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...
University of Florida Online Greenhouse Training Courses

April 25, 2016

University of Florida Offering Online Training Courses For Greenhouse Growers

There will be five courses offered, with the first starting on May 30. Courses are available in both English and Spanish and range from beginner level to advanced education.

Read More
Sanitation programs are essential to preventing and removing food safety concerns.

April 7, 2016

USDA Launches GroupGAP Program For Fruit And Vegetable Growers

The new certification program is designed to help small and mid-size growers, including greenhouse vegetable producers, comply with new food safety regulations.

Read More
Young Plants Farm North Carolina

March 15, 2016

Young’s Plant Farm Obtains MPS-A Qualification

MPS, an organization that develops and manages certification for companies in the horticulture industry, has awarded MPS-A certification to Young’s Plant Farm in North Carolina and Alabama.

Read More
Latest Stories
University of Florida Online Greenhouse Training Courses

April 25, 2016

University of Florida Offering Online Training Courses …

There will be five courses offered, with the first starting on May 30. Courses are available in both English and Spanish and range from beginner level to advanced education.

Read More
Sanitation programs are essential to preventing and removing food safety concerns.

April 7, 2016

USDA Launches GroupGAP Program For Fruit And Vegetable …

The new certification program is designed to help small and mid-size growers, including greenhouse vegetable producers, comply with new food safety regulations.

Read More
Young Plants Farm North Carolina

March 15, 2016

Young’s Plant Farm Obtains MPS-A Qualification

MPS, an organization that develops and manages certification for companies in the horticulture industry, has awarded MPS-A certification to Young’s Plant Farm in North Carolina and Alabama.

Read More
Charlie Hall Feature Image

March 14, 2016

Dr. Charlie Hall Will Offer Keynote Address At Farwest …

The Texas A&M economist will discuss factors affecting short- and long-term demand driving the future of the green industry.

Read More
Seed Your Future Logo

March 8, 2016

Longwood Gardens And American Society For Horticultural…

Under the direction of co-chairs Paul B. Redman of Longwood Gardens and Anna Ball of Ball Horticultural Company, the “Seed Your Future” initiative is designed to combat declining awareness of horticulture while promoting it as a viable career choice.

Read More
Florida Green Industry

March 4, 2016

University Of Florida Study Shows Green Industry Genera…

According to the study, the rise of large retail chain stores with garden departments has made plants and other horticultural products more readily available to consumers than ever before.

Read More
Great Lakes Growers Expansion

February 22, 2016

Great Lakes Growers Expands Its Production Capacity For…

The Burton, OH-based grower has added 25,000 square feet to its operation, helping it to keep up with rising consumer demand.

Read More
National Garden Bureau Logo feature image

February 16, 2016

New Officers And Directors At National Garden Bureau an…

During the ASTA Flower & Vegetable Seed Conference, National Garden Bureau and All-America Selections elected new officers and directors.

Read More
Katherine Wolper

January 24, 2016

Ludvig Svensson Hires Katherine Wolper As West Coast Sa…

Wolper says she looks forward to listening to growers and understanding the concerns, obstacles, and opportunities they face.

Read More

January 20, 2016

Tips For Overcoming Challenges In Family Business From …

Our industry is run by a collection of family businesses, and every one, no matter how big or small, has its share of management issues. But there are several differences between one that is run successfully as a business and one that allows family politics to distract from the organization’s goals. In this year’s State Of The Industry Survey, we noted that labor recruitment and succession are two areas where growers struggle. In talking with the owners of Costa Farms for this month’s cover story, I thought some of the values they have incorporated into the operation’s management structure really stood out as practices that other family businesses could use. The participatory management approach to business and team building is one that Tony Costa, the second-generation owner of Costa Farms, instilled in his children, Maria Costa-Smith and Jose Costa, and son-in-law, Joche Smith, the current owners of Costa Farms. In […]

Read More
I-9 Form

January 13, 2016

Proposed Changes To I-9 Form Important For Greenhouse G…

AmericanHort’s Government Relations and Grassroots Representative Davi Bowen says growers need to become familiar with the new form and should be prepared to make comments if necessary.

Read More

January 13, 2016

Wenke Greenhouses Buys Zylstra Greenhouses

Two Kalamazoo, MI-based greenhouses have merged after Wenke Greenhouses closed on Zylstra Greenhouses at the end of November. The additional property and facilities will allow Wenke Greenhouses to expand its young plant business, among other areas.

Read More

January 13, 2016

Costa Farms Wins With Its Emphasis On Team, Solutions, …

Based in Miami, FL, Costa Farms has gone global by focusing on strategy, systems, and vertical integration. See how the operation continues to expand through its emphasis on team, solutions, and growth.

Read More

January 11, 2016

New Transportation Funding Bill Is Good News For Floric…

According to AmericanHort, perhaps the biggest benefit of the new bill is what it doesn’t include: a proposed amendment that would have prohibited the use of federal funds for vegetative enhancements.

Read More

December 29, 2015

The Home Depot Says No To Neonics

The Home Depot plans to phase out neonicotinoids by 2018, according to a recent statement on the company’s website. The large home improvement retailer stated that its live goods suppliers have reduced the number of plants that they treat with neonicotinoids, and now more than 80% of all flowering plants sold at The Home Depot are not treated with neonicotinoids. The retailer said it will continue this decrease unless: Treatment is required by state or federal regulation, or Undisputed science proves that the use of neonicotinoids on live goods does not have a lethal or sub-lethal effect on pollinators Aside from these exceptions, the retailer has implemented a complete phase-out of neonicotinoid use on live goods by the end of 2018. Meanwhile, The Home Depot has required all of its live goods suppliers to label plants that have been treated with neonicotinoids. “The Home Depot is deeply engaged in understanding the […]

Read More
Gardeners of all ages enjoyed the annual plant sale at McCorkle Nurseries

December 22, 2015

Allan Armitage Explains Why People Will Always Want To …

We may believe that an appreciation for gardening and plants is rapidly draining away, but there is reason to hope.

Read More
Canadian Greenhouse Conference 2015

December 21, 2015

Presentations From Canadian Greenhouse Conference Avail…

Many of the talks that took place at this year’s Canadian Greenhouse Conference in Ontario focused on improving production efficiencies in the greenhouse.

Read More
Sanitation programs are essential to preventing and removing food safety concerns.

December 7, 2015

How The Finalized Produce Safety Rule Will Affect Green…

While the new rule from FDA has many exemptions that will likely apply to greenhouse growers, the reality is that buyers may still require strict adherence to food safety standards.

Read More
[gravityform id="35" title="false" description="false"]