Lending Ease Fuels Biz Growth

More small businesses say they’re finding it easier to secure loans, a shift that could serve as the catalyst to jump-start the slow recovery and weak job market.

Small companies with fewer than 100 workers make up half the U.S. labor force and typically account for two-thirds of jobs created in a recovery. So far, though, small business has benefited far less than large companies since the Great Recession officially ended in June 2009.

Many small businesses still complain credit is tight. But in a recent survey by the National Federation of Independent Business (NFIB), the portion saying loans were harder to get than three months earlier was the lowest since September 2008.

Additionally, senior loan officers surveyed by the U.S. Federal Reserve say their standards for smaller business loans eased for the second-straight quarter in three months ending Sept. 30.

“This looks to us like the start of a serious improvement,” says Chief Economist Ian Shepherdson of High Frequency Economics. Examples of previously denied small businesses finally securing loans after two years are surfacing throughout the country.

Recovery Signs Abound

Employers added 151,000 jobs in October, the most in five months, although the U.S. unemployment rate remains unchanged at 9.6 percent. Retail sales of late have been beating estimates.

The U.S. Department of Commerce raised its estimate of third-quarter economic growth to an annual rate of 2.5 percent. It’s still lackluster, but at least it’s moving in the right direction.

Further, financial institutions are on stronger financial footing, with more capital and fewer bad loans to write off.

The amount of loans that banks charged off in the third quarter fell versus a year ago for the second straight quarter after rising steadily since late 2006, according to the Federal Deposit Insurance Corp.

“Banks have worked through a lot of their problems,” says Paul Merski, chief economist for the Independent Community Bankers of America (ICBA). “The industry is in a better position to increase lending.”

Interest rates are so low that banks can scarcely make a profit by investing depositors’ money in T-bills. “Eventually for banks to become profitable, you have to start taking some risk,” Merski says.

Commercial and industrial loans by small banks, which largely serve small firms, grew at a 4.1 percent annual rate in October, the most since 2008, according to a UBS analysis of federal data.

Credit Conditions Tight

Given the improvements, most lenders are still tight-fisted. Credit conditions aren’t nearly as favorable as they were before the 2008 financial crisis.

Sal Marranca, president of Cattaraugus County Bank in Little Valley, N.Y., and ICBA’s incoming chairman, says regulators continue to pressure banks to impose tougher standards following the Great Recession that began in December 2007.

Also, many laid-off workers have tried to secure loans, but 90 percent of the workers don’t have any collateral to back their own business.

Meanwhile, most small businesses aren’t trying to borrow, since they haven’t seen a robust pickup in sales, says NFIB Chief Economist William Dunkleberg.

Many analysts feel that even a gradual improvement in banks’ willingness to lend could fuel small business expansion as demand continues to grow.

What Needs Doing

WMB believes banks need to continue to ease lending practices in order to create more jobs throughout America.

Large and medium-sized companies, now turning large profits, remain on the sidelines. They are reluctant to reinvest in their own companies since their confidence has been shattered by the global downturn and technological changes.

WMB believes it’s now up to the small businesses throughout our country to help turn our economy around and create new jobs. Further, the U.S. government needs to offer new incentives and help provide tax relief for small business willing to take risk and hire new employees.

This post is by TechMan, WMB co-author who blogs about trends, issues and ideas affecting business, industry, technology and consumers. If you like this post, please share it!

The Fed Spins Big Financial Web

Whether it’s Alan Greenspan or Ben Bernanke, the markets pay close attention when the chairman of the Federal Reserve, the central banking system of the United States, has something to say.

The Fed says it's worried about the weakness of the U.S. recovery and is ready to take further steps to boost the economy if needed, the Associated Press reports. Fed officials also say they are concerned that sluggish economic growth could prevent prices from rising at a healthy rate.

But the Federal Reserve Board of Governors announced no new steps to try to boost the economy and decrease unemployment. Instead, the panel hinted that it's prepared to see if the economy can heal on its own, according to Jeannine Aversa, AP Economics Writer.

Tuesday’s Fed session was the last for the chief policymaking group before the Nov. 2 midterm elections, with voters clearly focused on the battered U.S. economy and the jobs crisis, Aversa notes.

To fully grasp the Fed’s key role today, one must look to its controversial roots in the past, specifically to a secret meeting on an island off the coast of Georgia.

The Federal Reserve System was formed in 1913 with the enactment of the Federal Reserve Act, and was largely a response to a series of financial panics, particularly a severe panic in 1907, according to Wikipedia.


Over time, the roles and responsibilities of the Fed have expanded and its structure has evolved. Events such as the Great Depression of the 1930s were major factors leading to changes in the system.

The Fed's duties today are to conduct the nation’s monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system, and provide financial services to depository institutions, the U.S. government, and foreign official institutions.


The Federal Reserve System’s structure is composed of the President-appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee, 12 private U.S. member banks, and various advisory councils.

The FOMC is the committee responsible for setting the monetary policy and consists of all seven members of the Board of Governors and the 12 regional bank presidents, though only five bank presidents vote at any given time.

The division of responsibilities of the central bank falls into several separate and independent parts, some private and some public. The result is a structure that is considered unique among central banks. It also is unusual in that an entity (the U.S. Department of the Treasury) outside of the central bank creates currency used.

According to the Board of Governors, the Federal Reserve is independent within government because “its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government.” However, its authority is derived from the U.S. Congress and is subject to congressional oversight.

Additionally, the members of the Board of Governors, including its chairman and vice-chairman, are chosen by the President and confirmed by Congress. The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system’s highest level employees. Thus, the Federal Reserve has both private and public aspects.

The U.S. Government receives all of the system’s annual profits, after a statutory dividend of 6% on member banks’ capital investment is paid, and an account surplus is maintained. The Federal Reserve transferred a record amount of $45 billion to the U.S. Treasury in 2009.

The controversy behind the Fed is spelled out in G. Edward Griffin’s "The Creature From Jekyll Island." Griffin(upper right) writes that the basic plan for the Federal Reserve System was drafted at a secret meeting in November 1910 at the private resort of financier J.P. Morgan (1837-1913) on Jekyll Island off the east coast of Georgia. The seven attendees represented about 25 percent of the world’s wealth at that time.

Griffin writes that all the money in the banking system has been created out of nothing throughthe process of making loans. A defaulted loan, therefore, costs the banks little of tangible value, but it shows up on the ledger as a reduction in assets without a corresponding reduction in liabilities. If the bad loans exceed the size of the assets, the bank becomes technically insolvent and must close its doors.

The first rule of survival, therefore, is to avoid writing off large, bad loans and, if possible, to at least continue paying interest plus fresh funds for new business.

The final solution on behalf of the banking cartel is to have the federal government guarantee payment of the loan, should the borrower default in the future. This is accomplished by convincing Congress not to do so would result in great damage to the economy and hardship for the people.

From that point forward, the burden of the loan is removed from the bank’s ledger and transferred to the taxpayer. Should this effort fail and the bank be forced into insolvency, the last resort is to use the Federal Deposit Insurance Corp. to pay off the depositors. The FDIC is not insurance, because the presence of “moral hazard” makes the thing it supposedly protects against more likely to happen.

A portion of the FDIC funds is derived from assessments against the banks. Ultimately, however, they are paid by the depositors. When these funds run out, the balance is provided by the Fed in the form of freshly created money.

This pours through the economy and causes the appearance of rising prices but which, in reality, is the lowering of the value of the dollar. The final cost of the bailout, therefore, is passed to the public in the form of a hidden tax called inflation.

WMB believes that we, the taxpayer, ultimately pay for the manipulations as evidenced by both the government and the banking system. The taxpayer must foot the bill of the usually ill-conceived gyration created in our present monetary system.

The bottom line: We don’t have fiscal control as a country. All one can do is to follow the trail of money or debt to understand where the geopolitical tensions of the world exist. It’s a simple equation, not fuzzy math, but it has consequences for our wallets.

This post is by TechMan, WMB co-author who blogs about trends, issues and ideas affecting industry, business, technology and consumers. If you like this post, please share it with family, friends and colleagues.