By Matt Barrett
The Daily Record Newswire
While Elvis Presley’s song, “A Little Less Conversation” has nothing to do with our current state of small business credit, the sentiment behind the lyrics are the same for me.
Elvis wanted his girl to close her mouth, open up her heart and satisfy him. In the same way, I want the federal government to stop talking about fixing the problem and do something - or at least just shut up so I don’t have to listen to political rhetoric any longer.
In a speech last month by Federal Reserve Chairman Ben Bernanke addressed restoring the flow of credit to small businesses.
“The formation and growth of small businesses depends critically on access to credit,” he said. “Unfortunately, those businesses report that credit conditions remain very difficult. For example, the net percentage of survey respondents telling the National Federation of Independent Business that credit conditions have tightened over the prior three months has remained extremely elevated by historical standards.”
Bernanke goes on to say that they have heard “often-expressed concern that bank examiners have prevented banks from making good loans.” There is significant truth to this.
An average bank might maintain a ratio of what they own (money that is their profit) to what they owe (money you deposit) of around five to ten cents on the dollar. When a small business loan goes bad, and the bank has to eat the loss, the ratio of five-owned to 100-owed becomes four-owned to 100- owed, which puts the bank one step closer to a minimum ratio maintained by the federal government.
Get too close, and fall below that minimum ratio and enter the bank examiners with a sympathy card expressing their deepest regrets that you no longer a bank and they begin to take over operations for you.
As a result, a bank that might normally have made a loan to a business now doesn’t make the loan for fear of inflicting the wrath of the examiners.
I used to believe it was two different hands of the government, who in typical government fashion didn’t know what the other hand was doing, but this makes it quite obvious that it’s not ignorance.
Perhaps it’s stupidity.
Bernanke, allegedly the smartest and best economist in our country, knows businesses need access to money. And he knows the bank examiners are being accused of “preventing banks from making good loans.” Mind you, a “good loan” is one that pays on time, every month until the loan is paid off and the bank recoups all its money plus interest (profit). Yet, instead of demanding solutions and action, he continues by saying, “The Federal Reserve has worked assiduously with other banking regulators to develop interagency policy statement on this issue, aimed at both banks and examiners.”
Maybe I’m missing the point, but is the chairman of the board for the Federal Reserve playing the part of a mother with two kids who desperately need to go back to school before the fighting escalates to the point of bloodshed?
Here was the opportunity for Bernanke to shout from the rooftops, “We’ve got a problem and based on all the discussion we’ve had at the 39 meetings like this one where we’ve been brainstorming ideas to get out of this mess, my solution is ...”
Instead he handles it by saying, “Golly gee, you two kids need to get along and if you can’t stop complaining about each other, I’m going to go talk to your father. You just wait and see because we’re going to come back and give you our formal statement which will tell you in a very formal, verbose way to get along and quit fighting or else I’ll count to three... again... and I mean it this time.
I still don’t blame banks for holding up the access to capital small businesses crave. I believe business credit is returning to the way it used to be. The way it probably should be to keep us out of a repeat of the problem we’re experiencing now. It’s returning to more conservative risks.
While I long for the excitement of businesses with half baked ideas and inexperienced owners getting loans, I feel the government feigning attempt to encourage banks to loosen credit standards is the equivalent of the government to launch a new FHA loan program for reverse mortgages for individuals who can’t afford the monthly payments.
My sentiment is said best by the King of Rock and Roll, “All this aggravation ain’t satisfactioning me.”
Matt Barrett can be reached at at matthew.barrett@uccs.edu.
