Main Street Economy is Unable to Dodge the Credit Crisis Bullets

Posted by Michael A. Kamperman on September 30, 2009

Despite the constant claims that the economy is in recovery by the happy talking Wall Street pundits, the Main Street economy cannot avoid the Great Unraveling of the new debt-induced global deflationary depression.  The word out tonight is GM plans to shutdown the Saturn car brand after a deal to sell the brand to the Penske Group unraveled.  Saturn will now join Pontiac on the scrap heap of the depression.  Many more jobs will be lost.  But the real killer for Main Street is the pending demise of CIT.  One of the key lenders to small businesses is the shadow bank CIT.  This company is more important to the Main Street economy than Lehman Brothers was to the Wall Street economy.  The investment banking services provided by Lehman Brothers were for the most part duplicated by multiple other firms on Wall Street.  Lehman simply represented the culmination of the run on undercapitalized banking and investment firms.  After Lehman the federal government stepped in and back stopped the major banks and investment firms via the TARP.  But the Obama economic team in all of its wisdom has decided not to support CIT with additional funds from the TARP.  They have deemed that CIT is not too big to fail and does not pose a systemic risk to the financial system.  CIT has well over half a million small business customers that rely on it for credit.  Access to credit is the lifeblood of any small business that actually creates real jobs.  Small businesses create a lot more net new jobs than large corporations.  The Obama administration is being penny wise and pound foolish.

 

The economy cannot recover until the job creating engine of the U.S. economy is revived.  Small business is the number one job creator in America.  Yet the Fed and the Treasury have expressed little interest in supporting small businesses.  While almost all of CIT’s larger and well capitalized customers will find alternative sources of credit, most of CIT’s small and under capitalized customers will be left to wither and die on the vine.  The large banks that received TARP funds have been decreasing their loans to consumers and small businesses.  They will not pick up the slack for many of these small businesses.  Neither will any of the other large shadow bank lenders that are also re-trenching just like the large banks.  We are left to watch the dominoes fall into each other one by one.

 

The Obama economic team is loaded with academicians and life long government employees.  They just don’t get it.  In business one often has to spend money to make money.  By not risking taxpayer dollars to support small businesses the ranks of the unemployed will continue to grow.  The federal government will not only lose taxpayers, they will spend a fortune on the unemployed both directly and indirectly in increased aid to the states.  The let them eat cake attitude of the Washington elite will drive unemployment rates in America even higher than they are now.  What will it take for this administration to put forward a real job creation plan?  We already have 1 in 6 Americans that want a full-time job unable to find one.  Mr. President, will we have to wait until the number rises to 1 in 5?  The way things are going we could well reach that number in just a few months.  Right now the number one issue in America is jobs.  So is the number two and the number three issue.  Without finding a way to extend credit to small businesses and consumers there is no way to lower unemployment in the U.S.