Government Spending

Lame Lobsters Cause Bad Loan Policy


Olympia Snowe, is that you?

Remember 2008 when congressional Democrats really, really, really wanted to pass the stimulus? At the time, they needed to snag a few Republicans to get the bill through. Meanwhile, Sen. Olympia Snowe (R-Maine) really, really wanted federal money to give to lobstermen in her state, since lobsters aren't big sellers when everyone feels poor.

Thus the American Recovery Capital program was born. The $255 million loan program for small businesses has an expected 60 percent default rate. That's largely because the program is explicitly targeted at businessmen who can't pay back loans.

From today's Washington Post under the bleak headline "SBA bailouts draw little notice," the details of a loan plan that only makes sense in a world gone mad:

The loan program offers an unprecedented 100 percent guarantee to banks, vs. the SBA's standard 75 percent. The loans' anticipated default rate is 60 percent, compared with the agency's average 10 percent. And all of the funds must be used to repay other delinquent loans—another first for the SBA.

"Logic tells you this is a bad idea. By definition these businesses are already failing, but we are lacking standards right now; our world has been turned upside down," said Barry Bosworth, an economist with the Brookings Institution.

The WaPo piece wraps up by pointing out that programs like this are almost impossible to kill once they exist, so we should probably just get used to Snowe's lobster pork.*

*Wow, "lobster pork" is pretty much the ultimate in treif.