House of Representatives Financial Services Committee Chair Barney Frank is smart, funny, liberal, and, more often than not, delighted to fight for a more expansive state role in mangling the economy. When Frank and others from the port side of the Democratic Party support financial deregulation measures one would expect Republicans and free-market-oriented Democrats to take notice and try to work with him. A recent debate over a business lending measure, however, makes it clear that many Republicans put other values above the free market.
The measure, the felicitously named “Promoting Lending to America’s Small Business Act” is a modest proposal that would make it easier for credit unions (highly regulated, member-controlled, non-profit lending institutions) to lend money to businesses that belong to them. Currently, credit unions can’t lend more than 12.25 percent of their assets to commercial enterprises. Raising this cap to 25 percent, as the legislation would do, could free up about $25 billion more in business lending capital. Given that a lack of credit for businesses is one of the major things holding back job creation—stricter lending guidelines and a sharp decline in the value of real estate used as collateral for most loans make it difficult for banks to lend—this could help get the economy moving. The Council of Economic advisors job creation metrics lead to the conclusion that over 100,000 new jobs would be created as a result. And, because the money would all come from private sources, taxpayers wouldn’t have to spend a dime. In fact, the increase in business activity would likely serve to raise tax revenue. In short, it seems like something that should sail through Congress.
And the proposal, indeed, has support on both sides of the aisle–Rep. Ed Royce (R-CA) is one of its lead co-sponsors and moderately well known Republicans like Ron Paul (R-TX) and Dana Rohrabacher (R-CA) are also on the bill–but enthusiasm for it is clearly a lot stronger on the Democratic side than the Republican one.
The general Republican opposition to the bill stems from the banks’ dislike of it. Banks are big business and, for obvious reasons, traditionally a Republican constituency. Quite simply, credit unions are banks’ competitors and having them compete more vigorously for business clients would displace some bank lending and squeeze profit margins on the rest. (Although, since a huge proportion of credit union business loans fund very specialized business needs like the purchase of taxi cab medallions and the operations of organic farms, much of the credit would end up in places where banks don’t land.) Banks, through their trade group the American Bankers Association, also point out that only a handful of credit unions are now up against the cap. This is true but only because the cap itself and the very strict oversight to which credit unions are subject makes it uneconomical for them to achieve the economies of scale needed to expand business lending.
Nobody says or believes that expanding credit union business lending would or could solve America’s business credit problems. But making it easier would inject billions of dollars into the American economy at no cost to taxpayers. Republicans wanting to prove their free market bona fides need to get on board and support credit union deregulation.
Oskar // Apr 8, 2010 at 12:58 am
Finance, industry, commerce and agriculture should all be nationalized.
EdCoughlin // Apr 8, 2010 at 3:53 am
Republicans really should support this, credit unions are vastly superior to big banks when it comes to being consumer and business friendly.
I’ve had accounts and cards at banks and credit unions, the credit unions have nearly always had lower rates, better terms, less fees and better service. I know, in a way, credit unions are sort of socialist (I mean they are member owned not for profit collectives in effect) but that is really how banking should be in my estimation.
Banking should be like a utility that delivers money rather then power where its needed for a small service fee that goes solely to supporting continued operations. There is no socially useful way for banks to make big profits since raising rates, charging abominable fees, manipulating markets and speculating doesn’t really help anyone and are really, in many ways, a drag on society and economic progress.
I’d rather have innovation in technology, medicine and scientific research, we’ve had far too much of it in banking. Credit Unions take things back to the way they should have been in the first place. The more we move towards Credit Union centered banking the better.
InfiniteThoughts // Apr 8, 2010 at 4:42 am
What does today’s Republican Party stand for that Lincoln would feel proud of?
Answering that question would take GOP to power else short term victories aside, GOP is facing a slippery slope to obscurity ….
Go Dog Go! // Apr 8, 2010 at 5:45 am
Naturally, the wingnuts we call Republican Leadership will deny this based solely on its support from the left. Regardless of its merits, legislation that benefits Americans and reflects our own free market values will get trashed by the GOP.
It’s ridiculous waste of political energy that further illustrates the party’s impotence. If we are not for this, what are we for?
Bueller? Bueller….?
Stewardship // Apr 8, 2010 at 9:03 am
I spent two decades in commercial banking. Deregulation of banking had enormous unintended consequences. It forced a move from stodgy, slow growing salary compensation to high-flying commission and incentive based compensation. The conflict of interest between personal reward (from tellers on up to CEO’s) and doing the right thing for the customer and/or safety and soundness is obvious.
The second, and imo more important, consequence was the consolidation of community banks into larger organizations. This was driven by the law of economies of scale, erroneously. First, consolidation eliminates “backbone” jobs in small communities. In my city of 10, 000 people, we lost more than 250 jobs with the sale of two locally owned banks. Second, consolidation naturally impacts the cardinal rule of financial services, “know your customer.”
Big banks moved to “score and go” and actuarial methodology. Customers truly became just a number. Big banks treated revenue generating positions (loan officers) like baseball free agents, escalating salaries, and eliminating “loyalty” from both the bank and customer perspective. The bond between lender and borrower is key to credit risk management. That key tool is all but gone from major banks.
Credit unions still build their business around loyalty. There is a risk, as they grow, that executives begin to feather their own nests, as a greater gulf grows between members and management. I don’t mean to paint all banks with the same broad brush. There are hundreds of banks who don’t take depositor or shareholder funds to the “casino.” Competition from credit unions may force big banks to return to a more traditional community banking model. And that would be good for the country.
Far Center » Blog Archive » A small step in the right direction // Apr 8, 2010 at 11:01 am
[...] there are a few things that have <some> bipartisan support. This article about easing lending restrictions for credit unions is one of those rare instances where not only [...]
cporet // Apr 8, 2010 at 11:24 am
I predict not a single yea vote by Republicans in either the committee, the House, or the Senate.
ottovbvs // Apr 8, 2010 at 12:06 pm
…..the invocation of Frank is a telling example of the Republican propensity for elevating personality over policy…….they think it’s more important that Palin is Palin than that she should be a competent candidate with underpinnings of knowledge and judgement…….at the end of the day this is about effective governance in the public good…..the problem Mr Lehrer is that this has long ceased to be a Republican priority
FormerConservative // Apr 8, 2010 at 12:36 pm
Yet another perfect example of why so many actual “c”onservatives have left the Republican party. Go Dog Go said it best: If we are not for this, what are we for? Bueller? Bueller….?
One of the reasons that Rove was able to help Bush win, is that he cleverly found wedge issues that would divide his opponents base. The Republican base is now being divided into factions. One group believes they can win simply by opposing Democrats and calling them names (Tea Party?) and those that actually care about applying conservative principles to governing. You know, like so many of the lost, confused and increasingly abandoned people that hang out here.
Bebe99 // Apr 8, 2010 at 1:08 pm
” If we are not for this, what are we for?”
Answer Corporate America, of course.
Until our Congress is set free from the bonds of corporatations and lobbyists through campaign finance reform, Congresspersons can not act in the interests of anyone but themselves and their corporate sponsors. It is just logical, it is just human nature.
Rob_654 // Apr 8, 2010 at 1:32 pm
Another clear example of the Democrats fighting for the “little guy” while the Republicans fight to protect the wealth of the powerful.
LFC // Apr 8, 2010 at 1:34 pm
A recent debate over a business lending measure, however, makes it clear that many Republicans put other values above the free market.
For Republicans, “free market” is nothing more than a campaign slogan. When one of their donors feels that their profitability is threatened, they’ll roll (bend?) over in a New York minute.
COProgressive // Apr 8, 2010 at 1:52 pm
eli wrote;
“The measure, the felicitously named “Promoting Lending to America’s Small Business Act” is a modest proposal that would make it easier for credit unions (highly regulated, member-controlled, non-profit lending institutions) to lend money to businesses that belong to them.
“The general Republican opposition to the bill stems from the banks’ dislike of it. Banks are big business and, for obvious reasons, traditionally a Republican constituency.”
This is the crux of the problem in our country and our economy today. Big business, of all sorts, wish to get larger and more difficult to control (regulate) with the help of the power they wheel at the expense of those over whom they wheel that power. As we’ve seen in the events of the last 18 months, bigger isn’t always better. We need to stop encouraging the growth of the power of big business at the expense of everyone else. If the best and brightest are running our big businesses they should need no help from our government. But on the other hand, we, our government, should be easing the way for all who wish to compete to have that opportunity to suceed and grow without our government’s hinderance at the direction of big business. After all, our government was formed for “We the People”, not “We the Multinational Corporations of the world”.
We are an innovative nation of people looking to improve their lots in life through hard work and to do so sometimes need the help (financing) of a bank. It’s the grass roots local banks and Credit Unions that have the face-to-face relationships with their customers and have a true business interest in seeing them succeed. We, as a nation, need to start supporting American prosperity from the ground up, from Main Street up to Wall Street, not the other way round. Pouring money in at the top, hoping it will “Trickle Down” has been shown to be a recipe for failure.
sinz54 // Apr 8, 2010 at 2:06 pm
This is what I was talking about.
We expect most of the Dems to be protecting various interest groups (like the unionized auto industry), because they’ve always advocated industrial policy. At least they’re consistent. But it’s wrong for the GOP to claim they’re for competition–and then move to protect big business from competition.
Agribusiness, another traditionally GOP constituency, is the only reason that crop-based ethanol exists as a fuel additive for your car.
Oskar // Apr 8, 2010 at 3:19 pm
Barney Frank is a tool of capitalism the same as all Democrats and Republicans. The stupid partisan bickering is a smoke screen designed to divert attention from the fact that international bankers and war profiteers.