President Obama had proposed pumping billions of dollars of debt into small businesses across the US -- what I have predicted will likely create a small business bubble.

There is now some potentially good news out of Washington. It seems that the banks that would distribute these funds, with money coming from the Troubled Assets Relief Program that would be distributed through SBA loan programs, are saying the plan will not work. From the Washington Post:

The conditions attached to the program, which require these financial firms to surrender ownership stakes to the government and limit executive pay, are so off-putting that these companies say they will not participate.

Industry officials and congressional sources said these issues were raised with the administration before the small-business initiative was unveiled. Nonetheless, administration officials accelerated the announcement, moving quickly to show they were using financial rescue funds to aid not only big Wall Street firms but Main Street businesses as well, sources familiar with the matter said.

It seems that what we have here is not just a simple expansion of the traditional SBA loan program, but yet another program that relies on heavy-handed government controls and questionable financial stewardship.

And what did Congress do the last time bankers balked on such a massive infusion of debt into a market? They strong-armed bankers to join the sub-prime mortgage debacle -- or else.  Let's just hope that history does not repeat itself. 


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