September 15, 2011



News Briefs

  1. Signs of Slowing in BRICS Worthy of Watch, Not Panic
  2. Support for Venue Reform Grows Following Judiciary Hearing
  3. FTAs Still Heavy on the Minds of U.S. Business Watchers
  4. Greece Imposes Property Tax Ahead of Meeting with France and Germany
  5. Indexes Showing Continued Slide in Confidence
  6. Another Data Breach Bill Introduced in Senate

 

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Signs of Slowing in BRICS Worthy of Watch, Not Panic

Those watching the economies of the BRIC nations (Brazil, Russia, India, China) and other, smaller emerging economies have started to get on a growing bandwagon of concern about conditions in those nations. Moves by China to slow its surging growth because of inflationary concerns and Brazil's admission that such pressures are building have turned fawning over the pearls of the global economy into a bit of consternation in the press. Even Business Credit Magazine in its June issue questioned whether enough risk mitigation was in place from a credit perspective or if exposure to areas where bubbles were growing echoed the overheating that doomed the U.S. economy about five years ago, with expert sources coming down on both sides of the issue.

However, a member of the Federal Reserve Bank of New York and an official with the Export-Import Bank of the United States, in a pair of interviews with NACM, maintained an optimistic view regarding the BRICs and their prospects. If correct, that will be more than welcome news for U.S.-based exporters trying to offset some losses domestically with sales abroad.

Matthew Higgins, vice president of the Federal Reserve Bank of New York, told NACM/Business Credit Magazine last week that there has been a commodities-fueled inflation problem brewing within some of the emerging economies. However, such issues have started to ease in places like Brazil and India. Higgins, who is the featured speaker at FCIB's New York International Round Table event on Sept. 21, noted the situations obviously are worth watching, but there is no reason for businesses involved in global trade to have deep concern or panic at this time.

"All of the emerging economies are navigating a fairly difficult global environment," said Higgins. "Those examples have been the most dynamic part of the global economy, and most observers think that is going to continue. Even in a rather troubled global economic environment, the projections are for good growth."

Meanwhile, Ex-Im Bank Chairman/President Fred Hochberg told NACM, during an exporter forum hosted at Baltimore's World Trade Center with Maryland Gov. Martin O'Malley, that inflation pressure is a macroeconomic trend in several emerging economies. However, small- and medium-sized businesses that don't have multi-billion dollar exposures there have more important things to worry about.

"Let's remember there will be a billion people in the middle class and, while there are disparities, the middle class is growing globally," said Hochberg. "Things like borrowing money and capital controls still are the larger risks to small business exporting. Services exist with us and the SBA [Small Business Administration] that can and do help on the financial side."

Additionally, Hochberg tells us the proof is in the numbers, with surging trade activity in places like Brazil, India and even Turkey. "If you're not exporting there, you need to get in the game," advised Hochberg, who asserted that companies involved heavily in smart exporting policies are performing extraordinarily well.

For more information on Higgins' presentation at the FCIB New York International Round Table, click here.

Brian Shappell, NACM staff writer

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Support for Venue Reform Grows Following Judiciary Hearing

The bipartisan nature of H.R. 2533, the Chapter 11 Bankruptcy Venue Reform Act, was on full display last week during a hearing on the bill in the House Judiciary Committee.

Held in the Judiciary's Subcommittee on Commercial and Administrative Law, chaired by Rep. Howard Coble (R-NC), the hearing offered the bill's sponsors and supporters a chance to lay out their qualms with current bankruptcy venue statutes, which offer debtors a broad array of choices of where to bring their case. This much leeway often comes at the expense of smaller creditors. "Small creditors must defend preference claims filed in a remote jurisdiction," said Coble. "[They're] sometimes left in the dust."

Judiciary Committee Chairman Lamar Smith (R-TX), one of the bill's original sponsors, noted in his opening statement that H.R. 2533 would realign the venue statutes with the Constitution's original intent. "The current Chapter 11 venue rules allow many corporations to forum shop for a venue with favorable judicial precedent for the business. For example, a nationwide retailer may prefer to file in Delaware because of the Third Circuit's well-known rulings on the treatment of unpaid rent in bankruptcy," said Smith. "At the same time, a business with many unionized employees can avoid filing in Delaware to avoid Third Circuit precedent on collective bargaining rights in bankruptcy."

"The Constitution instructs Congress to enact uniform bankruptcy laws. While courts of appeal are permitted to interpret Bankruptcy Code provisions differently, Chapter 11 debtors should not be able to leave their home districts and shop for a forum whose judicial precedent on bankruptcy law they happen to prefer," he added.

Three of the four witnesses agreed with the chairman and supported the bill. They were Peter Califano, partner with Cooper, White & Cooper, who testified on behalf of the Commercial Law League of America (CLLA); Hon. Frank Bailey, chief judge of the Bankruptcy Court for the District of Massachusetts; and Professor Melissa Jacoby of the University of North Carolina School of Law.

"The consequences of corporate bankruptcy are most profound in the communities where the debtors' principal assets are located," said Califano. "If bankruptcies are filed in remote districts, the parties with the most familiarity with the debtor's operations might be cut off in the process." Bailey and Jacoby agreed with Califano, with Bailey noting that "the current venue statute undermines confidence in the bankruptcy system," and Jacoby observing that "the current laws really do risk being perceived as being procedurally unfair."

NACM has publicly voiced its support for H.R. 2533, and has long advocated for sensible changes to the Code's rules governing where a debtor may file. To urge your member of Congress to support the Chapter 11 Bankruptcy Venue Reform Act, look up your congressional contact information here (be sure to rely on your company's address rather than your own home address), then visit NACM's Advocacy page to download a form letter that you can personalize to increase its effect on your representative.

If you have any questions, contact Jacob Barron, NACM staff writer and government affairs liaison, at jakeb@nacm.org.

Jacob Barron, CICP, NACM staff writer

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FTAs Still Heavy on the Minds of U.S. Business Watchers

As long-delayed free trade agreements (FTA) with a trio of emerging economies continue to slowly make their way to the Congressional and White House finish line, the issue remains front-of-mind for many. And though one economist from the National Association of Manufacturers confidently predicted 2011 was the year they would finally pass, not everyone appears as comfortable making such prognostications.

Chad Moutray, chief economist of the National Association of Manufacturers, said during a National Economists Club meeting in Washington, DC that passing the languishing free trade agreements with South Korea, Panama and Colombia would be among the greatest assists to the suddenly slumping manufacturing industry aside from tax code reform and extending federal research/development tax incentives.

Moutray gave the confident prediction to NACM that the FTAs will finally pass through Congress before the holiday season, in part because there is some level of support on both sides of the aisle. However, whether or not a bad taste from the long fight over the FTAs, originally framed during the Bush Administration, will linger and, thus, inhibit the creation of FTAs in the near future remains a distinct possibility.

"The rest of the world is chasing them and we're not," said Moutray. "There are hundreds of trade agreements in negotiations around the world right now—we're only involved in three. It's going to become a disadvantage."

While Ex-Im Bank Chairman/President Fred Hochberg is "optimistic they will get it done" and a supporter of all three agreements, he gave no such timetable predictions on when the FTAs would finally get a green light when asked by NACM in an interview Monday. Passing the FTAs is widely seen as in line with President Barack Obama's stated goal of doubling exports within a five-year period, an effort that began in 2010.

Matthew Higgins, vice president of the Federal Reserve Bank of New York, told NACM/Business Credit Magazine that the doubling exports is an ambitious goal, and one that will require a significant amount of focus since the United States has not seen such sustained growth in the past.

"Doubling in a period of five years would be considerably above what is historically normal—but remember, you're coming off a base that's been somewhat depressed," said Higgins, who is the featured speaker at FCIB's New York Roundtable event on Sept. 21. "Now, how much can export performance actually offset broader weakness? It can certainly be helpful. But, remember that exports comprise a little more than 10% of the economy. They can't entirely make up for all the weaknesses elsewhere." In essence, U.S. businesses shouldn't put too many eggs into the exporting basket or consider the passage of the three trade agreements as some kind of save-all.

"Nothing is a panacea," Higgins added. "[Trade aggreements] are a help, but what drives trade over a longer term are companies having success and creating products and services that people want to buy."

Brian Shappell, NACM staff writer

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Greece Imposes Property Tax Ahead of Meeting with France and Germany

Greece announced that it would enact a new property tax earlier this week in a desperate last-ditch effort to avoid default.

The debt-stricken country faces the distinct possibility of being denied an 8 billion euro rescue loan from the European Union (EU) and International Monetary Fund (IMF) and is scrambling to ensure the investment. The property tax is the latest addition to the country's ongoing austerity measures, which have sought to shore up a 2 billion euro budget gap.

"We must come up with something fair, socially acceptable, something that differentiates the rich from the middle class and the poor, something that can be applied immediately, that can pay off dividends quickly, that does not depend on the tax administration mechanism," said Greek Financial Minister Evangelos Venizelos. "The only measure meeting all those qualities—a measure of direct, universal, application, although scaled in a fair way, with social features—is a special levy on real estate to be paid through the PPC (Public Power Corporation) bill."

"Its weighted average cost per square meter is approximately 4 euros. This means that in the poorer areas with low price bands, people will be asked to pay a mere 0.50 euros per square meter. On the other hand, where we have luxury homes, for example in the northern suburbs of Athens, some will pay 10 euros per square meter," he added.

Venizelos also added that the Greek Cabinet unanimously decided to cut an entire month's salary from all elected officials of the state, in a largely symbolic gesture to already angry citizens.

Despite the genuine appearance of the country's efforts to deepen its austerity programs, it, like much of the European economy, is still suffering from a fundamental lack of confidence in the system. NACM Economist Chris Kuehl, PhD noted after Greece's announcement of new taxation that "nobody has any faith in the effort."

"The country doesn't have the ability to collect the taxes it imposes now, much less any new ones," he said. "The population is on the edge of total riot and simply will not accept much more in the way of austerity."

While these institutional flaws could end up dooming any efforts to save Greece from default, markets ticked up cautiously earlier this week, ahead of the country's scheduled talks with France and Germany. The heads of state in those countries, which comprise the EU's two largest economies, have sought to quash any notion of a possible default by the Greeks or collapse of the euro itself.

Jacob Barron, CICP, NACM staff writer

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Indexes Showing Continued Slide in Confidence

Optimism from businesses in the manufacturing sector may have fallen quite a bit since early in 2011, but third-quarter levels are still well above levels considered neutral, according to a yet-to-be released study conducted in part by the National Association of Manufacturers (NAM). The same silver-lining could not necessarily be painted for small businesses at large, however, according to another survey.

NAM Chief Economist Chad Moutray noted during a speech on September 8 at the National Economists Club in Washington, DC that its upcoming study on manufacturing business optimism finds the percentage of those with a positive future outlook at 65.4%. While well below the 86.4% posted in the second quarter and the 72.6% for calendar year 2010, it remains significantly above the 50% threshold, which is seen as good news. In 2008 and 2009, it was well below 50%.

"While there was clearly a fall, you still have a tremendous level of optimism," said Moutray. He added that the two biggest impediments to increased optimism, according to manufacturers, were the weaker economy during the quarter and what is seen as an ongoing unfavorable business and regulatory climate. More than 60% of respondents noted both among their top two issues. Perhaps the latter will get an eventual bump from President Barack Obama's Jobs Act, unveiled in the hours following Moutray's speech, and the potential passage of three U.S. trade agreements, with Colombia, Panama and South Korea (see above story).

Meanwhile, a monthly survey of small businesses conducted by the National Federation of Independent Businesses (NFIB) found confidence falling for the sixth consecutive month, down to its lowest point in at least 13 months on economic uncertainty and poor sales. The August Small Business Optimism Index for August fell to a level of 88.1, down from the 89.9 posted in July, said NFIB. Additionally, more than half of those polled considered the current state of the economy to be bleak, and more business owners expect a sales decline in the coming months than an increase. NFIB called the latest findings a "vote of no confidence" in the federal government at present and its "short-term solutions."

"The results of this month's survey are very telling," said NFIB Chief Economist Bill Dunkelberg. "The tumultuous debate over the nation's debt ceiling and a dramatic 11th-hour ‘rescue' by lawmakers did nothing to improve the outlook of job-makers. In fact, hope for improvement in the economy faded even further...There is little clarity or certainty. When people are uncertain about the future or fear it, they don't spend or invest, and they chase after protection—and protection is unlikely to come from the government."

Brian Shappell, NACM staff writer

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Another Data Breach Bill Introduced in Senate

Another data breach and security bill was introduced last week, this time by junior Sen. Richard Blumenthal (D-CT). The Personal Data Protection and Breach Accountability Act of 2011, S. 1535, aims to ensure that companies take adequate steps to protect individuals from data breaches before they happen, while promoting information sharing between companies in order to prevent future breaches.

Blumenthal's bill brings the grand total of data security bills currently pending in the Senate to three. Sen. Patrick Leahy (D-VT), chairman of the Judiciary Committee, introduced S. 1151, the Personal Data Privacy and Security Act, in June, and Sen. Dianne Feinstein (D-CA) introduced S. 1408, the Data Breach Notification Act, in July. Leahy's bill is the only one to have garnered any cosponsors, with Sens. Ben Cardin (D-MD), Al Franken (D-MN) and Charles Schumer (D-NY) signing on at the time of introduction.

All three bills are on the agenda for today's executive business meeting in the Judiciary Committee.

Blumenthal's bill appears to be the most thorough of the three related pieces of legislation, encompassing aspects previously addressed in both Leahy and Feinstein's efforts. It creates a process to help companies establish their own appropriate minimum security plans to safeguard consumer information, while holding them accountable for failing to comply. It also requires companies to promptly notify consumers following a breach, although it does account for a "reasonable delay" to allow the breached company to conduct a risk assessment before notifying affected individuals.

The penalties are steep, and entities found to have violated the law would be subject to a civil penalty of up to $500 per day per individual whose "information was, or is reasonably believed to have been, accessed or acquired by an unauthorized person," up to a $20,000,000 maximum.

"My goal is to prevent and deter data breaches that put people at risk of identity theft and other serious harm both by helping protect consumers' data before breaches occur, and by holding entities accountable when consumers' personally-identifiable information is compromised," said Blumenthal. "Systems to safeguard such private personal information and prompt notification in cases of breach both should be required, along with consumer remedies to compensate for any harm."

Blumenthal's bill would also require the General Services Administration (GSA), when considering government contracts worth more than $500,000, to investigate the potential contractor's data privacy and security program, making compliance with the bill a requisite for landing a contract. It also aims to promote better cooperation between government agencies by requiring annual reports on data security enforcement actions and notification effectiveness from the Department of Justice (DOJ) and Federal Bureau of Investigation (FBI).

Each of the bills could affect trade creditors who rely on personal information from their customers or use personal data in a credit investigation.

Jacob Barron, CICP, NACM staff writer

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