Today, NPR is reporting that, from the COVID-19 small business bailout “Small Business Rescue Earned Banks $10 Billion In Fees.” Many small businesses were shut out of getting their chance at part of the $349 Billion dollar loan program. Further, CNBC is running an article about 75 publicly traded businesses that did received loans. The Morgan Stanley research shows that $243.4 million of the money went to these companies. When will we learn that business must be regulated effectively?
I am not surprised by this. Before the market crash in 2008 I would read these stories with a mixture of disbelief and anger. Now I read them in exasperation. Efficient management applies rules, guidance and methods to prevent the abuse of funds. Why is it our legislature and executive can’t figure out how to do this with big banks (or any other large company)? Maybe they need access to better advisors. Maybe we need to revamp election fund laws so high office can no longer be bought. Maybe we need to start voting in a way that fills our government offices with progressive politicians who won’t roll over and show their belly to huge money.
Representative Alexandria Ocassio-Cortez in late March gave a speech concerning this subject. Saying the bailout legislation should have been divided into three parts so they didn’t have to vote on the whole bill, meaning a no vote would have kept citizens from getting their bailout checks until the whole thing was figured out. This effectively held the voter payouts hostage so the business parts of the bill wouldn’t come under too much scrutiny. Tucker Carlson did his best to distract everyone away from the subject of her speech, using a racial play to say it was about giving illegal aliens money from the bailout. ( Check out a previous BLOG on this)
In this New York Times op/ed, Tim Wu points out 70% of the loan money has been for loans of $350 million or more while most of the actual loans (74%) have been for $150 thousand or less. 92% of loan applicants didn’t get anything. The average small business needs $35 thousand. A lot of small businesses could have gotten money from the $244 billion (0.7 x $349B) that went to large loans.
Mr Wu’s proposed solution; rather than add funds to a program that has proven to be inadequately regulated, create a new program using smaller companies to handle the loans. He says “in collaboration with the Small Business Administration, Congress should make it easier for financial technology companies like Intuit, PayPal, Square and Kabbage to process loans. These companies aren’t perfect, but unlike big banks they have a natural incentive to help smaller clients.”
What I see is the way these types of problems have been handled in the past. The large banks handling the government money for loans are insured, If the small business defaults they will lose nothing, They will also gain nothing. If they send most of the money to larger companies they will get interest on those loans. But it’s our money, the taxpayer bears the burden. We want to bail out the little guy, not publicly traded successful companies who should be able to work through this crisis on their own (ie, get a loan outside of the bailout program). There will be no repercussion for the banks. They’ve used taxpayer money in a way that will generate profit and not for what it was intended. If the government is simply going to add more money to the program banks will be rewarded for the immoral use of public funds. Meanwhile 92% of small business applications for bailout money were denied because of greed.