Mish Shedlock is on it again... I read him every day. He notes a contradiction regarding small business loans, but I explain why. First Small Business loans by banks are down. Small Business loans by the Small Business Administration are up. Banks are on the hook for their own small business loans, the taxpayer is on the hook for Small Buisness Administration Loans (SBA). Banks write the SBA loans. Therefore, naturally, banks are writing SBA loans, which are skewed to political results, and these loans will be as bad as any subprime loans during the housing boom. To get an SBA loan, you have to be turned down by two banks first. Thereforre, once you prove you are not worthy of the loan, the government will give you one.
Financially, it is the least of the scams out there, but a good start to recovery would be to eliminate the small business administration.
Tuesday, January 19, 2010
Small Business Loans Nonsense
Subscribe to:
Post Comments (Atom)
2 comments:
Interesting thought. Do we have any data to substantiate the failure rate of SBA Loans vis-a-vis normal small business loans. I fear that we tend to look at the world as we are vs as it is. Also, I thought it was quite spurious to purport that survival in Haiti was more so due to spontaneous order ( a state which rule of law and property rights do not neccessarily originate). I am pretty firm free marketer, but I must agree with Charlie Munger that people who adhere to a political or economic ideology too vehemently have allowed their mind to be cabbaged. Economies are human phenomenon which inherently are complex and cannot as easily be explained with formulas as hard science. Free markets work for the most part. They are not the answer to all ills. Such thinking is likened to good ole Munger's aphorism, "To a hammer, every problem look like a nail." Banks are not lending because they have found a more profitable allocations for that capital. As a capitalist would you lend to Joe Shmoe to grow some tiny business for which the net margin (bank's profit is negligible) or invest in distressed assets at 30 cents on the dollar where they make lot's more money even if the resell value is 40-50 cents. Free marketers can't cry when bigger capitalists squat on the little capitalists. Btw, free market capitalism is the most effective when a country is undergoing extensive growth, not when an ecnomony is stable. That's why America won over the last 200 years. We started from such a low base. Love your book.
I read more Menger than Munger, but I am pretty sure the spontaneous local efforts will outweigh the help of the US occupation of Haiti. I am a free market anti-capitalist so when big caps squat on little caps, I don't have a dog in that fight.
I do though, have a beef with an alliance of big govt and big biz, siince that is the definition of fascism. something that violates free markets and the spontaneous order that coomes out of inalienable natural rights, which of course precede the state.
I am not sure what free market capitalism is, but free markets do not depend on any particular conditions to be effective. Free markets are free to contract, and free from fraud and coercion, something best approximated when there is no state interference.
No free marketers claim a free market solves all ills. A free market is merely a rational basis for trade, for the allocation of scarce resources.
Post a Comment