The logo on the seal of the city of Chicago is “Urbs in horto” which means “City in a garden”. Local historians believe it should be changed to “Ubi est mea” which means “Where’s mine?” Mike Royko Boss
Although obviously well intentioned, the congressional bailout for small businesses has been beset by problem from the word go. Just before the first round was released, I covered an exchange in which a GOP congressman on the oversight committee was asked how one committee could effectively oversee a half a trillion dollars. His reply was that the first priority of the committee was to get money into the hands of small business owners as quickly as possible, and the fact that there would be a small amount that was misappropriated was a given. I took this as a tip off on how His Lowness would try to line his pockets from the larger, less regulated slush fund that Treasury Secretary Steve Mnuchin controls. Results are still out on that one.
But since the get go, the payroll protection plan has been beset by problems, some simple flaws in the verbiage of the law as opposed to real world conditions, and some more openly insidious. But there is one problem that stands out over all. Let’s take a look at some of the smaller ones, and then the gonzo problem.
One problem became apparent immediately. Many small businesses do not have the kind of cash flow that puts them in regular contact with big banks, they use smaller local banks instead, which makes sense, as it keeps the money in the community. But the Treasury Department put the loan application process in the hands of several major banks, which meant that larger, in some cases national chains claimed millions, in some cases tens of millions in loans while the smaller business were having their loan applications picked over with a fine tooth comb. Once that glaring error was exposed, the Treasury Department set about going through the process of clawing back those funds from the ineligible companies, and put new restrictions on the process.
Also, the law requires that if a small business is going to get their grant forgiven, they have to spend the money with 75% going to payroll costs, and the other 25% going to rent on the business. The law also requires that employees be back on the payroll by June 30th to qualify for grant forgiveness. But due to local conditions, and the very nature of some small businesses, they may not be able to reopen by June 30th, which would forfeit their ability to have the grant forgiven. Also, for some owners with higher rent locations, reopening at a reduced profit would not allow them to make their rent payments being able to use only 25% of the grant for that purpose.
But the biggest problem with the application of the law falls back to the lowest common denominator, pure and simple greed on the part of the banks that are administering the loans themselves. The banks are not processing these loans out of any sense of civic engagement, they are being paid for doing it. They charge an origination fee for every loan that they process. This isn’t unreasonable, except for the fact that the origination fee is a percentage of the amount of the loan requested. Even when legitimate small businesses are competing for these loans, the banks are not processing these loans in what should be the logical and fair First In, First Out order. Instead, the banks are processing the higher denomination loan requests first, since that will give them a higher payout on their fee. But it also means that the money will be burned through more quickly, leaving many smaller business, with greater needs for the funding, left getting nothing, even though they followed every rule. It was the bank’s call, and the bank comes first.
Now, I’ve heard reports that in the second round of small business stimulus, more money is going to smaller banks to process loans for their customers. That may well be true, and we’ll have to see how that goes. But simple logic says that if a program were set up to benefit small business, then the lions share of those funds should have been disbursed to smaller local banks, where those small businesses were most likely to do business and have a relationship. But that’s just stupid logic, and it wouldn’t put any money in the pockets of Mnuchin and Trump’s bestest buds now, would it? And the wheel just keeps on turning for this administration.
To know the future, look to the past.before the insanity of the 2020 election, relive the insanity of the 2016 GOP primary campaign, and the general election, to see how we got to where we are. Copies of President Evil, and the sequel, President Evil II, A Clodwork Orange are available as e-books on Amazon, at the links above. Catch up before the upcoming release of the third book in the trilogy, President Evil III: All The Presidents Fen