This has been a very interesting week. The recession is dismantling my business, we have had to let go of some very good people. The markets are irrational- yet I remain optimistic that we are at the bottom and things will improve much quicker than most authorities suggest. The question I am facing is will there be enough left to rebuild. On Monday morning, I decided my next blog post will be about my optimism on the economic recovery. Most industries are being heavily impacted with the current economic crisis. It isn’t just car sales and retailers. I have never experienced anything like this. I can’t think of a business that is not being impacted. As a telecom equipment reseller, it is very bad. Phone system sales are way down. Things completely unheard of just a few months ago are happening like we live in a Bizarro world. For example, American Express is offering customers $300 to cancel their card. That article appeared on Monday. On Tuesday, President Obama stated to Congress: “The concern is that if we do not restart lending in this country, our recovery will be choked off before it even begins. You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is…how stores stock their shelves…, and businesses make payroll. But credit has stopped flowing the way it should…With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending…businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.” On Wednesday, we got a call from GE, our financing (flooring) partner. They told us that because we paid two days late, they are cancelling our entire line of credit. We have worked with GE for more than five years, and over that period we have been late by a day or two three times. It is through GE that we are able to purchase a $200,000 phone system and install it with only a deposit from the customer. I assumed there was a mistake, and GE was clearly overreacting, so we requested a conference call with “our team” including the decision maker Chad Vorbeck. I decided to hold off my optimistic post regarding economic recovery. Chad was rightfully upset that we missed a due date, but acknowledged we did immediately pay in full by wire, that no threats or mean letters ever needed to be sent, and that our few delays in five years were always days, never weeks or months. We also discussed our recent wins, the fact our key competitor is gone, and that they have a personal guarantee on the line of credit. Chad insisted he had an open mind, but flatly refused all of our points and dismissed future credit terms (not reduced credit terms, but no future terms). He insisted he wasn’t operating under a directive to reduce credit, but also said they (GE) were reducing credit across the board (evidently customers are calling up and asking for less credit). As we discussed our financials we discussed specific figures – one $10k receivable older than 6 months seemed to really stand out. We offered a very solid explanation for that one and explained we expected payment this week (it came on Thursday). But despite Chad’s open mind, he could see no possible way GE could continue to extend us any credit. Chad also said this was based entirely on our performance as a customer, and no external factors were pushing this outcome. So there is no reason to believe that Monday’s headlines “GE Falls 3rd Straight Day to Lowest Since March 1995” (on increasing concern its finance arm may require additional equity) had nothing to do with the decision. When I asked Chad who else we can speak to at GE regarding his decision, the answer was no one, evidently Chad answers to no one. My company being held victim to Chad’s myopia in what economists call the “Keynesian Multiplier” (named after the dead economist that understood how stupid decisions in one sector, say finance, leads to layoffs and repercussions in other seemingly unrelated sectors such as telecom equipment sales. Basically what President Obama described in his congressional speech is how mid-level managers such as Chad Vorbeck are destroying the chances for America to recover. Now admittedly we opened the door for Chad by being late (the sad part was it was simply clerical issues not even cash), and Chad was within his rights to terminate the relationship. Fortunately, we were able to replace GE finance quickly, but how many tombstones will Chad and Chad-like managers erect during this recession is a scary thought. I asked Chad, doesn’t a financially successful five year relationship count toward anything? His response was yes, normally if you miss the deadline we cancel you immediately, in your case we waited two days until the full payment wire cleared. I must say, that did impact the way I felt. But despite the microeconomic issues surrounding my own company, I do believe the recovery is sooner rather than later. The headlines are full of doom and gloom and so is the daily reality. I totally get that. Bush injected quite a bit of capital into the banks and even Detroit, but didn’t really address any of the core issues causing the economic tailspin. The initial and greatest cause of all this was the subprime mortgage business and how those liabilities were turned into false assets. The Fed has now agreed to purchase billions of these dubious securities allowing banks to swap their junky paper for real cash. Combine this with the Treasury guaranteeing bank debts, dispensing nearly unlimited amounts of credit at close to zero rates, and rules that require loans to result in credit availability; will address the core economic paralysis. The next prong Obama is targeting is mortgages and allowing homeowners to refinance at attractive rates to stall the foreclosures. Now we have this Keynesian Multiplier to overcome – no one is spending, who is going to start? The erasure of wealth on the markets resulted with a spending shortfall in our economy of about $500 billion a year (a trillion over two which is coincidentally the value and term of the stimulus package). The 2008 Stimulus package did offer $150B of tax rebates, but they weren’t spent. The 2009 Stimulus will be spent on unemployment, education, and infrastructure. Plus add in the $250B in savings due to gas price drops plus eventual reduced spending in Iraq and recovery seems pretty strong. One of the stock market’s best years in the 20th century was 1933, my guess is 2010 will be better. Of course this stimulus stuff isn’t free and needs to be paid back, but a strong economy can do that – we had a surplus less than 10 years ago. I feel my company is poised to do very well in 2009 and 2010. The trick is getting thru this period and all the hurdles that the Chad’s throw at us. It has been very difficult to send home key team members while we regroup during this hard time. I don’t believe the thaw is that far away. The technology gets better, our competitors (both local dealers and manufacturers) are thinning. Very few people that know me would describe me as an optimist (I’m not). I consider myself a realist, and I believe better times are coming soon.
Dave is a self-proclaimed Telecommunications Contemplator. Most industry professionals gravitate toward the role of Analyst, Consultant or Journalist, but Dave blends all three as a professional Contemplator. He shares what he sees with the vendors, service providers, and end users. 
