credit

Small Business, Big Manufacturing And Job Creation -- The Banks Aren't Lending

Dave Johnson — Wed, 20 Jan 2010 14:45:50 -0500

Banks still aren't lending where its needed, and it's getting worse, not better, for small businesses - the nation's jobs engine. Why did we bail out the big banks, again? Perhaps our government should just loan directly to the job creators instead of the job killers.

A CNN report this week: Banks pull another $1 billion from small business lending,

The nation's biggest banks cut their collective small business lending balance by another $1 billion in November, according to a Treasury report released late Friday. The drop marked the seventh straight month of declines.

... 10 of the 22 banks have cut their small business balances every single month since April. That list includes firms such as JPMorgan ... that are now posting monster profits. ... JP Morgan said its compensation expenses rose 18% during the year to $26.9 billion, much of which will be distributed as bonuses.

This chart from CNN's story shows the problem:

Small businesses are the jobs engine of our economy, but not if they can't get the credit they need to keep going. According to the Small Business Administration office of advocacy, small firms:

Have generated 60 to 80 percent of net new jobs annually over the last decade.

Recently President Obama cited the figure of small businesses creating 65% of all new jobs. And, confirming that, Again from the SBA,

Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008.
Continuing firms accounted for 68 percent of net new jobs, and the other 32 percent reflect net new jobs from firm births minus those lost in firm closures (1993 to 2007).

But not if the banks won't lend to them.

This isn't just a problem for small businesses. It is also a problem for very large businesses. In a November post titled, $140 Billion For Bonuses, Zero For America’s Future I described how US Steel can't get financing to complete the Clairton coke battery plant and concluded,

Wall Street and the financial economy are supposed to be to supporting the real economy by playing the role of middleman, connecting sources of money with companies needing that money to allocate capital where it is needed. ... That is their essential role in the economy.

But ... instead of playing a background role supporting the real economy Wall Street has been dominating the economy, influencing the government and running quick-buck schemes, creating bubbles, speculating up prices on commodities and generally running wild. ... But instead of fixing the system, Wall Street still is not allocating capital where it is needed. They are, however, taking huge profits and giving out huge bonuses.

Let’s make finance the servant of the real economy again, rather than its master.

Problem put simple: our government is helping the big banks, but instead of using the government assistance to lend, they are speculating and giving out huge bonuses. This is a disaster for the economy and for the public's faith in government and democracy.

The initial bank bailout was presented to Congress as an emergency so severe it required passage in 48 hours, would have no oversight and would be “non-reviewable by any court or any agency”. Of course, when it didn’t pass in 48 hours the economy didn’t collapse, but they did finally pass it because Congress apparently follows a higher law that says the big banks must get what they demand.

Along with the TARP bailouts there has been the AIG pass-through, allowing them to not mark the losses from their gambling to market value, bad debts have been guaranteed by the taxpayers, and money is lent to them at zero interest rates which they lend right back to the government at a higher interest rate! (These low rates are a tax on people with savings accounts, for the benefit of the big banks.)

This year's $150 billion bonus pool would, all by itself, go a very long way toward restoring jobs as well as faith in our government and economy, if only it were applied to the problem instead of handed out to already-wealthy people as bonuses.

It is time to change the situation and make the banks the servant of the economy instead of the other way around. If the banks won't lend the government has to either make them lend or start lending directly. Either way it is time to break up the big banks to reduce their destructive influence over the government and economy.

Will The Senate Stop The Credit-Card Loan Sharks?

Isaiah J. Poole — Fri, 08 May 2009 10:34:33 -0400

In Poultney, Vt., a small town near Lake St. Catherine near the Vermont-New York border, "Walter" had been running a small business during the summer for 43 years—until a rectangular piece of plastic helped bring him down.

Walter, as he referred to himself in a letter to Vermont Sen. Bernie Sanders, had been using a credit card from Advanta, a Pennsylvania-based company that specializes in small-business credit cards. The rate had been 7.9 percent for years, he wrote. But last year, for no apparent reason, the rate jumped to 28.8 percent.

"I always paid more than the minimum and always on time," Walter wrote. "When Avanta was contacted and asked why, I was told it's a floating interest. I asked to speak to a manager and was advised that's the way it was and they could do nothing to lower it. I got a line of credit loan from Heritage credit union at 1 percent over prime, paid them off and shut down my business. After 43 years of business, it took usury to shut me down."

There are dozens of stories like this one in a booklet Sender's office prepared based on letters he received from constituents socked with high credit card rates, often even though they conscientiously paid their bills on time and maintained high credit ratings.

As Sanders puts it in the introduction to the booklet, "In my view, when credit card companies charge 25 or 30 percent interest rates they are not engaged in the business of 'making credit available' to their customers. They are involved in extortion and loan-sharking." These stories, he says, make the case for "fundamental reform of the industry."

Next week, the Senate has an opportunity to restore some fairness to a credit-card industry that is out of control. In the process, Democrats can show that they are not owned by the financial services industry—a test 12 Democratic senators failed when they sided with lenders instead of homeowners and defeated a mortgage relief bill.

The Senate will take up a bill (S 414) sponsored by Sen. Christopher J. Dodd, D-Conn. that has earned praise from several consumer and public-interest groups. If it is not watered down during Senate debate, will institute some important reforms.

The version of the bill that left committee would prevent credit-card issuers from:

Raising interest rates capriciously and retroactively on existing balances.
Hitting consumers with high penalty fees, such as over-limit fees and telephone payment charges, that are not related to the costs that credit card companies incur.
Assessing hidden and unjustified interest charges on balances already paid off.
Forcing consumers to pay off balances with lower interest rates before those with higher rates.
Offering credit to students and young consumers without considering their ability to repay
the loan.

It left the Senate Banking Committee stronger than a House bill passed in April that the banking industry is still hell-bent on opposing, even though its lobbyists successfully diluted portions of it. But since then Dodd has been negotiating with Sen. Richard Shelby, R-Ala., on compromise bill language to head off a Republican filibuster.

The Senate should get the message that there is nothing to compromise, especially when the top credit-card issuers (who also happen to be the biggest offenders when it comes to unscrupulous lending practices) also are surviving off of taxpayer bailout money.

As Elizabeth Warren, chairwoman of the Congressional Oversight Panel that is watchdogging the federal bailout, told the Wall Street Journal, "we're asking taxpayers to pay twice" when we subsidize the operations of these banks so that they can turn around and fleece their customers with new and excessive fees and interest charges.

A truly fair and just piece of legislation would designate interest rates that go as high as 30 percent or more "usury" and make the practice of usury illegal. Before conservatives started deregulating the credit-card industry in the 1980s, usury laws set reasonable limits on the interest rates lenders could charge. Banks made profits, and responsible borrowers who had a temporary setback weren't dumped into a hole they could not dig themselves out of because of a predatory pile-on of interest-rate hikes and fees.

Sanders has introduced a bill that will set a cap of 15 percent on the interest credit-card companies can charge. At a time when banks are getting virtually no-cost loans from the Federal Reserve and from each other—the one-month London interbank loan rate is 0.4 percent—asking banks to limit themselves to at 14.6 percentage-point spread between the cost they pay and what they charge borrowers is not too much to ask.

But the very least that the Senate can do is tell the banks to end the loan-sharking and extortion. Consumers Union has launched a website, CreditCardReform.org, that will enable you to send that message before the Senate acts next week.

Loan Deliquincies At Record High

OurFuture.org Staff — Thu, 02 Apr 2009 10:47:17 -0400

Delinquencies on consumer loans continued to rise at the end of the year, according to data released by the American Bankers Association. The delinquency rate during the fourth quarter of 2008 across multiple consumer loans increased to 3.22%. It is the highest delinquency rate since the ABA began tracking the data in the 1970s. The delinquency rate was 2.90% during the third quarter. Job losses during were the primary reason for the rise in loan delinquencies during the quarter, says James Chessen, the ABA's chief economist. "Job losses have really hurt the economy and will continue to inflict pain for several months," Chessen said. "The greater the losses are, the more severe an impact it has on all credit markets."

VIDEO: GOP Brags That McCain Will Continue Bush's Economic Legacy

David Sirota — Tue, 15 Jul 2008 13:21:23 -0400

Last week, I appeared on Fox News to discuss the inflammatory comments by Phil Gramm (John McCain's top economic advisor) and how those comments really epitomize the Republican Party's country clubbish, let-them-eat-cake outlook on the economy. Notice about half-way through as the Republican strategist I'm debating actually acknowledges that McCain's major idea for fixing the economy is continuing George W. Bush's tax policies - and that when she's called out for saying that, she tries to deny what she just said:

The interchange is instructive for two reasons.

First and foremost is the admission: namely, that Republicans still want America to believe that the way to steady the economy is to follow Bush's efforts to slash taxes for millionaires. As I show in the very first chapter of my book, this is a prescription being rejected even in some of the most conservative parts of the country.

Second, there is the denial: When called onto the carpet for wanting to continue the policies of the most unpopular president in history, Republicans start running for cover to the point of claiming they never said what they just said. The denial is a tacit acknowledgment of the power of the populist uprising now boiling throughout the country. The GOP knows the country is very angry at conservatives' free market fundamentalism - and so will deny and obfuscate to pretend they aren't championing such fundamentalism.

Of course, moments after appearing on Fox, my email in-box was filled with hate mail from conservative viewers. For instance, Dave in Bokeelia, Florida told me "Gramm was abolutely correct" in blaming Americans for the economic downturn, then asked, "Why don't you get and your boyfriend move to Denmark or some other socialist country?" (apparently, he's not aware I'm happily married to my wife, Emily). Then he declared, "Obama has already lost, you moron."

A guy named Charles angrily asked, "When did raising taxes ever stimulate economic growth?" then said "raising taxes will only cause a deeper recession," and added "Do your homework before berating someone on television." Apparently, he forgot that our most recent economic boom during the 1990s came immediately after President Clinton raised taxes on the wealthy.

My favorite was from a guy named Steve who wrote, "hey girlyboy, do you have any idea how pitiful you look to normal folks when you open your sissy moth beging the government to help?" (that is his spelling - for real).

These comments show how powerful conservative propaganda has been - it has convinced a number (albeit a dwindling one, according to polling data) of people to believe that the real problem in our country is that we have too few royalists running the government - not too many. Though this conservative ideology is clearly on the ropes, the Fox News clip shows that the GOP is going to continue trying to ram it down our throats.

This is an ongoing series from the national tour for THE UPRISING. You can order The Uprising at Amazon.com or through your local independent bookstore.