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  • Small Business Administration Sees Growth in Loans

    In the two years of the recession, and especially since September of 2008, the key struggle for many small business owners was access to credit. But that may be slowly changing. CNNMoney is reporting that the Small Business Administration's key lending program saw a significant rise at the end of the year. The SBA processed 12,393 loans through the program in the last quarter of 2009. That represented a 38% increase over the previous year. Still, loan activity falls well short of pre-recession levels. From Catherine Clifford of CNNMoney: The SBA credits the improvement to a slew of stimulus measures. "The big takeaway that we have when we look at this is that we were successful in turning around the SBA lending," SBA spokesman Jonathan Swain said. Still, lending remains far behind pre-recession benchmarks. Two years ago, in the last calendar quarter of 2007, the SBA backed more than 20,000 small business loans. "While there are some indicators that the economy is moving in the right direction, no one would say we are out of the woods yet," Swain said. A lagged recovery: SBA loans represent a tiny portion of the overall small business lending landscape, but they're an important barometer of banks' willingness to extend credit to startups and growing companies. The SBA program guarantees a portion of the money banks lend to qualifying businesses. If the borrower defaults, the government pays the bank back. Credit conditions for large businesses have largely returned to normal after the dire credit crunch that followed Lehman Brothers' collapse in late 2008. But small businesses have not enjoyed the same recovery. Sales are down at most companies, and the value of assets typically used as collateral -- like real estate and goods in inventory -- has fallen. That leaves many banks reluctant to lend to borrowers they view as risky bets. Read Small business lending begins to rebound here .

  • Robert Pozen on Fair Value Accounting

    In the November Harvard Business Review , Robert Pozen --former adviser to President George W. Bush and Massachusetts Governor Mitt Romney, and current chair of MFS Investment Management--weighs in on the debate over whether accounting rules bear some blame for the financial crisis. And he says that both sides in the argument over whether "fair value accounting" exacerbated the credit crunch a year ago may be wrong: We do not want banks to become insolvent because of short-term declines in the prices of mortgage-related securities. Nor do we want to hide bank losses from investors and delay the cleanup of toxic assets—as happened in Japan in the decade after 1990. To meet the legitimate needs of both bankers and investors, regulatory officials should adopt new multidimensional approaches to financial reporting. Before we can begin to implement sensible reforms, though, we must first clear up some misperceptions about accounting methods. Critics have often lambasted the requirement to write down impaired assets to their fair value, but in reality impairment is a more important concept for historical cost accounting than for fair value accounting. Many journalists have incorrectly assumed that most assets of banks are reported at fair market value, rather than at historical cost. Similarly, many politicians have assumed that most illiquid assets must be valued at market prices, despite several FASB rulings to the contrary. You can read his article here (subscription only). You can also watch Pozen discuss the issue, along with a brief introduction to some of the ideas he puts forward in a new book, Too Big To Save , in this video from Harvard Publishing:

  • Brookings' Karen Dynan on Managing Credit

    There has been a lot of hand wringing about the American addiction to borrowing and the role that behavior played in the crisis (most of it fair), but Karen Dynan , VP of the Economic Studies program at the Brookings Institution says we need to remember the importance of access to credit:

  • Guardian Readers Help The Queen Understand the Credit Crisis

    In November, Queen Elizabeth asked London School of Economics professors why no one had predicted the credit crunch. They had their shot at answering. Now The Guardian is asking readers to answer, and they are coming up with a variety of answers. Surprisingly enough, most commenters do provide nicely thought-out answers, right or wrong. Like this one: Interest rates, particularly longer term interest rates were too low due to the wall of money from Asia buying up government bonds and money from pension funds who were being forced by government legislation to match assets and liabilities which meant buying those same government bonds that Asian central banks were buying. As a result there was a chase for yield, buying assets that yielded more than the equivalent government bond, corporate bonds, utilities, local government bonds and, yes Mortgage backed securities. And in that process risk was either ignored or swept under the carper by the rating agencies who gave very risky assets AAA ratings. Due to this demand for mortgage backed securities the originators of mortgages loosened their lending standards in order to create more 'product' and lent to people who ere in no position to repay, when they started to default the bonds that were previously rated AAA were downgraded and plummeted in value. There you have it, but I'm sure people would prefer something along the lines of, it was all the greedy bankers fault string em up. But the clever comments are worth a read as well. For example: Well, ma'am, you know how nobody is allowed to ask you a direct question because you're too important? Same with the bankers. Read them all here .