Stimulus Should Be Invested in Diversified Fashion Creating Positive Ripple Effect

MSNBC recently interviewed a community banker about his current lending initiatives. He is still meeting his borrowers face to face, applying time tested underwriting criteria, and funding loans based on the utilization of well honed, old fashioned credit skills. The underlying message in this report is exactly what I have been saying: bankers are best suited to be lenders and our community banks are the best vehicle to screen, distribute and monitor any available funding out into a hugely diversified portfolio across every city and town in America to kick start the economy. Translation: spreading investment across industries and geographies is a significantly better and less risky investment than a concentrated investment in one industry, primarily in one location, such as Automobile Manufacturing in Detroit. Also, knowing your borrower is critical in lending. Banking is as much about relationships and understanding the character of your borrower as it is about their expertise and the banker’s confidence in their business acumen and plan. Modern Portfolio Theory (MPT) tells us the number one component effecting long term returns is diversification. Excuse the technical jargon here but MPT proposes how rational investors will use diversification to optimize their portfolios, and how a risky asset should be priced. Our business schools have been teaching the concepts of the theory of Markowitz diversification, the efficient frontier, capital asset pricing model, the alpha and beta coefficients, the Capital Market Line and the Securities Market Line for decades. Despite all this well known theory, we continue to see supposedly intelligent investors throwing 100% of their assets in a Madaff fund and in a similar fashion we have to ask if our government is doing the same with some of its stimulus investment(s). If we can educate the Administration on the benefits of diversifying, enlighten them as to the availability of community banks to administer the funds, and understand the positive externalities that will come from fueling small business to spend, we will have made huge progress and I think propose a concept that would truly be an effective means of rapidly getting cash flowing again within our economy. The wheels have stopped and we must take decisive action now to get them moving. With almost every SBA loan comes the purchase of equipment, services and other requirements of starting, acquiring or expanding a business….we call that a ripple in the right direction. Making $50 billion available to spread into the hands of main street community banks across America, across a wide range of industries, with the absolute restriction that all funds are solely to be used for loans to small business will generate far more and immediate spending to revitalize our economy than investment funds concentrated to save any single sector of our economy. This can be accomplished by a designated stimulus effort or in conjunction with my proposed TUVIN SMALL BUSINESS PAYROLL TAX HOLIDAY that would effectively place immediate dollars to any business classified under SBA’s SOP as a “small business” tomorrow. The backbone of our economy is America’s small business. These entrepreneurial patriots are business professionals, not legislators or lenders, so let’s place the ammunition in the form of funding in the hands of those who are most experienced in making a profit, our soldiers in the real world day to day fight for business survival, America’s Small Business.