Administration May Lend Money to Small Businesses. Isn't This What The Banking Bailout Was Supposed to Do?
By Susie Madrak Saturday Jul 11, 2009 11:00amOkay, let's see if I'm following this. The administration is talking about lending money to small businesses because the banks to which they've already funneled billions didn't do the thing all that money was supposed to do: make them open up the taps and lend working capital to businesses.
Are we clear now?
The Obama administration is developing an initiative to take money from the $700 billion program for the banking system and make it available to millions of small businesses, which officials say are essential to any economic recovery because they employ so many people, according to sources familiar with the plan.
The new effort -- which would represent a striking shift from the rescue program's original mandate -- would direct billions of bailout dollars toward a program that aims more at saving jobs than righting the financial system.
A proposal being floated by senior Treasury Department officials calls for using the bailout funds to expand an existing government program that helps small companies borrow money from banks a low rates to keep their businesses going, the source said. These "working capital" loans would come with few restrictions and could be used for buying inventory, holding onto employees and paying off short-term debt.
The initiative would expand a Small Business Administration lending program called 7(a), the agency's most popular lending program. Lines of credit for small companies could greatly increase in size. If the firm failed despite receiving this help, the government would cover most of the losses on the federal loan, perhaps as much as 90 percent. Lines of credit act like the credit cards for companies -- short-term revolving debt used to pay a variety of immediate expenses.
Discussions about the plan have reached the highest levels of the administration. In a meeting at the White House last week, Treasury Secretary Timothy F. Geithner expressed support of his staff's proposal, while National Economic Council director Lawrence Summers was more skeptical. Neither has made up his mind, officials said.
"Larry has supported every small business idea we have implemented so far," said Gene Sperling, a counselor to Geithner, who has been working on small business issues. "When we have a brainstorming session on new ideas, Larry as always asks the toughest questions in the room."
The debate over the proposal has centered on whether taxpayers would be protected and whether banks that make these loans would lower their standards if the government promises to cover most of any loan losses, according to participants present or briefed on the discussions. The spoke on condition of anonymity because the conversations were considered private.
On one hand, administration officials want to prevent healthy small businesses from closing their doors and adding their workers to the growing ranks of the unemployed. But small companies have poorer record of repaying loans compared to large corporations and would be the riskiest investment made under the bailout program to date.
The officials said the discussions are in the early stages and that no plan is expected before the fall. Ideas currently on the table may evolve or be scrapped altogether, they said.
Anything that creates or maintains jobs is good, but I wonder if this will really do that. I think too many of those small businesses are already gone.
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Snip - U.S. Treasury Secretary Timothy Geithner said it was too soon to decide whether the U.S. economy needed the help of a second-round of government stimulus to recover from recession.
"I don't think that's a judgment we need to make now, can't really make it now prudently, responsibly," he said in a taped interview with CNN that will air Sunday.
According to a transcript provided by CNN, Geithner said the "biggest thrust" of the stimulus package signed into law earlier this year would take effect in the second half of the year.
[ http://www.reuters.com/article/topNews/idUSTR... ]
From Raw Story... Thanks Susie √
Don't we already have small business loans? Oh yeah, I forgot. Businesses like Boeing get them.
Oh they steal our tax dollars then loan it back to us with interest?
It seems like a good idea to me to funnel TARP money towards small businesses. This would have happened had we nationalized banks.
What am I not getting?
I agree. Sounds like a good idea.
We're paying twice for the same thing.
It does seem counterintuitive, doesn't it?
What you aren't getting is that TARP was just a giant HEIST perpetrated by the financial sector on the American taxpayer, one made possible by regulatory capture: otherwise known as the degree to which agencies like the Fed and the SEC are staffed by the very same people they're supposed to be monitoring. Add all the Republicans and at least the blue dog democrats on the payroll of international finance, and you can easily see what's going down.
JR
[Jay, if you'd like to link to an article at your own blog that pertains to the discussion in one of the C&L posts, link away. However, when you leave a link to your homepage at the bottom of each and every comment you make, we will treat it as spam/blogwhoring. You've got it set as your homepage now so that any reader can click on your name and find the link. This should suffice. Thank you. site Monitor]
All the Republicans except for Ron Paul. The Fed SHOULD be audited.
Support H.R. 1207!
JR
http://www.econocataclysm.com/ron-paul-theyre...
Part of some evil plan maybe, makes the butcher's bill a lot smaller and concentrates the loot in the bankster's grubby hand.
I always wondered why, when the object of the bank bailouts was to inject capital to get the economy moving, they gave money to the banks, which were always going to use it to pay off their obligations, buy stuff, pay bonuses, etc. at their discretion. It seemed like a plan like this, where tax money goes directly into a loan fund, is the easiest way to get money out there, as long as it's administered properly. It sounds like a good plan, but they should have the banks that got stimulus money pay it back into this loan fund instead of using new taxpayer dollars.
"..and would be the riskiest investment made under the bailout program to date."
That is why banks don't make these loans. There is a risk.
We don't need help. We are not invalids. We don't have limited mental capacity.
Then like Putin did last month in Russia . .(Putin to Bankers: No Vacation Until Loans Are Made) Obama needs to tell the banks. . don't plan on any vacation until you people have done what your supposed to be doing.
The banks just can't be making loans to small business.
They need that money to pay out the new rounds of bonuses.
Ya got a certain risk, regarding non-listed entities and their relative capital.
And
Ya got a certain risk, regarding listed entities and their relative capital.
??????????????
just print money?
I've pondered that myself. :)
If ya get an answer let me know and I'll do likewise. √
This is a long complicated answer but here is the short story. The government doesn't print our money. The federal reserve does. Hence "Federal reserve note". The federal reserve is a private entity. It's a conglomeration of banks. The fed prints that money at interest. Every dollar is printed with a debt to you attached. This is what the taxes pay for. Most of the money collected pays the interest to the bankers on the national debt.
This is a wildly brief answer to your question. It is a long complicated story that often gets dismissed in the midst of conspiracy theory. I would encourage you to do your own investigation.
Money Masters, Griffin's Jekyll island, I know. The FED is a "quasi government" entity... just for the record.
I thank you all, for your input; though that does not answer the question, why don't we just keep printing these promissory pieces of paper? Hell, a computer can hold an unlimited supply of it. ;)
I'm lookin at more of China's gonna get pissed when we try to discharge our debit to them... stuff like that. Thanks again.
because the people who print the money, are not the govt.
The federal reserve is not federal (it's private)...and there is no reserve...they print it from thin air!
Our govt gave up the power to coin and regulate the value of money back in 1913 when congress passed the federal reserve "act".
soon after that the "income" tax was passed...
like Ronspri said, check it out and watch a movie about it or something...
http://www.youtube.com/watch?v=-R-seszVA-0&fe...
Thin air? I thought they had to use paper and ink too.
...most of the money they create is with a few keystrokes...
that takes fingers.
"thin air" was the wrong term to use...I should have said "a couple of calories"
...now go watch the movie I posted...It's a good one made by Aaron Russo. He is the guy who made the movie "Trading Places" with Eddie Murphy, Dan Ackroyd, and Jaime Lee Curtis.
"Trading Places" is a John Landis film.
I was talking about Aaron Russo who made this movie...Trading places.
http://www.youtube.com/watch?v=1LgQyxS4-Os
Al Franken was in it (trading places) too!
(now go watch the movie)
It was directed by John Landis and written by Timothy Harris and Herschel Weingrod. It was produced by Aaron Russo.
I misunderstood your meaning because, generally, when someone says a film was made by someone, they are referring to the director, who gets the credit for "making" the film.
So in this case, John Landis made Trading Places. I guess you can technically say that everybody on the credit list also made this movie.
...yes I did say he "made" the movie...
but to "produce" something is to "make" it.
Our English language is sometimes inadequate eh?
and perhaps I was a little inadequate myself...
but detailed with a historical bent.
http://video.google.com/videoplay?docid=-5153...
Inflation
But better late than never.
are down 60-80% from where they were a year ago.
Under true capitalism, there would be no TARP money, no money to bailout *anyone*. Too big to fail? Wanna bet?
Keeping the banks, investment houses, insurance companies, unprofitable car manufacturers, etc. afloat is not only the antithesis of capitalism it is the very worst kind of socialism - the corporate kind. They never should have gotten any bailout money, their stocks should have gone to zero. Then we could truly start over (once again), with a renewed sense of value and priority. The only thing we've done so far is perpetuate a system of greed and corruption (i.e. The United States of Goldman Sachs).
Fascism at it's finest.
Until they resume doing so this means very bad news for the rest of the world and their factories which produced the toys America used to consume. And bad news for American corporations which had moved their manufacturing offshore to take advantage of cheap labor. And bad news for domestic businesses selling non-essential goods and services.
So exactly how is lending money to business going to do a thing when there are no customers who can afford to purchase the goods and services?
This is the insanity of the current meme on the reasons for the economic collapse.
The reason is "low wages"; the 30+ year war on labor in this country that has all but eliminated good paying jobs for the masses, the working class.
The economy is in the tank because nobody can afford to buy anything.
Handing money to business won't change a thing.
Unless we start taking solutions that will bring industry and good paying jobs back to our country, nothing will change, in fact things are only going to continue to get worse.
We've not seen nothing yet. Tip of the iceberg.
It took 30 years to destroy our economy, by U.S. corporations systematically firing their own customers.
This lending, and other "Wall Street" is to blame nonsense is getting us nowhere.
We need good paying jobs for the masses again. That's the only thing that will begin to solve this mess.
Triple the minimum wage tomorrow and you'd see our economy take off like a rocket. It's much preferable to have a country that can afford to buy slightly more expensive goods and services, than a country that can't afford to buy the cheap stuff.
The proof is in the pudding.
single payer or a public option would help put more disposable income in the pockets of consumers. Lowering healthcare insurance costs is just the beginning.
A very astute observation.
Spot on. But this "working capital" in this article is still very important and necessary. Quickly circulating capital like supplies and sometimes wages are needed just to run things at all. It is quite amazing that banks are unable to provide even this money to economy.
Maybe we just need to try it again - come on, just once more...
...When Thomas Edison was interviewed by a young reporter who boldly asked Mr. Edison if he felt like a failure and if he thought he should just give up by now.
Perplexed, Edison replied, "Young man, why would I feel like a failure? And why would I ever give up? I now know definitively over 9,000 ways that an electric light bulb will not work.
Success is almost in my grasp." And shortly after that, and over 10,000 attempts, Edison invented the light bulb.
folklore? :)
...electrocuted an elephant one time, in a vain attempt to scare the public into thinking that Nicola Tesla's alternating current was too dangerous for people to safely use.
...his propaganda failed, and he lost out and (so did the elephant).
he was a great man anyway though, (in spite of the elephant cruelty thing)
Thank you for that. I believe we all have the potential to do great things, within reason.
Though, to the best of my knowledge... I think Tesla unjustly ended up with the short end of that "tally stick"? ;)
That's because he refused to patent ANY of his work. He thought it should belong to the people...
Whereas Edison patented everything done by the scores of scientists that worked for him.
Hence...(short end of that "tally stick")
I've heard he had some financial problems as well, as it relates to R&D.
Evaporating credit for small businesses and a non-existent health care safety net is what is drowning the economy. Wall Street is not the "mover of the economy." It's nothing more than a glorified casino employing money changers. Small business and medium business is the real economy.
I knew this is exactly what would happen. Back in September, I said that the $700 billion should have been given to the SBA, providing loans of up to $1 million for any business wishing to expand, with the only qualification that they'd been profitable three out of the last five years, and '90s lending standards for anyone whose business doesn't meet that qualification, or who wants to start a new business. I knew then that the banks would sit on the money they got to make their capitalization figures look better and try and bring their stock prices up.
http://www.econocataclysm.com/next-stop-hyper...
No one accused Susie of being a bitter cougar simply for posting the facts.
It's all one big misdirection...and it's working!
Except that most of those "small businesses" are probably Blimpie or Blockbuster franchises.
http://www.bluemaumau.com/6812/2008s_sba_loan...
Susie, you know, I am building a rather large but discreet storage area for PERSONAL provisions to prepare for the future I perceive. I am over the top thoroughly disgusted, frustrated and somewhat "horrified" over the entrenched corrupted forces that are the "leaders" and policy instigators currently manipulating the world. Frankly, I see no bright spots or "White Knights" on the horizon. I am NOT a pessimist. I am a punctual realist!
CYOA!
If the U.S. government intends to help out small business with a new loan package, it needs to place those loans directly, not through the banking system. From the banks and small businesses that we follow, the trend is obvious. Small businesses are desperate for cash and the banks ain't lending! We spoke with several banks about SBA loans and we were told that they do not make these loans because the fees are not high enough. It would be comparable to the government trying to distribute free flu medicine through the local hospital and the hospital turning away people because the fee isn't high enough.
The SBA can make direct loans. We have seen them do just that in flood-ravaged areas. They came in, set up tables at the local high school gym and started making loans to people.
Ron
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