Friday, December 11, 2009

Small business loans

The Washington Post:
The Obama administration plans to channel money from the government's massive financial bailout program to small businesses as part of an effort to limit the political and economic damage of high unemployment.

One plan under consideration involves spinning off a new entity from the Troubled Assets Relief Program that would give banks access to federal funds without restrictions, including limits on executive pay, as long as the money was used to support loans to small businesses. But officials are not yet certain whether carving the program out of TARP would be the best way to encourage banks to boost small-business lending, according to sources familiar with the matter who spoke on the condition of anonymity because the plans are not final.

As an alternative, officials are prepared to ask Congress to modify TARP itself, easing the pay limits and other restrictions that would be imposed on small-business lenders taking the money, the sources said.

The move comes as the White House prepares for a summit next week with executives of 12 of the nation's largest banks in which the administration is expected to press the industry to increase lending, especially to small businesses.

Since the summer, the administration has been facing an uncomfortable dynamic in the economy. The ranks of the jobless have been growing, while big financial firms that got taxpayer bailout money have been thriving. In response, officials have been trying to recast TARP as aid for Main Street rather than Wall Street.
Some thoughts:
  • If limits on executive pay are being removed, is that an admission that they were a mistake in the first place?
  • Why is lending to small business preferable to large businesses? Is the encouragement of lending even a government responsibility?
  • Isn't the better approach to figure out why lending isn't taking place rather than insist that it does? After all, is it not possible there are good reasons banks aren't eager to lend? Or do government officials think banks are simply stupid and forgoing profit-making opportunities?
  • Do government officials think that schemes to encourage lending to prospective homeowners such as Freddie Mac, Fannie Mae and Ginnie Mae, were successes? If so, why? If not, why do they expect initiatives to encourage more lending will be any different?
This will not turn out well.

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