Wall Street and Main Street

September 15, 2010

Today it is easy to hate Wall Street. Almost everyday in the news we hear about something someone or some organization did to promote the financial and banking industry meltdown. Generally our first reaction is to blame. While I don’t think that either executives in the banking or financial industry are without fault, sitting back and complaining and moaning about it will accomplish nothing.

The World Distribution of Household Wealth by the Helsinki-based World Institute for Development Economics Research of the United Nations University states that 2% of the people hold the 50% of the worlds wealth, 1% hold 40% and the top 10% hold 85% of the worlds wealth. They define wealth at Net Worth vs just annual income. While we live in global economy, I want to contrast this report to one by Professor G. William, Sociology Dept at UC Santa Cruz who published a paper, updated this August, that shows that in the U.S. 34.6% of total Net Worth is held by the top 1%, the next 19% hold 50.5% and the bottom 80% hold a mere 15% resulting in 85.1% of wealth residing with the top 20%. A 2007 report by the U.S. Census Bureau show that 40.1% of the population earns over $75,000 per year, 51.9% earn between $15,000 and $74,999 per year and 8% earn $15,000 or less.

This is all interestingly summarized in a statement that was made to me by an Investment Banking Attorney, “1% of the people in this country earn $1 million or more per year, 5% earn $100,000 or more per year and the rest earn less than $100,000 per year. This means that 1% think, 5% think they think and the rest would rather die then think”. Okay, okay, I’ll hold him while you hit him. But this is just a good example of what the people controlling the wealth, and in turn the government, think. I’d translate this to the wealthy aggressively exercise their voice, money and vote to get the people in place to ensure their continued success and the rest of use just aren’t as effective (I’m being polite).

So if 80% of the people earn about 15% of the annual income in this country and want to change the rules, they have the power (in their sheer numbers) to shift things. This 80% we like to call “Main Streeters”. They make up the small businesses that are responsible for the majority of current and new jobs. In turn, they are at the center of a stable and sustainable economy. They are also the people who support these businesses by buying their products and services.

Like the “wealthy” Main Streeter can also shift things with their votes and they can also shift things with their actions. At Money for Main Street we think Main Streeter can take action by banning together in a community where they provide the resources that small business need to prosper, including peer-to-business social lending, providing small business focused products and services and the advice and experience they share.

So rather then being angry at Wall Street, support and build Main Street.

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Based on the most recent reports from the SBA and US Census Bureau, small businesses represent 65% to 75% of all job growth and employ 80% of all employees.  Small businesses with less than 20 employees represent 18.4%, those with 21-49 employees represent 23.1% and those with 50-499 employees represent 38.5% of this 80%.  Over 41% are employed by firms with less than 50 employees.

Since 2007 we find ourselves sitting in the middle of a severe recession and job creation has been poor across businesses of all sizes.  But, small businesses have retained more employees then did their larger counter parts.  Data from ADP on private sector businesses that use their payroll service show two clear trends.  Large businesses have shed the most jobs over the last 10 years with employment down 15% overall.  During that same period, companies employing 1-499 workers employed 3.5% more then they did in 1997.  An SBA report also confirms the decline of employment at firms with more than 500 employees showing a 60% decline in hiring between 1998 and 2008.

With employment being a critical factor in reversing recessionary trends and small businesses having the single biggest impact on employment the governments desire to help small businesses is well placed. While the government can easily target programs at a small number of large businesses, the challenge of targeting the enormous number of small businesses is difficult at best.  Government is forced to try and push programs through alternate sources.  A method they don’t have direct control over.  So the challenge is how to accomplish this goal.  The same techniques they’ve used to help large businesses during the financial crisis aren’t the same things that will help small businesses.

For example a new jobs tax credit won’t help because small businesses won’t hire new employees unless they need them.  However creating demand and ensuring that the funding is available to help small businesses meet this demand will work hand in hand to put the economy back on track.  We shouldn’t wait to see how the government will accomplish this, we should help them accomplish it.

Thankfully these two requirements can be controlled by the 95% of the population that represents Main Street USA.  Focusing on buying goods and services from small businesses will result in growth and the need for more employees.  By helping small businesses get the funds they need to support this growth,  participation in Peer-to-Peer (or Peer-to-Business) social lending ensures that money is available regardless of how banks are lending.

After all, it’s the nature of Main Street USA to pull themselves up by the bootstraps and do what it takes to succeed.