Monday, October 13, 2008
the good suffer with the bad
After the fall out of the present crisis, where genuine hardworking, profitable businesses are shut out from obtaining working capital as a result of the actions and excesses of others, it is hard to tell them that they have to suffer along with the rest through no fault of their own.
That in a nutshell is what is wrong with the system. These small entrepreneurs are the backbone of the economy. They are the most productive who manage and run small businesses. The excesses of the banks’ poor lending practices are hitting these innocents. They see the government helping the worst offenders, and not them who are just asking for an extension of a line of credit to keep their businesses from going under.
Often these businesses prefer to operate on short term borrowings rather than lock into long term loans, so they become the most vulnerable when credit lines are not extended as the banks are reluctant to lend, because they cant even borrow from each other. The resulting effect is these small businesses have to close or lay off and the economic repercussions multiply.
Bankers reading this please take note that knee jerk reaction to mistakes on your part will affect productive hardworking businesses more than you would realize and in a way the banking system is one that is more than just a business, it is one that should have obligations to give people a chance, when they are not to blame for a tightening of credit, which affects good and bad.
It is important to realize the knock on affect of credit tightening because the small engines to economic growth are also affected by adherence to strict new rules of lending. This issue does not appear to be addressed and needs to be if the downturn is to be minimized and sound businesses permitted to function. Working capital is an essential tool for a small company, as without it they are often not able to meet their day to day obligations, and payroll is the first to fall prey, and then the payables to suppliers.
Governments are quick to apportion blame, but it is no time to blame when honest people are unwittingly caught up in the trap. It is the duty of the state to protect or at least help those, much like in a natural disaster to get back on ones feet, as the problems are often someone else’s creation. It is vital that a proper understanding of the problem be made a quick solution found, so that those businesses that can be salvaged are in fact prevented from folding.