Sunday, February 07, 2010

Lending as Stimulus

Obama and Company keep bleating about the “problem” of banks not lending to small businesses, about the small businesses who “cannot get the loans they need to meet payroll and buy inventory and expand.” I have been listening to this without comment for a while, and Karl at The Market Ticker has put voice to something that I have been thinking all along.

After leaving the Navy I went to work in major industry, first in the plant environment, but then in management where my tendency to chafe under the constraints of conventional thinking created problems for me. (Um, long story.) That led to me striking out and running a series of small businesses, on my own and in partnership. It was a series of them not due to failures, but because I tended to get bored doing one thing after a while and would start something new.

What I did not need for these business was loans; certainly not to “meet payroll and buy inventory.” Needing loans for those purposes would be a signal to me that I not only was failing, but that I had already done so. If a business cannot meet payroll with cash flow, and cannot replenish inventory from the proceeds of inventory it has sold, it is a failed business and no bank should be willing to lend money to it.

I did once obtain a loan to buy a piece of equipment for the expansion of my business, but if you think I would be considering a business expansion in the present economic climate you need your head examined. Any bank which would consider lending money for business expansion in this climate should be closed for the insane practice of lending to idiots.

If you talk to the banks, which the media is not doing of course, you will hear that they are getting hammered from both sides. The politicians are hammering them for not lending, but the people who they are supposed to be lending to are saying they have absolutely no interest in borrowing.

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