Question for Sanford Bishop

Rep. Sanford Bishop is touting his support of the $30 billion Small Business Jobs Act (John Barrow and Jim Marshall also voted for the bill), the latest gimmick from the Obama Administration that is supposedly going to create jobs and open up credit for small businesses.

However, that we’re seeing reports that say that banks and small businesses may decline to accept the money:

President Barack Obama’s $30 billion small community business lending program faces one big challenge: many of the community banks and businesses it’s supposed to help don’t want it.

The lending program is part of a bill that passed the House of Representatives on Thursday and now awaits the president’s signature. The legislation contains a mix of tax cuts and credits aimed at helping small businesses. The centerpiece of the bill is an effort to make billions of dollars available to community banks for loans to small businesses.

It seems like a simple effort to unclog a credit pipeline that has been blocked since the financial meltdown two years ago. But interviews with seven community bankers, as well as small business owners, show a reluctance to participate.
[…]
Bank executives say their customers don’t want loans, even at low interest rates, because the sluggish economy has chilled expansion plans. Some say the federal money isn’t worth it because they fear it will come with too much regulatory oversight.

“We have taken a strategic decision not to have our primary regulator, the government, also be a partner in our bank,” said William Chase Jr., CEO of Triumph Bank in Memphis.

Nevermind that the rebirth of Keynesianism has hit with a thud. How was this supposed to create jobs again?

20 comments

  1. seenbetrdayz, Ph.D. says:

    Wow. Love the last quote there. The government does make a lousy partner. Would you go into business with someone else knowing that they had the power to tax/micromanage your half of the partnership away from you?

    I’d like to get back to the idea that banks serve as a savings warehouse and are able to make loans based on how much capital is actually on reserve, but hey, that’s just me.

  2. John Konop says:

    This is absolutely false! We have no shortage of businesses seeking money for growth. The biggest issue is the ratios are very tight via coverage for old deals on the books and SBA lending would help.

    The oversight issue is the federal government requires banks to hold between 5% to 10% of the paper to make sure they are not just originating junk with tax payers guarantees and they most make sure the loans follow proper guidelines. This bank executive wants tax payers to take the risk while the banks make the profits and very little downside. Is that not how we got into this mess?

    I do find it bizarre how anyone thinks deregulating government backed loans is some how conservative. It is irresponsible not conservative. And if this guys does not like the rules put out your money!

    Also this guy should just stop using tax payer backed deposit insurance and guarantee it himself.

    …..Bank executives say their customers don’t want loans, even at low interest rates, because the sluggish economy has chilled expansion plans. Some say the federal money isn’t worth it because they fear it will come with too much regulatory oversight.

    “We have taken a strategic decision not to have our primary regulator, the government, also be a partner in our bank,” said William Chase Jr., CEO of Triumph Bank in Memphis…….

    • BoogDoc7 says:

      Ugh, I see way too many failed SBA loans in my line of work.

      It’s another example of the government “targeting” a sector it wants to do well.

      The tax bar should simply be lowered and simplified for everyone. Period.

      • John Konop says:

        BoogDoc7,

        The income tax bar is irreverent to a business needing debt capital for growth. A business is sold on EBIT and you pay capital gains tax not income tax. In a venture deal when you start making money you keep putting the money into the business not taking out because of the pay day when you sell it.

        I find it bizarre you complain about the failure rate while the post is about a banker that wants less rules. You cannot have it both ways.

        • BoogDoc7 says:

          I’m talking about the failure rate of SBA loans because they’re loans to businesses who have no business getting them, because they couldn’t qualify otherwise. Banks wouldn’t tend to lend that money without the government guarantee. The same holds for Fannie and Freddie.

          I would debate that the income tax bar is irrelevant, but my position also holds for corporate taxes. The more money the private citizens and private businesses have, the more they save and/or spend without the need for government to prop them up. It’s that simple – and they tend to do so more efficiently than government.

          In turn, more people get employed – which cures a ton of ills.

          • John Konop says:

            BoogDoc7,

            Do you understand how the capital gains tax works? If so your statement makes no sense.

            Under your plan unemployment rate would more than double. You are calling for cold turkey on leverage because most of the lending is guaranteed by the government one way or another. And valuations on homes and businesses would crash overnight under your plan wiping out the savings.

            I warned about out of control government backed leverage years ago, but I am rational enough not to call for the destruction of our economy. And if you guys ever got in control I would move all my money over-seas ASAP as well as most smart investors would. And than I would buy back the assets at 10 cents on a dollar or less after you devalued everything.

            • BoogDoc7 says:

              I doubt that we would see such a scenario – we had substantial home ownership without Freddie and Fannie backing the mortgages, and we had recessions with them anyway.

              SBA loans aren’t so wide-reaching that businesses wouldn’t be able to leverage; it would simply prevent more bad businesses from getting loans, failing, and then not being able to pay that money back.

              On the other side, we would see growth come slower but without the need for debt to drive it. I think that it’s one of the worst things about the modern economy – that we’re so “growth” oriented, are some businesses really making any money?

              Also, you need to address the matter that it’s just another way that government pick and chooses who wins or fails.

              I understand the capital gains issue – which even speaks more to my point – if businesses don’t have to pay taxes on the gains, then that money is available for use without having to run to the bank.

              On the

              • John Konop says:

                BoogDoc7,

                ….we had substantial home ownership without Freddie and Fannie backing the mortgages….

                What about FHA, HUD……….? It is over 50% of the market. You really think this would not kill property value and jobs?

                …. SBA loans aren’t so wide-reaching that businesses wouldn’t be able to leverage…

                The highest point of the default rate is 12%. Since the loan requires at least 10% down with the bank guaranteeing another 10% the loss cannot be higher than 8% with even a small recovery rate on assets. I would guess the losses are 6% or less which would make it break-even at worse. While creating tons of jobs!

                …..Since the Recovery Act was signed on Feb. 17, SBA has supported more than $11.3 billion in lending to small businesses through its two largest loan programs and seen its average weekly dollar volume increase by more than 60 percent in comparison to the weeks before the Recovery Act.
                Additionally, the average number of loans approved per week has increased by more than 50 percent. The dollar volume for September 2009 ($1.9 billion) was the highest single-month total since August 2007……

                You actually think close to 2 billion a month of small business lending would just be a little slow down and have a small effect of jobs and valuation of business? Like a said I would make a fortune on guys you like who play checkers in a chess match.

                http://216.230.110.75/Content/25273.aspx

                • BoogDoc7 says:

                  The SBA problem is that it’s still the government “picking winners.” It also creates a “false floor” of value (as does the FHA and HUD lending) and removes money from the private sector because the government has to hold it in reserve for the guarantee.

                  People and businesses shouldn’t be able to get loans they can’t afford to pay back themselves. Period.

                  Unlikely that any of this is going to happen, though.

                  • John Konop says:

                    …..The SBA problem is that it’s still the government “picking winners.”….

                    Not true, the banks are giving out the loan and the federal government sets the minimal standard with a 90% guarantee on principal. The bank must have 10% in the deal and the business taking the loan has at least another 10%. In Theory the government is guaranteeing no more than 90% of 80% of the principal which is 72% of the loan.

                    Since the tax payers are also guaranteeing the deposits at the banks, they already have to follow federal godliness on loan quality. Obviously they are tighter than traditional since the liability is more.

                    The problem is if we follow your logic and take the leverage out of the market values would drop by over 50% overnight. And that would force a sell-off which would drop values even more.

                    And invertors like me would sit back and buy it up after you guys destroyed the economy and most of the savings people have ie their home and or business. More millionaires as a percentage were made during the depression because people with cash and leverage do well in a collapse economy ie buy low sell high.

                    Business class lesson is over!

                    • BoogDoc7 says:

                      Several issues:

                      One is that SBA and similar loans (as well as big business bailouts) ARE “picking winners.” It’s easier to get SBA and similar loans if you’re a minority; and the bank wouldn’t be giving the loan if the government wasn’t backing it, meaning the loan has higher risk.

                      What about the taxpayer money the government has to keep in case they have to honor the guarantee? How much of that is better off in private business hands?

                      I dispute the term “value” here. A government guarantee artificially holds the “value” high.

                      I do admit that there would be some sort of collapse that would occur, but we would recover with a more honest VALUE without the government guarantee and that money properly in the hands of the American people rather than the government. (any scale back should be slow, rather than immediate).

                    • John Konop says:

                      Why is the default rate so low? The biggest write-off factor in the real-estate business was jumbo loans not minorities. Once again SBA loans are based on cash flow more than hard asset value of property like a home loan.

                      ….It’s easier to get SBA and similar loans if you’re a minority; and the bank wouldn’t be giving the loan if the government wasn’t backing it, meaning the loan has higher risk…..

                      If a private business does a SBA loan it would be at a leverage rate of 10 to 1. That means the economic factor is TEN TIMES BETTER!

                      …..What about the taxpayer money the government has to keep in case they have to honor the guarantee? How much of that is better off in private business hands?…

                      The SBA loan requirement that the banker and you do not like is based on positive cash flow not property value requirement. If the above is followed than it is not an artificial value but more of a book value.

                      …..I dispute the term “value” here. A government guarantee artificially holds the “value” high……

                      This sums up our debate. You are calling for bread lines and most people having all of their savings wiped-out! I am calling for an orderly way of the government getting out of toxic guarantees without destroying the economy. On a human side I want the best for all Americans. But if you play this game without understanding the rules than money people will take advantage of the average family. The only winners will be people with lots of cash and leverage and that represents about 2 % of the population.

                      …..but we would recover with a more honest VALUE without the government guarantee and that money properly in the hands of the American people rather than the government…..

  3. jeff says:

    http://firstread.msnbc.msn.com/_news/2010/09/24/5171690-first-reads-field-of-64

    You might find this website interesting. MSNBC has released a list of 64 seats that are likely to flip this November. #51 on this list is GA-2 and it is listed as a toss-up. #60 on the list is GA-8 listed as a Lean-D. Keown has been campaigning harder than anyone probably in the nation for the 14 months and GA-2 is seeing a big change. I think many people are going to be really surprised to see his fundraising totals this quarter. This race is going to shock alot of people.

  4. Gerald says:

    Allow me to remind you that very severe recessions – as well as substantially increased national debt – followed the supply side economics (appropriately called voodoo economics by Bush I) policies of Reagan and Bush II. Meanwhile, a sustained economic recovery followed the far more responsible economic stewardship of Bush I and Bill Clinton. Now the economy did dip towards the end of the Clinton presidency, but it was nothing like the recessions that ended the Reagan and Bush II presidencies. A big reason: Reagan and Bush II never delivered on the spending cuts that they promised, only the tax cuts.

    Allow me to also remind you that Keynesian economics worked extremely well during the postwar boom, when the government – not the private sector – did things like build the interstate highway system and bring electricity and phone service to large swaths of the country. (That’s right, the power companies didn’t build Hoover Dam, and they certainly didn’t bring phone service or electricity to places like south Georgia, let alone Appalachia and the very sparsely populated midwest, the rural electrification administration did all those.) And it was also government action that vastly increased private homeownership rates via the Homestead Act and college attendance by creating the Pell Grant programs and similar. And incidentally, even the private sector booms in the 1980s and 1990s were driven by products created in federal government research programs by NASA, the national labs and similar (computers, DVDs, the Internet, even velcro) while corporate America simply made money off marketing what government R&D had invented. (The huge decline in government R&D investment is a major reason why there hasn’t been a really big innovation in 20 years. All that corporate America has done is make money by tinkering with existing technology and moving our jobs to Mexico and India.)

    The problem with Democratic economic policy since the 1960s is that they abandoned actual Keynesian policies (i.e. building roads, dams, bridges, railroads, telecommunications and investing in R&D, which yes includes military research) in favor of social welfare programs. They came to the conclusion that actual Keynesian economics tended to benefit the corporations, upper and middle classes while not helping the underclass. So, Democratic economic policy has been almost entire on social welfare for the underclass (or social engineering) and nothing that actually creates jobs or drives the economy.

    Evidence: the Obama stimulus packages. Most of it went to stuff like childcare and to keep government employees from getting laid off, or to small local projects that were badly mismanaged and had no long term effect. None of it went towards the type of things that Democrats in the 40s and 50s would have undertaken, like a major upgrade in our broadband telecom capacity (which former REPUBLICAN Lee Iaccoca among others has been advocating for over ten years), a major interstate high speed rail project, or a Manhattan-project type of research endeavor on alternative energy (the sort of idea that got Mike Huckabee – who advocated it – labeled a pro-life Jimmy Carter by Rush Limbaugh. Maybe Huckabee should have hired Elton John as a wedding singer to win Limbaugh over. Or paraded around in a dress like Rudy Giuliani, the guy that Limbaugh wanted to win).

    The economic mess right now is due to America being caught between “spread the wealth” social welfare types on the left and voodoo economics/if the private sector won’t do it, then it isn’t worth doing sorts on the right. While the folks on the left are certainly doing their share of harm, I find the ones on the right who honestly don’t seem to care that they can’t keep cutting taxes without actually making real cuts in spending (Tea Party types who want to cut small programs that don’t benefit them personally while keeping the MediCare and Social Security checks coming) and those who don’t know or care that if we had left it up to private industry to drive our economy, nearly half the nation still wouldn’t have phone service or electricity, and oh yeah there’d be no interstate highways to easily get freight from Texas to Ohio. There’d also be no commercial air travel because there wouldn’t be any airports … just military air bases. And so on …

      • iLarynx says:

        And I thought they taught economics and history at Georgia.
        Japan’s “Lost Decade” was due to – surprise, surprise – economic bubbles in the financial and real estate markets.

        The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices greatly inflated. The bubble’s collapse lasted for more than a decade with stock prices bottoming in 2003, until hitting an even lower low amidst the current global crisis in 2008. The Japanese asset price bubble contributed to what the Japanese refer to as the Lost Decade.
        http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

        And, no. Simply pouring money into doomed banks is not Keynesian economics.

    • BoogDoc7 says:

      Good point about the somewhat more proper use of tax dollars to serve as a support for business, NOT to run it or take them over. Remember, the growth there happened NOT because government was hiring more people, but because there was ALSO a postwar boom due to men coming back with educations and practical experience they got during the war with modern technology.

      I think that your blanket disapproval of supply-side economics – misses the mark – it DID put more money into the hands of actual business people and OUT of the hands of government, and was more or less responsible in lifting us out of the recession in the late 70s and early 00’s.

      If you are going to talk about economic recoveries, those MUST be part of the conversation.

      • iLarynx says:

        Growth in post WWII America DID, in fact, occur PARTLY as a result of the government hiring more people. The unemployment rate tripled in the two years following the end of the war. Had there not been opportunities for ex-soldiers to get jobs building roads, bridges, dams, etc., (the foundation upon which enterprise could build and profit) the unemployment rate would have been higher.

        As for the education claim, I’m assuming you’re referring to the GI Bill signed into law by FDR (I don’t know what business education classes would have been taught to soldiers during the war).

        But I do appreciate your recognition that the economic boom of the post-war US can be attributed in large part to citizens obtaining marketable skills and education through the help of the American government of, by, and for the people. That, and the Keynesian economic policies which, among other things, helped build the most modern and efficient infrastructure in the world (at that time), ensuring that American business had the best platform on which to grow and prosper.

        Also see:
        Post–World War II economic expansion

  5. BillMcDermott says:

    I don’t think your interviews with seven community bankers is an accurate sample of the marketplace. The fact that a bank can use the SBA programs to mitigate risk in credit is a strong inducement to lend. While many businesses are not expanding, there are many businesses that can use the program to restructure existing debt. Plus the SBA 504 program can be used to refinance existing owner occupied real estate and put up to 90% financing on the project. All this with no guarantee fees is a strong program for borrower and there is demand in the marketplace.

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