Small Businesses to Fed: Where’s Our Bailout?

Memo to Uncle Sam: Small Business Needs Your Help, Too!
Eight years after the dotcom market collapsed and the shares of my company, NetCreations, plunged 90 percent in nine months, I thought I had finally found some solid ground. Armed with a diversified portfolio of real estate, muni bonds, hedge funds and private equity, I really thought that market meltdowns were a thing of the past.
Until last Sunday, that is, when the government refused to rescue Lehman Brothers and the U.S. financial system went into a tailspin, sending the stock market on a heart-stopping roller coaster ride that made Six Flags‘ Kingda Ka look like a kiddie merry-go-round. A day later, the government shifted gears, throwing American International Group an $85 billion lifeline, guaranteeing the money market industry’s $3.4 trillion in deposits and rolling out a plan to take $700 billion worth of bad mortgages off the banking industry’s balance sheet.
Memo to Hank and Ben: The next time you guys decide to throw out the rule book and start running the economy out of your hip pocket, could you at least come in for a consulting session first? I know things are tight at the Fed these days, but $300 is a drop in the bucket compared with the trillions you’re going to spend before it’s all over.
If you guys really want to think outside the box, consider this: Why bail out the middleman when you could save billions of dollars by lending the money to businesses and consumers directly? After all, you guys have already nationalized the country’s mortgage lending business and forced Goldman Sachs and Morgan Stanley to become regulated banks.
Think about it: The way that banks have traditionally made their money is by borrowing cash from the government at wholesale prices, then retailing it to the public and making the spread.
Banks justify their profits by arguing that they’re taking a big risk. If the borrower defaults, the banks are the ones stuck holding the bag. But if the government is going to step in and bail out the banking industry every time it makes a bad loan, there’s no reason for Uncle Sam to finance the industry’s inflated executive salaries, overextended branch networks and prime time TV ad campaigns.
Allow me to introduce The Axxess Plan.
Effective immedately, consumers and businesses would be able to borrow at the fed funds rate at 2 percent, just like the big banks do. This means that every cash-strapped homeowner would be able to refinance his mortgage and cut his payments in half, saving thousands of homes from foreclosure. Consumers could also refinance their credit card balances, auto loans and other debt at interest rates they can afford. And the nation’s businesses, flush with affordable working capital, would now be able to hire employees, gear up production and roll out big ad campaigns just in time to save Christmas.
Unlike the government’s plan, the Axxess Plan would cost U.S. taxpayers absolutely nothing. Even if a small percentage of borrowers defaulted, it’s hard to imagine that it would cost the government anywhere close to the $700 billion it’s proposing to spend on loans that have already gone sour.
Sure, certain banks and brokerage firms would go belly up with nobody to take their mortgage assets off their books. But that wouldn’t be a problem since we’d all be banking with the Fed. Unemployment wouldn’t be an issue, either, since tellers and branch managers from the private sector would now have cushy government jobs. (Their CEOs wouldn’t be making $100 million a year anymore, but I’m sure they could sell their Ferraris on eBay and find a way to survive.)
Now, I know what you’re thinking. It all sounds great, but wouldn’t giving everybody government-backed loans at 2 percent interest just trigger another housing bubble?
Maybe it would. But, right now, that wouldn’t be such a bad problem to have.