stability of a business concern are gearing ratio, current ratio and liquid ratio. Gearing ratio shows the extent of a firm’s reliance on debt to fund its activities. As the proportion of debt climbs (especially if it exceeds 65 percent of total funds for most businesses), the greater the risk of financial distress. This is the downside of financial leverage – It increases the financial risk.

Current ratio measures the number of times the current assets of a firm cover its current liabilities. This is a measure of solvency: the capacity of a firm to pay its debts through the normal cash cycle, selling inventory on credit, collecting debts and paying creditors. This ratio must normally exceed 1:1 and should be closer to 2:1. It should also be noted that an excess of current assets will result in poor asset utilization.

Liquid or quick ratio is a more tighter measure of short term financial stability. It measures the firms ability to pay its current liabilities from its liquid assets. Liquid assets are cash or near cash resources. In practice liquid assets include cash, bank, short term securities and accounts receivable, the assets that be readily converted into cash to meet immediate calls for payment from lenders and suppliers.

Accounts receivables are normally included in liquid assets, as they may be sold to a finance company at a discount for later collection from debtors. This is called debt factoring. Debt factoring is not common in all the countries. Debt factoring is used as a means of managing the cash flow from operations, rather than trying entity’s funds up in accounts receivable. In arriving at liquid assets, the principle exclusion from current assets is inventory. As this may take some months to sell – and then often to credit customers – it can be many months before cash is collected from inventory. Among the current liabilities may be some debts that may not be due for many months. These may be excluded in calculating the liquid ratio. Examples include tax payable and a current portion of long term debt, both of which may not be due for some months. However, such adjustments should only be made if the repayment dates are known and are over six months later than balance sheet date.

One common (but risky) adjustment in calculating the liquid ratio is to exclude bank overdraft from current liabilities. This is not recommended. When a liquid ratio declines towards (or below) the 1:1 level (including overdraft), this is most likely time that the bank will require repayment – on demand. Hence, an overdraft should only be left out of this calculation when the firm is perfectly liquid – When it does not matter anyway!

As these ratios are based on the statement of financial position, they represent only a ‘snapshot’ of the financial stability of the business, taken at one point in time. These ratios can be manipulated by referring payments or delaying purchases until the following period, or by invoicing customers in advance of delivery. Known as ‘window dressing’, such techniques show an improved solvency position at balance sheet date.

Posted in Uncategorized | Comments Off

3 Keys to Financial Stability

3 Keys to Financial Stability

Obtaining financial stability is like maintaining good health. It’s the steps that you do today that affect the outlook tomorrow. Like dieting and exercise will lead to a trimmer shape if you stick to a program, your financial outlook will only improve through budgets and savings. It all comes down to simple math. You need to spend less than you make, and save for the future. Consider these 3 keys to financial stability.

Budgeting

Budgeting is the first step to financial stability. You need to form a systematic plan for the expenditure of your fixed income during a given period. Budgeting is an important part of any money maintenance plan, but it is most critical when money is tight. Look at your spending needs and habits. Make a list of everything that must be paid for, and compare it against what you’ll have coming in for that time period. Make the math work, and make sure it doesn’t get fuzzy. You can be creative, but be realistic. It’s better to overestimate your monthly budget than end up with not enough left to meet your expenses.

Watch Where the Dollars Go

Keep a record of all your spending, especially your cash expenses. Always get a receipt so you can keep track of every dollar spent. Mint.com is a great program that allows you to keep track of your purchases, giving you a better idea of what you’ve already spent versus your actual income.

Trimming

The next step is to look at your spending habits and see what can be cut. If you eat lunch out every day, do the math and add up what it costs you per paycheck. You’ll find that you can save a good hundred dollars just by switching to cold cuts. Watch those espressos on the go while your own espresso machine still gathers dust in the basement. Still getting together with the gang after work for a few suds? Invite the gang over to your living room and a 6-pack for a recessionary happy hour. You don’t have to put quarters into your own home jukebox.

Any small costs you can trim off your budget really add up. It’s the little things that offer the best most savings because there are so many of them. Tackle your own budget with a red pen. Trim those numbers down to the bone.

Posted in Uncategorized | Comments Off