Remember when the government pushed banks to lend to people who could not afford mortgages? That’s right. We had the housing bubble that first over inflated our economy and then led to its collapse. We have all been suffering ever since.
Well, Washington is at it again.
It seems that Fed Chief Bernanke is pushing banks to more lend to small businesses.
Lack of credit is not the problem facing small businesses right now, so using a small business government induced stimulus is not the answer. The latest survey of business owners by the NFIB clearly supports this. They found that 90 percent of the owners surveyed reported all their credit needs are currently being met (or they did not want to borrow).
If we push loans to small business owners, especially new entrepreneurs who are bad credit risks, we will create yet another bubble that will inevitably burst, sending our economy into an even worse decline than we have already been experiencing. And since small businesses have almost always led the way out of recession, such a bubble will also make the recession last much, much longer.
dr cornwall, i dont remember the housing bubble’s causes the same way you do…and neither does the FHFA, which is investigating 64 issuers of MBS for fraud…
http://online.wsj.com/article/SB10001424052748704288204575362882033038278.html?mod=WSJ_hps_sections_business
Your statement “Remember when the government pushed banks to lend to people who could not afford mortgages?” belongs on a tea-bagger position paper or one of their placards and not on a University’s web site.
No, I don’t remember the government pushing banks to make loans to “financially unqualified” people. I remember bankers who were more interested in collecting the highest possible bonuses by making risky & imprudent loans rather than concern themselves with the financial safety of their institutions, the country nor the well being of the stockholders.
I also remember a President Bush perpetually asleep at the wheel before and during the banking debacle, completely failing to comprehend the horrific unfolding events.
I am still shocked that when push came to shove at the beginning of the financial crisis, the Bush republican administration and all of their conservative sycophants turned to a Keynesian economic model to save America’s financial institutions and the country. Every one of the republican free enterprisers just nodded their rather large heads in quiet approval and then handed Bush’s impossible financial mess over to President Obama to patch up, “Obama owns it now – with a knowing smile toward the next election cycle”!!!
Why didn’t the the republicans look to Milton Friedman’s intellectual prowess for a solution to the catastrophe? Or, to Ayn Rand’s for that matter?
Why? Neither they, nor their stalwarts, can offer real solutions (nor preventions) to such economic calamities. In part because their disciples caused the problems to begin with and next because other than repeating their mantra “lower taxes for the wealthy and deregulation”, they have no response. If either Friedman or Rand were alive on the day of the announced crisis, they too would not have allowed our financial institutions to go belly up, rather they would have approved the recapitalize action and spent the rest of the time writing about how their support for the baleout fits very well into their economic foollosophy.
Hmmm. So only socialist rhetoric should be allowed at university blogs?
I could not agree with you more on your criticism of Bush and the Republicans. I guess you are not a regular visitor to my blog.
I must say that you must have read some different work by Friedman and Rand than I have.
My point is that what is being done is going to cause another catastrophe. We are repeating the same mistakes.
Right now we have a choice between two big government parties, with remarkably similar solutions. That is why they bicker so much about nothing.
Hope you keep coming back. I think you will see that I am about as non-partisan as you are going to find. We may disagree on policy, which is good dialogue. But, this is not a blog that cares much about politics.
And by the way… I don’t even drink tea… 😉
Dr. Cornwall, I just got in from a Score.org roundtable. While driving home, I pointed out to my wife that a certain participant’s comments about the SBA’s “lax lending standards” — Yes, she said this with glee a few times! — made me think that the government is creating a small business bubble.
So, of course, I not only concur with you, but I also remember when the Community Reinvestment Act led inexorably to dangerously low lending standards — something recalled here and in many other credible online and offline publications.
I also remember Congressman Ron Paul as well as economist as diverse as Peter Schiff and Robert Shiller trying to forewarn America of the impending disaster and nearly the whole Austrian School of economists dire “forecasts” for the housing market based on its business cycle theory.
The real question is: What can anyone do to stop the federal government and private Federal Reserve from “stupidly” conspiring to create such bubbles? I just found your blog and plan to read as much of it as I possibly can, but I’d love to know your answer to this question.
That is a profound question during these times.
In our system your strongest means of making change is your voice.
Speak up based on fact and logic, not just with empty hyperbole and partisan slogans. Make bold strong statement, but always be ready to back them up. For example, I believe we need massive tax cuts because the evidence clearly demonstrates the profound impact that can have on business start-up rates. And leaving cash in small businesses rather than taking it away through higher tax rates (again, remember that small businesses are almost always pass through entities so it is personal income taxes that are in question here) is a much healthier way for them to grow than through being highly leveraged with SBA loans.
Where is the logic in raising taxes and then pumping that same cash back into the system when the SBA backed loans default due to poor lending decisions that come from political pressures?
Engage in dialogue on these issues, and do so with those who agree and those who disagree. It is amazing how when we are patient and dig below simple slogans and superficial political language how we can get our message across clearly and effectively. I have been humbled by how this blog has changed people’s minds about the right direction to take. This does not happen by yelling slogans in their faces, but by dogged presentation of the facts and the evidence.
Thanks for joining in on my blog. Change will take time, but it can happen. We must be persistent, patient, peaceful, respectful, and unwavering.