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The U.S. Lends To The Big Three. What About The Small Thousands?
By Marc Tracy
Big morning: President George W. Bush (yes, he's still the president!) has announced that the government will make $13.4 billion in emergency loans to the Big Three automakers, plus an additional $4 billion down the road in February. We explained why the auto bailout is a good thing--from small businesses' perspective--here and here.
But right now what we want to take away from this is the extraordinary measure that the government is undertaking. The government lending directly to retail businesses! It's largely unprecedented, excepting the special program set up earlier this year for investment banks, which has since been made obsolete by the disappearance of investment banks.
The government's action today makes you wonder: is this the last of the government's direct lending to businesses? Or is Main Street going to be next?
Sen. Chuck Schumer (D-N.Y.) proposed lending "tens of billions" directly to small businesses, but that was over two months ago, and we've seen no action on or even discussion of that idea since. We hope that, especially in light of today's announcement, it will be revived.
Alternatively, we came across a very interesting, if heavy on the economics-talk, article from the Financial Times. In it, the authors suggest that banks' refusal to lend right now is not a result of their not having sufficient capital--after all, the government is giving them billions of dollars of capital!--but rather their irrationally assuming that other banks won't lend, and that somewhere along the line there will be a default that will come back to hit them.
The authors propose that the government step in, guarantee something in the neighborhood of $200 billion in business loans to some extent, and then make banks make the loans. Not provide the means for lending; not politely suggest it; but actually compel action.
Read the whole thing. And consider what the government has done today (correctly, in our view) and how it should inform what it does vis-a-vis the thousands and thousands of small businesses that also need help, and that, through no fault of their own, aren't getting it right now.
Comments (0)December 18, 2008 8:24 PM
