The majority of this is irrelevant, but someone online pointed out an interesting exchange between the President and a small business owner:
Q: My name is Steve Gordon. I'm from Clearwater. And I manufacture -- I own a small company, environmental company. I manufacture the Instant-Off water-saving device that fits on any faucet worldwide. I'm frustrated because I can create 500 jobs; I've gone to the banks, I can't get a loan. And I speak for all businesses in the United States. (Applause.) We are tired of dealing with banks. And I don't understand -- and this is my question for you, is that I know you care, I know you're trying. And I appreciate the pledge of $30 billion to small businesses. But lending it to the banks to lend to us is not the answer. It's just not.
What I suggest, and the question is, why can't you use the SBA just like you lent directly to Wall Street, you lent directly to the automakers, you lent directly to the banks -- why can't the government make small businesses available directly to us? (Applause.)
President Obama: [after his first response about success he sees so far, and an acknowledgement that Mr. Gordon may not see it as enough, the President continues] Keep in mind, a small business loan of any sort, or a large business loan of any sort requires some sense of, all right, what's the business plan, what are your projected earnings, et cetera, et cetera. And somebody has got to do that. Now, if the SBA were to suddenly take over that entire function we'd have to stand up a massive bureaucracy -- a huge one. And we'd have to train all those people and it would take too long, and you'd be frustrated -- why is it that this big government agency can't seem to run anything?
So what we've decided to do instead is to take $30 billion that was repaid by the banks and make that available under criteria that will encourage small banks to give those loans to you. And if we do that effectively, we can potentially get that money out the door more quickly.
Clearly, Obama is exactly the Socialist-bogeyman the Right has made him out to be, up there alongside the likes of Ronald Reagan, a notorious Communist-sympathizer.
I do understand where he's coming from. An expansion of the duties of the SBA, or any other government agency, would take time and money to set up. Obama believes that private enterprise, given government money with "encouragement" to lend, can respond more quickly and more efficiently. However, this ignores the role many of these very same enterprises had in the crisis, as well as the significant absence of reinvestment in the economy with the money received thus far.
I would argue that it could be useful to allocate at least some of the $30 billion to expand the scope of the SBA, to directly lend money to promising small businesses. This could run the danger of undercutting local banks, but something needs to change. As we've learned in class, the market's main characteristic is efficiency, efficiency of profitable return. A less profit-focused government agency might make funds available to proposals that are less efficient from a profit sense, but useful for the economy as a while and other reasons.
There is an immense interplay between government, banks, and business owners. What role do you believe is most appropriate and helpful for each actor? What are your thoughts in general?
How is a less profit focused agency going to help drive an economy? Sure it will trow out millions and millions of dollars, sure it will reach small buisness, but it will reach buisness (depending, of cource, on the severity of government inefficiency in this specific case) of all types, buisness bound for failure from incompetent owners, from buisnesses opening into unstable or unsustainable market. I understand that the big banks have failed in thier duty, giving more money to them in anyway is the stupidest idea anyone could imagine. But why apply the same thinking to smaller regional or even state banks that have better experiance in thier specific markets and who are more inclined to focus on thier original mode of profit instead of complicated investment gathering.
ReplyDeleteUsing smaller (and CAREFULLY audited banks) to distribute money would be much more efficient. These smaller banks would be profit driven and would be able to pin point those individual establishments that would be able to produce the greates amount in the shortest amount of time at the lowest cost. I would much prefer to see a system setup for this purpose already in a free market be used as a condui for governmental stimulus than having the government barge and form competition for banks already established (though this risk is slightly reduced becasue of the amount being lent already, it is simply not much) it is still a factor. A government agency would create jobs in one sector but where would it pull away from, that is waht i worry about most sometimes. The government is never exactly sure what effects the motion at hand will have untill after its implemented, theres predictions and calculatiosn but how can one body accuratly know every intracate working of a economy as vast as ours? they simply cant, it would be fiscally impossible to gather all that data. A
I agree both that it's difficult to trust the larger banks to distribute the loans (when we've recently had to bail them out) and that expanding the SBA would require some time and effort to do. I do think that the best course of action would be expanding the SBA. That would allow direct governmental involvment with distribution; while I normally would be against such governmental control, at this point it would be worth it to ensure that everything is done fairly and well. Perhaps this could be a temporary measure, until the economy gets back on its feet.
ReplyDeleteI believe that Mr. Gordan presented a good point as to how Obama has passed out money. Obama did lend directly to Wall Street, banks and the auto industry so why not do it for the small businesses? I understand Obama's points on looking at the business model and so on but clearly the money hasn't been getting to where it's needed: the small businesses. I think Evan has a good idea as how to distribute the money through the smaller banks. Allow the local banks to help their own area instead of a big bank looking at the big picture. A, E
ReplyDeleteI read a little further into the article. The transcript continues with Obama saying that "the SBA does not have the infrastructure to go all across the country in every region and process loans to small businesses directly because they don't have enough people."
ReplyDeleteThen somebody asked him why not and Obama replied, "The SBA doesn't have the staff to do it."
So where are all the unemployed people? I'm confused as to why, if there are jobs, they are not being filled. Supply and demand suggests that if the demand increases and the equilibrium shifts, the supply will be there. So what's going on? (T)
Christine, you make a really great point. I definitely agree that the government should be creating jobs where ever possible, and what better way to boost the economy than to employ people in the SBA? However, if government is trying to restrict their spending, I wonder if they can afford to train these people right now? I agree that it would be an efficient and profitable trade-off, but I think they should definitely cut any less-efficient government programs before investing boosting more valuable ones. They need to make sure they have money before they decide to spend it - to quote a somewhat sarcastic Obama at the State of the Union address, "That's how budgeting works". I think it's definitely time that the government starts being as cautious with their spending as the majority of Americans have been throughout the recession. I'm not saying money shouldn't go to great investments like the SBA, but I do think it needs to come from pulling back in other areas instead of taking out more loans that would add to our massive deficit.
ReplyDeleteI agree with Nick's and Evan's comments where they mention smaller banks distributing money to their local areas as opposed to having the big banks do all the work. The smaller banks would definitely be able to have a stronger focus on their communities and the small businesses within them. A
ReplyDeleteBridgett I agree with your comments entirely, expanding the SBA sounds good in theory but putting that theory into practice is another matter entirely, and with the budget proposal leading to a 1.6 trillion dollar deficit, we at no point have room to be liberal (excuse the pun lol) with government spending any longer.
ReplyDeleteI feel that there are two sides to every story, meaning that this man might have been rejected for poor credit by these banks and might just be complaining. I also think that the government is not a bank, and although I want to see this money in the hands of small businesses it would essentially be like nationalizing the banking industry. Instead I think the Obama administration needs to put more pressure on these banks, because they owe the people of the USA after being bailed out.
ReplyDeleteI think the United States has many reason to ban the import of many foreign products. First of all, the restrictions that the Health Department has set are simply to protect its citizens from diseases that can cause a tragedy among the people. The second reason is to prevent foreign companies to take over the market and then people will stop buying what’s produce domestically. People should have the choice to choose their own products but as long it’s safe to eat and will not cause an outbreak of diseases.(E.A)
ReplyDeleteDulce, I think you may have commented on the wrong blog.
ReplyDeleteI have to agree with Evan that a not-for-profit government agency to lend out money would be both inefficient and unproductive. The government is not a firm, it is not a bank, it is suppose to set up and maintain the infrastructure that allows the market to function.
E