An Open Letter to Treasury Secretary Geithner and SBA Administrator Karen Mills

[Chris Coles]

Dear Mr. Geithner and Mrs. Mills,

President Obama has asked you both to work together with an ongoing effort to help small businesses access credit and create jobs. His administration has set out three aiming points:

(I) Taking Further Steps to Provide Small Businesses With Access to Credit By Supporting Community Bank Lending Through the Financial Stability Plan

(II) Seeking Legislation To Increase Maximum SBA Loan Sizes – Allowing More Businesses To Access The Credit They Need To Expand And Create New Jobs

(III) Convening a Treasury-SBA Small Business Lending Conference to Work With Regulators, Lenders and Congress to Ensure Credit Is Available to Small Business.

For many years, I have been actively debating with the Bank of England, HM Treasury, and others, that there is a missing element in the financial structure of small businesses; adequate equity capital. Particularly, Free Enterprise based, equity capital.

That there is no institutional free market, that has an open, well recognised remit, backed up with accepted rules; to take the savings of the local communities and to re-invest those local savings, as equity capital, back into new free enterprise based businesses established within those local communities.

You have been charged with the provision of loans; I will argue that what is really needed is equity capital, not loans. That if the debate can be turned towards the provision of equity capital, almost all of the structural difficulties of the present economy will be mostly eliminated; including the provision of much greater stability for the entire banking system.

Earlier this year, I brought together all the papers I had written on the subject into one free download PDF book: The Road Ahead from a Grass Roots perspective. You may download a copy here: www.chriscoles.com/page3.html

To create a new business, (that in turn creates new jobs within any local community), you need access to both equity capital, with which you establish the financial structure of the business, and then, once founded, you then borrow, (against that equity capital), working capital in the form of loans; to pay for the movement of materials through the production process and on to final sale.

I am arguing that you have every form of working capital available, but that you do not have a well thought out rules structure, acceptable to everyone, to provide that equity capital foundation.

In fact the very wording of the Obama Administration request has no mention of that need for the equity capital, yet the equity capital base of any business absolutely defines its ability to survive in difficult circumstances.

I ask you both to take the time to read my book. It sets out in detail a full set of rules for such equity capital investment; and explains why existing mechanisms do not work satisfactorily.

You have both been charged to convene a conference; and in which case, you must also, surely, introduce a debate about the need for free enterprise based equity capital and the rule structure necessary to provide that function?

I will be pleased to help in that conference debate in any way you feel necessary.

Yours sincerely,

Chris Coles.

[Spartacus]

Re: An Open Letter to Treasury Secretary Geithner and SBA Administrator Karen Mills

One small data point for you.

This guy's been financing a LOT of startups (after getting rich on his own some time ago)

http://www.inc.com/magazine/20090601...ul-graham.html


http://www.paulgraham.com/investors.html

"(Too much money seems to be as bad for startups as too much time, so we don't give them much money either.)"

Dear Mr. Geithner and Mrs. Mills,

And this is not just about software.

If you remember (I know the examples are correct, I hope I have the authors and book right, it's been a while) from the "In Search of Excellence" authors, some of the biggest "big budget" success stories took next to no money. The GE jet engine business, the SR-71 - all the initial working prototypes were done cheap, by "skunkworks".

Back in the late 70s I read the same observation by Michael Phillips (an ex banker who distributed the funds from the POINT foundation), Don Lancaster (inventor of microcomputers as we know them) and others.

[Chris Coles]

Re: An Open Letter to Treasury Secretary Geithner and SBA Administrator Karen Mills

May I suggest you take a walk around Detroit, as an example of almost completely destitute cities, and you have quite a few. Even more so if you walk out of the centre of most. You do not have a fully functioning economy right across the spectrum of your nation. Yes, in some ways your points are valid; but what I am opening is a debate about the rest of the nation, not a very small slice of it. You have an unstable economy that has remained unstable for decades. A middle class that has seen their prosperity decline right across the board. All I am trying to get across is the need for a change in direction in everyone's thinking when describing the needs of a stable prosperous local business community. You live in a world where who owns the capital is king; and the new business start up is constrained and feudalised. I believe in a world where it is essential that you leave the new business founder free to prosper with a well capitalised business model to provide stability. You have had decades to prove your case and the economy is at the point of collapse. Someone has to show the courage to recognise the need for new thinking, even if it runs against the grain of everything you believe to be true.

The facts speak for themselves; your wonderful system has not delivered a well managed, stable, prosperous nation; particularly right across the nation, at all levels of the nation.

Neither in the US or here in the UK. PERIOD.

Time for change.

[Spartacus]

Re: An Open Letter to Treasury Secretary Geithner and SBA Administrator Karen Mills

your wonderful system has not delivered a well managed, stable, prosperous nation; particularly right across the nation, at all levels of the nation.

I didn't suggest a system. I posted some interesting things I've read over the years, "data points to consider", or like Rod Sterling used to say "for your consideration ..."

AFAIK, no official body is doing or has done "a system" based on the observations I posted, just Paul Graham and others like him, with his own money. Maybe microcredit could loosely fit into what I posted.

The current systems are the same as "small business aid" have always been, which is, again AFAIK, "throw money at "the problem".

Nothing to do with what I posted

May I suggest you take a walk around Detroit,

I'm Canadian. I have relatives in NY, NJ, West Bloomfield or Bloomfield Hils (or something like that) and friends in those places and Houston, Ann Arbor, San Diego & San Fran, but I expect parts of my city to be smoldering craters soon, so the point is well taken.

... I am opening is a debate about the rest of the nation, not a very small slice of it.

that was indeed what I thought

[Chris Coles]

Re: An Open Letter to Treasury Secretary Geithner and SBA Administrator Karen Mills

What I am trying to get across is that we have to look in another direction, if we want to see the whole nation succeed, rather than a small group running a system that is called Venture capitalism. It is a system. Almost everyone in the business of investing is following through with that "system". Yes, I agree, I should have recognised the significance of your location before hitting the send button, for which I apologise.

Yes, some individuals have been very successful at investing, no doubt about that. You quoted Paul Graham; "(Too much money seems to be as bad for startups as too much time, so we don't give them much money either.)" What I want to show is that the above quotation may well be true if you have taken control of the destiny of the individuals who came to you for investment; but may well not be true at all if you come at this from an entirely different direction, leaving the founders free to make their own decisions in their own interests.

Moreover, that the benefits will extend beyond the profitability of the business and on into the debate about how you foster a free nation.

At this moment, the Western, Anglo Saxon financial system has, right at the top, Institutional Investors. Not one of them invests the savings of their respective nations back at the grass roots of their nation. They take no responsibility whatever for the wider responsibility of the need for a nation's institutions to foster a free nation. None!

They instead pass that responsibility onto much smaller groups or individuals, commonly described a Venture Capitalists, who, in turn, take some of the institutional funds and invest on their own behalf. In essence, the business model is very simple; they take complete control of whomever they are investing in and drive the business forward as fast as possible to profitability with a viewpoint of selling that business on into a larger company.

My viewpoint is that that business model has not just undermined the financial system; but also has taken us a very long way away from being free and, (perhaps without fully realising the implications), has taken us all back into a classic medieval feudal society. That we are not operating a free market when it comes to finance, at any level. Instead, we are operating a feudal mercantile economy that has very effectively destroyed itself. Imploded!

We must start by recognising that the underlying "system" is deeply flawed. That the remedy is very simple; we operate finance as a free market, with a set of rules that always permit the recipient of their first stage funding, capital, to remain free to prosper in their own right within their local community. Moreover, instead of being left in a financially unstable condition, they are in fact capitalised for long term stability. No, I am not advocating throwing money at them; I am advocating a much better capital base upon which you stand the new business. That we change the way we view the first stage start up when we look at the much wider problems of the nation.

Yes, I can see that runs against the grain of everything the present feudal system believes, to the bottom of its soul, is the right way to proceed. But the fact is, everyone working with the present "system" has to recognise that they have not delivered the NATION, success. Yes, individually they have succeeded, some beyond most people’s imagination of what success might be. But try as hard as they like, they will not convince the majority that they have delivered the nation, success.