In President Obama’s State of the Union address he called for a slew of new spending proposals which include taking 30 billion dollars worth of money that banks have paid back to the government and giving it to other banks to make small business loans. I might be taking an unpopular stance on this because everyone wants to help small business these days, but this seems eerily similar to the situation that got us into this mess.
I know its been covered extensively, but I think its important to remember the falling domino which ultimately lead to the recession we’re experiencing. The federal government, over the course of both Republican and Democratic leadership, pushed the banking industry to make loans to people who would otherwise not have qualified for them. It was considered a noble gesture to help Americans get on the path of homeownership. Through government coercion and incentives, the sub-prime mortgage market was created. The government convinced banks to lend to a high risk population and surprise, they defaulted.
Once again, the federal government has stumbled on a population they’d like to “help”. They’re going to give $30 billion (of what is rightfully taxpayer money) to banks to lend out to small businesses who would otherwise not qualify for a loan. Einstein’s quote, “The definition of insanity is doing the same thing over and over again and expecting different results” seems particularly apt here. Currently, with no government intervention, the small business default rate is already up to 12% and those are the enterprises that banks deem worthy enough to bet on with their own money. We don’t have to guess what’s going to happen when they get to gamble with ours.
