More Evidence Bigger is Better

More evidence big business, not small business, is the driver of the U.S. economy : American Dream Peddlers

Lax federal oversight allowed lenders to repeatedly make bad loans to small businesses under a government program that has cost taxpayers $1.3 billion since 2000 on defaulted loans, a Dayton Daily News investigation found.

Since the beginning of 1990, lenders made more than 1 million loans guaranteed under the SBA’s 7(a) program, the agency’s largest, according to a Dayton Daily News analysis of SBA loan data. Excluding the 280,948 loans that are still active, more than 1 in 5 of the remaining 769,242 loans were discharged to the U.S. Treasury after they defaulted and the lender and SBA were unable to collect the money owed.Some franchises generated jaw-dropping default rates: The SBA made 90 loans to Petland franchisees; 55 percent defaulted. The agency made 18 loans made to Party land franchisees; 61 percent defaulted. Of the 17 loans made to Wings-N-Things franchisees, all except one defaulted — a 94 percent default rate.

As we’ve been saying this for years, with few exceptions, small business is for chumps, mainly due to the very high failure rates and high start-up costs. College is worth the money if you attend a prestigious university and or you major in a STEM field. Instead of wasting money on an overpriced useless liberal arts degree or a failure-prone small business, just buy stocks on all the dips and or buy real estate. The S&P 500 is up 150 percent from its 2009 lows. Bay Area real estate (especially my neighborhood) keeps going up. Prices are ten to thirty percent higher than they were in 2007. Or learn how to code. Learning to code is an extremely valuable skill. Graduates of the Access Code program in New York saw their incomes rise from $15,000 to over $72,000 in less than six months. That’s how people are getting rich in this economic boom.

How about start-ups like Facebook and Google that were once small businesses? These are widely publicized exceptions in a wasteland of quiet failures. In this economic environment, being bigger is incontrovertibly better. We’re in an era of too big to fail and too small to succeed (unless you’re in cloud computing/web 2.0 where it’s easier to succeed). Apple sold $17 billion in bonds at next to nothing to avoid paying taxes. Individuals and small business, on the other hand, are incapable of borrowing anywhere near the rate Apple can.

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