The Economy of Trust
Often politics and business mix in a big way. Small Business America is no exception. Access to credit for small business, sole proprietors and entrepreneurs in the United States is in dire straits according to every walking & talking politician out there from the Big O to the Fed Chief to elected officials from both political parties. Yet nowhere is any real and effective help forthcoming.
The recent Small Business Jobs and Credit Act
was shot down with filibuster assault rifles by the entire Republican Senate. The act included tax incentives and federal lending guarantees. Even one of the authors of the small business bill Olympia Snowe, the moderate Republican Senator from Maine, voted “No.”
Guys and Gals, while you are fighting amongst yourselves for power and privilege, Small Business America is sinking like the Titanic!
Why did the Senate torpedo such hopeful help for the nation’s entrepreneurs? Because according to opponents, it’s a mini-TARP. “It has all the quality and features of the TARP program, ” said Snowe.
And what is wrong with that??? Have you forgotten there is a continuing credit crisis for anyone but the largest banks and corporations?
Let me ask you a question Ms. Snowe and fellow Senate naysayers, why would you deny helping small biz the same way you helped big biz? Are you unaware that the TARP program is credited with “saving” the economy by many of the nation’s top economists?
Did you also forget that TARP was created and engineered under an 8-year Republican President George Bush Jr., former Goldman Sachs CEO (US Treasury Secretary) Hank Paulson, current Federal Reserve Chairman Bernanke and a Republican-led Congress?
Did you also forget that the purpose of TARP at the time of its origination was specifically sold to Congress as a way of supplying necessary credit to consumers and small business?
The fact that TARP was a fraud to cover for banking mismanagement and designed with no lending stipulations whatsoever for big banks is a matter worthy of criminal investigation. Errant financial firms were bailed out, because “credit needed to keep flowing.” Our Fed Chief Bernanke claimed that the purpose of the bailout was to support Small Business & Consumer America. Yet we still have not done so nearly two years later. Are you waiting for America’s small businesses to die on the vine in the name of politics?
It has been repeated over and over by members of Congress and most recently President Obama
, “Small businesses create two out of every three jobs in this country. So our recovery depends on them. And if we want to keep America moving forward, we need to keep investing in our small businesses.”
Yet for all the talk, Republicans do not want to pass any small business legislation before November midterm elections for fear that will help Democrats get the vote. And Democrats have waited twenty months after the credit crisis began to help the little guys just in time for an election fight.
Where is Small Business America in all this? Left in the dust of the partisan politics that is the state of the U.S democracy circa 2010.
Small Business has been on life-support since September 15, 2008 when Lehman Brothers, the investment banking giant and toxic debt King, crashed and burned. Since then we have saved AIG
($183bn), Goldman Sachs and Morgan Stanley
($20bn) and allowed them to borrow tens of billions more from the Fed at zero percent, liquidated Fannie Mae and Freddie Mac
($160bn), bailed out Bear Stearns
for JPMorgan Chase’s benefit ($30bn), gave Bank of America an early Christmas gift of Merrill Lynch with taxpayer money ($45bn plus $118bn federal guarantee of toxic debt losses), saved Citibank
for their bad behavior with another $45bn taxpayer cash and $306bn in toxic debts acquisitions, supported state, city, and federal government workers with a $1.2 trillion “stimulus”, and billions of government “buybacks” of toxic debt, (i.e. defaulting mortgage securities created by the big banks and so-called investments from “bad” banking) for a total of $6.4 trillion according to CNN’s Bailout Tracker.Brother, Can You Spare a Dime?
Yet we can’t spare $30bn more for small business lending even though it supplies 2 out of 3 jobs? With 300 million Americans this amounts to an investment of ten cents each. Brother, can you spare a dime?
In this country, our politicians have their priorities mixed up. Senators and House members continually pretend to represent Americans. “Americans want…America is…”Americans need….” You know what Americans need? They need a government that gives a damn whether they succeed or fail – instead of picking and choosing the winners from the campaign trail.
As an entrepreneurial American I will tell you straight from the trenches, Americans are behind small business. It is built into our DNA. Yet despite this basic fact, the battle cry of small business is dimmed by loud partisan bickering of hypocritical lawmakers. Walk your talk people. We are dying out here.
Recently I spoke confidentially to the CEO of a $10bn hedge fund on the state of credit; he said, “The U.S. is a credit-driven economy. Right now there is no credit at the consumer and small business levels.”
Why then is nobody with power to change this listening?
“Among the most difficult challenges facing small businesses in Washington and throughout the nation is access to credit…Expanding Main Street’s access to credit is the most effective thing we can do to promote our ongoing economic recovery,” according to Washington State Senators (D) Cantwell and Murray.
Yada Yada Yada. We might as well be talking to a wall. Forty two Republican Senators filibustered an end to any hope of small business credit. How long can you remain underwater before you drown is the question for Congress?Small Business: The Key to Recovery
According to Federal Reserve Chairman, Ben Bernanke,
commonly believed by Republicans and Democrats alike to be the top expert in the nation on the economy, “Boosting credit to struggling small businesses is key to the economic recovery.”
Dear Congress: Rather than hear it from politicians who have been supported by taxpayer bailouts their entire career, small business itself has something to say: Step up to the plate and hit the damn ball!
Instead Senators continue to claim they “love” small business—only not enough to actually support it.
Senator Lamar Alexander (R-TN) said “While I support the bill’s tax incentives for America’s job-creating small businesses, I can’t support creating yet another lending fund that turns the Treasury Department into our national bank.” In other words, Small Business America is not worth investing in.
(By the way Senator, just FYI, the Federal Reserve (not the Treasury) does serve as the nation’s central bank.)
Small business feels the heartbeat of America better than any elected or appointed official. They represent the grit and hardiness that politicians love to covet. Small business doesn’t want charity – these are entrepreneurs, the kind that America celebrates – those hardy folks that create something from nothing on their own wits and ingenuity. All small business wants in post-bailout America is a fighting chance. How can it compete against the federally funded coffers of the Big Boys?
“To support the recovery…small businesses
are important in creating new jobs,” says Bernanke.
So where is the funding to do this job creation? Where is the low cost Federal lending given freely to big banks and in turn to bond issuing corporations for the past two years for small business economic recovery? Why are there two standards for lending – one of unlimited credit for errant too-big-to-fail institutions and another, “Sorry pal, can’t turn the Treasury into a national bank,” for the little guys that hold the nation up?
In his testimony to the Senate Banking Committee, Bernanke spoke of the continuing credit crisis for the nation’s job creators:
“Small businesses, which depend importantly on bank credit, have been particularly hard hit.”
That is a mouthful. Now that we agree on the problem, what are we going to do about it?Chairman Bernanke
: “At the Federal Reserve, we have been working to facilitate the flow of funds to creditworthy small businesses. Along with the other supervisory agencies, we issued guidance to banks and examiners emphasizing that lenders should do all they can to meet the needs of creditworthy borrowers, including small businesses. We also have conducted extensive training programs for our bank examiners, with the message that lending to viable small businesses is good for the safety and soundness of our banking system as well as for our economy. We continue to seek feedback from both banks and potential borrowers about credit conditions. For example, over the past six months we have convened more than 40 meetings around the country of lenders, small business representatives, bank examiners, government officials, and other stakeholders to exchange ideas about the challenges faced by small businesses, particularly in obtaining credit.”Real Help for Real People
Forty meetings over six months and we arrive nowhere. None of these efforts matter a hill of beans unless there is some official enforcement behind it. Regional and community banks are not receiving the same bailouts their big banking brothers are, so the Federal Reserve is trying to incent them with government guarantees—the same guarantees that failed to incent their liquidated siblings. Smaller banks always on alert for FDIC takeover will be understandably less likely to take on added risk. In the current economic stress and continued joblessness, small business credit is a major risk for not-too-big-to-fail banks.
What is the solution then? Incent businesses to hire using tax breaks and federally sponsored access to credit – similarly to the way the Feds handle big business and big banks.
First and foremost: “Credit-worthy” small business is a loaded term. Many businesses without access to credit have levered up to the limit of their former credit lines, borrowed from family and friends, mortgaged their homes (if they could) and depleted their personal savings to stay afloat. This is how the real entrepreneurs of America fight for survival – by the skin of their teeth. Not on the cushy backs of banking lobbyists and government paychecks.
Credit allows businesses to wait for receivables, hold onto employees, and generally weather the storm until the recession clouds part. In the process of waiting for the economic tides to turn, many small businesses have lost their former good credit status, laid off long-term employees and generally had trouble making ends meet. It’s war out there in Real (non-government sponsored) America.
This is where the Feds can step in. Liquidating the big banks through TARP allowed these businesses time and money to recover income and absorb losses. Big banks borrow at the Fed “Discount Window” when they are short of cash, can’t make payroll or need to invest in revenue producing innovations. (For example, Goldman Sachs
borrowed $10bn from TARP and paid $10.9bn in compensation a few months later. From the Fed lending facility, the firm has been able to borrow unlimited cash with almost no interest to invest in profit making ventures. So how did Goldman get back to the top of the heap? They borrowed their way back – that is how a credit economy works. Business needs capital to run.)
1.Therefore, the Federal Reserve should create direct source lending at near zero percent for small business in the same way they do for the big guys. $30bn? Try $90bn for starters – an investment in American small business at 30cents per citizen.
2.Credit worthy? Use the same criteria the Fed used for the big banks who were actually insolvent when they were bailed out and take their bad assets “off” the balance sheet. Now how credit worthy are they? Is their business obsolete? Or do they just need funds to wait for economy to rev up again? How about access to credit to meet payroll?
3.Investment tax breaks are great. But if this is about jobs, then why not give tax breaks for creating jobs? What about significantly reducing employer payroll tax for every new hire or rehired worker? After all, this will cost the government far less than social services in the end.
Contrary to popular pundit bellyaching – people want to work. They want to be useful. They want to create businesses and fuel the entrepreneurial engine of America. That is how our nation was formed on self-reliant innovation. We like to invent the wheel and we prefer to do it on our own.
But there are extraordinary circumstances, like the once-in-a-lifetime economic tsunami, where help is necessary to get back on your feet. Small business was knocked down and is still trying to get up. The words of a Billy Holiday tune echo the cry of the 2010 American entrepreneur, “I been down so low, it looks like up to me.”
Senators, Small Business America is calling on you to help our nation’s entrepreneurs boost job creation. So fellas and gals, put your, er… our money where your mouth is.For heaven’s sake, what are you waiting for?
©2010 – All Rights Reserved
Monika Mitchell - Executive Director