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Wither the SBA?

February 12, 2009, 11:56 am

I don't have to explain to readers that I oppose the idea of government stimulus.   So I am loathe to argue about stimulus methodology, because I think one is just arguing over gradations of suck.

But if I were to discuss stimulus for employment, my first thought would be reducing the employer portion of FICA -- reduce the cost of employment, the quantity employed would likely go up  (of course, rather than doing this, the administration has done just the opposite, by requiring union shops on government contracts, effectively increasing the cost of employment).

My second thought was the SBA.  Most stats show that job creation is mainly in small businesses, and it appears to be small business credit that is impacted most for the 2008 banking crisis.  So, instead of sending more money to state governments; or welfare recipients; or large companies who have, by failing, proven themselves to have bad management or a bad business model or both  (none of whom are likely to be huge engines of private job creation).  Why not find a way to increase funding to small businesses?  Temporarily reduce the federal guarantee fee on SBA loans, provide tax credits for banks making such loans, something.

I called the SBA today.  They said they have no idea, just like the rest of us, what is in the bill.  Apparently there were a few incremental changes proposed, but nothing concrete.  The only specific proposal the SBA rep made was an early provision in the stimulus plan to raise the government gaurantee fee, which hardly seems like a way to promote small business credit.  It probably makes fiscal responsibility, but since when did the stimulus have anything to do with fiscal responsibility?

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  • http://NA Jim M

    I heard today from an SBA lender that the SBA is changing their underwriting rules to limit the amount of goodwill on any balance sheet to $250,000. Since the SBA finances a lot of small practice sales (accounting, physicians, etc) that have relatively few assets, this move could serve to restrict financing significantly. I've always understood the SBA loan product as a way to get funding for "asset light" transactions. Sounds like that could be coming to an end.

  • tom walsh

    Wouldn't *you* be in the market for a new mortgage, a new car, or some other large investment RIGHT NOW? Yeah, we are all likely to make these decisions when the FedGov is creating policy(?) that may make the purchase, sale or trade of anything seem foolish when the contents of this piece of cr*p come out. Talk about uncertainty, this stimulus bill is reason for everything to slow down while waiting to see what the bill will do to their business decisions.
    tomw

  • John Dewey

    tom walsh: "this stimulus bill is reason for everything to slow down while waiting to see what the bill will do to their business decisions."

    I agree completely.

  • DRew

    From all appearances, this isn't really a stimulus bill. It's two-plus years of spending passed through unscrutinized, with the money that will be spent immediately as a cover for the rest.

    The efficacy of a true stimulus bill would be debatable. This bill is opportunism.

  • http://www.consultingsmiths.com/ David Smith

    Tom and John's comments about uncertainty are entirely in line with Amity Shlaes' take on FDR's major negative impact on the economy - especially in his first term. His lust for "experimentation" left everyone with anything to invest too unsure to take any action.

    The more things change...

  • zjohna

    As a libertarian, I cannot support any sort of government guarantees on loans, including SBA. It transfers the risk from the lender, where it should be, to the taxpayer, where it most certainly should not. This sort of private-profit, public-risk transaction is what got us in this mess via Freddy & Fanny.

  • Mesa Econoguy

    Alas, poor Santa Barbara Airport.

    Or was it Susan B. Anthony?

  • M Dubiel

    The reason small businesses are the employment driver in America is because of government meddling with large businesses. Big business could also create jobs if allowed to.

    Estimates range from $300-800 billion held overseas by big businesses for tax reasons. Simply eliminating the disincentives in the tax code would bring almost the entire stimulus (or at least half of it) home to America.

    The effect being a non-inflationary increase in the domestic money supply, a true real lower interest rate, and a ton of real investment driven by private need. Add a complete elimination of the cap gains tax and the economy would turn quickly and positively within the month. The entire Democrat plan is the opposite of what should be done.

    Uncertainty is a government creation, almost always. The mal-investment in RE was a direct result of government implied or expressed guarantees. Without government intervention the market would have cleared already and never gotten overheated. Investors and bankers are frozen waiting to see what the 900 pound gorilla will do next.

    You cannot make non-speculative investment decisions in this market. Everyday Frank or Geithner or Obama or some other Washington dope talks up a "new" scheme to tweak the market. Has Bernanke ever stated the same plan twice? This just makes for more uncertainty and compounds the damage done over decades of government meddling.

    Things will get worse. The rapists are tending the victim.