Obama’s Small Business Lending Plan Meets Skepticism

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Monday, February 15, 2010 at 6:00 am
State of the Union Obama

Obama delivers his first State of the Union speech in January. (Xinhua/ZUMAPress.com)

With the unemployment rate hovering just shy of 10 percent and Washington focused on job creation, President Obama this month called on Congress to approve a plan that would take $30 billion in repaid TARP funds and make it available for small banks to lend to small businesses.

“We’re going to start where most new jobs do – with small businesses,” Obama said at a town-hall event in New Hampshire.

[Economy1]There’s just one problem: there’s little indication that these banks need the money — or that making it available would stimulate lending. Further, experts from both the left and the right express concern that the funds could be lost to waste or mismanagement without ever contributing to the nation’s job rolls.

Small banks, which write more than half the nation’s small business loans, have wanted their own pool of stimulus money for a while, though they shunned TARP because of executive pay restrictions and reporting requirements they claimed would be too onerous.  But with outrage building throughout 2009 over the behavior of the nation’s largest financial institutions on everything from failing to execute mortgage modifications to hiking credit-card interest rates and paying top executives outsized bonuses, the small banks saw an opportunity.

Members of the Independent Community Bankers of America, which represents nearly 5,000 community banks, met with the president in December to lobby for a pool of money that came without the strings attached by TARP. The group appeared to get what it wanted with the White House plan, which would allow banks with less than $10 billion in assets to borrow up to 5 percent of their asset base from the Small Business Lending Fund. They could be charged as little as 1 percent in interest if they increased their lending to small businesses by 10 percent.

The problem is, these banks aren’t hurting for funds. “The assumption seems to be that banks lack the capital, but in fact, that’s not the case,” said Bert Ely, owner of Ely & Company, a financial consulting firm. “Smaller banks are well-capitalized and have plenty of liquid funds. The problem is finding credit-worthy borrowers.”

According to the Federal Reserve Board’s Senior Loan Officer Opinion Survey released last month, banks did tighten their small-business lending; banks with total assets of less than $20 billion reported cutting off credit to a greater degree than their larger counterparts. Analysts like Ely say small banks’ greater-than-average exposure to potential commercial real-estate losses could be driving this pullback. However, the Fed survey also cited a decrease in demand for loans, leading some analysts to worry that dangling an unnecessary incentive in front of small banks will tempt them to loosen their lending standards too far and make risky loans.

ICBA president and CEO Camden Fine seemed to back up this assertion, telling The Washington Post just two months ago, “We’ve got plenty of money to lend.” The problem, he told the paper, was a lack of demand from businesses.

Where did all the good borrowers go? Blame two closely related factors for the dearth of credit-worthy small businesses: The length of the recession and the commercial real-estate crash. By now, even business owners who had the foresight to build up their equity during the boom years have burned through that cushion. Those who own real estate have to deal with the fact that this collateral is now worth a whopping 40 percent less than it was in 2007, according to a new report from the Congressional Oversight Panel.

“The intent of the policy is for banks to lower their lending standards, but of course no prudent bank wants to do that,” said Joseph Mason, a professor of finance at Louisiana State University. Mason pointed out that most of the tepid economic growth the country has seen in recent months comes from manufacturing companies replenishing inventory levels, betting on an as-yet-unrealized turnaround. As a result, he said, “A loan to one of these companies is inherently very risky.”

The administration initially indicated it would only make the program funds available to healthy banks, but the ICBA’s leader is already challenging that, calling on the president this month in The Washington Post to allow what he characterizes as “less well-capitalized banks” to participate. Critics counter that this would only mean more taxpayer funds will be irretrievable if any of these banks fail and are placed into receivership by the FDIC, and many are doubtful that Congress — which would be tasked with crafting the small-business fund legislation — will acquiesce to this plea.

Opening the door to all small banks regardless of health is a risky proposition, says Gary Burtless, senior fellow in economic studies at the Brookings Institution. Burtless points out that the health of small banks correlates closely to their local commercial real-estate markets. With economists predicting that commercial real estate still has further to fall, it’s almost certain that more small banks in hard-hit parts of the country will succumb.

What’s more, the very reason small banks are as well capitalized as they are today is that they exercised caution during the go-go years, Burtless adds. These institutions passed up a quick buck in favor of what seemed at the time to be old-fashioned lending and underwriting practices. “What worked for these banks is being cautious,” he said. “Are you going to make that zebra change its stripes?”

LSU’s Mason labels the program as a cynical political move aimed more at assuaging voter anger over big bank bailouts than actually helping small banks lend or small businesses hire. “If these guys are going to go to the polls having done nothing for small banks, they really can’t evade the charge that they were a part of the large bank-centric policy that’s at the heart of this crisis,” he said. The plan is about little more than appearances, he charges. “They’re trying to throw a bone here, not a very economically effective bone, to give the appearance of a balanced policy after the fact.”

Supporters of the small-bank plan say the nation’s regional and community banks are better equipped to handle an influx of small-business loan requests than the Small Business Administration. Although Mary Landrieu (D-La.), chair of the Senate Committee on Small Business and Entrepreneurship, spoke positively of the president’s plan to increase SBA funding in a post-State of the Union release, she pointed out that this aid comes after eight years of cutbacks the SBA sustained during the Bush administration.

But even left-leaning analysts like Dean Baker, co-director of the Center for Economic and Policy Research, are skeptical that the banks would be more efficient distributors of these funds intended for small businesses. “The bank’s goal, of course, isn’t job creation,” he says, expressing concern that the real goal here — reducing a jobs gap some analysts have put as high as 11 million — could be fall by the wayside in pursuit of profits. “What you worry is, can this be gamed?” he said. “I’m not very confident that you could police it.”

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Pingback posted February 15, 2010 @ 12:44 pm

[...] story: Obama’s Small Business Lending Plan Meets Skepticism – The Washington Independent Tags: Barack Obama, Congress, defecit, Economics, Finance, Interest rates, Labor, Loans, [...]


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[...] This report from the Washington Independent agrees a $30 billion pool for small-business loans wouldn’t stimulate hiring. [...]


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Comment posted February 21, 2010 @ 3:52 pm

SOCIALIZED MEDICINE AND THE [NYSE]

[The May 1st NYSE Nose Dive]

Now, we know that there are [2] Two type’s of Democratic, Capitalist/Socialist, and the Socialist seem to believe they can by using procedural methods change the entire Medical System of the American-Israeli Empire by the [1st] of May, 2010. But, shortly thereafter you can expect the [NYSE] New York Stock Exchange to take a nose dive. Why, would this happen, the simple answer is the Capitalist Medicine System is a major industry, not made up of just Hospitals and Doctors and Nurses, then there is the question of just were do all these health care technicians come from, Cuba, but of those who supply tools and support to them, with bandages, bed’s, bed pans, hypodermic needles, the medication, which come at a cost, and many out of country investors are heavily invested into companies listed on the [NYSE] that provide these items, no return on their investments or a sharp decline in those returns and they withdraw their money to reinvest into areas where they can once again make the return they were getting in the Empire medical system, at the [NYSE].

[Green Vs VA]

The Empire has a population of over [350M] Three-Hundred and Fifty Million, spanning [4] Four time zones, and with within just miles in La Jolla, [4] Four different types of medical service are being provided to the citizens of The Empires Finest County, San Diego County, the top of the line is Green Hospital, only the [ELITE] are treated there, Henry Winkler and many stars have been patients in Green Hospital, along with sports figures from around the world with the worlds finest sports medicine and than you head down the coast to the remaining hospitals and each one is a step down from the other one, from Green to the [VA] Veterans hospitals which is staffed with many of the doctors of the other hospitals of that same community of hospitals, who do research projects out of the [VA] Hospital. Do you really believe that the same is not done, in Boston [Boston General], Chicago [Cook County], L.A. or New York City, of course not, the Elite are not going to want to be among the mass, the mob, the rabble, they certainly don’t at Green hospital, if someone of the lower cases is brought to its doors, they only stabilize that individual and immediately transport them to one of the lower class hospitals, the cops can take the gang bangers and criminals to that hospital [NOT] here, to those fresh out of medical school, and you can still bet that Bill Clinton will call his Doctors directly while you can get a receptionist who will ask if its an emergency, and if so call [911] to bring you in, if not take [2] Two aspirins, call the doctor in the morning and they will make an appointment to see you and don’t just reschedule like Bubba, big mistake, it will be [6] six months not the next day before you get in.

[Dr. Ron Paul Called It]

Dr. Ron Paul at a meeting of the Tea-Party Movement said that this was going to be a year that would shake the world, and how little did anyone understand what that statement meant, it is going to shake the very economic institutions around the globe as investment money is shifted to more stable markets after the none dive of the [NYSE] do to the ending of the Capitalist provided medical system, and which the world will recognize for what it is the beginning of the end of the Empire, Socialism does not work for large populations spread between [2] Two oceans, and [4] Four time zones. Especially when it took the Island Nation of the United Kingdom, Great Britain, England [65] sixty-five years to get were its is and they are not happy with what they have. The Rich and Elite are and will be treated in those Green Hospitals that exist around the globe, and their doors are not open to anyone but the Elite and nothing is going to change, the money will be spent on the Green’s, and then dribble down to the rest as it does in La Jolla. The only change and damage will be in the [NYSE] shaking the world economic markets.

HERCULE TRIATHLON SAVINIEN


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Comment posted March 28, 2010 @ 8:36 am

There's a simple law of economics that says if you have a trade deficit and the government is borrowing on a grand scale the private sector must, in aggregate, reduce debt and increase savings. Therefore, the only way to get more investment for businesses is to cut the trade deficit or reduce government borrowing. So if the government wants more money made available to businesses, it needs to reduce its own level of borrowing.

GDP = C + I + G + Net Exports


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Comment posted April 16, 2010 @ 3:30 pm

With economists predicting that commercial real estate still has further to fall, it’s almost certain that more small banks in hard-hit parts of the country will succumb.


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Comment posted April 22, 2010 @ 3:00 pm

In principal the idea sounds good!

However as we have learned in the UK the banks get gready and start paying their executives large bonuses and do not lend what they should!


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Comment posted April 27, 2010 @ 5:09 am

its fine if the govt wants to borrow, but it needs to be used on infrastructure that sparks growth in supporting industries and job sectors eg building entertainment complexes increase spending to the same area.


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Comment posted May 31, 2010 @ 6:11 pm

By now, even business owners who had the foresight to build up their equity during the boom years have burned through that cushion.


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[...] 10.Obama’s Small Business Lending Plan Meets Skepticism « The According to the Federal Reserve Board’s Senior Loan Officer Opinion Survey released last month, banks did tighten their small-business lending; banks with total assets of less than $20 billion reported cutting off credit to a greater degree than their larger counterparts. http://washingtonindependent.com/76544/obamas-small-business-lending-plan-meets-skepticism [...]


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It's no wonder people are skeptical as this has been tried many times and many places, with limited success


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Comment posted July 30, 2010 @ 4:34 am

Now, we know that there are [2] Two type’s of Democratic, Capitalist/Socialist, and the Socialist seem to believe they can by using procedural methods change the entire Medical System of the American-Israeli Empire by the [1st] of May, 2010. But, shortly thereafter you can expect the [NYSE] New York Stock Exchange to take a nose dive. Why, would this happen, the simple answer is the Capitalist Medicine System is a major industry, not made up of just Hospitals and Doctors and Nurses, then there is the question of just were do all these health care technicians come from, Cuba, but of those who supply tools and support to them, with bandages, bed’s, bed pans, hypodermic needles, the medication, which come at a cost, and many out of country investors are heavily invested into companies listed on the [NYSE] that provide these items, no return on their investments or a sharp decline in those returns and they withdraw their money to reinvest into areas where they can once again make the return they were getting in the Empire medical system, at the


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Comment posted September 16, 2010 @ 10:38 am

here's a simple law of economics that says if you have a trade deficit and the government is borrowing on a grand scale the private sector must, in aggregate, reduce debt and increase savings.


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Comment posted September 19, 2010 @ 9:35 pm

Now, we know that there are [2] Two type’s of Democratic, Capitalist/Socialist, and the Socialist seem to believe they can by using procedural methods change the entire Medical System of the American-Israeli Empire by the [1st] of May, 2010. But, shortly thereafter you can expect the [NYSE] New York Stock Exchange to take a nose dive. Why, would this happen, the simple answer is the Capitalist Medicine System is a major industry, not made up of just Hospitals and Doctors and Nurses, then there is the question of just were do all these health care technicians come from, Cuba, but of those who supply tools and support to them, with bandages, bed’s, bed pans, hypodermic needles, the medication, which come at a cost, and many out of country investors are heavily invested into companies listed on the [NYSE] that provide these items, no return on their investments or a sharp decline in those returns and they withdraw their money to reinvest into areas where they can once again make the return they were getting in the Empire medical system, at the [NYSE].


Obama Hopes to Use TARP Funds to Stimulate Small Business Lending | philanthropist.org
Pingback posted March 24, 2011 @ 11:15 am

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According to her report, the problem seems to stem from difficulties finding credit-worthy borrowers.

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