Sunday, November 20, 2011

Winners and Losers: $8 Billion in Lending to Business, Courtesy of the State Government

Thought the newest fad in conservative talking point land was to get the government "out of the way" of business, right? If so, why is the state backing loans for businesses that wouldn't otherwise qualify for them?

Fifth Third bank plans to direct $2.5 billion toward business lending in Michigan in 2012 under a new partnership with the state.

The amount represents about a 25 percent increase in what Fifth Third Bank has loaned businesses across Michigan in each of the last three years, said Tim Doyle, senior vice president and business banking manager for Fifth Third in West Michigan.

An improving state economy and the ability to leverage programs administered by the Michigan Economic Development Corp. enabled the bank to make the lending commitment, Doyle said.

“It’s a very aggressive commitment,” Doyle said. “We can see the improving business climate in the state of Michigan.”

Helping to drive the one-year lending commitment is a trio of programs designed to support the extension of credit to businesses in Michigan, including supporting shortfalls in the collateral that companies put up to secure a loan.

Doyle said the Collateral Support Program helps at a time when valuations on real estate, which many companies use as collateral, remain depressed. Those companies likely would not otherwise qualify for a loan, he said.

Property values are expected to continue to decline through at least 2014, according to a recent report. If real estate is put towards collateral, will the state take ownership of property that will continue to depreciate if the business goes under? Or does it go to the bank? Will the state have final approval on these loans, or will banks be allowed to gamble with this money? Are taxpayers on the hook for the loans that go bad? Lots of unanswered questions here, and it's doubtful that we will see any transparency on loans that will probably be labeled as "private" business transactions.

In theory, the program does sound like a good idea. Get credit flowing, jump-start ideas that wouldn't otherwise get off the ground, and chances are a good many of them will succeed - but it also sounds like another example of where we will privatize gains and socialize losses if those gains fail to materialize. And, for a bunch of people who run around screaming about how government needs to get out of business, it sure looks like the state is getting involved with both the banks and business in a big way.

“Fifth Third’s participation in Pure Michigan Business Connect represents a huge commitment to Michigan's businesses,” Snyder said. “It significantly adds to the economic gardening toolkit we are developing to grow our state's economy. This funding, along with the offers by the other new partners who are joining Pure Michigan Business Connect, brings the total to $8 billion in new opportunities for Michigan businesses.”

$8 billion through the state. That's a lot of winners and losers right there. That's not all: 5th/3rd is also pledging $2.5 billion towards consumer lending with this "partnership". Would that also be for people who wouldn't otherwise qualify for a loan? Good question.

If all this works, great. But please, stop with all the "free market" nonsense now, because it's obvious that under Republican leadership, the government is more than happy to expand its boundaries and back up that free market with the taxpayer's guarantee.