People like different things, and that’s a problem. It’s one that only exists, of course, in a world with scarce resources having alternate uses. Competition over resources means everyone cannot get everything they want.
Although my libertarianism has many different “foundations,” I want to focus on this one in particular. I take it as a truism that people like different things, and likewise that the world is full of scarce resources with alternate uses. Any system of human “governance” (in the broadest sense of the term) must come to terms with these two facts. I am a libertarian, at least partially, because I believe the market system tends to better rationalize different tastes and to produce more abundance of those scarce things.
What is an example of the problem that people like different things? Take trees. Some people value trees as beautiful things having as much a right to live as we do. Others value trees as paper, firewood, or houses. These values seem to clash.
How can we solve this problem? We could have tree-lovers and tree-harvesters physically fight over the trees. This happens in many cases of value disagreement, of course, but it is far from an optimal solution. We could try to convince tree-harvesters that there will be bigger environmental effects to tree-harvesting, thus eventually harm something tree-harvesters love, such as oxygen. Also, of course, we could simply ban tree harvesting.
But there is only one solution that produces a rational, socially optimal result: property rights and rights of transfer. Those who own trees are free to do what they want with them, and if someone would rather do something else with the trees, then they can acquire those property rights. As an added bonus, property rights in trees will engender tree cultivation, thus rewarding both harvesters and conservationists.
Those points are often made but less often understood. Property rights create social cohesion because they keep us from fighting over how property will be used. They are a socially optimal solution to the problem that people like different things, and they can be endorsed by people with severely contrasting tastes. I let you have dominion over your property because I want dominion over mine. I’ll let you play your Barry Manilow if you let me play my Bob Dylan. And if you’re playing your music too loud, I’ll knock on your door.
Yes, this doesn’t solve all the problems that come with people liking different things, but it does an amazing job of solving most of them. Moreover, a system of respect for property rights does not invent new, unnecessary problems. Under normal situations, it is not a problem that you listen to Barry Manilow and I listen to Bob Dylan, as long as we respect property rights. If we politicize music preferences, however, we will invent a problem out of thin air, namely what are “we” going to listen to?
But some people aren’t happy with property rights as a socially optimal solution. They aren’t happy because property rights allow people, such as Barry Manilow fans, to persist in liking different things. Some people want to have sex in strange ways with people of the same sex, and others don’t like that. Some people want to raise their children with different beliefs, and others don’t like that. Some people want to ingest certain substances so they feel better, and others don’t like that. They don’t realize that property rights help both Barry Manilow and Bob Dylan fans, gay and straight couples, creationists and evolutionists, and teetotalers and potheads.
Those who cannot accept people liking different things then look for a solution to this “problem.” What they need is a type of physical force (because they can’t seem to convince others not to like different things) that doesn’t put them in danger (because physically stopping undesirable behavior yourself is scary), and is seen as legitimate by those whose behavior they are trying to change. They quickly find their way to politics. If they just get 50% +1 to agree with them, then they can wield the state’s considerable power against those who insist on liking different things. It is easy to see why this option is so attractive.
With politics in the picture, the whole game changes. The equilibrium of a property rights system is based on the mutually beneficial theory of “stay out of my way; I’ll stay out of yours.” When politics intrudes the question changes to “whoever can win the political game is free to get in everyone’s way.”
And that game has high stakes. Losers don’t just walk home with their tails between their legs, they lose the ability to live their lives according to their values and consciences. Being on the wrong side of 50% +1 can mean you will not be able to educate your children how you want, that you cannot marry who you want, that you can’t work in your chosen profession, and that you cannot listen to Barry Manilow.
No wonder politics is so vicious.
After something is politicized, “keeping to yourself” is no longer an option. Instead, you have to play the political game if you want to live your life according to your values. Energy that could be spent building new and exciting technologies or beautiful art is now invested in trying to defend your way of life in the political process. A fleeting victory—for example, legalizing gay marriage—may cause you to hold your hands up in a pose of victory, and rightfully so. But why did you ever have to play this game in the first place?
I am a libertarian because I hate the game. We live in a time that increasingly fetishizes democratic choice as a method of rationalizing our disparate preferences. This is ludicrous. Democratic choice is at best a method of solving some collective action problems that are truly problems, and it is hardly ever a real problem that people like different things.
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Something fishy happened on Friday, and without further action in Congress it should scuttle the legislation to exempt the Federal Aviation Administration from sequestration-based spending limits. But maybe the old saying, “close only counts in horseshoes and handgrenades,” also applies to Senate unanimous consent agreements. If President Obama gives the bill five days of public review under his Sunlight Before Signing promise, perhaps it can be hashed out before anyone does anything foolish.
You’re probably aware of the background: Across-the-board spending cuts were threatening air travel delays because of FAA furloughs. Late last week, the House and Senate both passed bills to allow the Department of Transportation to move money around, clearing up that problem. (No new spending; just movement of funds from lower priorities to air traffic control.)
As I detailed on the WashingtonWatch.com blog late Saturday, the Senate and then the House passed identical bills, but determined to see the House version passed into law. Because the House would pass its bill after the Senate was gone for the week, the Senate agreed to automatically pass a bill coming from the House “identical” to the one it had passed. Problem solved.
But on Friday afternoon, after the House had passed its identical bill, sponsor Rep. Tom Latham (R-IA) came to the floor and asked unanimous consent to change the word “account” to “accounts” in his bill. The change is a mystery. My guess is that the reference to a singular appropriation account would not allow needed flexibility because there are many FAA accounts. But the change also made the sentence ungrammatical as it has a second reference to a singular account.
Whatever the reason, there was a reason. And after changing the legislation, it was no longer identical to the Senate-passed bill. Thus, the bill sent to the Senate could not be automatically passed. Accordingly, the bill does not go to the president and does not become law.
Now, is the difference between the singular and the plural of the word “account” small enough that the Senate can go ahead and treat the bills as identical? That threatens the meaning of the word “identical.” It certainly mattered in the House. Procedure expert Walter Oleszek calls unanimous consent agreements of this type “akin to a negotiated ‘contract’ among all Senators, [which] can only be changed by another unanimous consent agreement.”
The House-passed bill not being identical to the Senate-passed bill, the better approach is to find that the Senate unanimous consent agreement does not apply, and the House bill should sit in the Senate awaiting further action.
At the time of this writing, no public sources indicate that H.R. 1765 has been passed in the Senate, presented to the president, or signed. If President Obama does receive the bill, he should give it the five days of public review that he promised as a campaigner in 2008. This would allow things to get sorted out, so that we avoid the constitutionally embarassing spectacle (and future Jeopardy/Trivial Pursuit item) of a president sitting down to sign a piece of paper that is not actually a bill readied to become a law.
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Apple is increasingly partnering with the government and has found a nice revenue stream. Though Apple’s stock price may be down big time, it’s political stock is definitely on the rise in the Pentagon and the halls of Washington DC across the river.
One of the things that I liked about Apple was how it insisted on a small footprint in the Imperial City. This I guess is changing now that Steve Jobs is gone. (For good.)
Apparently the sequester will not stop the purchase, however — just slow it down.
650,000 iOS devices will certainly put a nice shine on Apple sales this quarter. While it’s impossible to know exactly how much the order totals up to, a quick back-of the envelope calculation shows it could easily be in the neighborhood of $200 to $250 million:
120,000 iPads at $400: $48,000,000
100,000 iPad minis at $300: $30,000,000
200,000 iPod Touches at $250: $50,000,000
210,000 iPhones at $500: $105,000,000
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Guess what Bernanke is now suggesting as a good way to control federal spending?
Yes, you guessed it: eliminate the debt ceiling, the only thing that even remotely slows down federal spending.
Today’s Fed finances the US government, no questions asked, as the government spends itself into bankruptcy. If the Fed disappeared tomorrow, so would the budget deficit because the government could not borrow enough in real markets at low enough rates to keep it all going.
So Bernanke was quite in character with his latest proposal.
The post Ben Bernanke Sings the Same Song But in a Different Key appeared first on AgainstCronyCapitalism.org.
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By Christopher Preble
On Monday, I posted a lengthy entry here comparing the different plans for military spending: the current Obama administration/OMB baseline, CBO’s latest estimate for sequestration, Mitt Romney’s plan to spend four percent of GDP on the Pentagon’s base budget, and Paul Ryan’s plan.
I should have taken a bit more time checking my numbers, because I ended up comparing apples to oranges (or 050 to 051, in budget-wonk-speak).
Thankfully, the ever-watchful Carl Conetta at the Project on Defense Alternatives spied the error, and set me straight. The gap between the Ryan plan and the current baseline (President Obama’s plan) is less than I had previously reported. The gap between the Ryan plan and the Romney plan is larger. The new numbers, and a revised chart are enclosed below.
I have had to make some inferences, so Governor Romney has some wiggle room. Romney’s surrogates have clarified other aspects of his plans for military spending, most recently here, but I still don’t know what is included when he says he will have a “goal of setting core defense spending—meaning funds devoted to the fundamental military components of personnel, operations and maintenance, procurement, and research and development—at a floor of 4 percent of GDP.” And no one seems to know how soon he intends to achieve that goal.
He could claim that the four percent goal should be applied to the entire “national defense” category (aka 050), which includes nuclear weapons spending within the Department of Energy, for example. This amounts to about a $25 billion difference annually. He could also include mandatory spending within the Pentagon’s budget, another $9 billion a year, on average.
The bottom line remains unchanged, however: Paul Ryan would spend more than President Obama on the military; Mitt Romney would spend much more. To his credit, Ryan has specified other spending cuts in domestic programs to ensure that his plan doesn’t add to the deficit or require higher taxes. Romney has not.
As before, I anxiously await additional clarification on how Romney plans to make up the difference.
Details, in constant 2012 dollars, for the period 2013-2022:
- Obama/OMB Baseline (051, discretionary): Total $5.163 trillion
- Sequestration per CBO (051, discretionary): Total $4.659 trillion; $504 billion in savings
- Ryan plan (051, discretionary): Total $5.321 trillion; $158 billion in additional spending
- Romney 4 percent in four years: Total $7.015 trillion; $1.852 trillion in additional spending
- Romney 4 percent in eight years: Total $6.868 trillion; average $687 billion/year; $1.704 trillion in additional spending
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In "7 Reasons Why The Jobs Recovery Is Real This Time," the Associated Press details what I would consider to be the positive spin on a variety of economic and political developments [highlighted in red italic for clarity]. In the interest of fairness and balance, I thought it only right to annotate each of their bullet points with statistics, reports, and arguments that show things in a different light:
— COMPANIES CAN’T SQUEEZE MORE OUTPUT FROM WORKERS
During and right after the Great Recession, companies shrank their work forces because demand plunged and fewer workers were needed.
Once demand started growing again, companies were reluctant to hire immediately. They managed to produce more with the employees they had. But now many companies are finding they can’t continue to do more with less. As demand grows, they’re finding they have to hire.
As I noted in "Not So Encouraging,"
history suggests that’s not quite correct. As the following chart shows, a relatively sharp deceleration in the rate of productivity growth — like we’ve seen recently — has, except on two occasions over the past five decades, preceded or been associated with a slowdown in the pace of hiring.
— CONSUMERS ARE STURDIER
Since the recession, households have cut their debts and rebuilt savings. One key measure of household debt burdens — debt payments as a percentage of after-tax income — is at its lowest point since 1994, according to the Federal Reserve.
"Consumer finances are fundamentally healthier than they were," says Stuart Hoffman, chief economist at PNC Financial Services Group.
As the labor market has healed, Americans have worried less about losing their jobs. As a result, they’re less likely to curtail spending — even in the face of shocks such as a 29-cent jump in gasoline prices in the past month to an average $3.78 a gallon.
But are they really better off than they were? As the following chart shows, per capita consumer debt outstanding — that is, the amount per person — is only 3.4 percent below its 2008 peak, and nearly 50 percent above where it was at the start of the last decade.
TENSIONS EASE IN WASHINGTON
The debt-limit showdown waged last summer between the Obama administration and congressional Republicans rattled confidence in America’s leadership. It looked as if the United States might default on its debts for the first time in history because leaders couldn’t reach a deal.
Since then, thanks in part to election-year pressures, tensions have eased. Republicans dropped threats to let the payroll tax expire. And in an unusual show of cooperation, House lawmakers from both parties backed a bill last week to make it easier for small businesses to obtain financing they need to hire and expand.
All I can say is: Just wait until the summer rolls around, the Republicans have chosen their candidate, and each side begins doing its best to inflict maximum political damage on the other side. At that point, the economic uncertainty and concerns about the future that have already impacted corporate decision-making will have an even more corrosive effect on overall activity. Anybody who thinks otherwise is kidding themselves.
— HOUSING IS INCHING BACK
The collapse of real estate lies at the heart of America’s economic problems. House prices have plunged 30 percent since 2006. The drop has wiped out $7 trillion in homeowners’ equity. Millions of construction workers have lost jobs.
Now, there are tentative signs of recovery. Apartment construction is growing. Construction jobs are slowly returning. Home builders are seeing more foot traffic and gaining confidence that sales will pick up in the spring buying season.
No one expects another boom. But real estate is no longer subtracting from U.S. employment. And there’s hope among economists that higher sales could stop prices from falling further by spring.
Once home prices stabilize, more people will likely decide it’s time to buy. And consumers who worry less about a loss of home equity — the main source of wealth for most people — are more likely to keep spending.
Some experts take issue with the notion that a bottom is at hand, as Zero Hedge reports in "No Housing Recovery – Case Shiller Shows 8th Consecutive Month Of House Price Declines":
Little that can be added here. The December Case Shiller came, saw, and shut up all those who keep calling for a home price recovery. The Index printed at 136.71 on expectations of 137.11, with the prior revised to 138.24. The top 20 City composite was down -0.5% on expectations of a 0.35% drop. 18 out of 20 MSAs saw monthly declines in December over November, with just the worst of the worst – Miami and Phoenix – posting a dead cat bounce, rising 0.2% and 0.8% respectively. And granted the data is delayed, but the fact that we have now had 8 consecutive months of home price declines even with mortgage rates persistently at record lows, and the double dip in housing more than obvious, can we finally shut up about a housing bottom? Because as Case Shiller’s David Blitzer says: "If anything it looks like we might have reentered a period of decline as we begin 2012.” QED
From the report:
"In terms of prices, the housing market ended 2011 on a very disappointing note,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “With this month’s report we saw all three composite hit new record lows. While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended.
"After a prior three years of accelerated decline, the past two years has been a story of a housing market that is bottoming out but has not yet stabilized. Up until today’s report we had believed the crisis lows for the composites were behind us, with the 10-City Composite originally hitting a low in April 2009 and the 20-City Composite in March 2011. Now it looks like neither was the case, as both hit new record lows in December 2011. The National Composite fell by 3.8% in the fourth quarter alone, and is down 33.8% from its 2nd quarter 2006 peak. It also recorded a new record low.
"In general, most of the regions also posted weak data in December. Eighteen of the cities saw average home prices fall in December over November. Seventeen of the cities have seen monthly declines for at least three consecutive months. In addition to both monthly composites, 10 of the cities saw home prices fall by more than 1.0% during the month of December. The pick-up in the economy has simply not been strong enough to keep home prices stabilized. If anything it looks like we might have reentered a period of decline as we begin 2012.”
STATE AND LOCAL GOVERNMENT CUTS SLOWING
The Great Recession and the housing collapse dried up tax revenue for state and local governments. Many were forced to lay off teachers and other public workers. Since December 2008, state and local governments have slashed 613,000 jobs, offsetting some of the hiring by private companies.
But the cuts appear to be easing. State governments have added 10,000 jobs so far this year. Local governments last month added 2,000 — a modest total but only the third increase in two years.
"There’s only so many teachers you can cut, so many police officers, so many firemen," says Mark Vitner, senior economist at Wells Fargo Economics.
Who says things can’t get any worse? In "Meredith Whitney Was Right" Fortune’s Term Sheet blog suggests problems in that area of the economy may actually be approaching a crisis point.
FORTUNE — To readers of the business press, the story is a familiar one: fifteen months ago, superstar analyst Meredith Whitney rocked the world of municipal finance with a December 2010 prediction on 60 Minutes that a wave of municipal debt defaults was headed our way. Her forecast was quite specific: "You could see fifty to a hundred sizable defaults," she told her interviewer, correspondent Steve Kroft. "This will amount to hundreds of billions of dollars’ worth of defaults."
The bottom fell out of the muni bond market as a result. Investors pulled some $14 billion from muni bond funds between December 22 and February 2, 2011, and returns in the fourth quarter of 2010 were the lowest in 16 years. Long-time players in the space, including analysts, fund managers, and muni brokers, reacted with indignation that an arriviste such as Whitney—the woman who made her name calling out Citigroup (C) as an emperor with no clothes at the dawn of the mortgage crisis—dared to try to expand her analytical purview into their cozy little corner of the capital markets.
She was wrong, they said. She didn’t know squat about how their market worked. The kind of defaults she called for were never going to happen. And they were right, in the most literal sense. Since then, there have only been $2.6 billion in defaults from the $3.7 trillion market. And the muni bond swoon didn’t even last very long: in 2011, Barclay’s muni bond index returned 10.7%, more than five times the 2.1% return of the S&P500.
Nothing satisfies like a comedown of a prominent prognosticator, and Whitney has taken her lumps in both the business press and the more unbridled blogosphere ever since. She deserves at least some of it, but that’s only for being overly specific. The more general point that she was trying to make—that municipal finances in this country were a mess that was only going to get messier—was dead on. Laugh at her all you want, but then try this: go find one person who says their local taxes are falling or their municipal services have improved in the past year or two. I wish you luck in your endeavor.
"States have pushed more and more expenses down to the local level," Whitney tells Fortune. "And municipalities don’t have the money to make up the difference. That is where you see the real strain, especially after the American Reinvestment Recovery Act expired in June 2011."
Consider the email I received on March 7 from former New York State Assemblyman Richard Brodsky about Yonkers Mayor Mike Spano’s recently formed Commission of Inquiry into what he refers to as that city’s "Great Unraveling." (Brodksy is serving on the commission.)
"[Yonkers has] a budget of about $1 billion and a budget gap in the upcoming year that looks like it can’t be bridged. There are reasons aplenty. Like may urban centers the Yonkers manufacturing base disappeared, the middle-class moved out and the people simply can’t afford the property and sales tax burden that ensured. Anti-tax fervor hit and elected officials refused to raise recurring revenues. Gimmicks, one-shots, borrowing for operating expenses, assets sales, and assorted maneuvers ‘kicked the can down the road’ for a couple of years…The city has now run out of gimmicks."
And then he sounds very Whitney-like: "It’s as though we stand on the shore and watch a tsunami gather and shrug and hope we’ll get through it…That needs to change, and if the list of endangered cities gets larger this will force itself onto the national stage. [For now] the great national battle about the size of government and the level of taxation will be played out in the streets of small cities across America, with school kids, garbage pick-up, fire-protection, and safe streets competing with each other for inadequate resources. It’s an ugly way to solve a problem."
And then there are reports like this:
"Deficits Push N.Y. Cities and Counties to Desperation" (New York Times)
ALBANY — It was not a good week for New York’s cities and counties.
On Monday, Rockland County sent a delegation to Albany to ask for the authority to close its widening budget deficit by issuing bonds backed by a sales tax increase.
On Tuesday, Suffolk County, one of the largest counties outside New York City, projected a $530 million deficit over a three-year period and declared a financial emergency. Its Long Island neighbor, Nassau County, is already so troubled that a state oversight board seized control of its finances last year.
And the city of Yonkers said its finances were in such dire straits that it had drafted Richard Ravitch, the former lieutenant governor, to help chart a way out.
Even as there are glimmers of a national economic recovery, cities and counties increasingly find themselves in the middle of a financial crisis. The problems are spreading as municipalities face a toxic mix of stresses that has been brewing for years, including soaring pension, Medicaid and retiree health care costs. And many have exhausted creative accounting maneuvers and one-time spending cuts or revenue-raisers to bail themselves out.
— EUROPE’S THREAT HAS SUBSIDED
Investors panicked last year over the prospect that Greece and some other European countries would default on their debts, stick banks with huge losses and trigger a global credit crunch. Such fears sent stocks tumbling and helped diminish U.S. consumer confidence in the second half of 2012.
But confidence is rebounding. Greece has received a $172 billion bailout, pushing back the threat of a destructive default. And the European Central Bank has made more than $1.3 trillion in low-rate three-year loans to banks since December, making clear it won’t let the European banking system fail.
Anybody who’s been paying attention would know that the problem goes beyond Greece. Other countries in the region are similarly exposed, as Forbes notes in "After Greek Default, Spain And Portugal Pose Major Risk":
With the Greek problem off the table for the very near-term, markets will turn their eyes mainly to Portugal and Spain as the European sovereign debt crisis continues. Portuguese sovereign bonds (PGBs) are still trading at distressed levels, with the spread over German bunds at more than 1,200 basis points.
Europe’s sovereign debt crisis is far from over. While Greece’s managed default marks a break in the road, and markets appear calm in its aftermath, the remaining PIIGS are still under pressure. Schauble noted a third bailout for Greece can’t be ruled off, while Barclays suggests PSI remains a possibility in Portugal. For now, though, the major risk of a disorderly default in Greece has passed. This could be the calm before the storm, though.
What’s more, it’s not just sovereign states in the region that are at risk. According to the New York Times, the banking system also remains on shaky ground.
"Report Shows Depth of the Distress in Europe"
FRANKFURT — While the European Central Bank’s emergency loan program late last year helped avoid a banking crisis, there is doubt over whether the action will promote economic growth by encouraging lending to businesses and consumers, according to a new report by the Bank for International Settlements.
European banks remain highly leveraged and will not be able to substantially step up lending until they have further reduced risk, said Stephen Cecchetti, head of the monetary and economic department at the Bank for International Settlements, which acts as a clearinghouse for the world’s central banks and released its quarterly report late Sunday. Emergency loans provided by the European Central Bank will help stabilize banks, but it will take a while for the money to reach bank customers.
“Do not expect banks to respond by increasing their lending,” Mr. Cecchetti said during a conference call with reporters on Friday.
— U.S. BANKS LENDING MORE TO BUSINESSES
After the September 2008 collapse of Lehman Brothers shook the financial system, U.S. banks cut loans to businesses in 2009 and 2010. The credit crunch fed the economy’s misery by starving many companies of financing needed to grow and hire.
But banks are healthier now. So are the prospects for their business customers. Bank lending to businesses rose nearly 14 percent last year to $1.35 trillion, according to the Federal Deposit Insurance Corp. Loans to small businesses grew at the end of last year for the first time since the FDIC started tracking them nearly two years ago.
William Dunkelberg, chief economist of the National Federal of Independent Business, says the outlook for hiring by small businesses offers "a better picture than we have seen for years."
Perhaps that’s true, but it appears to be at odds with reports like these:
"Entrepreneurs Scramble as Banks Call in Loans" (News & Observer)
Bud Matthews has been battling for months to avoid foreclosure on his small company’s offices in Chatham County, a scenario that he says would put him out of business. He faces this predicament even though he’s been diligently making the monthly payments on his loan.
Matthews rails that his lender, SunTrust Banks, hasn’t been willing to renew his five-year commercial real estate loan, which ran out in June. In the absence of a new loan, he owes SunTrust a balloon payment of more than $200,000 – money he doesn’t have.
"You just don’t shoot the people that have been good to you," Matthews said, referring to his years of doing business with the Atlanta-based bank. "It just isn’t right to take someone’s business who has made all the payments and has played by all the rules."
"Why Banks Won’t Lend to This Guy’s Profitable Business" (Bloomberg)
Turns out customizing video game controllers for gaming addicts who want to shoot faster can be a decent business. Tim Erven says his five-year-old venture, Custom Gaming in Whippany, New Jersey, has been profitable since he started it, with revenue around $300,000 in 2011, and some 250 orders a week now, mostly through its Amazon storefront.
To keep up with demand, the 22-year-old has been trying to get banks to lend him as little as $10,000 to improve his website and rent a warehouse near his home. The six banks he’s approached have rejected his applications because of his age and because he hadn’t gotten a business loan before, even though his tax returns show profits and his parents were willing to put up their home as collateral. “From what the banks told me, asking for 10 percent of my annual revenue was reasonable, and what tends to be conventional, but even by decreasing the amount I was seeking I was still unable to obtain approval,” says Erven, who juggles balances on six credit cards to manage cash flow.
Erven’s situation isn’t unusual for small business owners navigating post-crisis banking. A recent National Federation of Independent Business study shows that even while demand for credit is on an upward trajectory, the number of small employers able to land a bank loan has not moved in parallel. Bank credit for small firms (defined as businesses with annual sales of less than $50 million) has been ticking up, slightly, since the third quarter of last year, according to the Federal Reserve’s quarterly surveys of senior loan officers and other government data. “But it should be much stronger at this point in the economic recovery,” says Paul Merski, chief economist at the Independent Community Bankers of America in Washington.
One reason, not surprisingly, is that many U.S.-based lenders aren’t on a particularly solid footing, as Bloomberg reveals in "Shaky Banks Still Haunt the Bailout":
Right now, taxpayers are in the black on the program that bailed out banks. But weaker banks that haven’t repaid their loans may still leave us in the red. That’s the problem the Government Accountability Office points to in a new report looking at the government’s single largest bailout effort, the Capital Purchase Program. Treasury started CPP in October 2008 to provide liquidity and stability for banks. Ultimately Treasury propped up more than 700 banks with almost $205 billion. The banks make dividend and interest payments to Treasury; then, to exit the program, they repurchase warrants and preferred shares and repay loans. The GAO says those revenue sources have brought in $211.5 billion for taxpayers—a $6.6 billion profit above the initial infusion into the institutions.
But the picture’s not all rosy. First, the GAO says that almost half of the banks that have exited CPP did so by refinancing their debt into other Treasury-run programs, in particular the Small Business Lending Facility and the Community Development Capital Initiative. Second, the GAO highlights 366 banks that haven’t repaid CPP and still owe a combined $16.7 billion. Those banks, the GAO says, are less healthy than the banks that have already repaid CPP and other similar-size banks which didn’t participate in the program at all. In December 2011, 130 of the remaining banks were on the FDIC’s “problem” bank list, meaning their viability is threatened by financial, operational, or managerial problems. And 158 banks missed their quarterly interest and dividend payments to the Treasury in November 2011.
Statistics: Posted by yoda — Mon Mar 12, 2012 9:04 pm
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