Archive for September 18th, 2009
More Community Reinvestment
Posted by Joshua Sharf in Finance on September 18th, 2009
As though forcing banks to loan to bad risks had worked before:
The Obama administration’s chief steward over small-business policy visited Colorado on Thursday, in part to deliver a message that the state’s banks need to do more to extend emergency stimulus aid to struggling businesses.
In remarks to The Denver Post before a speech to the U.S. Hispanic Chamber of Commerce, Small Business Administration head Karen Mills said her staff has ramped up efforts here to promote America’s Recovery Capital loans. Banks make the $35,000 loans while the SBA guarantees them at 100 percent.
Mills met with Gov. Bill Ritter, who is trying to promote the program, and Don Childears, head of the Colorado Bankers Association, who has criticized ARC lending as unprofitable for banks unless they take on large volumes.
Of course, it’s not the banks who are on the hook here. It’s you. I’m sure that not all of these businesses are bad risks. Most probably aren’t. But enough probably are to poison the whole pool if banks are expected to loan en masse, and the government doesn’t exactly have a sterling record in distinguishing between the two
We’re not in the business of promoting panic here, but it’s not as though the banking and mortgage systems have exactly been put on sound footing. The Congress – notably that savant Carl Levin – is encouraging the FDIC to borrow from the Treasury (who will borrow from the Fed, who will either print the money or borrow it from the Chinese or take it from the banks in question, anyway), at the same time that the FHA is tightening lending standards after discovering that the subprime business may be riskier than we thought. Horse, meet barn door.
‘Bama Bigfoot
Posted by Joshua Sharf in Colorado Politics, Senate 2010 on September 18th, 2009
It’s good to know that it’s not only Republicans who are dealing with out-of-staters eager to pick winners:
President Barack Obama endorsed U.S. Sen. Michael Bennet today, throwing the force of the White House into a Democratic primary battle that officially is just over a day old.
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The direct endorsement of a president still enormously popular among progressive voters is perhaps the biggest hammer that national Democrats can bring to Bennet’s primary battle against former Colorado House Speaker Andrew Romanoff, and they wasted no time in wielding it.
Does this make sense? Only if it works. Rumors had abounded that Romanoff had about $1.5 million (roughly 0.0001% of Obama’s deficit spending) ready to come on board, and to make him immediately competitive. Certainly Romanoff wasn’t going to be able to run to Bennet’s left, but the endorsement of The Big Leftie himself probably gives Bennet some room to move to the center if he has to. Of course, the primary is 11 months from now, and who know what Obama’s endorsement will be worth by then.
What Do Freddie & Fannie Have that Sallie Doesn’t?
Posted by Joshua Sharf in ACORN, Finance, National Politics on September 18th, 2009
The same thing that a public option in health insurance would have: the ability to run off the competition.
Yesterday, you may have heard, the House voted to cut off funding for Acorn, with all of the opposition coming from 75 Democrats. Typically, the minority – the Republicans, for the moment – will try to tack something truly poisonous to the majority on a bill that the majority – for the moment, the Democrats – just can’t refuse.
In this case, it was the final gasp knee on the ventilator tube of the independent student loan market. The story combines the worst elements of the government part of the mortgage mess with the scariest elements of the proposed insurance mess. Way back, bankers and independent lenders didn’t see students as such good credit risks. (They still don’t, which is why they tend to loan to them at 18% interest on credit cards.) So the government decided to step in and offer subsidized loans for education. Over time, the banks who made the federal money available were subject to more and more restrictions, until they became, to all intents and purposes, a utility of the federal government when it came to student loans. So much so that they could be portrayed – sadly, with some justification – as rent-seekers offering no value added:
“This bill will end the billions upon billions of dollars in unwarranted subsidies that we hand out to banks and financial institutions, and will use that money to guarantee access to low-cost loans,” Obama said in a statement.
The unwarranted subsidies to bad credit risks and liberal universities naturally go unmentioned, those being virtuous in nature.
Now, in a student-loan version of the Community Reinvestment Act, the government will spread that virtue around:
The Obama administration would use anticipated savings from the measure to increase grants for low-income students, boost funding for minority student groups, provide money for school construction, with a small portion left over to pay down the deficit.
The news has driven Sallie Mae’s credit rating down to a BBB-, and its stock price down accordingly. This is exactly the path that a public option in health insurance would take. The public (heh) has roundly rejected that idea as pretty terrible. It was terrible with mortgages (85% of which are now backed by the government), it would be terrible in health insurance. Why is it any better with student loan debt, which is also some of the worst debt in the world to owe?
I understand the Republicans’ desire to get the Democrats to vote on ACORN. With any bills likely to be bottled up in committee forever, a floor amendment to one of the few bills the Democrats were permitted amendment to was the logical path to take. Ironically, it may also focus attention on just how bad a bill that is.
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