More Government Fun


Two things are happening this week that some people might be happy about, but I suspect lots of us are not.   These actions are supposed to be good for the economy but I can’t help wonder why i feel disappointed.

Your government is flexing its muscle this week as the Senate votes to pass the small business lending bill (HR5297).  According to the American Bankers Association (ABA), the legislation will create a $30 billion fund to provide capital for banks with assets under $10 billion to increase their small business lending.  There are some things in there that seem positive like the SBA raising their maximum 7(a) guarantee program’s loan size from $2 million to $5 million but it just mostly seems like another way for the banks to get sucked in by the government, into a program that they may come to regret later.  I am left to wonder what is going to change to make businesses borrow and also make banks lend.  I for one believe the banks have plenty of money to lend already.  They just have been reluctant to do so because of the iron fist of the regulators who are making bankers lives difficult these days with their increased intense oversight.  This fund also won’t force or incent business owners to borrow.  The only thing that will get them to borrow is their belief that they will be able to continue to sell their goods or services now and into the future.  Right now business sentiment is tepid and it looks like we’re in this for the long haul.

The other non-exciting but actually monumental event happening in Washington this week is President Obama‘s appointment of Elizabeth Warren as a special adviser to oversee the creation of the Bureau of Consumer Financial Protection.  This feels wrong on several levels, the first being the fact that the President is appointing her outside of the normal confirmation of the Senate.  His purpose is clearly to avoid any dialogue or debate on her qualifications.  For a bureau that will be gigantic, wouldn’t you welcome the scrutiny of the Senate in making sure the candidate is qualified?  It also concerns me that Elizabeth Warren is a Harvard law professor and she chair the Congressional Oversight Panel created to investigate TARP.  I’m not a proponent of putting scholars in positions of high power.  I’d rather see folks from the school of hard knocks get into these jobs.  The thing that bothers me the most though is how far-reaching this new bureau will be.  The president and CEO of the ABA, Edward L. Yingling testified on behalf of the ABA on July 14, 2009 before the Committee on Banking, Housing and Urban Affairs that Certainly, there were deficiencies under the existing regulatory structure. Creating a new consumer regulatory agency, however, is not the solution to these problems. It would simply complicate our existing financial regulatory structure by adding another extensive layer of regulation. There is no shortage of laws designed to protect consumers.

I’m with Ed.

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3 Comments

Filed under Regulations

3 responses to “More Government Fun

  1. The appointment of Ms. Warren sounds a little like cronyism. (Jus’ sayin’…)

  2. I’m not a proponent of bigger government either. However, the SBA program will help businesses restructure their debt in order to free up cash flow to be employed elsewhere. jobs, sales growth etc.
    The program provides a bank a credit enhancement to lend and creates extended terms so that businesses can obtain loans they wouldn’t normally get and can be paid back over a longer period time. The incentive for the banks to lend is that they can get a 75%-90% guarantee in liquidation to make the loan.

    My banking background is primarily on the business side, not the consumer. But, typically any additional regulation program for a bank to abide by spells out more cost on the banking side and creates either higher rates and/or fees to cover the costs.

    • Excellent point on debt restructuring and let’s hope that gets some business owners off the sidelines. On the other hand, this highlights the fact that Uncle Sam is providing a crutch and the risk shifts from the bank to the taxpayer. Still a bit of an uneasy feeling.

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