Transcript: Need to Know Rochester for June 18, 2010
By Chris Campbell ~ Posted Tue, 07/20/2010 - 1:50pm
COMING UP ON NEED TO KNOW ROCHESTER. A SPECIAL ENCORE EDITION WITH CONSEMER FINANCE EXPERT ROBERT MANNING. ALSO THE INOVATION OF ECONOMY. WHAT IT IS AND WHAT IT COULD MEAN FOR THE FUTURE OF UPSTATE NEW YORK AND WE SING THROUGH THE XEROX ROCHESTER INTERNATIONAL JAZZ FESTIVAL.
Rochester's News Magazine since 1997. This is Need to Know Rochester.
WELCOME TO THIS ENCORE EDITION OF NEED TO KNOW ROCHESTER, I’M JULIE PHILIPP. CONSEMER FINANCE EXPERT ROBERT MANNING IS FOUNDER OF THE RESPONSIBLE DEBT RELIEF INSTITUTE – HEADQUARTERED HERE ROCHESTER. I RECENTLY SPOKE TO MANNING ABOUT HIS INNOVATIVE EFFORTS TO HELP PEOPLE SETTLE THEIR DEBTS.
Robert- Over the last five years I've been discussing the different
phases of the recession and one of the key issues in terms of all of these mortgages that
you hear about and these asset backed securities that were supposedly
graded and then they collapsed, and the real question was how did Wall Street
drop the ball on it and so in discussion with major banks and especially credit card companies
I designed what I call the responsible debt relief house hold debt capacity assessment algorithm.
Julie- Ok lets put this into plain english here what was the need? What was the need that you saw, that consumers are increasingly going bankrupt? Personal bankruptcy filings are very high
Robert- We will probably get to, if not a record year then right up to a record year,
the big issue Julie is what I've referred to as the double financial bubble and that was
basically since 2001 banks relied on people’s asset value of their homes as much as their income, and this was a period where the financial laws of gravity essentially were suspended for consumers. It wasn't based on how much income they had it was a sense of how much did their house go up in value. They could re-finance their outstanding debts into a home equity loan or refinance of a mortgage and therefore the banks really didn't have rigorous risk assessment models of how much debt people could afford to pay. And of course in Rochester housing prices didn't go up as much as in other parts of the country where we're talking for example California, prices going up two-hundred and fifty percent in less than a decade. So what’s happened now is that when the economy started to falter and housing values declined when people lost their jobs, suddenly all these trillions of dollars of asset backed securities that were based on people being able to make their mortgages or pay their credit cards, suddenly they just started going into default. And what this algorithm has done is basically say is based on cost of living, State and Federal income tax, and household structure, how much debt can a family afford to pay, or what kind of loan can they afford to get.
Julie- Lets back it up just a little bit. Without the algorithm that we'll get into in a few more minutes
what happens to these people the value of their homes is gone they have a lot of debt; many of them are losing their jobs. Therefore possibly losing their jobs and possibly getting more debt, what happens to them?
Robert- The big question is nobody really knows how much they can afford to repay and with the housing market as bad as it is today, even the equity, your home can't be used to pay down your debts. Whether it's that you can't get a home equity loan, or you can't even sell your home, so what we've done now in fact we're working with some firms on Wall Street where we would actually sample portfolio's, they're called groups of debt, and try to estimate how much percentage of that debt could actually be repaid rather than have all this debt be defaulted, bought by the Federal government and essentially given away to big firms to collect on. And this is really the key, applying the science of how much the value of your outstanding debt is worth based on what can actually be collected upon, because one of the biggest differences across the country is something like State income tax which collectors have never incorporated in terms of how much debt can be repaid.
Julie- Okay so this differs from a regular debt settlement company in just that it's much more in depth looking at peoples financial backgrounds. How does it differ if you just went for instance to a credit counseling or one of those debt settlement firms which are now being scrutinized as well?
Robert- Well indeed in fact that's been one of my key focuses over the last two years, is to try to regulate this industry here where people here can settle for pennies on the dollar and they end up essentially losing all the fees that they've paid and going into bankruptcy. The problem with credit counseling is you have to pay a hundred percent plus interest and so because of the enormous debt levels and increasing unemployment less than ten percent of the people who call up for what’s called a debt management plan even qualify. So what's happened is there is this huge gap between people who can't pay a hundred percent but they can pay more than say twenty or thirty percent.
Julie- But right now they are being lumped with the can't pay for anything group?
Robert- If they file for bankruptcy in the whole point is the banks are losing money people get bankruptcy's on their record for 10 years the whole system is grinding to halt because creditors don't know how much the average consumer can actually repay consumers don't know if their only option is bankruptcy because they would think that the creditors would accept a fair settlement and so what’s happened is we have created a nonprofit company which is assess exactly what your household or individual can repay and then we send that person over to its credit council organization a we've design the first program in the nation that the first counseling company they can offer a partial payment through the existing structure. We launched that out of the state of Utah under the offices of the State Attorney General and the offices of consumer protection we've now unlisted credit counseling companies across the company it offered a program now in 48 states.
Julie- It is quite regulated you had to jump through a lot of hurdles to get this into place?
Robert- Were talking about state regulations. They have to appear to its state regulated fee requirements. They are also audited by the are IRS. In essence there is no need anymore for a debt settlement company to exist and certainly the cost of this particular program would probably be one fifth of what someone would pay and a debt settlement plan and is less expensive than filing for bankruptcy.
Julie- So in a way you might be starting a new industry here?
Robert- Well we're not only launching necessarily and industry but a plan will save the credit industry because they are at a point where they can except so few people that many of them are going out of business are merging out of business and if this plan when somebody calls up and they can pay 60 percent but they can't and roll into a in a debt management plan they've use all these resources to get somebody to the point where they reject them in with this plan they would be able to enroll them into a parallel partial payment plan and they'll earn enough of the fees that they can hopefully stay in business.
Julie- Lets talk about the algorithm. What do you look at when somebody comes in and they have so much debt that they can't pay it?
Robert- One of the key issues is that you paid based on how much money you have leftover after you pay your fixed expenses, your taxes, and your mortgage? What we've done with the algorithm is saying that you're going into bankruptcy unless you can come to an agreement with your creditors. So we put you on a schedule of what the bankruptcy allows in your budget, essentially looking your State and Local income taxes. Whether you file an itemized or a non-itemized tax return that is then adjusted based on house hold structure. A lot of people who are homeowners and maybe they've bought a house a few years ago they don't realize they have actually more money if state filed standardized return rather than itemize return. We go through all of the allowables like your contribution to your 401k plan and at the end of the day what we have is how much free cash you have left over after all of your expenses. We've actually created a parallel score in addition to a Fica score because one of the problems with a Fica score is you can pay Master Card with Visa and have a great score you can pay your bills. What we're doing is providing an alternative score which shows the creditor or the lender that after you paid your expenses you get 20 percent of your net cash available on that will give you more objective assessment whether you can afford that new loan or how much debt you can repay. So we're looking at this as almost having an alternative appeal score if you've been turned down by a Fica score but you're debt hasn't gone up at all.
Julie- Are you looking or advising consumers that come to you to lower their expenses to get their expenses in line so that they have a greater amount of money to pay back.
Robert- This summer we're going to be launching a special website that they can use the tools of the algorithm that banks and credit unions and other agencies can use in you'll be able to calculate your own Fica score. You will be able to do your own budget based on the net cash only it program like it available on the country you'll be able to do all mortgage modification and see if you restructure your mortgage and see what your net amount would be if you reduced your itemized deductions and interest how much savings do you really want to do a modification of your mortgage and then look at your debts should you go into bankruptcy or can you work out a viable plan to repay your debts based on agreement with creditors in fact last week we launched the first bankruptcy avoidance program we offered consumers to take the state of art assessment go through all our educational tools which includes my course on personal finance which is approved by the apartment of justice for bankruptcy then help you get a free consultation with an attorney in and 60 days later see if all these tools to help you with your personal finances of the could avoid bankruptcy is no pain program like that in the country.
ROBERT MANNING IS AN INTERNATIONALLY RENOWNED CONSUMER FINANCE EXPERT. WE NOW TURN TO ANOTHER RECENT INTERVIEW – THIS ONE ABOUT UPSTATE NEW YORK’S INNOVATION ECONOMY. FORMER CHIEF ECONOMIST FOR BUSINESSWEEK MICHAEL MANDEL WAS AT ROCHESTER INSTITUTE OF TECHNOLOGY FOR A LECTURE, SPONSERED IN PARTNERSHIP WITH STATE ASSEMBLYMAN JOSEPH MORELLE.
(Joseph) several years ago I became very interested in what we needed to do as we're shifting from a manufacturing economy to, the question was, "to what?" and of course innovation has been something that people are talking about for a long time so I wrote a report about five years ago, called creating a state of innovation, the notion behind it was that NY needed to do much more to be able to participate fully in the innovation economy. Most recently Dr. A professor at RIT have been having a number of conversations and we thought it would be great to have a lecture series where we would bring in national speakers to talk about innovation from their perspective.
(Julie) So what is the innovation economy?
(Michael) Well you made a separation between the innovation economy and the manufacturing economy and I don't make that because if you think about companies like Kodak and Bausch and Lomb those were originally built on innovation, jobs come from the creation of new products and services that people want to buy, that's where the jobs come from, So really when I'm talking about innovation economy I am talking about getting back to the roots and you create something new whether it's in energy or in life sciences which could be the next hot area . You create something that people want to buy and that’s how you get the jobs, so really it's almost simpler than a sounds, because when Kodak grew up they were doing something new, back to the roots.
(Julie) What do you see particularly to upstate Rochester as the challenges of creating this economy?
(Michael) I'm going to put this in a national context, this last decade has been terrible for innovation so very few parts of the country have actually been successful at innovation driven economic development. When I look a Rochester I don't see Rochester doing poorly compared to other parts of the country what I see is that this is a story that has actually been repeated over and over again. Part of the reason why the US economy is in such bad shape is precisely because of this lack of innovation. I think that the next decade will be stronger. And the question there is which regions will be able to ride innovation the wave
(Julie) Why was it such a bad decade and will how do you see it getting better?
(Michael) Why? Because we invested enormous amounts of money in all sorts of potentially innovative areas, primarily in life science's, health care, gene therapy, biotech we invested money in other things as well as it turned out very little came to fruition over this period, we produced very few products if you ask people what do you remember about the last decade people said the I phone, Google, that's what they remember the don't remember anything sometimes Facebook, nobody talks about the great breakthrough drug that cured something, you don't hear that.
(Julie) So did we go off in the wrong direction?
(Michael) No, what happened was we invested money probably in the right thing; it just took longer than we expected. The Universities in the Rochester area have been putting a lot of money in the life sciences as well. Rochester, Upstate New York is in the same boat as everyone else, that's the main message that I wanna leave here that’s both bad and good, it's been a bad decade that's bad but going forward...
(Julie) Are we at a tipping point?
(Michael) I'm hoping that a lot of the money that we've put in over the last 10-20 years will turn up in terms of positive stuff. I want to make a, distinguish between life sciences and energy here, on Life Sciences the U.S. is a leader, you could consider building new companies that become the Kodak's of the next generation, or the Googles, or the Microsofts. On energy the US has not invested enough green technologies, so what we have to be is a fast follower, bring ideas, companies from other places to make the U.S., make upstate New York hospitable for companies to land. I would say it's a new race, nobody got off the starting line over the last 10 years so where we are now is a race to see who will create the next great companies who will be the areas of the country that will propel us forward. Rochester has as good a chance as any.
(Julie) Does Rochester have as good a chance as any, when you have a dysfunctional government like Albany, is the government standing in the way of innovation in your mind?
(Joseph) I certainly think it hasn't helped there's the question of whether or not. The tax and regulatory burden they face is a barrier to capital formation and the creation of jobs
I think that's something that we've talked about for sometime, I think the bigger issue is a lack of consistent effort on innovation. I think that we have made most recently a $50 million investment in the University of Rochester clinical translational sciences building we made a substantial investment and hope to continue to invest in RIT's institute on sustainability so those are two areas we're essentially putting more resources into, but there's got to be a greater effort I don't think there hasn't been. I think there has on in my mind too much of this emphasis on economic development traditional buildings as a way of trying to stimulate economic development I think too little of an emphasis on things that will really prompt innovation as Mike said talk about how we will create jobs in the 21st century.
(Michael) Time is actually running out because there's a window of opportunity where people are open to new things because things have gotten so bad there are new technology that are probably right on the verge. So you're going to look back 10 years from now and say here was five great companies that were formed in this period
Where did they form? Who is the next Seattle? Where Microsoft lands nobody would have guessed it. Seattle was going to be a software capital, that makes no sense; why did Texas become the computer manufacturing capital out of nowhere. So there's a window here an effort between the private sector, academic sector, the government sector can potentially improve the odds of creating the next great company that produces a lot of jobs.
(Julie) So being nimble is important, you recently wrote "the lack of good data on innovation and globalization is horrifying given the economic importance of these topics to the World. How can people make these kind of decisions and know which way to go if the data is not there?
(Michael) You know kinda what direction you need to go, but we don't really know what's working so part of what we have to do, we're looking in two directions and you need to know what's going on in terms of innovation what are people doing where, how much money are really putting into things that are genuinely innovative, the other thing is that you have to know something about trade, more than we know now, globalization is extremely important in terms of whether or not we will prosper as a country and the trade is terrible especially in terms of things like high tax on services so we are living in a world where unfortunately where we really don't know what's going on. That doesn't mean that we can stop moving but it does mean that we had to divert a little bit more of our attention to figure out... when they say the New York exports $50 million what are they talking about? As it turns out the single biggest export of New York State is diamonds. We don't make any diamonds in New York and so it's interesting looking under the surface of the statistics and say who's growing who is not, who is really investing here in innovation and what could potentially pay off in the future in new, good jobs.
(Julie) So where are the success stories? Where are you seeing it starting to work?
(Michael) We are going right now, still in this financial crisis as you know it has not gone away, we know historically that new companies, it's easier to start new companies in hard times its cheaper to hire workers, it's cheaper to get buildings everything is cheaper and easier so we're seeing at this point we're seeing new companies being formed we're seeing in life sciences that scientists think they're getting closer to the way to use Biotech and other new techniques to actually produce products that actually work. We don't know where they're going to come from: nimbleness, agility, being ready to ride the wave no matter what direction it comes from. Absolutely essential you don't want to make a bed in one direction and discover it comes from someplace else.
(Julie) Do you see this happening in other communities?
(Michael) We see the beginnings of a communications boom, if I sort of looked at what's happening in the economy you see jobs being generated for example in internet related industries which are actually not true for most of last decade so were talking about the Googles, and Yahoo's and Facebooks of the world, have finally become big job generators we're seeing jobs in wireless. It's hard to see what's going on in biotech right now because you have the contraction by the big farming companies as they merge and that's kind of swapping the data, so look at New Jersey, New Jersey is losing jobs in life sciences because the old companies are merging so it makes it a lot tougher to figure out when the new ones are starting it's a little bit of like what's happening during the financial crisis leading up to it you didn't have the data so your not going to be able to tell until it's done nobody knew that Google was Google until four years down the road. Nobody knew that Cisco was Cisco if you look back to the beginning of Kodak nobody knew. Funny story from the beginning of Apple where there were some suppliers for Apple who refused to accept stock as payments because they were just two guys in a garage. Who knew? And that’s what you have to realize there are no guarantees here.
(Julie) There’s things’ bubbling?
(Michael) They're bubbling but you don't know which bubbles are going to turn into big bubbles, since this is the only game in town, you know that this is coming, you have to sort of say we want to be in position for this, you cant get guarantees, but all you can say is that innovation creates jobs it always has and always will and you have to put yourself in position to take advantage of it. I don't see any reason why Rochester and the border area can not do this.
(Julie) We only have about a minute left your take away from what he has said during his time in Rochester?
(Joseph) We have to continue to have a sustained continued effort on providing resources for innovation and continue to support that whether or not we've had big wins, I think he's indicated that we have not ,I think it's pretty clear if you look around the community that doesn't mean that we need to stop making that investment and we have to make sure that policy makers understand that that continued investment is necessary and we will ultimately succeed we will just have to continue to focus on it and not lose sight of where we need to be.
(Julie) STATE ASSEMBLYMAN JOSEPH MORELLE AND BUSINESS JOURNALIST MICHAEL MANDEL. YOU CAN WATCH PREVIOUS NEED TO KNOW INTERVIEWS ONLINE AT WXXI.ORG. CLICK THE “WATCH” BUTTON ON THE HOME PAGE AND GO TO VIDEO PODCASTS. FOR NEED TO KNOW ROCHESTER, I’M JULIE PHILIPP. WE LEAVE YOU THIS WEEK WITH SOME SIGHTS AND SOUNDS FROM THE XEROX INTERNATIONAL JAZZ FESTIVAL. I’LL SEE YOU NEXT WEEK WITH A BRAND NEW EDITION OF NEED TO KNOW ROCHESTER.
(ANNCR) Previous Need To Know Rochester broadcasts can be seen if you have Time Warner's on demand service. Go to Rochester On Demand channel 111. Then look for WXXI news. There you'll find a selection of recent Need To Know Rochester Programs.