ARLENE VIOLET - Painful trade-offs coming

ARLENE VIOLET - Painful trade-offs coming

I came across an article in Bloomberg Businessweek (3/30/20) which made some great points which I want to share. Author, Peter Coy noted that in economics there is no Hippocratic Oath, which states “First, do no harm.” Because there has not been a pandemic of this scale there are no white-haired elders to guide us. Just as overwhelmed doctors eventually will have to choose which patients to save and which to let go, leaders will have to decide which workers are most in need of and deserving of a rescue.

Eventually, the author notes, we’ll need to make agonizing trade-offs between saving lives and saving livings. Accordingly, one principle to policymakers to consider is that if they must do harm to the economy, make it reversible. Hurt but don’t kill. Bend it but don’t break it.

Query whether that is being done right now. If the decisions around closings are not calibrated, hundreds of small enterprises will go out of business. Will the loss be permanent? Will high-functioning teams that take years to build be fractured? Now unemployed workers who thrived in a particular niche will flounder seeking jobs which require a different set of skills. Only keeping companies intact as much as possible can lead to a faster recovery.

To date, while President Donald Trump squandered time to prepare, he is back on track. Congress has passed a viable economic package to underpin the economy. Gov. Gina Raimondo continues to show a deft hand at implementing strategies. Yet, the potential problem to address is still the plight of small businesses. Yes, Congress did set aside $250 billion for lending to businesses through banks involved with the Small Business Administration. Yet, there may be a fatal flaw or two with the program.

For years, my brother, Bud Violet, has been involved in helping some 2,000 Rhode Island small businesses get SBA loans. He is my “go-to-guy” for analysis on small business preservation and the particular provisions of the recent Congressional action. He sees two problems:

1. The application for these loans involves much paperwork, taking hours to complete. Usually, professional advice is necessary because of the complexity of the questions and information needed. Only a simplified form and closing will advert the costs to small businesses who want to file for loans/grants.

2. Banks will be reluctant to write smaller loans which start at $10,000 because they make no money. It actually costs them money because of the need to monitor the loan with bank personnel. Because of FDIC rules and fiduciary responsibilities to shareholders banks have little motivation to write loans which are five figures. Giving new money to debtors so they can pay interest on their old loans would ordinarily be considered malpractice, but for this environment. Banks need a new attitude and culture: that these companies are not zombies being propped up, but rather a new investment. Will banks step up to the challenge particularly where small bridge loans are sought by companies?

The more damage businesses suffer, the harder it will be for them to bounce back. Big businesses have lobbyists who will have the ear of Congress and President Trump to protect them. The “little guy/gal businesses” need to be vigilant and active to save themselves.

Violet is an attorney and former state attorney general