To Financial Giants, Everything is a “Micro-Loan”

Three years ago, the federal government used tens of billions in taxpayer dollars to save the banking system. Now, at this dire economic moment, the country needs the banks to return the favor.

–Joe Nocera, “Mr. Banker, Can You Spare a Dime?”; The New York Times (9/10/2011)

It’s hardly like anyone needs one more reason to shrink the so-called Too Big To Fail Banks.

Their losses jeopardize the financial system and broader economy.

They wield far too much political power.

And their lavish compensation exerts a siren call on modestly-paid regulators, who aspire to work for them (or already have), undermining their independence and promoting something called “regulatory capture.”

Forsaking ‘Crumbs’

But here’s one more:

Banks whose balance sheets trip $1 trillion have no interest in making relatively tiny loans — the kind that are the bread-and-butter of small businesses.

So, Mr. Nocera’s column today documents the experience of two entrepreneurs — one on the East Coast, one on the West — and their travails trying to land a $50,000 and $500,000 loan, respectively.

The reason cited by the multiple, big banks who turned them down was “lack of collateral.”

However, you have to wonder if the real reason is that the loans being requested weren’t big enough to “move the dial” at gargantuan banks.

After all, how many $500k loans would a JP Morgan or Citigroup have to make to have a real impact on their bottom line?

One thousand?

Ten thousand?

How much easier to lend a Fortune 500 company $1 billion (or three).

Except, of course, such companies have neither the need nor the incentive to borrow at the moment, thanks to their unprecedented cash hoards and the soft economy. 

Too Much Cash — and Too Little

So, which companies do want to borrow now?

Smaller, entrepreneurial companies like the one Mr. Nocera documents.

And exactly who is willing to lend to them?

Yup .  . . small, local banks — such as the one that ultimately funded the West Coast entrepreneur.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

Leave a Reply