In this New York Times article author Joe Nocera offers up his opinion on how to help with job creation in this country by highlighting the struggles of two small businesses who are trying to find a loan. Both of the businesses seem to have good track records and be trustworthy, yet they have consistently been rejected by banks when asking for loans to expand. Why? Because banks are still recovering from the shock of the recession and have become more wary about loaning out money. This, the author says, is what has caused the trend of banks becoming more particular about who they will loan to.
The banks, the author argues, may be the key to increased job creation. Obama said in his speech Thursday that “small businesses are where most new jobs begin”, which Obama used as a defense for his plan to cut taxes to such businesses. While Nocera agrees that tax cuts will likely help small businesses he believes the government would do better to look at how to convince banks to behave more like the Sterling Savings Bank in the article. If banks would relax their stringent standards for giving out loans the money supply would increase, businesses would then be able to expand, and new jobs would be created.
I quite agree with this idea that it is the banks that are a key part of job creation in this time. By the Obama administration's proposal many small business would be able to hire new workers because of an increase in disposable funds but the banks are reluctant to loan. However, banks are still business, which explains their stringent standards, because they want maximum reassurance that they will gain from lending.
ReplyDeleteI also agree with this article in certain ways. By reducing taxes to small business it will help create more flow and lower unemployment rate but the main factor is for the banks to give our loans.Which is hard during this time. I think Obama need to do something to reassure the banks that is safe to loan out money since this will really help the economy.
ReplyDeleteThe examples in this article are convicing. Small business whose holder withour too much collateral are enduring a hard time about borrowing loans from bank now in US.
ReplyDeleteIt means a lot more after reading the previous blogs about Obama's new jobs offering measurement. At such a dire economic moment with a upcoming president election coming, I think there will be more chances and better environment for small business in US.
I'm not convinced that bank should start lending out a lot more money right now. In the short run the lack of loanable funds is painful however in the long run it ensures much more stable growth. The fed should implement more direct lending to businesses in the short term while encouraging banks to maintain their strict standards.
ReplyDeleteI think it is hard to say whether or not banks should be loaning out funds. From the view of small businesses who cannot survive without the loans, obviously they believe businesses should give out more loans. I think that it makes sense to give out loans to businesses with stable plans, good past results, and a stable cash flow such as Sterling Savings Bank did with Bill and Zhiqin. However, it makes sense that banks are being very selectively with who they give their loans out to in this economy. Banks do not want to give out loans to a business that may default on their loans, because then that is a loss of money for the bank.
ReplyDeleteIt is very difficult in this time for banks to be loaning out money to small businesses, especially when the chances of the business surviving are so low. Many small businesses are itching and scratching for money in any way possible but that does not mean the bank needs to keep dishing out money to cover them. I agree with ckrogers that the bank must remain firm in their distribution of money.
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