Eat the bankers

April 1, 2009

chrisknight2Now this is serious business.

Using humor to relieve anxiety and doing so shows how capitalism is impotent to continue to control peoples’ lives.

Brilliant, as they so often say over on the other side of the pond. And in English instead of those French panty wastes.

FranchiseFool of the Week: Chris Knight, suspended English anthropology professor.

Watch the clip.

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Abolish the SBA: $70-83B reasons why it should happen

January 12, 2009

veroniquedereymercatuscentre1Private gain, Public loss.

Banks, like all buisnesses, just love it when governments underwrite their risks.

It’s only a bonus when Joe Q. Public gets to pay for the drunkard’s binge of “aggressive” to predatory to outright fraudulent loan practices.

Canada, the United Kingdom and the U.S. all have small business loan programs which guarantees defaults.

The North American franchise industry relies very heavily on this debt program to fuel franchise sales. In Canada, the Canada Small Business Financing program is almost the only debt that Schedule 1 banks will offer for franchises (last time I checked).

The U.K. industry discernment is still embryonic. Their Small Firm Loan Guarantee scheme, SFLG is run by the Department of Business, Enterprise & Regulatory Reform, BERR. By the looks of  The Royal Bank of Scotland site, SFLG loans are a big part of the U.K. franchise industry also.

  • Blue MauMau is the most active centre for franchise investor concerns in the world. Tellingly, SBA Loans Free Fall is a current headline.

Dr. Veronique de Rugy, adjunct scholar at the CATO Institute in 2007 (and now senior research fellow at the Mercatus Center at George Mason University) presents some very important facts from a CATO Daily Podcast [see below].

Specifically the U.S. Small Business Act, SBA loan program:

  1. may end up costing citizens $70-billion (maybe $83-B?, if defaults climb faster than projected; unfunded debt that will be added to future taxpayers),
  2. with less than only 1% of small businesses taking out a SBA loan per year, it’s irrelevant economically,
  3. was created 53 years ago when credit information was much harder to determine (program has not evolved as information sharing has improved),
  4. of the loans that are currently on the books, they are “defaulting massively” (SBA loans disproportionally finance doomed business ventures), and
  5. only has 3% of women or minority-controlled firms take take out a SBA loan per year (as a social program it is a bust: 97% of these “discriminated against” groups get their debt elsewhere).

All of this begs the question: If the 7a Loans are defaulting like mad who exactly are benefiting from this program?

To her credit, Dr. de Rugy points directly to the banks and their capacity to sell off the 75% government guaranteed portion on the secondary market and stick the massive debt to the taxpayers if their own default projections are understated (ie. d/recession).

The banks love SBA loans (in a technical sense) because:

  1. 60% of all loans are underwritten by the 10 largest banks can exert market influence even within a very decentalized banking system, comparatively, (in Canada it’s worse: 82.5% all guaranteed loans with Top 5 bankers, 2000-05: FOI author) and
  2. the return on equity for is a minimum of over 3.8 times higher than for regular loans (SBA: 70% v. Regular loans 15-18%).

Listen to the 9:06 podcast and see how $70-billion could be added on top of the current +$700-billion banking bailout. I can’t help but note how fuzzy the banks are so far on accounting for the first bailout installment. [click here]

According to Dr. de Rugy, the SBA loan program serves two very powerful masters:

  1. “lawmakers who have successfully sold the SBA as a program to help the so popular small businesses and
  2. the banking industry, which profits by issuing and selling the low-risk, government-guaranteed small-business loans.”

As of the end of 2006, the SBA had nearly $83 billion in outstanding guaranteed loans that the taxpayers – not the banks – would have to pay if the economy experienced a serious downturn.

BANKING ON THE SBA: Big Banks, not small businesses, benefit the most from SBA loans programs, Veronique de Rugy, August 2007, 4 pages


The Mob: A Working group of Professional Thieves

January 12, 2009

grouppeopleThieves steal to live.

Professionals in thievery and business behave in a very similar manner.

Only a tiny percentage of thieves are recognized and view themselves as being professional: full time, rational and consistent planning.

The most prestigious of theft rackets is The Grift or Con games. The Grift requires cooperation among specialists.

The working group of professional thieves is known as a mob, troop, or outfit. The number of members in a mob is determined in part by the racket which is being hustled, in part by the angles which are being played, and in part by the circumstances and situations…Sometimes a large number of thieves work together in a loose organization in the more elaborate confidence games, using a common pay-off joint or big store (fake gambling club or brokerage office.) p. 27

For any group to function productively, certain rules need to be known and obeyed. This discipline is generally higher than in straight business because of the extralegal nature of some of their work.

The mob has many codes, rules, and understandings, most of which are so general that they apply to the whole profession as well as to a particular mob. p. 35

I understand (from books alone) that they are:

  1. gains are divided equally (although, different for different roles),
  2. all payouts must be paid from the net take (expenses [or nut] first deducted from gross take),
  3. all loans must be repaid from the group’s first fruits (rigidly enforced),
  4. everyone shares in the profit or loss (good or bad),
  5. the fall-dough (shared cash) is used to protect any member of the mob,
  6. each member must deal honestly with each other (burning someone is a almost unthinkable, lying is considered more serious than in straight business),
  7. if someone leaves the mob, he must ask to be taken back (type of social norm or professional consideration),
  8. a member of the mob is not responsible for things outside of his control (appreciation for the role of randomness and luck),
  9. a mob member should not cut in on another member’s area of responsibility (reflects negatively on the competence of the “helped” member), and
  10. it’s “the responsibility of every member of the mob to do everything  possible to fix a case for any member of the mob if the pinch [arrest, exposure] occurred in connection with mob activities.” p. 38

In addition to their specialized skills, a professional thief must have a more general capability called larceny sense.

Larceny Sense: This term is applied to the thief just as the term “business sense” is applied to the business man. It is an ability to deal with unusual situations in the best possible manner and is acquired in the course of experience. Every thief with good larceny sense will try to figure out every eventuality in taking off a touch. Some thieves are considered to have no larceny sense, while others have plenty of it.

Quotations Source: The Professional Thief, Chapter 2: The Mob, The University of Chicago, 1937 [my emphasis]

Franchise marketing, for some systems, has evolved into a specialized, highly secretive applied fraud. Each trademark system has a number of 3 or 4 professionals working to sell and resell franchises that are designed to fail for the investor.

There is no boss per se within the group. Because the work is underground, there is little documentation available.

If there is a boss in the traditional sense, it would be the banker in head office who are within the small business lending division. These Franchise Bankers (one bank per franchise system) work very closely with the franchisor for their direct lending needs as well as setting up extremely lucrative service contracts for their franchisees (current accounts, merchant accounts, etc.).

In 2000, I interviewed Dan Farmer of the Royal Bank of Canada. He stated that franchise lending was “the most lucrative form of commercial lending there is”.

Roles & Functions

  • mark (potential franchisee),
  • sales agent (initial contact with mark, as the outsideman he steers marks to the mob’s preferred trademark; they are sometimes nominally independent, sometimes internal; also-known-as: consultants, franchise brokers),
  • franchisor contact (initially charming, aura of success, kept at arm’s-length until the loan proceeds are advanced and removed from mark’s current account), and
  • lender (specific bank official, specific bank branch: a high-risk, 24-hour turnaround on government guaranteed loans).

In their function as lenders, bank officers owe their borrowers a legal duty to perform lender’s due diligence. They are prohibited by law from creating debt instruments that they knew or should be reasonably be expected to know would be unsustainable or result in the borrower’s financial ruin. In Canada, the relevant statutes are the Bank Act and the Canada Small Business Financing Act and Regulations.

  • Banks and bank officers are not being held accountable because these arrangements, although highly exploitable, provide substantial profits to the franchise bar, franchisors, etc. Canada has a well-known reputation for harbouring white-collar criminals.
  • This, however,  is very, very fertile litigation soil for outside law firms that can know what questions to ask.

That I am a 1/3 partner in only one active lawsuit, speaks not to the rarity of the fraud but to my restraint and patience for the cleanup to happen. In 2005, we had identified over 12 potential lawsuits involving  just one franchise system, bank pairing.

Additional information on Predatory Franchise Lending and my recommendations to stop such abuse, can be found by in a paper I wrote to Industry Canada in 2005 called Franchising Opportunism: Deceit to secrsy confind. [Predatory Lending, IC Feb 2005]


The Fixer: Getting professional thieves out of Trouble

January 6, 2009

fixtweedProfessional criminals have always relied on  The Fixer.

He is someone of high political, economic and career influence who solves a professional thief’s problem for a fee.

Secrecy and deceit are required because of the extra-legal nature of some of the work.

A historical example of The Fixer would be  William M. (Boss Tweed) Tweed of Tammany Hall. [see above]. Tammany Hall, likened often to a machine, ruled the City of New York from 1790 to to the 1960s.

People wonder why franchisors, franchise bankers, sales agents, the franchise bar, etc. can get away with [almost] bloody murder. A study of history of professional thievery can provide some hints:

The professional thief generally has a record in the Bureau of Identification as long as your arm, but after most of the cases “dismissed” or “no disposition” is entered. This is due to the thief’s ability to fix cases.

In order to send a thief to the penitentiary, it is necessary to have the co-operation of the victim, witnesses, police, bailiffs, clerks, grand jury, jury, prosecutor, judge, and perhaps others. A weak link in this chain can practically always be found, and any of the links can be broken if you have pressure enough. there is no one who cannot be influenced if you go at it right and have sufficient backing, financially and politically.  p. 82

Professionals within franchising make more money by fixing problems (sabotaging valid claims) than they do by solving them (reducing opportunism). It’s that simple: Less money is deducted from the theft when you fix a case, even after paying The Fixer’s fee. It is very easy for a franchise legal expert to lie to complaining investor [Credence good cheaters]. The lawyer knows that he is not under any legal duty to tell the truth until a solicitor-client relationship is created. And the proof is in the pudding: In 10 years, I know of no franchisee-lead case that would be considered a success by the investors themselves.

The fixer acquires his position with professional thieves by service. He tries to maintain a batting average of one thousand. Not all of them can do this, but their record is so good that the thief feels secure if a regular fixer is on the case. [Blonger, the Denver fixer for confidence men, had the reputation of not having one man sent to prison in twenty years under his protection.] p. 88

Modern franchising runs on political and economic influence. Our Australian friends are simply the latest who have been wised to that reality. Again, from the past:

Fixing is a mixture of finance and politics. It is primarily a financial transaction, bought and paid for by everyone concerned. But it is made possible by politics and often involves political favors as well…For the thief, fixing is almost always a financial transaction…from the point of view of coppers, clerks, and bailiffs, fixing is primarily a financial transaction…The prosecutor and judge are probably handled with more finesse.  p. 98-9

I have already used a tree as an analogy for Big Franchising (vast weight of organism is below ground: iceberg). Modern franchising has a visible and invisible nature (Overworld :: Underworld):

From the point of view of the fixer, also, this is a financial transaction. One fixer said to a thief: “Everything I get is bought and paid for, just as you pay me. No one gets any political or other favors.” The fixer can operate only if he has the consent and good will of those who are politically powerful. he may get a start on the basis of old friendships, but he can keep his position as fixer only if he kicks in. He must turn over to the political barons the larger part of what he gets from the thief, and his standing is determined by his reliability in dealing with them. p. 100

Thieves of nominally independent corporations (ie. franchisors, lenders, sales agents, legal, supply, etc.) would NEVER act with such arrogance if it were not for The Fixer’s protection racket. The weakest link is always the franchisee who 99% of the time goes away thinking they had a one-off bad luck with a cartoon-character type of franchisor thief. They are satisfied to receive 10% of their own money back and remain in silence via shame and contract. Professional franchising practitioners are, however, experienced and shrewd students of human nature.

No thief ever expects to have the bad luck to run into a case that cannot be fixed in some manner. This conclusion is not formed because of he thief’s conceit but because of his knowledge of the weaknesses and limitations of the average citizen and public official. p. 106

National franchisor associations act as a forum for coordinating Overground and Underground activities. The Fixer usually enjoys a very influential role such as Chief Counsel or Chairman of the franchisor controlled association. The Fixer is a lawyer because solicitor-client privilege harbours his clients’ extralegal activities. Politicians who are very often lawyers, know their political career is short and are not foolish enough to destroy their future legal earnings by crossing a mandarin partner of the some of the most influential and aggressive internationally-based, multi-line law firms.

It is sometimes believed that he fixer is the general boss of the thieves. This is an error. The function of the fixer is to get thieves out of trouble, not to control them. He often gives some advice to out-of-town professionals, after agreeing to take care of them. p. 107

The Fixer runs a monopoly on the most lucrative and industry-challenging cases [national, well-funded franchisees group or class-actions) while allowing the tactical fixing to happen to Tier 2 law firms who are seen as franchise experts within the franchise bar. The Fixer operates a protection racket that has the appearance of a law practice.

There is in every large city a regular fixer for professional thieves. He has no agents and does not solicit and seldom takes any case except that of a professional thief, just as they seldom go to anyone except him. The centralized and monopolistic system of fixing for professional thieves is found in practically all the large cities and many of the small ones. p. 87

Source: — The Professional Thief, Chapter 4: The Fix, The University of Chicago, 1937 [my emphasis]

I am at a serious disadvantage when discussing the subterranean nature of franchising. I am not a member of that brotherhood and have only caught glimpses of behavior that has piqued my interests over the years.

  • Professional thieves and modern franchise executives function in a similar way, in so much as they are primarily profit-making activities that need to manage risks and returns, under stealth.

They are highly energetic, charming, some exceptionally well-educated people who hold 2 conflicting ideas in their heads: They know they prey upon society but also want not to be an enemy of the state (which as profiting from crime, they surely are).

  • This internal, unresolved conflict (cognitive dissonance) accounts for their bullying, arrogant, irritable, defensive and plain mean behavior. They can’t ever quite buy their acceptance into respectable society.

They:

  1. possess highly migratory and portable special skills (especially persuasion, and communication),
  2. rely primarily on on-the-job training (often passed down from father to son, mentorship, tutelage),
  3. are highly congenial and supportive of other professional thieves (including competing trademarks, are compelled to warn and bail out even those they personally dislike),
  4. steal in a full time, planned and methodical manner,
  5. converse privately in a highly-specialized language (argot: legalese, mumbo-jumbo)
  6. achieve recognition for competence from other peers (who you know is important),
  7. operate in a very rigidly adhered to code of behavior, and [above all else]

8. particularly loathe anyone that (a) would inform “squeal,” or “squawk” and/or (b) has yet to lose their integrity.

They inhabit a modern version of The Waste Land or purgatory. Their only defense is confusion and attempting to degrade those impertinent enough to hold up a mirror to their face.


Franchise bankers are Always there for you (whoever you are)

December 23, 2008

friendIn August I wrote a post called Why Australia will get a McLaw.

WA Today ran a story this week by Chalpat Sonti called Franchising inquiry slammed as golden opportunity missed.

Perth-based Narelle Walter, a former franchisee who claims that an induced breach of contract left her out of pocket by $5 million, said the committee did not go far enough:

“Franchise renewals have not been addressed properly and I am distressed that the apportion of good will has not been determined,” she said.

“Franchisors can misuse this loophole in the franchising code and the (Trade Practices Act) to steal the assets of small business investors (through a process known as “churning”, when the franchise is on-sold by the franchisor to someone else).”

Interesting that Ms. Walter draws specific reference to franchise bankers co-operating closely with franchisors:

There was still a big incentive for banks to support the franchisor in the churning process, because they would rewrite loans with an [newer] “unsuspecting” franchisee, she said.

These allegations echo others, especially MP Jo Gash in my September post called Collusion allegation: AUS bank and franchisor.

I wrote about the very cozy franchise banker :: franchisor relationship in a paper to Industry Canada in 2005 called  Franchising Opportunism. It is also a good summary of how the Canadian and Australian franchise industry really works.

  • Feel free to download a pdf copy of Franchising Opportunism right here.

With friends like these bankers, investors do not need any enemies.


Franchise bankers are very, very good businesspeople.

December 21, 2008

sandallifebrianAnd I have come to the conclusion that I am not a nearly as good in business. Retraining is probably in order for 2009.

I think I have simply lost the desire that comes from calling the next Mr. Victim.

This realization substantially accounts for my continual CLMs (Career limiting move) in the last 10 years and my family’s resulting subsistence living.

  • It has precious  little to do with throwing sandals at a $1.1-billion sales per year North American franchise industry.

I should have persisted in my 6 week Canadian banking career but I have to be careful who I associate with. It would have been much easier for everyone, I suppose.

Oh well…

This is a good bit about those bankers who are still very keen about their careers.


Down on Bullshit Avenue

September 27, 2008
International Symbol of Deaf and Near-Deaf

International Symbol of Deaf and Near-Deaf

A second great depression upon us all and all the U.S. media gives the world is BS.

The reasons behind the recent worldwide economic crisis are the same things that are killing franchising: inappropriate regulatory structure.

Industries require rules and enforcement to make sure the pirates don’t take over the ship from the ethical operators. Chesterton said that there are two ways to succeed: doing good work or cheating.

Absent any meaningful oversight and considering human nature, Guess which one always trumps the other?

  • Every time…under all conditions…The lesson learned from World Depression I.

Proofs:

Long Play: I would direct your attention to a very good article called Turning a Blind Eye: Wall Street Financing of Predatory Lending by Kathleen C. Engel and Patricia A. McCoy. It is 65 pages of the most comprehensive and accurate explanation of what happens when you let the 2 year olds loose in the candy store. Free download. [What’s not to love about ssrn.org?]

Short Play: Listen and follow along with George Harrison‘s 2002 posthumously released album.

Our gullibility and laziness are used as the yeast that leavens frauds of many colours. Don’t look to the baker; if he doesn’t do it, someone else will assuredly know the recipe.

Maybe thinking for ourselves and questioning the glib sound bites is a way around and through this sewage?

Brainwashed, George Harrison

Brainwashed in our childhood
Brainwashed by the school
Brainwashed by our teachers
and brainwashed by their rules

Brainwashed by our leaders
By our Kings and Queens
Brainwashed in the open and brainwashed
behind the scenes

God God God
A voice cried in the wilderness
God God God
it was on the longest night
God God God
An eternity of darkness
God God God
Someone turned out the spiritual light

Brainwashed by the Nikkei
Brainwashed by Dow Jones
Brainwashed by the FTSE
Nasdaq and secure loans
Brainwashed us from Brussels
Brainwashing us in Bonn
Brainwashing us in Washington
Westminster in London

God God God
You are the wisdom that we seek
God God God
The lover that we miss
God God God
Your nature is eternity
God God God
You are Existence, Knowledge, Bliss

The soul does not love, it is love itself
It does not exist, It is existence itself
It does not know, It is knowledge itself
“How to Know God” Page 130

They brainwashed my great uncle
Brainwashed my cousin Bob
They even got my grandma when she was
working for the mob
Brainwash you while you’re sleeping
While you’re in a traffic jam
Brainwash you while you’re weeping
While still a baby in your pram
Brainwashed by the Military
Brainwashed under duress
Brainwashed by the media
You’re brainwashed by the press
Brainwashed by computer
Brainwashed by mobile phones
Brainwashed by the satellite
Brainwashed to the bone

God God God
Won’t you lead us through this mess
God God God
From the places of concrete
God God God
Nothing’s worse than ignorance
God God God
I just won’t accept defeat

God God God
Must be something I forgot
God God God
Down on Bullshit Avenue
God God God
If we can only stop the rot
God God God
Wish that you’d brainwash us too

Namah Parvati Pataye Hare Hare Mahadev
Namah Parvati Pataye Hare Hare
Namah Parvati Pataye Hare Hare

Shiva Shiva Shankara Mahadeva
Hare Hare Hare Hare Mahadeva
Shiva Shiva Shankara Mahadeva
Shiva Shiva Shankara Mahadeva

Namah Parvati Pataye Hare Hare
Namah Parvati Pataye Hare Hare
Shiva Shiva Shankara Mahadeva
Shiva Shiva Shankara Mahadeva


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