Why do corporates get low-cost loans, and citizens get their credit pulled?

Yesterday, I pulled out of my mailbox a couple of letters – and one of them came from GE Money Bank looking somewhat ominous. The letter started out innocuous enough, thanking me for being a valued customer at a particular department store. And then it went on to say:

Based on a recent review of your credit history, we have decided to lower your credit limit to $100. Your account remains open and available for use, subject to the new credit limit and will continue to be periodically reviewed.

Now, truthfully, the department store is one I rarely go to (as evidenced by the reasons provided by Equifax which included “# trades active in last six months” – and they had pressed the signup of the credit card on me – but it brought back a conversation with one of my business partners on how the bailout was progressing – and how, like the Surge in Iraq, there were no terms/strings associated with the increased support.

The one case he brought up was about American Express. Amex is asking for $3.5B from the Federal Government to address defaults to their business, and to become a bank. Amex, as was explained in the article,

American Express relied on packaging pools of credit card debt and selling them to investors in the securitization market. As investors have shied away from purchasing all but the safest forms of debt, the market for credit card-backed securities has dwindled.

But, in speaking with friends who are running small and medium-sized businesses have found their own credit-lines cut off from Amex. Now, it may not seem like much, but these credit lines are the life-blood of any small business – especially since these companies require a line of credit to carry them through the delays other accounts payable need to resolve. Heck, even my clients need to get their payments to me with delays (since their customers are delayed), and so I also need a line of credit at times.

Where are the strings?

If the Federal Government just hands over the cash to Amex without ensuring that the money is effectively used to help the consumer and small/medium sized business owner, then what are we doing? The frozen credit markets hurt us all the way down here – when we need to make purchases, keep our businesses afloat – and by only focusing on the banks hording cash (as the article is suggesting)

The credit card company now has access to financing from the Fed and the ability to grow a large deposit base.

the Federal Government is enabling banks to choke the mainstay of the American economy – small businesses.

Please Mr. Treasury Secretary, look out for the little guys and make sure that Amex (and the other banks) do not just focus on their bottom lines – they should be thinking like any other sustainable and responsible business does – thinking about the impact they have on their local economies, and their potential for damage when hiding from the storm.

The Great Depression was locked in place for so many years due to government inaction and the fear the large corporates had when they held onto their reserves. If we do not mandate a process where corporates are required to put the money directly into action within the economy, we will find ourselves in even worse trouble.

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