Workshop Update for September 26th, 2012

in Workshop Update by DP | 13 comments

Today we met with a banker for the first time. He had not so kind words to say about how things were setup. Got us straightened out. Can’t believe it, but thanks Wells Fargo.

Don’t forget that tonight is the pre-OHS food crawl in the East Village.

We worked in some updates for the Logic Shrimp, more on that next week.

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Comments

  1. Matthew says:

    If you get a chance, I think your audience might like to hear more about what the banker said. I know I sure would like to learn from your experiences….

  2. Steve says:

    I agree with Matthew. One thing I have learned is the general public (and especially accountants/bankers/business types) don’t think like us Hackers/Engineers/Science types. I’m sure he nearly had a stroke when he heard how you/me/we/us think of things like Inventory, Profit, Cost of doing business, expenses, etc. So… very important!!! Fill us in!

  3. Matseng says:

    Personally I wouldn’t trust the information I get from a banker too much. The banks are in the business to earn as much money as possible, and the bankers is doing the same trying to reach their quotas and set goals to get and/or raise their bonuses. Most world wide recessions, real estate bubbles and other crashes is caused by greed driven banks/bankers and they are always bailed out by the government in the end. They are exempt from any liability when doing bad business or giving bad advise to their customers. And most bankers most likely wouldn’t have any idea of how a open source business model is operated and the corresponding financial needs.

    That said – free advice is always nice but it needs to be properly filtered by your own experience and gut feeling.

  4. Max says:

    Banks are supposed to be these wonderful lifelong friends who are there for you and are more than happy to help you out whenever you’re short on cash, on the condition that any and all risks are taken by you and you alone and they’re allowed to chop you up to little pieces if you’d happen to fail to pay them back.

    They are the only people I know of who are allowed to do nothing and risk nothing while still making money; I guess you can tell how much love I have for those duplicitous bastards.

  5. Winston says:

    Now that you got some free advice from some banker who, hopefully, knows what he’s talking about, take your account to a large credit union. By law, credit unions can’t play risky games with your deposits like banks have been able to do since the incredibly foolish repeal of the Glass-Steagall Banking Act, the act that was put in place after the Great Depression to prevent a recurrence. Eight years after its repeal which was encouraged [bought] by the “Too Big to Fail” banks like Wells Fargo, we have the Greatest Recession. Go figure…

    One example of many about Wells Fargo:

    Judge Rules Wells Fargo Engages in “Reprehensible,” Systemic Accounting Abuses on Mortgages, Hits with $3.1 Million Punitive Damages for One Loan

    http://www.nakedcapitalism.com/2012/04/judge-rules-wells-fargo-engages-in-reprehensible-systemic-accounting-abuses-on-mortgages-hit-with-3-1-million-punitive-damages-for-one-loan.html

  6. Matthew says:

    Max/Matseng, I think your views toward bankers might be a bit shortsighted.

    Bankers, yes, are in the business of making money. One way they do this is by lending money. Before lending money, a bank wants to see certain characteristics that indicate the loan is likely to be repaid.

    If a bank is not willing to lend money to a small business, there might be a good reason for that. Not getting a bank loan can be a blessing in disguise. Maybe it indicates your business has core issues that you’re not aware of. Bankers are not always the bad guys.

    Which is why I started this comment thread. Bankers have a lot more business experience (in general) than makers. They can help us build our businesses and point out pitfalls that we might not be aware of. A banker who insists that these issues get fixed before issuing a loan is doing the borrower a favor, not being the bad guy.

  7. Steve says:

    Matthew,
    Last paragraph is what I was trying to say. Thanks!

  8. hak8or says:

    Absolutely Mathew! Also, we are all very interested in hearing what the banker said, was it possible legal issues, was all profit kept in a personal savings account, things like that.

    Also, to Matseng and Max, bankers are not evil, and although the latest economic failure was caused in part with large financial institutions, banks are not the only ones to blame. The geniuses who did purchase the mortgage and realized they were unable to pay it back are more at fault than the banks I believe. Chances are that a large majority of those people purchased a balloon mortgage, in which the rate at first is very very low, and then shoots up drastically towards the end. The thinking must have been along the lines of “Oh, that is in 20 years, I will be think of a way by then”.

    Another area to shift the blame would be the Bush administration for the massive push to enable everyone to get their own home, and while that is a grand idea, many of the people that were now able to get a home due to this act did not have the financial knowledge to handle something like a mortgage. Purchasing a home using a mortgage with no money down still seems to be one of the most idiotic things I have ever heard.

    A bank is not very interested in taking your house instead of getting your normal mortgage payments, it is not a real estate agent after all. Where do you see this lack of any risk? When the mortgage or other loan cannot be payed back, then the bank takes what assets you have, such as a building or vehicle. Then the bank has to spend a very large amount of time trying to sell your possession to get either a portion, all of it, or more of the money you owe. This specific point I may be wrong or misinformed though, so please feel free to correct me if I am wrong.

    You do know how the current first world countries operate in terms of money supply, correct? If a large portion of banks were to suddenly disappear or fail, then the federal government has a very limited set of methods left to supply money to the economy. Federal gov’t gives money to bank, bank gives money to other banks and businesses, banks/business allow more loans and in turn investments from business and people. The bank has to keep a certain percentage (low teens) of money in reserve, hence our system being called “fractional reserve banking”, and the lower the federal loan rates, the more money the bank is willing to have in reserve, leading to more money the bank can loan out to others. The federal gov’t has very few other methods, or even none at all, which it can so quickly and effectively push money into economies.

    And here is the most important thing I think. What is so bad about being able to get a loan, even a very large loan, and then having to pay it back? The papers which individuals must sign after a loan are not gibberish, they are still written using English and should be read. If you see something worrying in it, do not be afraid to talk with the bank about possibly changing that. I never actually heard of a bank changing its agreement though, but I did hear that it is worth a shot.

    And if you are against the idea of using banks for anything because of their greed, use a local credit union like Winston said. Profit they make is spread out along deposits into your accounts, investments into the local economy, and of course paying the salary’s and operating costs of the bank. These banks are usually transparent so you may sometimes see exactly what they do with your money if you ask nicely.

    Lastly, an interesting tidbit. A very long time ago in Russia when the population was very largely Christian, it was a held belief by Christians that doing any work in money is against their religion. Anti Sematism existed back then as well, so Jews were unable to find jobs relating to common manual labor, but there was a large gap wide open for them in Russia financial sector. Since the majority of the population did not want to work in finance, Jewish people ended up working there since they did not have a lot of other possible work. Since then, they spread to other parts of the world also working in finance, hence the idea that a lot of Jewish people work in finance. This may have originated the idea of Jewish greed but I am not sure, but this did happen long ago, way before WW2 and the full scale retaliation against Jewish people by the Nazi party.

    Ah jeeze, this was a long post. D:
    But I also do not really like banks because of how much interest they want from loans, but ah well. :P Did you know that the bailout money has been payed back by a large portion of the banks by now? You can get a good idea of how bad certain banks are by looking at how long it took them to pay back their loan.
    http://projects.propublica.org/bailout/list/simple
    http://money.cnn.com/news/specials/storysupplement/bankbailout/

  9. Ian says:

    Sorry to cause a ruckus and leave it hanging :) It was really nothing sinister! I tend to be on the “WTF thought repealing glass stegal was a great idea and why are they still the masters of the universe” side, it was nothing like that :D

    Though I would prefer a local credit union (checked out the Tech CU too), we move money by international wires. Big bank fees for sending and receiving international wires are extortion, but the only thing worse is a little bank (or CU) reselling the wire from a bigger bank :\ Tech CU is 50 bucks to receive a wire from Seeed, Wells Fargo is $10 (plus an extra $10-15 amount that always seems to go missing…).

    Also – we are a modern online business. I do everything online and Wells Fargo was the only bank that would do everything entirely online. My local bank said flat out it would be illegal to setup an account online – but it was no problem with Wells Fargo.

    We went to the bank in New York to add a new signer to the account, and ended up getting a 2 hour consultation. Some of the things:
    1. The online banker gave us a personal package on the business account. Not a personal account mind you, just the ‘product’ they sell as a personal account. It was costing us $5-$10/month in fees that started out of nowhere a while ago. The new Business package is free.
    2. We opened a half dozen other accounts so we have a ‘burner’ account for internet stuff, another for incoming wires, and another to store cash in.
    3. We are 100% bootstrapped and I would never, ever, in any circumstances consider using an actual credit card for the business. It is almost impossible for this type of business to get anyways. (as a side note, I only have debit cards and no personal cards. I believe in living completely debt free, but whatever) BUT sometimes car companies, et al really want a real card that proves your credit worthiness, even when you pay on a debit card. I’m a bit sick of borrowing a card or jumping through hoops to get around it so we applied for an actual credit card.
    4. We were offered a line of credit. Again, something I would never use. But say we needed short term funds for a extra large batch and half was already sold to distributors – it would be convenient and pretty risk free. Should I ever want to for some reason it might be easier to have it ready now than later.

    I’ll also put more in a blog post but this is the jist of it.

    • Ian says:

      Adding – we’re a tiny business and we went to a Manhattan branch of the bank (our home bank is in Iowa) and they spent two hours working with us. Whatever Wells Fargos other faults, the guy that helped us was a pro who knew his stuff and took hours to get us setup. I was really impressed. He could have just added another signers and booted us out the door (and Wells Fargo would be $120-$200 year richer on fees).

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