Many people have noted that the more insidious or corrupt a law or agency, the more positive sounding its name. The most egregious example during my lifetime, was naming legislation that stripped Americans of most of their civil liberties the “Patriot” Act.
In a similar vein, which red-blooded American could ever be opposed to something called the Small Business Administration (SBA). We all love small businesses and the entrepreneurial spirit, and even those who abhor big government have a hard time siding against an agency that supports the little guy. As such, the SBA is the perfect vehicle for cronyism, corruption and corporate welfare, which indeed appears to be its primary reason for existence.
My friends at Open the Books have published a key study on the SBA, and the results are ugly. The full report can be found here, but what follows is some analysis of the report by Stephen Moore at Investors Business Daily:
The Small Business Administration is under fire for lending billions of taxpayer dollars a year to exclusive country clubs, golf resorts, yacht clubs, pet resorts, upscale plastic surgeons, wineries and other businesses catering to the lifestyles of the very wealthy.
A new report by the federal spending watchdog OpentheBooks.com has uncovered these and other questionable loan activities by the SBA and its roughly $106 billion loan portfolio.
It’s the latest in a long history of hard-to-justify lending activities by a federal agency that proclaims its purpose is to “help Americans start, build and grow businesses.”
The SBA has come under attack for gross misallocation of funds and even potential fraud. A 2008 inspector general report found 1-in-4 SBA loans involved improper payments.
In 2011 the Cato Institute investigated the program and concluded: “Although lawmakers portray the SBA’s programs as a boost for small businesses, the programs are actually a form of corporate welfare for some of America’s largest banks. The banks reap profits from the program, but taxpayers are liable for the losses.”
The profits flow to some of the biggest banks that snatch up the loan guarantees — which are like licenses to make money on risky loans.
In 2009, the top 10 lending institutions swallowed up roughly one-quarter of all the SBA loan guarantees. Wells Fargo & Co., JPMorgan Chase, U.S. Bancorp and PNC Financial Services Group were the big beneficiaries, with taxpayers guaranteeing repayment of the loans and the banks collecting the profits.
The businesses that benefit from the low-cost lending often aren’t small at all.
According to a 2010 audit by the Government Accountability Office, 61 of the top 100 small business contractors were in reality large businesses. This same study found that the government awarded more than half of the $8 billion of the government’s $14 billion in “small” business contracts to large businesses.
Open the Books found that from 2007-13, $92 million went to beauty spas in upscale towns such as Lake Tahoe and Napa Valley.
More than $160 million was lent to at least 40 exclusive “members only” country clubs. An additional $1.5 million was lent to the Pequonnock Yacht Club in Connecticut. Several Rolex jewelers cashed in on $20 million in loans. A $3.5 million loan went to Lamborghini dealerships in Chicago and Orange County, Calif.
Another scandal at SBA is how private equity firms game the system to cash in on loan guarantees. In total, $9 billion of SBA funds flowed through “venture capital, capital partner firms, mezzanine finance firms and private investment funds,” the report discovered.
“It’s an amazing scam,” says Andrzejewski. “These billion dollar equity firms are making investments backed by taxpayers. It’s a federally insured license to make money.”
But not for taxpayers. “Charge offs” on loans and guarantees have totaled $11 billion since 2010 and $27 billion since 2005.
In Cronyism We Trust.
USA! USA! USA!
In Liberty,
Michael Krieger
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You cannot serve both God and confidence, otherwise you end up getting conned by a confidence trickster…the Chaldean word mammon means confidence…and confidence is cash and the nearest thing to faith that exists, but like human love and kindness, it is very, very finite…and there will always be someone who is better at conning than you can ever be, hence why the system sucks…but just try and buck it and you will find that unless you have diplomatic immunity as an Ambassador of another Kingdom…your days will be numbered…
Good research!
The SBA has been partnered with DHS, FEMA for disaster-related loans. Any group that has sidled up to Uncle Sugar is surely corrupt.
Maybe the Small Business Administration should be investigated by the Better Business Bureau … ;-))))