Too Big to Fail vs. Small Businesses Set Up To Fail

Dodd Frank and the Small Business – the collateral damage. I have a client, a typical small business. They make a decent living for the owner, and pay the salaries of a bunch of ordinary people. They are part of the small business world that contributes more than 40% of the GNP of the United States. They have a contract to provide services to a Big Bank. They do not provide financial services, they provide a service akin to janitorial services, food services, delivery services etc. This week they were asked… well really they were required as a condition to keep their contract, to sign what’s called a Remediation Letter. It has lots of big words and words that are capitalized because they are being used in very unique and idiosyncratic ways. So my client wrote to me and said “Nina, what does this mean?” I read the big words and capitalized words and sentences that ran on and on… and on. And what it meant was: “If Big Bank steps in doo doo and doesn’t pay you at all, you have to keep providing services for up to 18 months… no matter what. I understand that it’s important to the US economy that large financial institutions have a emergency plan in case of disaster.  As the SEC has termed it – financial institutions need a “living will.”  But apparently the ability of any large financial institution that is failing to carry-on will be on the backs of the small businesses that are not too big to fail.