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On Monday, President Obama announced a plan to unfreeze capital for small businesses (see here). With the potential of creating new jobs and helping the country move out of the recession, the White House offered several actions to help small businesses obtain the capital that they need. The financial crisis has taken a devastating toll on entrepreneurs as capital has become increasingly scarce. This year’s projections for loans guaranteed by the Small Business Administration are down to $10 billion, which is half the amount of loans guaranteed last year.

To get capital flowing again for small businesses, the President’s plan calls for purchasing securities backed by SBA loans, reducing lending fees, increasing loan guarantees, and easing the tax burden. To increase confidence among banks to lend to entrepreneurs in current economic conditions, the White House will temporarily raise guarantees on loans to 90 percent in SBA 7(a) Loan Program. Currently, the government guarantees on small business loans made by private lenders are either 85 percent for loans under $150,000 or 75 percent for larger loans. The temporary reduction will provide some needed confidence to a shaky banking sector. Although the findings from research on SBA’s loan programs are mixed, with critics noting that making credit too easily available sets up many small businesses for failure and wastes money, a temporary increase may be what we need right now to regain reasonable levels of access to credit. Many entrepreneurs who own otherwise successful and efficiently-run businesses may go under because they cannot pay the rent or meet payroll in this historically deep downturn. In an extensive research project of mine using confidential Census data, I find that access to capital is the most important factor predicting whether small businesses will survive or fail.

President Obama also plans to substantially reduce and ultimately eliminate capital gain taxes on investments made in small businesses. The current plan is to exclude 75 percent of capital gains for investors in small businesses who hold their investments for at least five years. The reduction or elimination of these taxes will increase the effective return from investing in small businesses. Although many investors, understandably, will continue to be wary of putting their money into small businesses in these economic conditions, reducing capital gains taxes could inject some much-needed capital into the small business sector because of the current lack of attractive alternatives.

In my research I have found that the most common source of capital among small business owners is their own or family savings. But, with incomes falling, the stock market down, and housing equity drying up, entrepreneurs will increasingly need to seek out alternative sources of capital, such as banks, credit unions and angel investors.

These are desperate times and they call for quick and bold actions by the federal government to help what many consider to be the life-blood of the U.S. economy — small businesses. Maintaining adequate access to financial capital for the nation’s nearly 13 million business owners should be viewed as one of the most important goals of the economic stimulus plan.

Best Buy (BBY), the largest consumer electronics retailer, posted better-than-expected quarterly earnings as its long-time rival Circuit City frittered away in bankruptcy.

Net earnings were $570 million, or $1.35 per share, down 23 percent compared with $737 million, or $1.71 per share, the previous year, the Richfield, Minn.-based company said in a statement. Excluding one-time items, earnings were $682 million, or $1.61 per share, a decrease of 6 percent from a year earlier.

Steve Waldman puts his finger on the mission-creep problem at the FDIC:

It’s as if an insurance company that ordinarily refuses to cover homes in hurricane states suddenly offered policies only to purchasers looking to build homes on Gulf-coast barrier islands.

Waldman in general does a great job at explaining how the FDIC’s new insurance is an entirely different animal from its old insurance — for one thing, entire banks don’t need to go bust before it kicks in. The FDIC was good at its old job. But that’s no reason to believe it’ll be good at its new one, too.

On Thursday, Alpha Media Group announced that it was closing Blender magazine. The periodical, which specialized in music reviews, employed thirty people. Some will be moving to Maxim and other Alpha publications.

To a certain extent, it isn’t all that surprising to hear that Blender is closing. Amid tales of tanking newspapers and plummeting periodicals, the failure of yet another magazine is hardly noteworthy. Beyond that, I often hear my wife, a Blender subscriber, snarling at the magazine as she reads its reviews; I have to assume that any publication that regularly antagonizes its core audience has a questionable future.

There’s a big gap between the amount of money that the government needs to bail out the banking system, on the one hand, and the rapidly-dwindling amount of TARP funds that it has available for that purpose, on the other. Hence all the leverage in the bank-bailout scheme. But doesn’t it then make perfect sense for all the banks which got unleveraged TARP money back in October to give it back as soon as possible, so that it can then get levered up by the PPIPs and reinjected in beefed-up form back into the financial sector?

Rick Newman, for one, thinks so. But even he is alive to the downside, as explained by Andrew Ross Sorkin:

If Goldman succeeds in returning our money, it could put pressure on other banks to give their money back, too, lest they appear weak…
The problem now is that many of them may still need the money. And yet they may try to follow Goldman’s lead.

Newman reckons that if a bunch of insolvent banks will fail upon trying to give back their TARP money, so much the better:

It’s time to identify the weakest banks and let them fail if they can’t make it on their own. Capitalism isn’t like an elementary-school soccer game, where nobody keeps score and everybody wins just by participating. It’s a Darwinian ecosystem where the threat of extinction forces organizations to adapt and make smart decisions in order to survive.

The problem is that bank failures have systemic consequences. Newman is alive to the problems associated with another Lehman, but he seems to be oblivious to the problems associated with another WaMu: the US banking system can’t easily afford the cut-off in wholesale funding that would be associated with another large group of senior unsecured bondholders losing substantially all their money.

The prize, here, is to keep the financial system alive. And right now it’s simply too interlinked to be able to cope with a substantial number of bank failures. I think that handing back TARP funds is a good idea — but only insofar as it can be done without endangering the system. Otherwise, it’s a step in entirely the wrong direction.

The Citibank PremierPass credit cards offers higher point earnings for frequent travelers, but comes with a steep annual fee.  And, most cardholders were recently nailed with a steep increase in interest rate even if they had good credit.  Do the PremierPass Pros outweigh the Cons?

Earn Points Citi Premier Pass Card

The basic Citibank rewards points earning chart looks like this.

• 2 ThankYou Points earned for ever $1 spent at Grocery Stores, Gas Stations, Drugstores, Parking, and Public Transportation like subways.
• 1 Thank You Point earned for all other $1 spending.
• 1 Thank You Point earned for every mile flown on any airline, including other people whose tickets you bought with the card.

ThankYou Points Redeem Chart

* Since there is no fixed flight option anymore, I tested a couple of flights through the booking system and it appears that tickets are pricing at approximately 100 points per dollar.

Reward Value is average unless you maximize shopping at the 2 for 1 points locations.

Thank You Points Earned For Flying

Of course, the value of this particular card is not in its spending rewards which are mostly average, but rather in the value of getting ThankYou Points for flying on any airline.

If you few from Denver to Chicago, that is 903 miles, or 903 points earned for flying.  A round-trip ticket makes it 1806.

If you make that trip one a month for a whole year that is 21,672 ThankYou points, enough for a $210 plane ticket, and that is without using any of your points earned without flying.  In this case, the $210 reward will cover the $75 annual fee.

To put it another way, you have to fly at least 7,500 miles per year to cover the cost of the annual fee and turn this credit card from a money loser into a break-even rewards card.

Citibank Rewards Cons

Citibank ThankYou Rewards recently ended their fixed point option for flight ticket rewards, so budgeting the points is now tougher.  In order to find out how much a flight costs, you have to log into Expedia via the ThankYou Points website and enter flight information like you were going to buy a plane ticket online through Expedia.  What you get back are trip prices in points instead of dollars.

The major drawback of this process is that the online travel agencies are well known for a scam which involves changing the price at the last minute before you buy a ticket.  They get away with this by saying that the system you are looking at is just the reservation system and that it might not be up to date.  Only when you enter your credit card information does it check the real system that has the actual fare you have to pay.  So, the price can suddenly go up once you try and actually book the airfare.

For rewards this is particularly unpleasant because after you’ve carefully crafted a travel plan that allows you to use your points for a vacation for 2 to Hawaii, you’ll suddenly be informed that the flight is going to cost you 44,000 points instead of 38,000 points.  Multiply that across 2 tickets and you can see how big of difference there is between 88,000 points and 76,000 points.

Annual FEE and Expenses

$75 annual fee is terrible on virtually all credit cards, but frequent travelers might make it up with this card.

Interest rate is quoted as 13.24% Variable, but many customers with 740+ credit scores reported getting their rate increased without cause to over 16%, so beware about the Citibank credit card interest rate quotes.

Is Citi PremierPass Credit Card Worth It?

The answer for all credit cards with an annual fee is NO.  In this case, there can be some value here but only if you travel a lot.  The extra 1 point per mile flown can add up quickly for frequent travelers.

Difference Between Citi PremierPass and Citi PremierPass Elite

There is a Citi PremierPass basic card (non-Elite).  It has no annual fee, but is a basic, no frills, reward card with a standard 1 point for $1 point earning schedule.  You do get 1 point for every 3 miles you fly on tickets you buy with the card, but that won’t add up to much unless you fly a lot, in which case you are going to be better off with the Elite card.

Find a more robust card if you aren’t going to go for the elite level on this one.

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