As thereisnospoon explained for us on Monday, the credit crisis is poised to seriously bite the economy in the ass if something isn't done soon. It was a great diary, and I won't re-hash here the mechanism by which this could happen. Suffice it to say that it's a problem that threatens the 99.7% of employers in America who are small businesses.
The problem is that banks aren't giving credit. The solution everyone's talking about is nationalizing the banks. But I think there's another option. It's one I haven't heard floated here or in the traditional media (not that I watch those guys anymore, but still). Follow me over the flip...
Frankly, I think there's a lot of merit to the idea of nationalizing the banks. Nationalizing banks means that those banks could begin to lend again (or be forced to) without fear because they'd be backed by the federal government.
It seems to be the going idea in financial circles these days as the way to fix the credit crisis, backed by heavyweights like Jospeh Stiglitz and even Alan Greenspan, the father of "Free Market Uber Alles" thinking.
With guys from such opposite ends of the spectrum both calling for the same thing, I don't really understand the Obama administration's reluctance to do this. I gather it has something to do with keeping Wall Street bankers happy, although why anyone should give a rat's poo about what they want anymore is beyond me.
Still, Obama needs to do something NOW to keep those millions of small businesses from dying, and if the President doesn't want to nationalize the banks, there's something else he could do:
He could ask the Congress to pass an emergency piece of legislation allowing the treasury itself to lend directly to small businesses.
If the banks won't give credit, let the treasury do it. And preferably on terms favorable to small businesses. After all, private banks have a profit motive to satisfy. The treasury does not. Private banks have no stated obligation to fix the economy. The government does. So, hey, how about 0% business lines of credit for any business that needs one!
Fine, put limits on it so it doesn't turn into a free-for-all. Cap it to each business's total assets. Say that the program will expire after 3 years, or won't lend any individual business more than five million dollars. Maybe you do it through the auspices of the Small Business Administration, maybe directly through the Treasury. I don't care. Do whatever it takes to make such an idea feasible, but for god's sake, turn on the credit tap NOW!
You want to stimulate the heck out of the economy in a real hurry? That would do it. That would give businesses the green light to pay their bills, knowing they won't have to drain their bank balances down to zero. It would let businesses consolidate their outstanding debt into a single, 0% loan from the government, with both immediate and long-term benefits to the borrower.
And, since most businesses owe money to other businesses, helping them pay their bills helps out their creditors' cashflow situations too, which has the pleasant effect of reducing the overall need for lines of credit. It would help turn the vicious cycle that is the credit crisis into a virtuous cycle of a well functioning economy. Neat, eh?
If banks won't do what banks are supposed to do, then Obama ought to put Timothy Geithner into the business of lending. Maybe that would wake the bankers up to the fact that their own fear is making them irrelevant to the economy at large, and impel them to start doing their job. If so, great. But if not, at least the nation's small business owners won't be left twisting in the wind.