Obama puts money into loans for small business

The Obama administration hopes to give small businesses a boost with new measures to facilitate small business loans. "While that decision was welcomed by lawmakers who have called for more money to be used for Main Street instead of Wall Street, some critics said the government is relying on a broken program that may end up benefiting big banks and lenders more than small businesses," write David Cho and Binyamin Appelbaum for The Washington Post.

The government plans to buy small-business loans from community banks and lenders so they can make more loans, while increasing the amount guaranteed under the Small Business Administration's loan program. Announcing the $15 billion program yesterday, Obama called small businesses "the heart of the American economy," and said they are "responsible for half of all private-sector jobs and created roughly 70 percent of all new jobs in the past decade."

However, a senior research fellow at the Mercatus Center at George Mason University, who has studied the SBA, says increased government guarantees will backfire. "You basically encourage a system that gives an incentive for the banks to lend money without being careful," Veronique De Rugy told the Post. "We're making this less costly for the banks and less costly for the borrowers, but we're exposing taxpayers more." But the White House says the program will ultimately cost the taxpayers little, based on expected loan-repayment rates. (Read more)