Let me start by saying that I'm not an especially religious person. Sunday evening, I was watching Bloomberg TV, and a segment appeared with an on location report of the official opening of the Burj Dubai. As the camera pulled away from the reporter to show the tower behind him, I was suddenly reminded of the Biblical Tower of Babel. As I seem to recall, the Tower of Babel was built somewhere in what is now Iraq, rather than anywhere in the Emirates, but there are at the very least some similarities between the two structures.

Both structures were built as monuments signifying aspirations of power, and for the aggrandizement of the builders. Of course, unlike the Tower of Babel, the Burj was actually completed. In a somewhat ironical note, the Tower of Babel wasn't completed because by way of showing displeasure, God “confused their languages” (referring to the builders), and they were scattered  throughout the earth. In the case of the Burj, given that the Emirates rely on immigrant labor, because of a small population, I think it can be safely assumed, the builders did not share a common tongue. Because of the collapse of the economy, many immigrant workers can’t find work, and can’t afford to return to their native lands.

Depending on which source one reads, there’re conflicting stories as to what befell the Tower of Babel. According to the Bible, it was abandoned, but other accounts speak of it being destroyed.

It’ll be interesting to see what the ultimate fate of the Burj will be.

When the President called smaller bankers to attend another sermon from the "bully pulpit", and exhorted them to increase lending to small business, my very first reaction was "its about time". Back on No.14th, I wrote a blog post in which I made some suggestions for dealing with unemployment, and increasing the activity and effectiveness of the SBA was high on the list. I certainly wasn't alone in voicing that suggestion, and probably not the first, either. Interestingly enough, it wasn't long after, that the President, and Geitner, in his testimony before Congress, made specific references to the SBA and the role it might play in stimulating the economy.

Since none of TPTB are on my speed dial, the timing of such remarks was either serendipity, or possibly an outbreak of common sense at the White House. Given that 60 -70% of job creation, depending on who's counting, and how, is by small business, a doctorate in economics is not required to figure out that the health of small business is critical to the health of the overall economy. Since bank lending is the primary source of small business financing, encouraging smaller banks to make such loans would appear at first blush, to be an appropriate "first step" in lending much needed support to the small business sector.

As I continued to mull over the administration's call to the smaller banks, I started to ponder some "how's" and "why's". First, it should be noted that smaller banks (regional and local) did not partake of the witch's brew of synthetic toxic assets that ended up with the largest banks either directly, or "off balance sheet". In an effort to grow in size, and profitability, these banks DID get heavily involved in the CRE market. Now, it can be argued just how big a debacle might befall CRE over the next couple of years, but the consensus seems to range between " a really big problem" to "an unmitigated disaster". With such a menu of possible outcomes, it would seem prudent for the lenders with exposure to these questionable assets to keep their "powder dry", in order to better withstand any markdowns that may befall those assets. Yet, the administration is calling on these banks to take a "second look" at their rejected loan apps, with the view of moving at least some to the "approved" pile.

Some of the largest banks, such as US Bank, Chase, Bank of America, and Wells Fargo, quickly chimed in, saying they already have "second look" programs in place, and vowed to further press more aggressive use of them. One should note, however, small business lending tends to fall into one of two buckets. One bucket is revolving lines of credit; the other is via the issuance of business credit cards. Lines of credit tend to be issued to the most credit-worthy of borrowers, and are held on the bank's books. Credit card debt, on the other hand, is usually securitized, and sold off. Given those facts, it comes as no great surprise that the larger banks would agree to take "second looks" at rejected borrowers, thereby currying favor with the administration, as well as the general populace. If they accede to the administration's wishes by approving previously rejected credit apps from the credit card file, they would take on little, if any, additional risks because of the securitization process. In fact, I can foresee a scenario, where they could well go back to apps for lines of credit that had been declined, and make those potential borrowers an "offer" to issue a business credit card, in lieu of the previously requested credit line.

Small business lending is "riskier" for the lender, so, should the smaller banks lower their lending standards at the President's behest, they run the risk of "blowing up", if caught by a combination CRE loans going bad, and small business loans souring, too. I'm willing to give the President the benefit of doubt for not seeing this possibility, given his complete lack of any sort of business background. Still, he IS surrounded by his chosen advisors, who do have such backgrounds, either theoretical, practical, or a combination of both. Given the people he’s chosen, two old saws spring to mind. First, “A man is known by the company he keeps”; the second is of a more recent vintage, “Its tough to soar with the eagles, when you’re surrounded by turkeys”.

Normally, I’m not one to embrace conspiracy theories, but must admit that some of the events of the last year, or so, strike me as a trifle…well, “odd”, to say the least. Putting a darker, more Machiavellian spin on things leads me to wonder if there’s not yet another, more hidden, agenda behind the call for increased lending to small business, which could lead to more of the smaller banks getting into trouble. There’s no question that some of the largest banks, (JPM, BAC, etc.), were beneficiaries of last fall/winter’s carnage, being allowed to snap up assets “on the cheap”. Is it totally unbelievable that at least some folks wouldn't think that additional distress in the next lower tiers of banks might not offer up similar “opportunities”?


Sources: Business Week, SmallBiz.com

The current administration’s initiative to press forward in transforming our economy via green technology, while ignoring carbon-based energy, hit a speed bump when a geothermal project in California was shut down by the company involved, according to the New York Times.

AltaRock Energy, headquartered in Seattle, was the firm running the project, with funding from the DOE, as well as some $30 million in venture capital. Located about 100 miles north of San Francisco, at a site known as the Geysers, the project was shut down, and the drilling rig was removed, apparently because of earthquake fears, as well as unforeseen problems with the drilling progress.

A similar project in Basel, Switzerland, was permanently shut down on December 10^th, after a series of earthquakes in 2006 and 2007 caused millions of dollars in property damage, although fortunately, with no loss of life, or serious injury.

Yet a third such project, in Landau In Der Pflalz, Germany, is “under study”, after a 2.7 magnitude tremor was experienced back in August, shaking both nerves, as well as buildings. In this case, a panel has been appointed to study the causes of the quake, which the company involved in the project, denies was caused by the plant. This point of view is contested by seismologists, who attribute the quake directly to the drilling involved in the project.

Geothermal energy is the third leg of the three legged stool of alternate energy; the other two “legs” being, of course, solar and wind. Probably the most attractive feature of geothermal energy generation lays in the fact that, unlike solar or wind, its not “intermittent”. By drilling deep into the earth to tap either steam pockets, and/or extremely hot rock, such an energy source would be available 24/7/365.

What I find most disturbing about this entire affair, is not that the administration is pursuing alternative energy, but rather that it seems to be doing so while excluding arguably “lower hanging fruit”, such as expanded use of NG, for an example, in their quest to lower pollution and increase our energy independence. Without getting into any sort of debate about climate change, etc., I think it can be generally agreed that, when it comes to pollution, “less” is better than “more”.

Perhaps it’s the result of the efforts of the ultra green backers of Obama’s coalition, but the argument seems to be framed as a match between “evil” big oil, big utilities, etc., vs. “good”  green technology.