Borrowing Trouble

The banking world has created another mess the public is going to have to pay for through higher interest rates. For growers and everyone else, subprime loan scandal means it will be more expensive and more difficult to borrow money. Likewise, more consumers are facing foreclosures, losing equity in their homes and stretching to make ends meet for the bare necessities. How inclined are they going to be to buy plants when they can barely pay for food and gasoline?

Debt wise, growers tend to fall into three categories:

• Older operations that are debt free

• Expanding operations that borrowed money to increase size and invest in technology

• Others are very leveraged just to pay for operating costs to run the business.

Warning to growers with considerable debt: If you’re borrowing short-term money, you’re going to pay more for it. And those who have credit lines with variable rates are finding risk factors that were acceptable two years ago are no longer acceptable. Interest rates are too high. 

Bad News

The latest banking industry scandals surround subprime loans, the bankruptcies of Bear Stearns’ two subprime funds, the foreclosure on home loans because people cannot afford the increased interest rates and the loss of the home’s value to below what is owed on the property. Over $200 billion in subprime adjustable rate mortgages will reset upwards from low teaser rates with monthly payments increasing by 40 to 50 percent. Since the average subprime borrowers already spend 40 percent of their after-tax income on housing, they cannot afford the resets. Also the value of single-family homes will fall about 20 percent from the 2005 realty boom.

Borrowers need to cover the losses and find money to cover the increase from subprime to conventional loans. Banks are tightening the amount of money they will loan. You must have a very good credit rating and also have a higher share of equity in your home or business if you are to secure a loan.

A. Gary Shilling in his article, "The Bear Bust," which appeared in the August 13, 2007 issue of Forbes, predicts that, perhaps by the end of the year, American consumers will retrench and precipitate a big recession as the home equity that supported their spending evaporates.

Banks use teaser loan rates to attract money in their advertising. An example is student loans that you don’t have to pay until six months after you complete college, but when you start paying, you have to pay that actual principal and all the interest for four years and six months tacked on to the principal. Unfortunately, they don’t advertise this fact. Some say practices like this are deceitful. Some say they are criminal. But, if you read the fine print (very fine print), they think they have themselves covered. 

Banking On A Death Wish

How low can Wall Street and the banks go? They are now selling "death bonds," trying to profit from mortality. Death bonds may be the most macabre investment scheme ever devised by Wall Street. Even while the subprime mortgage was crashing, many of the biggest financial players had a conference in New York to talk about the next exotic investment.

More than 600 participants descended on New York for a three-day meeting. The group included Bear Stearns (the firm that just had two hedge funds go bankrupt in the last three months), Deutsche Bank, Lehman Brothers, Merrill Lynch, UBS, Wachovia, Wells Fargo and others. They were all learning how to profit from people dying.

How does it work? Banks and lenders offer to pay the insurance premiums for people who can’t afford to keep their life insurance, if they agree to sell their policies to the investors. The investors then take a percentage of the insurance benefits when the person dies. For the investors, the quicker the death, the more profit they make.

Most transactions are made by firms called settlement providers that sell the policies to hedge funds for a fee. These hedge funds offer investors huge profits if the schemes work out, but when they go bust, the hedge funds and their investors go broke!

Since the hedge funds, brokers and banks have lost a lot of money on subprime loans – some of them going bankrupt – they now need a new source of great profit. So why not make it on those who are close to death? How ghoulish can Wall Street, banks and brokers become?

If you want to see just how low the financial industry can go, read "Profiting from Mortality" by Matthew Goldstein in the July 30, 2007 issue of Business Week. 

Bait And Switch

After this past month, my opinion of people on Wall Street – the brokers, the hedge funds, the investors and the bond raters – is that they are somewhere between deceitful and criminal. The federal government should closely watch the schemes that the financial community develops.

The subprime interest rates, the college loans that you don’t have to pay for until you graduate, and now the death bonds are all sold by telling only part of the details involved. All the rest is written in very small print, usually in the last few paragraphs of the documents. They are usually sold to you by an individual who comes to your home after dinner asking you to sign anywhere from five to 60 pages of documents. You never get the whole story until you get your first statement from the bank that bought the loan from the broker you dealt with.

Remember, if the deal is too good to be true, it probably isn’t true!

A home loan I was supposed to get for 2.5 percent for 60 months was true, but they forgot to tell me that the real interest rate was 8.34 percent. If I paid only 2.5 percent, I would owe 20 percent more at the end of five years than I had borrowed originally because the additional interest was tacked on at the end. Deceitful? Yes! Criminal? Maybe.

The people you trust to help you make money and keep it may be the same people who are taking it from you. The bottom line: make sure you have a great lawyer, a great accountant and a great banker. Don’t look for the cheapest deal. Look for the best deal.

The best deal is one where you get the people who take care of your money and your business, as well as you, so you can take care of your plants. In all my experiences, the best financial people I’ve met are the ones who live in the same town or area and truly have a concern for you and your company. They are an important part of your family and business life.

Make sure you have the right financial and legal people, and beware of the something-for-nothing hustlers. Again, experience is the best teacher, but the tuition is too high!

Leave a Reply

More From Finance/Operations...

April 17, 2015

Sakata Seed Uses California Spring Trials Display Plants To Give Back

Sakata Seed America is putting its post-CAST (California Spring Trials) plants and flowers to good use to support events in local California communities of Salinas and Morgan Hill. The plants, along with donations through Sakata's Charitable Giving Program, will support three fun-filled community events that promote healthy lifestyles and support the agricultural industry.

Read More
Hakonochloa macra Aureola v

April 17, 2015

Ornamental Grasses — A Few Thoughts

Grasses have been embraced by growers, landscape architects and retailers, and are an important component in wholesale and resale sales. Allan Armitage shares some popular grasses, one to avoid and a few to use with caution.

Read More
PW_CAST15

April 17, 2015

Allan Armitage’s Favorite Plants From Proven Winners, Syngenta And Danziger

Between visiting California Spring Trial giants like Proven Winners, Syngenta and Danziger, Allan Armitage saw a lot of great plants in one day. Despite the size of the challenge, Dr. Armitage finds a few favorites he thinks you should try.

Read More
Latest Stories
Syngenta logo

April 15, 2015

Syngenta Names Chris Freeman Senior Key Account Manager…

Chris Freeman is the new senior key account manager for Syngenta Flowers, Home & Garden's Commercial Sales business in the Americas, effective March 2015. Freeman, who joined Syngenta in 2006, carries more than 25 years of experience in the agriculture and floriculture business.

Read More
Lake Buchanan_LCRA

April 10, 2015

USDA Designates Areas Of West And Southwest As Drought …

The ongoing drought has resulted in disaster area designations in counties across nine Western and Southwestern states, including Texas, where some reservoirs are at or near historically low levels.

Read More

April 9, 2015

Altman Plants’ Online Cactus Shop Shows Strong Sa…

Altman Plants recently opened its new Cactus Shop, an online retail store that sells a variety of cactus and succulents. The store is a take-off of Altman’s original wholesale business, as the company started as a mail order catalog.

Read More
Dummen

April 8, 2015

Dümmen Group Welcomes Jim Devereux And Andrew Konicki T…

Dümmen group recently announced the addition of Jim Devereux and Andrew Konicki to its team. They are the newest members of the Key Account and Broker Support team for Dümmen, and will be responsible for building, developing and maintaining current broker and grower customer relationships.

Read More
Gov._Jerry_Brown_California

April 8, 2015

California Institutes First Ever Statewide Mandatory Wa…

California Gov. Jerry Brown announced April 1 that, for the first time in state history, action will be taken to implement mandatory water restrictions, with the ultimate goal of reducing water usage by 25 percent. As Californians are pushed to conserve more, growers will need to think about how demand for products will be affected.

Read More
DNA-logo

March 31, 2015

DNA Green Group Will Acquire Rijnplant

DNA Green Group and Riknplant have finalized DNA Green Group's acquisition of Rijnplant, meaning that the breeding and propagation activities in pot and cut anthurium, bougainvillea and heliconia will transfer to DNA Green Group.

Read More
AFE scholarship_Ryan Dickson

March 25, 2015

AFE Educational Grant And Scholarship Application Deadl…

Apply now for American Floral Endowment (AFE) scholarships or educational grants. Applications can be found online. For educational grants for 2015-2016, applications must be submitted no later than June 1. Scholarship applications are due May 1. AFE will award $40,000 in scholarships for 2015.

Read More

March 23, 2015

UF/IFAS Appoints Joseph Albano As Director Of Mid-Flori…

The University of Florida's Institute of Food and Agricultural Sciences (UF/IFAS) has a new directors for its Mid-Florida Research and Education Center (REC) on Apopka, Fla. The role has been filled by Joseph Albano, a research horticulturist from the U.S. Department of Agriculture with more than 25 years of experience.

Read More

March 17, 2015

Pike Nurseries Implements Employee Stock Ownership Plan

Independent garden retailer Pike Nurseries has announced it will become an employee-owned company. Pike Nurseries management has combined with its sister corporation in California, Armstrong Garden Centers, to operate under an established Employee Stock Ownership Plan (ESOP).

Read More
GrowIt! App Wins Gold At Design100 2014 US Mobile & App Design Awards

March 10, 2015

GrowIt! Mobile App Now Available For Android

The mobile app GrowIt! Garden Socially can now be used by gardeners with Android-based smartphones. Now available on the Google Play Market, GrowIt! helps users find plants to fit their lifestyle and connect them with other local gardeners.

Read More

March 4, 2015

Second Annual GreenhouseConnect Will Bring Growers and …

Following a successful inaugural event in Tampa last fall, Greenhouse Grower has announced the dates of its second annual GreenhouseConnect: October 26-29, 2015. Representatives of an expected two dozen leading greenhouse operations from across the U.S. will join senior-level suppliers at Rancho Bernardo Inn in San Diego for several days of one-on-one strategic meetings, a growers-only roundtable, informational sessions and a variety of networking events.

Read More

March 4, 2015

Maryland Green Industry Associations Unite

The Maryland Nursery and Landscape Association recently announced that it is expanding its reach to include the greenhouse industry, meaning it has become The Maryland Nursery, Landscape and Greenhouse Association (MNLGA). The change comes as a result of the planned dissolution of the former Maryland Greenhouse Growers Association and the invitation for those members to join the existing and renamed association.

Read More
IPPS Sharing Plant Production Knowledge Globally Logo

February 25, 2015

International Plant Propagators Western Region Sets Ann…

The annual meet for the International Plant Propagators' Society (IPPS) Western Region has been set for this September. It will take place September 23 to 26 in Modesto, Calif., and will include learning sessions, tours to local nurseries, a research poster display and poster presentations, various networking opportunities and an awards banquet to close the event.

Read More
myers industries Lawn and Garden Logo

February 24, 2015

Myers Industries, Inc. Lawn And Garden Business Sold, N…

The management of Myers Lawn and Garden Group, along with Wingate Partners V, L.P. have recently acquired the Myers Industries, Inc. Lawn and Garden business. The new company is named The HC Companies, and will continue as a North American leading provider of horticulture containers supplying the greenhouse, nursery and retail markets.

Read More
american-hort-logo

February 17, 2015

AmericanHort Announces New Board Members

AmericanHort recently announced the election of new officers and members to the board of directors. Each will assume their positions on the board during Cultivate’15, July 11 to 14 in Columbus, Ohio.

Read More
All American Selections

February 17, 2015

All-America Selections Elects New Officers, Names New J…

While meeting during the Flower and Vegetable Seed Conference in Tampa, Fla., hosted by the American Seed Trade Association, All-America Selections elected new officers for a two-year term. Read on to learn about the new officers, as well as all of the new judges that were added in 2014.

Read More
Greenhouse Grower.com on your desktop, on your phone, on your tablet

February 11, 2015

GreenhouseGrower.com Relaunches With Responsive Design …

Greenhouse Grower magazine, the nation’s leader in profits, production and education for greenhouse growers, announces the launch of its completely redesigned website, GreenhouseGrower.com. The new design is the product of direct user feedback and GreenhouseGrower.com analytics, and includes responsive design for ease of mobile use.

Read More
Andy Higgins

February 3, 2015

MasterTag Names Andy Higgins As Its New President

Former CEO and president of Ecke Ranch, Andy Higgins, joins MasterTag as its new president. He brings more than two decades of industry experience to the position.

Read More