The View From 1776
Sunday, August 01, 2010
Obama’s Proposed $30 Billion Small Business Loan Fund
Boost, or boondoggle?
There is good reason to doubt the efficacy or wisdom of Obama’s latest piece of Keynesian social engineering.
First, creditworthy small businesses, or any business, can borrow only when increasing sales require financing for production of goods or services, or to stock shelves and warehouses of wholesale and retail establishments, to meet increased demand.
We know from the dismal unemployment and income statistics that demand for goods and services, particularly among small businesses, is lackluster. Eighteen months of failure under Obama’s Keynesian stimulus program hardly builds confidence that a small-business stimulus plan will be effective.
Second, making more money available for banks to lend will do nothing to change that basic element of reality. Availability of lendable funds clearly is not impeding lending to small or large businesses. Banks already are sitting on more than $1 trillion of excess lending reserves.
Third, many small businesses are no longer creditworthy, after eighteen months of Democrat/Socialist anti-business rhetoric, massive new regulations and attendant higher compliance costs, along with increased operating costs imposed by Obamacare and the prospect of huge tax increases next year. Uncreditworthy borrowers are not, and should not be, candidates for bank lending. What they require is equity financing, an infusion of long-term capital from private investors. But Obama’s proposed tax increases on dividends and capital gains discourage private equity investors who might normally have come to the aid of small businesses.
To push banks to make bad loans to small businesses, which is the proposed effect in many cases, is to repeat and to multiply the sort of financial implosion created by the housing market bubble.
In short, the proposed $30 billion small business loan program is either a product of ignorance or a cynical political ploy. It does not deal with the causes of small business economic distress, which are uncertainty and increased costs of doing business created by the Obama administration.
For consideration of the situation from different angles, read Small Business Riddle: Can $30 billion jumpstart growth?