November 1, 2010

The Broke Lender of Last Resort

Justin Katz

Why isn't it sufficient for candidates for public office simply to say, "I'll get out of the way"? Take gubernatorial candidate Frank Caprio:

A centerpiece of his TV ad campaign for weeks, Caprio's plan relies heavily on $13.1 million in new federal dollars for loan guarantees, and "moving" the $50 million that remains in the $125-million loan-guarantee program that state lawmakers created earlier this year into a new Small Business Loan Fund.

Standing in front of Moretti Salon on Atwood Avenue in Cranston, Democrat Caprio suggested a state-backed commitment of that size could be used to leverage $640 million in private loans to businesses that might not otherwise qualify, to "retain or create 14,800 jobs."

I'd trust private investors to sift through potential projects and judge the worthy more than I trust the government to do so. Investors have profit as their motive, so they look for long-term successes; politicians have talking points as their motive, so lending public money allows them to claim to have "created" jobs and, if the business fails, to offload the blame on its operators. In the case of loan guarantees, the government generally isn't even invested to the extent of putting up money that it might use for other purposes; the hit comes after the failure.

We certainly require new businesses to open their doors and begin hiring, but at this point, guaranteeing loans is just a sly way for the government to compensate for the unnecessary burdens and risks that it places on the economy through mandates, regulations, and taxes.

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"could be used to leverage $640 million in private loans to businesses that might not otherwise qualify, to "retain or create 14,800 jobs.""

... um, the problem now is not a lack of loans to build stuff or provide a service. It's a lack of customers to buy that product or service. There's no point in taking out a loan if you're not going to have the revenue to repay it.

Businesses know this too well. Why don't the politicians?

Posted by: Monique at November 1, 2010 8:34 AM
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