While Washington may scream at the banks to lend on one hand, the regulators are screaming at the banks to increase their capital bases on the other. Many may believe the banks have sufficient capital especially in light of the relaxed accounting standards imposed on FASB by Congress and Wall Street. That may be true but it does not mean that the true reality of the situaiton will lead to the extension of more credit by the banks.

Thus the question begs from where will the credit flow. While this legislation might have an opportunity to be improved better to start the process because America needs it. Without credit, there is no growth.

Larry Doyle
President
Greenwich Investment Management

We in the finance community were front row witnesses to several years of incredibly lax credit standards across most of the industry. The combination of easy money and the hubris of those that had made some “quick money” in industry roll-ups, company flips and other zero-value-added actions created a sense of invincibility across the industry. This was not confined to commercial lending, obviously.

The subsequent crash and implementation of programs such as the Fed’s “quantitative easing” (0%), mark-to-model, TARP, Cash for Clunkers etc have served to distort markets even more, remove incentive for lenders to deal with problem credits, and reinforce the welfare state that arguably precipitated the problems in the first place.

In my opinion, this legislation is yet another vote-buying exercise, this time by a congress that couldn’t pass meaningful legislation with a gun to its head.

It’s clear that many worthy small companies cannot get refinanced, but it’s also clear that there are many companies that have been spared liquidation due to the banks general unwillingness to “face the music”. We’ve pitched not less than 8 deals this year in my office where the bankers decided to simply hold onto the credit rather than face the reality they were seriously under water – by their appointed appraiser’s opinion, not ours. So this knife cuts both ways.

This legislation is a bunch of business groups saying, it seems, “As long as you’re handing out cash, why not us?”.

This is a rightful sentiment given ALL politicians propensity to throw around money rather than deal with problems. Frankly, while I believe the GOP has taken a “principled objection” posture, they would dearly love to throw the cash around just as much.

I do, however, believe this will not solve anything for the following reasons:

1) There are no mechanisms to ensure the funds actually go to small businesses that are actually struggling because of real credit access issues, rather than their own operational weakness or previous foolish decisions. This then becomes a money grab, not a targeted development program.

2) There is an existing, well established system of SBA lending that already is a pretty generous program that guarantees as much as 90% of a loan. Why should taxpayers fill in the other 10% too?

3) There is no real shortage of capital, but a reluctance to lend because of (a) existing toxic assets – yet to go through workout – consuming ‘regulatory capital’, (b) uncertain governmental directions regarding taxation, regulations and other obligations that will be foisted upon us all, and (c) a business community that seems to believe the “other shoe” has not yet dropped, and they’re preserving their capital. Being in California adds another layer, of course, but that’s a different discussion.

4) Band-aids NEVER solve problems, just delay real solutions to the benefit of the few, and the political class who claim credit.

5) By ‘jumping on the handout bandwagon’, we prove to the political class that we can be bought for a few shekels – arguably we’ve already proven we can, but for $32 billion are we prepared to give the congress support to continue the status quo, and support “bailout nation”? GM along got more than this, how can we expect this will provide any meaningful change in lending practices?

I agree wholeheartedly that many changes are necessary, I simply do not agree this is a meaningful change.

I would support a variety of changes that take away the welfare mindset, such as tax code revisions, elimination of market distorting subsidies (especially in consumer spending on houses, cars and energy), and meaningful changes to the way the capital markets work.

We all suffer in this recessionary environment. But I am prepared to hold out for substantive change and a return to prominence of the American Free Enterprise system, rather than the current welfare state that is, in my view, ruining this country. This congress has had more than 4 years of near-absolute power to make changes, and what have we got?

Let’s first change the power of the congress and senate to easily push destructive legislation through, regardless the “noble intent”. I personally believe there are strong people in both parties that have very good ideas, although I clearly lean to the side of personal responsibility. I would support any legislation that returns us to our roots of merit, self reliance, and a level playing field.

This and other distortions of the marketplace mean “gaming the system” is the most important skill a businessman must have. That cannot be good for commerce, and that cannot be good for the future of America.

I applaud your willingness to put yourself on the line for a position – that’s definitely a positive move forward. I’m active in promoting a “return to free enterprise” among my peers.

Respectfully,

Joe Seigo
Century Services (USA), Inc.

A viable solution would have been to direct stimulus money towards fixing our decaying infrastructure. This would have created long-lasting improvements that would benefit our entire country. It would have also solved much of the unemployment issue as the bulk of the jobs lost in the recession were construction related.

Unfortunately, the opportunity to do something great was squandered, leaving the country saddled with a mountain of debt, expectations of higher taxes, still without a clear path out of this mess, and nothing tangible to show for it.

At this point, the best solution is to overhaul the entire system – provide lawmakers incentives to do what is right for the long-term prosperity of the country instead of doing what works to get them re-elected in the short-term. Unfortunately, I think American apathy outweighs American outrage at the moment, making this solution unviable. I can say that the last thing we need is higher taxes and redistribution of wealth (which does nothing more than promote bad behavior). Instead, entrepreneurs and small business owners should be incentivized to start new busiensses and grow existing enterprises.

Look to Japan’s lost decade for guidance – that is where we are headed. There is no quick exit at this point; and the longer that we delay taking our lumps, the bigger and harder we will fall when the next bubble bursts.

-Brian Woodall
Senior Associate of a Mezzanine Fund

At this point it is ‘inevitable’ to some degree that their will be a sizeable bond default(s) both here in the US at the State and Federal level and in Western Europe. Its just a question of how bad it will be and how long the US Federal Reserve will ‘prop’ it up using the printing press.

I would recommend Jens S. Parsons book “Dying of Money”. It was written in 1974 and highlights similar economic events we are seeing today. (French in the 1870′s, US 1774 to 1776 (the cause of the US Revolution) and 1920′s Germany, 1960′s US). Its a bit ‘dry’ but gets to a sobering point that we are simply repeating a policies that have already been tried and already failed.

There are well over 6400 FIAT currencies that have failed in modern history. All of them are purely ‘Fiat’ based. Currencies that are at least partially backed by reserves lasted the longest (but eventually were converted to paper as the US has done in 1974, and then failed typically within 100 years after doing so. (Since the politician now has ‘no bounds’ to the use of the priting press).

The book retails for $700 on Amazon, but a free .pdf copy is available on the Ludwig Von Mises Website or goldseek.com in the ‘library sections.

Enjoy.

Todd Baker
Vice President
California Bank & Trust

I like most of the items in the bill but am leery anything will happen during this congress.

Executive Vice President
Chief Credit Officer
Celtic Capital Corporation

SVP
Pacific Alliance Bank

Small Business Owner
Drinks Distribution Industry

A third party can: objectively negotiate with creditors while maintaining relationships with critical vendors; access multiple lending sources to provide your business with the most competitive terms and conditions. Finally, by using a third party to accomplish all of this, the business owner is freed up to concentrate on activitees which generate revenue.