Highway 101

A new role for banks. Reduce unemployment in the US



Posted: Thursday, February 02, 2012

by Highway 101

In the run up to the elections the Republican candidates have put forward their views for reducing unemployment in the country but they are just more of the same old broad brushstroke policies which provide no real plans for how to tackle the problem.  It is more of the same old status quo and it is miserable. It’s often stated that that the driving force for creating employment in this country are small businesses.  The present government created stimulus plans which were supposed to help small businesses to create jobs. Well the stimulus money trickled down to large infrastructure projects which did indeed create some short term increase in employment but it rarely went to small businesses. So weren’t the banks which were given money by the government supposed to be part of the employment solution?

 The Wall Street protests have focused on public discontent with financial institutions which include the banks.  There are plenty of examples of where the banks appear to be part of the unemployment problem and not the solution. Let’s look at the Home Affordable Refinance Program, known as HARP,  which was created  to allow homeowners, who usually can’t qualify for new loans, to benefit from the lower rates engineered by the Federal Reserveto help stimulate the economy.  HARP has fallen well short of its targets because the banks are focusing on borrowers with the most equity and the least risk.  This was a government mandated program where the government made stimulus money available for the people but try as the government has to get money to home owners the banks have put the brakes on making that happen as intended.

When you look at the banking industry in general there are a lot of synergies with Las Vegas. Those traders glued to screens.  Are they that much different to gamblers in casinos? Difference is that if you work for a bank and gamble and lose money then nothing really bad happens to you.  Worst case, you make a mistake and the government bales out the bank.  If you are individual however and make the wrong gamble then of course you can lose your shirt.

So let’s take the case of a small business that wants to borrow $10,000 to expand its business but doesn’t have collateral for the loan.  Chances are the bank won’t make that loan and yet we have seen traders lose billions of dollars for banks through bad judgment.   At the top of the banking pyramid traders are gambling every day with billions of dollars but when they make a good bet how much of that money trickles down to the people running small businesses?  None! Shouldn’t the banks be doing more to help the economy when after all they have been propped up by taxpayer funds?

Here is a new concept to drastically lower unemployment levels and get the banks to help.  Let’s call the new concept New Biz Me.  The government creates a small business development program called New Biz Me and provides initially say $1 billion in loan guarantees to the major banks.  The difference between the New Biz Me model though and those that have gone before is that this time government cuts a different deal with the banks.   Banks who take the loan guarantees are obligated to use the guarantees to stimulate new business by becoming proactive as against their normal reactive stance.  The banks invite existing small business owners and individuals wishing to start new businesses to submit to them business plans which would show that any loan backed by the government would create a certain number of jobs for maybe at least 3 years.  The benchmark for making the loans would be the good track record of the individuals or company principals applying for the loans and not the amount of collateral they can provide.

But surely this would be asking the banks to be able to analyze business plans and personalities?  Exactly!  Well at the top of the banking pyramid don’t banks do just that day in day out?  So this would mean at the branch level hiring more banking staff to handle all the applications?  Probably not.  With so much electronic banking now available bank branch staff are hardly overstretched. It’s not uncommon for banks to have a staff member greeting customers at the door an ushering them into the queue for tellers. Well that’s 40 man hours per week for a start the banks can contribute at each branch to the New Biz Me plan.  Well won’t bank staff need training on how to evaluate business plans?   If they don’t know how to then its time they did. In fact it’s time that bank employees did more than just handle moving money around. Getting bank staff to know and understand what makes business tick should be part of their skill sets and that should include visiting customers business premises to understand how money is being made to work.

The bank’s contract with the government for the New Biz Me plan would require that the bank takes a hands on approach with everyone who is provided a loan.  Frequent personal contact between bank staff and borrowers including business strategy group sessions hosted by the bank to help those receiving loans to make their business a success would be a must.  But that might mean bank employees working outside regular office hours on their own dime. They would never agree to that! There are always a percentage of people who are prepared to help others without getting paid so the chances are good that some bank employees would be willing to work on their own dime.

Let’s say we buy into the New Biz Me concept.  Just how many jobs might a US$1 billion loan guarantee generate?   If the average loan guarantee was $15,000 then it would generate 200,000 new jobs assuming each loan generated three jobs.  Bear in mind these are loan guarantees so the government only has to pay out if a business fails as some surely will. If the business failure rate is 30% then that means the government created 140,000 new jobs for US$300 million or about US$2,000 each.

If it chooses to do so, the great government of this country can provide the stimulus to create an environment where new ideas can flourish and where people will not be afraid of taking chances to improve their lives.

Vince Waterson is a telecommunications consultant. He can be contacted at vwaterson@aol.com
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Top-level comments on this article: (2 total)
» left by Ray |Daniel from UK 109 days 2 hours ago.
The problem with Banks is that in their rapid expansion to create new ways in which to lend people money and to fulfil the resulting demand for staff resources, they rely heavily on IT. Therefore instead of having a business manager in the bank who is "hands on|" and understands business and who from experience can form a view of the individual applicants business acumen and chances of success, they have introduced a whole automated credit rating system to assess applicants for credit. This unfortunately leaves the banks with personnel who have absolutely none of the qualifications an "old style" business manager would possess and are totally inadequate to fulfil any position other than making sure there are ticks in boxes let alone understand what a business plan actually is. Whilst I applaud this idea the same problem persists ie the banks and until we see some professional personnel re introduced into banking, who understand banking and business, the "SPIVS" we have there at present will simply look for new ways to lend you the same money but with more complicated criteria and ample bonuses for themselves and higher returns for their shareholders. Its just greed I’m afraid, that is what we have to constantly fight against.

» left by TomT from UK
from UK 109 days 2 hours ago.
Brilliant article, well argued. Unfortunately the Banks dont have time to implement these programs. They are too busy counting their profits and looking for new ways to screw their customers. Solution? Ban all Bonuses and make Remuneration reflect job responsibilities.Well done Highway 101.
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